<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 1, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THE LIGHTSPAN PARTNERSHIP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
DELAWARE 8299 33-0585210
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
10140 CAMPUS POINT DRIVE
SAN DIEGO, CA 92121
(858) 824-8000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
JOHN T. KERNAN
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
THE LIGHTSPAN PARTNERSHIP, INC.
10140 CAMPUS POINT DRIVE
SAN DIEGO, CA 92121
(858) 824-8000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
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M. WAINWRIGHT FISHBURN, JR., ESQ. KAREN K. DREYFUS, ESQ.
CHRISTOPHER J. KEARNS, ESQ. CHRISTOPHER A. WHYTOCK, ESQ.
MATTHEW T. BROWNE, ESQ. SHANNON K. RUST, ESQ.
COOLEY GODWARD LLP O'MELVENY & MYERS LLP
4365 EXECUTIVE DRIVE, SUITE 1100 610 NEWPORT CENTER DRIVE, 17TH FLOOR
SAN DIEGO, CA 9212 NEWPORT BEACH, CA 92660-6429
(619) 550-6000 (949) 760-9600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
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, as amended (the "Securities Act") check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) of the Securities Act, please check the following box
and list the Securities Act registration serial number of the earlier effective
registration statement for the same offering. [ ] __________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] __________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1)(2) REGISTRATION FEE
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Common Stock ($.001 par value).............................. $115,000,000 $31,970
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(1) Includes shares that the Underwriters will have the option to purchase
solely to cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(o) promulgated under the Securities Act.
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 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.
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<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 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 1, 1999
Shares
LIGHTSPANLOGO
Common Stock
------------------
Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list the common
stock on The Nasdaq Stock Market's National Market under the symbol "LSPN."
The underwriters have an option to purchase a maximum of
additional shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 6.
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS LIGHTSPAN
-------------- -------------- --------------
<S> <C> <C> <C>
Per Share............................................ $ $ $
Total................................................ $ $ $
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Delivery of the shares of common stock will be made on or about
, 2000.
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
THOMAS WEISEL PARTNERS LLC
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 2000.
<PAGE> 3
[Photo of three smiling children with "How smart can a kid get?"]
[Photos of Lightspan Achieve Now products]
LIGHTSPAN ACHIEVE NOW
An interactive curriculum in Reading, Language Arts, and Mathematics for grades
K-8. Used in classrooms and at home, it adds critical learning time to every
day, gets families involved in their children's learning, and is highly
motivating to students. The availability of a very low cost delivery platform
lets schools provide this learning opportunity to all students.
ACADEMIC SYSTEMS
Interactive, comprehensive curriculum in Mathematics and English which address
the needs of under-prepared college students. With Internet & CD-ROM options,
two and four year colleges and universities use these courses to help students
who need to master this content before they can advance to college level work.
The courses are designed to adapt to each student's academic needs and learning
style. Faculty members orchestrate the instruction and receive reports regarding
student mastery.
[Photo of Academic Systems Web site home page]
THE LIGHTSPAN NETWORK(R)
An Online subscription service that offers a wide variety of curriculum
activities for students in grades K-8 to use in school or at home. Includes
learning activities, over 115,000 educationally relevant Web sites, email,
Comptons Encyclopedia Online and customer support.
LIGHTSPAN PAGEONE
Lets teachers easily build a classroom homepage with the online educational
resources they need: access to 115,000 reviewed Web sites, learning activities,
lesson plans, tools to post homework and send email to parents, online
dictionary, thesaurus and encyclopedias.
LIGHTSPAN YOUR SCHOOL ONLINE
A free homepage builder for schools. It integrates with Lightspan PageOne's
classroom homepages and includes the ability to organize Web links, a calendar
to keep students and families informed about school events, and Web usage
statistics.
[Photo of Lightspan.com home page]
LIGHTSPAN.COM
The portal for K-12 education. This file is the gateway to all the learning
services Lightspan provides: Lightspan PageOne, Global Schoolhouse, The
Lightspan Network, the Lightspan Learning Store, and Your School Online.
GLOBAL SCHOOLHOUSE
An online community of educators who share ideas and projects for online
education. It includes collaborative learning projects among classrooms,
community organizations, businesses and individuals around the world.
THE LIGHTSPAN LEARNING STORE
An online store developed in partnership with SmarterKids.com which offers
educational products to teachers and families.
<PAGE> 4
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TABLE OF CONTENTS
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PAGE
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Prospectus Summary.................... 3
Risk Factors.......................... 6
Forward-Looking Statements............ 15
Use of Proceeds....................... 16
Dividend Policy....................... 16
Capitalization........................ 17
Dilution.............................. 19
Selected Historical and Pro Forma
Financial Data...................... 20
Management's Discussion and Analysis
of Financial Condition and Operating
Results............................. 23
Business.............................. 35
</TABLE>
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PAGE
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Management............................ 55
Related-Party Transactions............ 62
Principal Stockholders................ 64
Description of Capital Stock.......... 66
Shares Eligible for Future Sale....... 68
Underwriting.......................... 70
Notice to Canadian Residents.......... 73
Legal Matters......................... 74
Experts............................... 74
Additional Information................ 74
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 WHEN YOU ARE CONSIDERING THE INFORMATION IN THIS
PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT
IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL TO SELL THESE
SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE ON THE DATE OF
THIS DOCUMENT.
Except as otherwise indicated, all information in this prospectus assumes:
- the underwriters' over-allotment option will not be exercised;
- a for split in our common stock that will become effective prior to
the effectiveness of this registration statement;
- the conversion of all of our outstanding shares of preferred stock into
shares of common stock upon the closing of this offering; and
- our reincorporation in Delaware and the filing, upon approval of our
stockholders, of the amended and restated certificate of incorporation.
The Lightspan Network(R), Global Schoolhouse(R), StudyWeb(R), Cosmic
Cookoff(R), Faire Games(R), Liquid Books(R), Mona & Moki(R), Math on the
Move!(R), P.K.'s Math Studio(R), The Quaddle Family Mysteries(R), The Secret of
Googol(R), Timeless Math(R), Lightspan Partnership, Lightspan, Lightspan Achieve
Now, Lightspan PageOne, Lightspan Adventures, Learning Search, Calamity, K9.5,
Math Gallery and P.K.'s Place are trademarks of The Lightspan Partnership, Inc.
All other trade names and trademarks appearing in this prospectus are the
property of their holders.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER 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.
<PAGE> 5
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary does not contain all of the information you should consider before
buying shares in this offering. You should read the entire prospectus carefully.
THE LIGHTSPAN PARTNERSHIP, INC.
The Lightspan Partnership is a leading provider of curriculum-based
educational software and Internet products and services used both in school and
at home. Our technology, delivery systems and content help increase student
interest in learning, parental involvement in their children's education, and
productive interaction among teachers, parents and students. Over 340 studies by
schools that use our products and services show that our products improve
overall student performance.
Lightspan Achieve Now, our product for students in kindergarten through
eighth grade, or K-8, is a series of media-rich, interactive software programs
that covers the core curriculum -- language arts, reading and math. We sell it
exclusively to schools and school districts for use in both the classroom and at
home. The Lightspan Achieve Now curriculum has already been purchased by over
400 school districts in 46 states and implemented in over 2,100 schools and
10,600 classrooms. Our Academic Systems products provide a series of
curriculum-based software that addresses the math and writing needs of under-
prepared college students. These products are currently used in over 225
colleges and universities across the United States.
We offer the following integrated family of Internet products and services
through our Web site, Lightspan.com:
- The Lightspan Network, a curriculum-based online subscription service
marketed to schools for classroom and home use;
- Lightspan PageOne, a service that enables teachers to easily create
customized home pages for their classrooms;
- Global Schoolhouse, a leading education Web site where teachers can
develop and manage collaborative learning projects online;
- StudyWeb, a leading research Web site that helps parents, teachers and
students find educational information and resources on the Web;
- The Lightspan Learning Store, a Web site that sells educational products
online; and
- selected additional content for teachers, parents and students.
The need to improve student achievement is a top priority in American
education, and educators are increasingly using educational technology to help
accomplish this objective. According to the Department of Education, the United
States spent an estimated $351 billion on kindergarten through twelfth grade, or
K-12, education in the 1997 - 1998 school year, and industry sources project
that spending on educational technology will increase from an estimated $7
billion during 1998 - 1999 to approximately $10 billion by the 2001 - 2002
school year. This growth has created a significant market opportunity for
educational technology providers whose products and services help educators
provide students with the tools they need to improve achievement. By increasing
students' time spent on the core curriculum, their motivation to learn, and
their families' involvement with their learning, our curriculum-based
educational software and Internet products and services provide a unique and
powerful solution for improving student achievement.
Our objective is to become the premier online education destination for
teachers, parents and students, as well as the leading provider of
technology-delivered, curriculum-based supplemental study
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materials in kindergarten through college education. To achieve this objective,
we intend to pursue the following strategies:
- capitalize on our current market position;
- continue to develop and enhance Lightspan.com;
- extend our reach through expansion to other delivery platforms;
- create additional Internet-based revenue streams;
- leverage the experience of the Lightspan team; and
- pursue strategic acquisitions and relationships.
We were founded in 1993 on the philosophy of using technology to increase
student achievement by connecting the school to the home. Through June 1996, our
activities consisted primarily of designing and developing Lightspan Achieve
Now. To supplement our product offerings, we introduced The Lightspan Network in
January 1997 and launched Lightspan PageOne in June 1999. We acquired Academic
Systems and Global Schoolhouse in September 1999 and StudyWeb in October 1999.
Our principal executive offices are located at 10140 Campus Point Drive, San
Diego, CA 92121, where our telephone number is (858) 824-8000. We maintain Web
sites at www.lightspan.com and www.academic.com. Information on our Web sites is
not part of this prospectus.
THE OFFERING
Common stock offered.................... shares
Common stock to be outstanding after the
offering................................ shares
Use of proceeds......................... For general corporate purposes,
including expanding our sales and
marketing activities and continued
development of our products and
services, particularly our Internet
offerings. See "Use of Proceeds."
Proposed Nasdaq National Market
symbol.................................. LSPN
SHARES OUTSTANDING AFTER THE OFFERING
The number of shares of common stock to be outstanding after the offering
is based upon the actual number of shares outstanding as of September 30, 1999,
giving effect to the conversion of all of our outstanding preferred stock into
51,058,595 shares of common stock in connection with the offering. However, it
does not include, as of September 30, 1999, 7,120,971 shares of common stock
reserved for issuance under our stock benefit plans, all of which were covered
by outstanding options with a weighted average exercise price of $1.58 per
share. It also does not include warrants outstanding as of September 30, 1999 to
purchase a total of:
- 749,605 shares of preferred stock, which will become warrants to purchase
807,169 shares of common stock at a weighted average exercise price of
$3.32 per share upon completion of this offering; and
- shares of common stock (assuming a price of $ per share in this
offering), which will be exercised for $0.01 per share upon completion of
this offering.
RECENT DEVELOPMENT
In October 1999, we agreed to pursue several potential strategic
initiatives with CINAR Corporation. CINAR is an integrated entertainment and
education company that develops, produces, markets and
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distributes high-quality programming and supplemental education products for
children, families and educators worldwide. CINAR is a leading supplier of
animated and live-action children's and family programming that it markets and
distributes to broadcast, cable and other media outlets. As part of our
agreement, CINAR purchased 2.5 million shares of our Series E preferred stock at
$5.00 per share. CINAR also agreed to purchase $10 million of our common stock
at the initial public offering price in a private placement that will occur
concurrently with our initial public offering. We also granted CINAR warrants to
purchase 500,000 shares of our Series E preferred stock that will vest upon the
achievement of various agreed-to strategic goals.
SUMMARY FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
The following financial information should be read together with the
"Selected Historical and Pro Forma Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Operating Results" included elsewhere in
this prospectus.
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<CAPTION>
YEAR ENDED SIX MONTH PERIOD ENDED
JANUARY 31, 1999 JULY 31, 1999
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ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1)
-------- ------------ -------- ------------
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 30,831 $ 37,208 $ 19,500 $ 23,190
Gross profit..................................... 19,323 23,561 12,378 15,062
Loss from operations............................. (16,947) (35,549) (8,898) (16,894)
Net loss......................................... (16,529) (35,020) (8,968) (17,037)
</TABLE>
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<CAPTION>
AT JULY 31, 1999
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ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $25,570
Working capital............................................. 21,785
Total assets................................................ 39,893
Capital lease obligations, less current portion............. 470
Total shareholders' equity.................................. 22,847
</TABLE>
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(1) The pro forma statement of operations data for the year ended January 31,
1999 and the six months ended July 31, 1999 assumes that we purchased
Academic Systems as of the beginning of each of these periods and is based
on our historical operating results and those of Academic Systems for the
periods presented, giving effect to the amortization of intangibles related
to the acquisition and decreased interest income representing foregone
interest income at an assumed 3% rate of return.
(2) The As Adjusted column gives effect to the conversion of all of our
outstanding shares of preferred stock into shares of common stock upon the
closing of this offering and reflects our receipt of the net proceeds from
our private sale of common stock to CINAR and from this offering (at an
assumed initial public offering price of $ per share), after deducting
estimated underwriting discounts and commissions and estimated offering
expenses.
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. If any of the following risks actually occurs,
our business could be harmed. In that case, the trading price of our common
stock could decline, and you may lose all or part of your investment. You should
also refer to the other information in this prospectus, including our financial
statements and the related notes.
WE HAVE A LIMITED OPERATING HISTORY THAT MAKES AN EVALUATION OF OUR BUSINESS
DIFFICULT.
We began selling our Lightspan Achieve Now educational software in January
1996 and entered the Internet market by launching The Lightspan Network in
January 1997. Academic Systems began selling its educational software in April
1994. Since early 1999, we have significantly increased our efforts to expand
our Internet businesses. As a result, both our curriculum-based educational
software and Internet businesses have only a limited operating history on which
you can base your evaluation of our business and prospects. Before investing,
you should evaluate the risks, uncertainties, expenses and difficulties
frequently encountered by early stage companies, particularly companies that are
seeking to significantly increase their presence in new and rapidly evolving
Internet markets.
OUR QUARTERLY REVENUES ARE VOLATILE AND DIFFICULT TO FORECAST, WHICH COULD CAUSE
THE PRICE OF OUR COMMON STOCK TO DECLINE.
Our quarterly revenues and operating results have fluctuated significantly
in the past, and we expect these fluctuations to continue. One reason for these
fluctuations is that demand for our products and services is subject to seasonal
influences based on school calendars, budget cycles and the timing of school
districts' funding sources. Moreover, our sales could be delayed from quarter to
quarter due partly to our need to educate school district decision makers
regarding the uses and benefits of our software, and the lengthy multiple
approval process that typically accompanies significant capital expenditures by
school districts. If a significant sale that we expect to occur in a particular
quarter is delayed and does not occur until a future quarter, or does not occur
at all, our quarterly performance may be worse than expected. Further, our
recently expanded Internet efforts may contribute to fluctuations in our
quarterly operating results because the sales cycles of our Internet businesses
are different than those of our curriculum-based educational software. If our
financial results for one or more quarters fall below the expectations of
analysts and investors, the trading price of our common stock may decline.
WE EXPECT A SUBSTANTIAL INCREASE IN EXPENSES AND NET LOSSES IN THE FUTURE AND
MAY NEVER ACHIEVE OR SUSTAIN PROFITABILITY, WHICH MAY CAUSE OUR STOCK PRICE TO
FALL.
Since our inception, we have incurred significant losses. As of July 31,
1999, we had an accumulated deficit of $115.2 million. We incurred net losses of
$16.5 million for the fiscal year ended January 31, 1999 and $9.0 million for
the six months ended July 31, 1999. We expect our operating losses and negative
cash flow to continue and increase for the foreseeable future as we incur
additional costs and expenses related to:
- brand maintenance, advertising, marketing and promotional activities;
- continued development and expansion of our Internet offerings and
content;
- hiring personnel, including additional Internet systems, sales and
marketing, and product development personnel; and
- acquisition of additional office space and other necessary facilities.
Our ability to become profitable depends on our ability to generate and
sustain substantially higher revenues while maintaining reasonable expense
levels. Although we intend to increase our spending on the activities listed
above, these efforts may not result in increased revenues. We conduct operations
using estimates as to future expense levels based on our expectations of future
revenues. We cannot guarantee
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that we will be able to predict our future revenues accurately or that we will
be able to adjust spending to compensate for any unexpected revenue shortfall.
If we achieve profitability, we cannot be certain that we will be able to
sustain or increase profitability in the future.
OUR CONTINUED GROWTH WILL STRAIN OUR RESOURCES, AND FAILURE TO MANAGE THIS
GROWTH EFFECTIVELY COULD DISRUPT OUR OPERATIONS AND PREVENT US FROM GENERATING
THE REVENUES WE EXPECT.
We expect that significant expansion of our operations will be required to
successfully implement our business strategy. For example, the development of
our Internet businesses continues to require increased sales, marketing and
promotion expenditures as well as increased development efforts. This expansion
will strain our management, operational, financial and technological resources,
as well as the infrastructure for our Web sites and services. The growth of our
Lightspan Achieve Now educational software business may strain the resources of
our professional development staff during periods of heavy implementation in
purchasing school districts. Our growth depends on our ability to attract and
retain qualified employees (including employees of businesses that we acquire),
particularly Internet systems, sales and marketing, and product development
personnel. Our failure to manage our growth in a manner that minimizes these
strains on our resources could disrupt our operations and ultimately prevent us
from generating the revenues we expect.
OUR CURRICULUM-BASED EDUCATIONAL SOFTWARE MAY BE UNABLE TO ACHIEVE OR MAINTAIN
BROADER MARKET ACCEPTANCE, WHICH WOULD CAUSE OUR FUTURE REVENUE GROWTH AND
PROFITABILITY TO SUFFER.
Revenue from sales of our educational software constituted nearly all of
our total revenues in the six months ended July 31, 1999 and the fiscal year
ended January 31, 1999. We expect to continue to generate a substantial portion
of our revenues from software licenses, and will need to increase these revenues
in order to more effectively grow in other areas of our business. Revenues from
licenses of our curriculum-based educational software will depend principally on
broadening market acceptance of that software, which may not occur due to a
number of factors, including:
- teacher, parent and student preferences for interactive educational
technology are subject to changes in popular entertainment and
educational theory;
- some teachers may be reluctant to use interactive educational technology
to supplement their customary teaching practices;
- we may be unable to continue to demonstrate improvements in academic
performance at schools or colleges that use our educational software; and
- our failure to detect bugs in our software could result in product
failures or poor product performance.
If market acceptance of our curriculum-based educational software is not
broadened, our future revenue growth will suffer and we may never become
profitable.
WE ARE HEAVILY DEPENDENT UPON OUR RELATIONSHIP WITH SONY COMPUTER ENTERTAINMENT,
AND TERMINATION OF THAT RELATIONSHIP, SUPPLY SHORTAGES OF SONY PLAYSTATION GAME
CONSOLES FROM SONY COMPUTER ENTERTAINMENT OR UNANTICIPATED CHANGES IN THE
PLATFORM COULD MATERIALLY AFFECT OUR BUSINESS.
We are heavily dependent upon our relationship with Sony Computer
Entertainment, which supplies the Sony PlayStation game console used by the
students who use our Lightspan Achieve Now educational software at home. Without
incurring significant additional expense, there currently is no readily
available operating platform for broad implementation of Lightspan Achieve Now
in the home other than the PlayStation game console. Sony Computer Entertainment
has rights to terminate their agreement with us in various circumstances,
including if it elects to stop producing the PlayStation game console. If our
agreement is terminated, or if we are unable to obtain an adequate supply of
PlayStation game consoles on a timely basis, our Lightspan Achieve Now
operations will be interrupted and we could lose substantial revenues.
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The next version of the PlayStation game console, the recently-announced
PlayStation 2 game console, is expected to be available in the United States in
late 2000. If we are unable to enter into agreements to distribute the
PlayStation 2 game console, or the original PlayStation game console loses
popular appeal, is discontinued or is otherwise unavailable to us, our Lightspan
Achieve Now operations will be disrupted and we could lose substantial revenues.
Certain schools that are potential purchasers of Lightspan Achieve Now
educational software may not want or be able to afford the PlayStation 2 game
console if it is priced significantly higher than the original PlayStation game
console. While we expect Lightspan Achieve Now to run on the PlayStation 2 game
console, we may have to adapt our software to any changes in or new versions of
the PlayStation game console that occur, which may require us to redirect
significant financial and personnel resources from other development efforts.
WE RELY ON STATISTICAL STUDIES TO DEMONSTRATE THE EFFECTIVENESS OF OUR PRODUCTS,
AND OUR REPUTATION AND SALES AND MARKETING EFFORTS COULD BE HARMED IF THE
RESULTS OF THESE STUDIES ARE NOT REPRESENTATIVE OR IF THEIR INTEGRITY IS
QUESTIONED.
We rely heavily on statistical studies, including those cited in this
prospectus, to demonstrate that our curriculum-based educational software
increases student achievement. We believe that these studies accurately reflect
the performance of our products. However, these studies involve the following
risks:
- the limited sample sizes used in our studies may yield results that are
not representative of the general population of students who use our
products;
- the methods used to gather the information upon which these studies are
based depend on cooperation from students and other participants and
inaccurate or incomplete responses could distort results; and
- schools studying the effectiveness of our Lightspan Achieve Now
curriculum administer different tests, and colleges and universities
studying the effectiveness of our Academic Systems curriculum apply
different methodologies and data collection techniques, making results
difficult to aggregate and compare.
We are involved in the Lightspan Achieve Now studies in the following ways:
- we facilitate the collection and analysis of data for these studies; and
- we select and pay researchers to aggregate and present the results of
these studies and, in some cases, to conduct the studies.
Our sales and marketing efforts, as well as our reputation, could be harmed
if the public, including our existing and potential customers, perceives these
studies to be biased due to our involvement, or if the results of these studies
are not representative.
THE SUCCESS OF OUR BUSINESS MODEL REQUIRES US TO INCREASE OUR REVENUES FROM OUR
INTERNET BUSINESSES, AND WE MAY NEVER BECOME PROFITABLE IF WE ARE UNABLE TO DO
SO.
In order to grow as currently contemplated, we will need to derive an
increasing portion of our revenues from our Internet businesses, including
sponsorship of our Web sites, subscriptions to The Lightspan Network and
electronic commerce. Some of these methods of generating revenues are relatively
new to us and largely untested. Increasing revenues from these sources depends
on:
- improving the accessibility and ease of use of our Web sites;
- developing Web sites that are sufficiently engaging to increase and
retain our number of teacher, student and parent visitors;
- market acceptance by parents and teachers of the products and prices
being offered at our electronic commerce Web sites;
- initiation and growth of sponsorships and banner advertisement sales; and
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- our ability to increase the subscriber base of The Lightspan Network
while maintaining a subscription fee.
If we are unable to substantially increase our revenues from our Internet
businesses, we will be unable to execute our current business model and we may
never become profitable.
WE DEPEND ON PUBLIC SCHOOL FUNDING FOR A SUBSTANTIAL PORTION OF OUR REVENUES,
AND ANY CHANGES IN FUNDING FOR PUBLIC SCHOOL SYSTEMS COULD HARM OUR BUSINESS.
Public school funding is substantially dependent on support from federal,
state and local governments. Government budget deficits may adversely affect the
availability of this funding. In addition, the government appropriations process
is often slow, unpredictable and subject to factors outside of our control.
Curtailments, delays or reductions in the funding of schools or colleges, for
example a reduction of funds allocated to schools under Title I of the
Elementary and Secondary Education Act of 1965, could delay or reduce our
revenues. This is partly because schools may not have sufficient capital to
purchase our products or services. Funding difficulties experienced by schools
or colleges could also cause those institutions to be more resistant to price
increases in our products, compared to other businesses that might better be
able to pass on price increases to their customers. The growth of our Internet
businesses depends on continued investment by public school systems in
interactive educational technology and products. Changes to funding of public
school systems could slow this kind of investment.
IF WE FAIL TO ENHANCE OUR INTERNET PRODUCTS AND SERVICES WITHOUT SYSTEMS
INTERRUPTIONS AND ADAPT THOSE PRODUCTS AND SERVICES TO CHANGES IN TECHNOLOGY,
OUR FUTURE REVENUE GROWTH AND PROFITABILITY COULD BE LESS THAN WE EXPECT.
We believe that our future revenue growth will depend in large part on
whether we are able to enhance and improve our Web sites and services as
planned. Enhancements and improvements to our Web sites are currently scheduled
for commercial launch, but we cannot assure you that those enhancements and
improvements will gain market acceptance or be launched on schedule and without
systems interruptions. In addition, the Internet is rapidly changing, and we
expect that we will continually need to adapt our Web sites and their related
technology to emerging Internet standards and practices, technological advances
developed by our competition, and changing subscriber, user and sponsor
preferences. Ongoing adaptation of our Web sites and their related technology
will entail significant expense and technical risk, and we may use new
technologies ineffectively or fail to adapt our Web sites and their related
technology on a timely and cost-effective basis. If our enhancements,
improvements and adaptations of our Web sites and their related technology are
delayed or result in systems interruptions or do not gain market acceptance, our
future revenue growth will suffer and we may never become profitable.
OUR SPONSORSHIP REVENUES MAY BE LESS THAN WE EXPECT BECAUSE ADVERTISING OVER THE
INTERNET IN EDUCATIONAL SETTINGS MAY BE UNPOPULAR WITH SPONSORS, THE PUBLIC OR
GOVERNMENT ENTITIES.
We expect to generate revenues from the sale of sponsorships and banner
advertisements on our Web sites. Advertisements in educational settings may not
be accepted by the educational community or by parents and others. Sales of
sponsorships on our Web sites may therefore prove controversial and lead to
negative publicity and action by the government or private interests to
discourage companies from advertising on our Web sites. Third parties that
oppose corporate sponsorships in schools have engaged in publicity campaigns to
encourage boycotts of businesses that advertise in schools, and have sought
legislation to curb advertising in schools. If government or private action
discourages or prevents businesses from advertising in schools or we are not
able to offer potential sponsors access to our Web sites that are primarily
intended for school use, our sponsorship revenues will be significantly less
than we expect and our revenues could suffer.
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WE MAY NOT BE ABLE TO EXECUTE PART OF OUR BUSINESS STRATEGY IF BROADBAND
TECHNOLOGY DOES NOT BECOME MORE PREVALENT OR IF WE CANNOT REACH AGREEMENTS TO
DISTRIBUTE OUR PRODUCTS AND SERVICES USING BROADBAND TECHNOLOGY.
We intend to offer Lightspan Achieve Now and our Internet products and
services as educational channels on a digital set-top box once broadband
technology becomes widely available to cable television subscribers. We cannot
predict that it will ever be economically practical or technologically feasible
for either ourselves or cable television operators to deliver these products
using broadband technology to cable television subscribers. In addition, we may
not be able to reach commercially acceptable agreements with cable operators to
distribute our products and services using broadband technology. If we are
unable to offer Lightspan Achieve Now and our Internet products and services as
educational channels on a digital set-top box, whether because of economic or
technological limitations or a failure to reach commercially acceptable
agreements with cable television operators, we will not be able to execute part
of our business strategy and our growth and revenues will suffer.
WE EXPECT COMPETITION TO INCREASE SIGNIFICANTLY IN THE FUTURE, WHICH COULD
PREVENT US FROM SUCCESSFULLY IMPLEMENTING OUR BUSINESS STRATEGY.
The educational technology market is intensely competitive and subject to
increasing commercial attention. Barriers to entering Internet markets are
relatively low, and we expect competition to intensify in the future, as more
businesses use the Internet to enter the student, parent and teacher markets for
education-oriented products and services. Competition among Internet companies
is also intensifying for Web site sponsorships. We also may be adversely
affected by pricing and other operational decisions, like the recent decision of
several of our competitors that offer educational content on the Internet to
offer a free service rather than charge a fee, which could hurt our subscription
revenues. Potential competitors include Internet content providers that license
education-oriented content from third parties, and Internet retailers that may
enter the education electronic commerce market. Many of our current and
potential competitors have longer operating histories, larger customer or user
bases, greater brand recognition and significantly greater financial, marketing
and other resources than we do. Many of these current and potential competitors
can devote substantially greater resources than we can to product development,
marketing and promotional campaigns and Web site and systems development.
IF WE ARE UNABLE TO SUCCESSFULLY INTEGRATE ANY RECENTLY ACQUIRED BUSINESSES OR
BUSINESSES THAT WE ACQUIRE IN THE FUTURE, OUR OWN BUSINESS WILL SUFFER.
We have acquired businesses and may continue to do so in the future. We are
currently in the process of integrating the operations, systems and personnel of
Academic Systems, Global Schoolhouse and StudyWeb, all of which we acquired in
the second half of 1999. If we are unable to fully integrate any of these
acquisitions or any future acquisitions, our expenses may increase, our
management will be distracted and our business and operations could suffer. We
also may enter into strategic relationships with complementary businesses. For
example, we have agreed to pursue several potential strategic initiatives with
CINAR Corporation. We cannot assure you that we will implement these initiatives
or, if implemented, that these initiatives, or any other strategic relationships
we may enter into, will be successful.
ACADEMIC SYSTEMS IS HEAVILY DEPENDENT ON ITS RELATIONSHIP WITH ORACLE
CORPORATION.
Academic Systems is heavily dependent upon its relationship with Oracle
Corporation, which provides a database that Academic Systems uses to accumulate
data on students' progress in its math and writing courses. If Oracle
Corporation terminates its relationship with Academic Systems or its database
fails to function properly for any reason, a portion of our operations could be
interrupted and we could lose revenues.
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<PAGE> 13
IF WE DO NOT SUCCESSFULLY ANTICIPATE AND ADAPT TO CHANGES IN COMPUTER PLATFORMS
AND OTHER EVOLVING TECHNOLOGIES, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
We must manage our software development efforts to anticipate and adapt to
changes in popular computer operating environments and other evolving
technologies. For example, we are currently reviewing possibilities for
migrating Academic Systems' CD-ROM-based educational software to an
Internet-based product, and expect to devote significant financial resources to
do so. Our curriculum-based educational software is currently delivered in
CD-ROM format on Sony PlayStation game consoles and on Windows-based personal
computers. We will continue to evaluate other operating environments and
computer platforms for our software products as they become available. We may
decide from time to time to make our software products available in other
operating environments or on other computer platforms and our efforts to do so
may involve substantial costs or may incur delays which could materially
adversely affect our business. Our business could also be harmed if we are
unable to anticipate and adapt to changes in computer platforms and other
evolving technologies on a timely and cost-effective basis.
WE WILL NOT BE ABLE TO GROW OUR INTERNET BUSINESSES IF THE MARKET FOR THOSE
BUSINESSES DOES NOT DEVELOP.
The success of our Internet businesses will depend in large part on the
continued emergence and growth of a market for Internet-based educational
technology products. The market for educational technology is characterized by
rapid technological change and product innovation, unpredictable product life
cycles and unpredictable preferences among students, teachers and parents.
Internet commercial businesses and services are evolving markets as well, and it
is difficult to estimate how and when growth or other changes in those markets
will occur. We therefore cannot predict that the market for Internet-based
educational technology products will continue to grow.
OUR BUSINESS MAY NOT SUCCEED WITHOUT THE CONTINUED DEVELOPMENT AND MAINTENANCE
OF THE INTERNET.
Without the continued development and maintenance of the Internet
infrastructure, we could fail to generate the Internet traffic and revenues we
need for our business to succeed. In addition, our Lightspan Achieve Now and
Academic Systems curricula are very media-rich and are not currently delivered
over the Internet, given bandwidth limitations. The continued development of the
Internet includes maintenance of a reliable network with the necessary speed,
data capacity and security, as well as timely development of complementary
products for providing reliable Internet access and services. Because the online
exchange of information and global commerce on the Internet is new and evolving,
we cannot predict whether the Internet will prove to be an effective vehicle for
delivering commercial content or will provide a viable marketplace for
electronic commerce in the long term.
As the Internet continues to experience increased numbers of users,
increased frequency of use and increased bandwidth requirements, the Internet
infrastructure may be unable to support the demands placed on it. In addition,
increased users or bandwidth requirements may harm the performance of the
Internet.
WE MAY NEED ADDITIONAL FINANCING TO MEET OUR STRATEGIC BUSINESS OBJECTIVES,
WHICH MAY NOT BE AVAILABLE AND, IF AVAILABLE, MIGHT HURT OUR EXISTING
STOCKHOLDERS.
We require substantial working capital to fund our business. Since our
inception, we have experienced negative cash flow from operations and expect to
experience significant negative cash flow from operations for the foreseeable
future. As we enter into new areas of business, like Internet-based businesses,
we will incur substantially increased expenses for which we do not expect
returns for months or years in the future. We currently anticipate that the net
proceeds of this offering, together with our available funds, will be sufficient
to meet our anticipated needs for working capital and capital expenditures
through at least the next 18 months. However, we may need to raise additional
funds prior to or after that period. If we raise additional funds through the
issuance of equity or debt securities that have rights senior to those of our
stockholders, our stockholders may experience additional dilution or may lose
other rights. We cannot be certain that additional financing will be available
to us on favorable terms when required, or at all. If we
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<PAGE> 14
cannot raise funds on acceptable terms, if and when needed, we may not be able
to take advantage of future opportunities, grow our business or respond to
competitive pressures or unanticipated developments, which could seriously harm
our business.
UNLESS WE MAINTAIN A STRONG BRAND IDENTITY, OUR BUSINESS MAY NOT GROW AND OUR
FINANCIAL RESULTS MAY SUFFER.
We believe that maintaining and enhancing the value of our Lightspan and
Academic Systems brands is critical to attracting purchasers for our
curriculum-based educational software and sponsors, subscribers and users of our
Internet businesses. Our success in maintaining brand awareness will depend on
our ability to continuously provide educational technology that students enjoy
using and teachers and parents consider beneficial to the learning process. We
cannot assure you that we will be successful in maintaining our brand equity. In
addition, to attract and retain online sponsors, subscribers and users and to
promote and maintain the Lightspan brand, we have spent and intend to continue
spending significant amounts on an aggressive brand-enhancement strategy, which
includes advertising, promotional programs and efforts by our field sales force
and professional development staffs. We may also need to spend significant
amounts in the future to maintain the value of our Lightspan and Academic
Systems brands as they relate to our curriculum-based educational software
business. Revenues from these activities may not be sufficient to offset
associated costs.
OUR PRACTICE OF COLLECTING DATA FROM OUR USER BASE MAY SUBJECT US TO LIABILITIES
AND ADDITIONAL EXPENSE AND DECREASE TRAFFIC TO OUR WEB SITES.
We could be subject to liability claims for misuses of information
collected from our users, such as for unauthorized marketing purposes, and could
face additional expenses to analyze and comply with increasing regulation in
this area. In addition, the Federal Trade Commission has announced regulations
governing collection of personal information from children under 13, and is
expected to issue and enforce additional regulations in this area. We are
sensitive to the impetus for these regulations, and currently collect only the
names of teachers who are registering for our Internet products. We intend to
use this information externally on an aggregated, non-individually identifiable
basis to provide our sponsors with the demographics of our user base and
response rate to their media. We may in the future collect names and other
personal information for students, teachers and parents, and may sell our user
information on an aggregated, non-individual basis. If we collect personal
information in the future from our users, privacy concerns may cause visitors to
resist providing that personal information or avoid visiting our Web sites. We
could also incur additional expenses, or be required to alter, or eliminate,
various current practices if new regulations regarding the use or distribution
of personal and other information collected online are introduced or if our
privacy practices are investigated.
OUR BUSINESS OPERATIONS COULD BE SIGNIFICANTLY DISRUPTED IF WE LOSE MEMBERS OF,
OR FAIL TO PROPERLY INTEGRATE, OUR MANAGEMENT TEAM.
Our success depends on the continued contributions of the principal members
of our sales and marketing, product development, Internet services, and
management departments. The loss of the services of any of our officers or
senior managers could harm our business. We do not maintain any "key person"
life insurance policies other than on John T. Kernan, our Chairman and Chief
Executive Officer, and Carl Zeiger, our President and Chief Operating Officer.
Many of our existing senior management personnel joined us during 1999,
including critical members of our Internet team. Some of these individuals have
not previously worked together and are currently being integrated as a
management team. If our senior managers are unable to work effectively as a
team, our business operations could be significantly disrupted.
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OUR DATA WAREHOUSING AND WEB SERVER SYSTEMS MAY STOP WORKING OR WORK IMPROPERLY
DUE TO NATURAL DISASTERS, FAILURE OF SERVICES OR OTHER UNEXPECTED PROBLEMS.
Our facilities and operations could be adversely affected by an earthquake
or other natural disaster, or a power or telecommunications failure. This could
cause the loss of critical data and prevent us from offering our Internet
services. Our business interruption insurance may not adequately compensate us
for losses that may occur. In addition, we rely on third parties to house our
Web server and network systems and connect us to the Internet. A failure by any
of these third parties to provide these services satisfactorily could impair our
ability to operate our Web sites.
WE MAY FACE PRODUCT LIABILITY CLAIMS THAT COULD CAUSE OUR BUSINESS TO SUFFER.
Because we market products to third parties, we face an inherent business
risk of financial exposure to product liability claims. We have applied for
product liability insurance that, in general, will cover product liability
claims up to the policy limits. We cannot assure you that we will have access to
this insurance at a reasonable cost, if at all, or that our insurance will be
adequate to satisfy any liability or litigation expenses. Any claims against us,
regardless of merit or eventual outcome, could cause our business to suffer.
YEAR 2000 PROBLEMS COULD LEAD TO MALFUNCTIONS OF OUR COMPUTER AND COMMUNICATIONS
SYSTEMS, AND PREVENT US FROM RUNNING OUR BUSINESS.
Many existing computer programs cannot distinguish between a year beginning
with "20" and a year beginning with "19" because they use only the last two
digits to refer to a year. For example, these programs cannot tell the
difference between the year 2000 and the year 1900. As a result, these programs
may malfunction or fail completely. If we or any third parties with whom we have
a material relationship fail to achieve year 2000 readiness, our business may be
seriously harmed. In particular, year 2000 problems could temporarily prevent us
from operating our Internet businesses.
GOVERNMENT REGULATION MAY REQUIRE US TO CHANGE THE WAY WE DO BUSINESS.
The laws and regulations that govern our business change rapidly. Although
our operations are currently based in California, the United States government
and the governments of other states and foreign countries have attempted to
regulate activities on the Internet. Evolving areas of law that are relevant to
our business include privacy law, intellectual property law and content
regulation. Because of this rapidly evolving and uncertain regulatory
environment, we cannot predict how these laws and regulations might affect our
business. In addition, these uncertainties make it difficult to ensure
compliance with the laws and regulations governing the Internet. These laws and
regulations could harm our business by subjecting us to liability or forcing us
to change how we do business.
WE MAY BE LIABLE TO THIRD PARTIES FOR CONTENT THAT IS AVAILABLE ON OR ACCESSIBLE
FROM OUR WEB SITES.
We may be subject to claims relating to content that is published on our
Web sites. We also could be subject to liability for content that is accessible
from our network through links to other Web sites. Our insurance may not cover
claims of this type, such as defamation or trademark infringement, or may not be
adequate to cover all costs incurred in defense of claims or to indemnify us for
all liability that may be imposed. In addition, any claims of that type, with or
without merit, could require us to change our Web sites in a manner that could
be less attractive to our customers and would result in the diversion of our
financial and development resources.
WE MAY NOT BE ABLE TO PREVENT OTHERS FROM USING OUR TRADEMARKS, COPYRIGHTS,
SOFTWARE, CHARACTERS AND OTHER INTELLECTUAL PROPERTY ASSETS. IF OTHERS DO USE
THESE ASSETS, THEIR VALUE TO US, AND OUR ABILITY TO USE THEM TO GENERATE
REVENUES, MAY DECREASE.
Our intellectual property includes our trademarks and copyrights,
proprietary software, characters and other proprietary rights. We believe that
our intellectual property is important to our success and our
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competitive position, and we try to protect it. However, our efforts may be
inadequate. In addition, our ability to conduct our business may be harmed if
others claim we violate their intellectual property rights. If successful,
claims of this nature could seriously harm our business by requiring us to cease
using important intellectual property or pay monetary damages. Even if
unsuccessful, these claims could harm our business by damaging our reputation,
requiring us to incur legal costs and diverting management's attention away from
our business.
OUR STOCK PRICE MAY BE PARTICULARLY VOLATILE BECAUSE OF THE INDUSTRY WE ARE IN.
The stock market in general has recently experienced extreme price and
volume fluctuations. In addition, the market prices of securities of technology
companies, particularly Internet-related companies, have been extremely
volatile, and have experienced fluctuations that have often been unrelated to or
disproportionate to the operating performance of these companies. These broad
market fluctuations could adversely affect the market price of our stock.
WE HAVE BROAD DISCRETION TO USE THE OFFERING PROCEEDS AND OUR INVESTMENT OF
THESE PROCEEDS MAY NOT YIELD A FAVORABLE RETURN.
The net proceeds of this offering are not allocated for specific uses. Our
management has broad discretion to spend the proceeds from this offering in ways
with which stockholders may not agree. The failure of our management to apply
these funds effectively could result in unfavorable returns. This could
adversely affect our financial condition and could cause the price of our common
stock to decline.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL CONTROL % OF OUR
COMMON STOCK AFTER THIS OFFERING.
After this offering, executive officers, directors and holders of 5% or
more of our outstanding common stock will, in the aggregate, beneficially own
% of our outstanding common stock. These stockholders will be able to
influence all matters requiring approval by our stockholders, including the
election of directors and the approval of corporate transactions. This
concentration of ownership may also delay, deter or prevent a change in control
of our company and may make some transactions more difficult or impossible to
complete without the support of these stockholders.
IT MAY BE DIFFICULT FOR A THIRD PARTY TO ACQUIRE OUR COMPANY, AND THIS COULD
DEPRESS OUR STOCK PRICE.
Delaware corporate law and our certificate of incorporation and bylaws
contain provisions that could delay, defer or prevent a change in control of our
company or our management. These provisions could also discourage proxy contests
and make it more difficult for you and other stockholders to elect directors and
take other corporate actions. As a result, these provisions could limit the
price that investors are willing to pay in the future for shares of our common
stock. These provisions:
- authorize us to issue preferred stock that can be created and issued by
the board of directors without prior stockholder approval, with rights
senior to those of common stock;
- provide for a staggered board of directors, so that it would take three
successive annual meetings to replace all directors;
- prohibit stockholder action by written consent; and
- establish advance notice requirements for submitting nominations for
election to the board of directors and for proposing matters that can be
acted upon by stockholders at a meeting.
THERE IS NO PRIOR MARKET FOR OUR SECURITIES, AND OUR STOCK PRICE MAY DECLINE
AFTER THE OFFERING.
Before this offering, there has not been a public market for our common
stock. After the offering, the market price of our common stock may decline
below the initial public offering price. The initial public offering price has
been determined by negotiations between us and representatives of the
underwriters. In
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addition, an active public market for our common stock may not develop or be
sustained after this offering.
THE BOOK VALUE OF THE SHARES YOU PURCHASE WILL BE SUBSTANTIALLY LESS THAN THE
PRICE YOU PAY FOR THE SHARES AND, IF A LIQUIDATION WERE TO OCCUR, YOU MAY
RECEIVE SIGNIFICANTLY LESS THAN THE PURCHASE PRICE FOR YOUR SHARES.
The initial public offering price is substantially higher than the net
tangible book value of each outstanding share of our common stock. As a result,
purchasers of common stock in this offering will suffer immediate and
substantial dilution. This dilution will reduce the net tangible book value of
their shares, since the price per share in this offering will be substantially
higher than it was for our existing stockholders. The dilution will be $ per
share in the net tangible book value of the common stock from the initial public
offering price. If the underwriters exercise their over-allotment option, or if
outstanding options or warrants to purchase shares of common stock are
exercised, there will be further dilution. As a result of this dilution, in the
event of a liquidation, common stockholders who purchase stock in this offering
may receive significantly less than the purchase price for the shares they
purchased in this offering.
APPROXIMATELY , OR %, OF OUR TOTAL OUTSTANDING SHARES ARE RESTRICTED
FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR FUTURE. THIS
COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DROP SIGNIFICANTLY, EVEN IF
OUR BUSINESS IS DOING WELL.
Sales of a substantial number of shares of common stock in the public
market following this offering could cause the market price of our common stock
to decline. After completion of our private sale of common stock to CINAR and
this offering, assuming a public offering price of $ per share, we will have
shares of common stock outstanding. The shares offered for sale through
the underwriters will be freely tradable unless purchased by our affiliates or
covered by a separate lock-up agreement with the underwriters. Of the remaining
shares of common stock outstanding after this offering, shares
will be eligible for sale in the public market beginning 181 days after the date
of this prospectus. The remaining shares will become available at
various times thereafter upon the expiration of one-year holding periods. We
also intend to register up to additional shares of our common stock
after this offering for issuance under our equity plans.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance. In some cases, you can identify forward-looking statements by
terminology including "could," "may," "will," "should," "expect," "intend,"
"plan," "anticipate," "believe," "estimate," "predict," "potential," "continue"
or "opportunity," the negative of these terms or other comparable terminology.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, you should specifically consider
various factors, including the risks described above and in other parts of this
prospectus. These factors may cause our actual results to differ materially from
any forward-looking statement.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of the
forward-looking statements after the date of this prospectus to conform them to
actual results or to changes in our expectations.
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USE OF PROCEEDS
We estimate that our net proceeds from the offering will be approximately
$ million (based upon an assumed initial public offering price of
$ per share) after deducting the underwriting discount and commissions and
estimated offering expenses ($ if the over-allotment option is
exercised in full).
We expect to use the net proceeds for general corporate purposes, including
expansion of our sales and marketing activities and continued development of our
products and services, particularly our Internet offerings. Our management will
retain broad discretion in the allocation of the net proceeds of this offering.
The amounts we actually spend will depend on a number of factors, including the
amount of our future revenues and other factors described elsewhere in this
prospectus. A portion of the net proceeds may also be used to acquire or invest
in complementary businesses, technologies, product lines or products. Pending
such uses, the net proceeds of this offering will be invested in short term,
interest-bearing, investment grade securities.
DIVIDEND POLICY
We have never declared or paid any cash dividends on our capital stock. We
currently intend to retain any future earnings to finance the growth and
development of our business and therefore do not anticipate paying any cash
dividends in the foreseeable future. Any future determination to pay cash
dividends will be at the discretion of the board of directors and will be
dependent upon our financial condition, results of operations, capital
requirements, general business conditions and other factors that the board of
directors may deem relevant.
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CAPITALIZATION
The following table sets forth our capitalization as of July 31, 1999:
- On an actual basis;
- On a pro forma basis after giving effect to the conversion of all of our
outstanding shares of preferred stock into 42,766,758 shares of common
stock upon the closing of the offering; and
- On a pro forma as adjusted basis, giving effect to our issuance of common
stock in the offering at an assumed price of $ per share and our
receipt of the net proceeds from our private sale of common stock to
CINAR.
This information should be read in conjunction with our financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
JULY 31, 1999
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Capital lease obligations, less current portion... $ 469,824 $ 469,824 $ 469,824
Shareholders' equity(1):
Series A preferred stock, $.001 par value;
7,617,500 shares authorized and 7,467,500 shares
issued and outstanding, actual; 0 shares
authorized, none issued and outstanding, pro
forma and pro forma as adjusted................. 7,467 -- --
Series B preferred stock, $.001 par value;
11,816,664 shares authorized and 11,666,664
shares issued and outstanding, actual; 0 shares
authorized, none issued and outstanding, pro
forma and pro forma as adjusted................. 11,667 -- --
Series C preferred stock, $.001 par value;
3,360,910 shares authorized and 3,264,285 shares
issued and outstanding, actual; 0 shares
authorized, none issued and outstanding, pro
forma and pro forma as adjusted................. 3,264 -- --
Series D preferred stock, $.001 par value;
17,000,000 shares authorized and 13,129,444
shares issued and outstanding, actual; 0 shares
authorized, none issued and outstanding, pro
forma and pro forma as adjusted................. 13,129 -- --
Series E preferred stock, $.001 par value;
17,000,000 shares authorized and 5,294,185
shares issued and outstanding, actual; 0 shares
authorized, none issued and outstanding, pro
forma and pro forma as adjusted................. 5,294 -- --
Common Stock, $.001 par value; 75,000,000 shares
authorized and 7,831,150 shares issued and
outstanding, actual; 50,597,908 shares issued
and outstanding, pro forma (unaudited);
shares issued and outstanding,
pro forma as adjusted........................... 7,831 50,598
Additional paid-in capital........................ 144,986,033 144,984,087
Deferred compensation............................. (7,012,176) (7,012,176) (7,012,176)
Accumulated deficit............................... (115,175,590) (115,175,590) (115,175,590)
------------- ------------- -------------
Total shareholders' equity.............. 22,846,919 22,846,919
------------- ------------- -------------
Total capitalization.................... $ 23,316,743 $ 23,316,743 $
============= ============= =============
</TABLE>
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- ---------------
(1) Share numbers in the table do not include issuances subsequent to July 31,
1999, or the following shares:
- 5,679,766 shares of common stock reserved for issuance under our stock
benefit plans, all of which were covered by outstanding options with a
weighted average exercise price of $1.14 per share;
- shares of common stock (assuming a price of $ per share in
this offering) issuable upon exercise of outstanding warrants at an
exercise price of $0.01 per share;
- 150,000 shares of Series A preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $1.00 per share;
- 150,000 shares of Series B preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $3.00 per share;
- 96,625 shares of Series C preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $6.00 per share;
- 57,564 shares of Series C preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $0.01 per share;
- 183,105 shares of Series D preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $3.76 per share; and
- 127,659 shares of Series D preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $4.70 per share.
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DILUTION
As of July 31, 1999, our pro forma net tangible book value, after giving
effect to conversion of all of our preferred stock then outstanding, was
approximately $22.8 million, or $0.45 per share of common stock. 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 our sale of common stock offered hereby at
an assumed initial public offering price of $ per share, our private
sale of common stock to CINAR, and our receipt of the estimated net proceeds
from both, our pro forma net tangible book value as of July 31, 1999 would have
been approximately $ million, or $ per share. This represents an
immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share before the
offering.................................................... $0.45
Increase per share attributable to new investors..........
-----
Pro forma net tangible book value per share after this
offering..................................................
-----
Dilution per share to new investors......................... $
=====
</TABLE>
The following table summarizes, on a pro forma basis as of July 31, 1999,
the differences between existing stockholders and the new investors with respect
to the number of shares of common stock purchased from us, the total
consideration paid and the average price per share paid before deducting the
underwriting discounts and commissions for this offering and our estimated
offering expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ---------- --------- ---------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Existing stockholders.................. 50,597,908(1) % $138,210 % $2.73
New investors.......................... % %
---------- ----- -------- ------
Total................................ 100.0% $ 100.0%
========== ===== ======== ======
</TABLE>
- ---------------
(1) Gives effect to the conversion of all of our outstanding preferred stock
into 42,766,758 shares of common stock in connection with the offering, and
assumes no exercise of stock options or warrants outstanding as of July 31,
1999. As of July 31, 1999, there were options outstanding to purchase a
total of 5,679,766 shares of common stock, with a weighted average exercise
price of $1.14 per share. As of July 31, 1999, there were also warrants
outstanding to purchase a total of 707,389 shares of preferred stock (which
will become warrants to purchase 764,953 shares of common stock at a
weighted average exercise price of $3.49 per share upon completion of this
offering), as well as warrants outstanding to purchase a total of
shares of common stock (assuming a price of $ per share in this
offering) which will be exercised for $0.01 per share upon completion of
this offering. To the extent that any of these options or warrants are
exercised, there will be further dilution to new investors. See
"Management -- Equity Plans," "Description of Capital Stock" and Note 5 to
the Lightspan financial statements.
19
<PAGE> 22
SELECTED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following selected financial data should be read in conjunction with
the Lightspan and Academic Systems financial statements and the related notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Operating Results" included elsewhere in this prospectus. The pro forma
statement of operations data for the year ended January 31, 1999 and the six
months ended July 31, 1999 should be read in conjunction with the unaudited pro
forma financial statements included elsewhere in this prospectus. That data
assumes that we purchased Academic Systems as of the beginning of each of these
periods and is based on our historical operating results and those of Academic
Systems for the periods presented, giving effect to the amortization of
intangibles related to the acquisition, decreased interest income representing
foregone interest income at an assumed 3% rate of return, our issuance of shares
of common and preferred stock to complete the acquisition as if such issuance
had occurred at the beginning of each of the periods presented, and the
conversion of all of our outstanding shares of preferred stock as of their
original dates of issuance. Our statement of operations data for the years ended
January 31, 1995, 1996, 1997, 1998 and 1999 and balance sheet data as of January
31, 1995, 1996, 1997, 1998 and 1999 are derived from our audited financial
statements, which are included elsewhere in this prospectus for the years ended
January 31, 1997, 1998 and 1999 and as of January 31, 1998 and 1999. Academic
Systems' statement of operations data for the years ended September 30, 1997 and
1998 are derived from Academic Systems' audited financial statements included
elsewhere in this prospectus. Our statement of operations data for the six
months ended July 31, 1998 and 1999 and our balance sheet data as of July 31,
1999 are derived from our unaudited financial statements included elsewhere in
this prospectus. Academic Systems' statement of operations data for the nine
months ended June 30, 1998 and 1999 are derived from its unaudited financial
statements included elsewhere in this prospectus. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements and include all adjustments, consisting only of normal
recurring adjustments, that we consider necessary for a fair presentation of the
financial position and results of operations for the periods presented.
Historical results are not necessarily indicative of the results that may be
expected in the future, and the results of interim periods are not necessarily
indicative of results that may be expected for the entire year. The following
financial information is in thousands, except per share data.
20
<PAGE> 23
THE LIGHTSPAN PARTNERSHIP
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, SIX MONTH PERIOD ENDED JULY 31,
---------------------------------------------------------------- ---------------------------------
1995 1996 1997 1998 1999 1999 1998 1999 1999
------- -------- -------- -------- -------- -------- -------- -------- ---------
PRO PRO
ACTUAL FORMA ACTUAL FORMA
-------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Licenses................. $ -- $ -- $ 5,592 $ 15,042 $ 20,985 $ 27,362 $10,724 $13,540 $ 17,230
Services................. -- -- 554 1,973 3,742 3,742 1,809 2,789 2,789
Hardware................. -- -- 2,419 5,294 6,104 6,104 3,506 3,171 3,171
------- -------- -------- -------- -------- -------- ------- ------- --------
Total revenues..... -- -- 8,565 22,309 30,831 37,208 16,039 19,500 23,190
Cost of revenues:
Licenses................. -- -- 2,964 6,409 4,150 6,289 1,902 3,030 4,037
Services................. -- -- 563 1,753 2,385 2,385 1,116 1,367 1,367
Hardware................. -- -- 2,315 4,745 4,973 4,973 2,912 2,725 2,724
------- -------- -------- -------- -------- -------- ------- ------- --------
Total cost of
revenues......... -- -- 5,842 12,907 11,508 13,647 5,930 7,122 8,128
------- -------- -------- -------- -------- -------- ------- ------- --------
Gross profit.............. -- -- 2,723 9,402 19,323 23,561 10,109 12,378 15,062
Operating expenses:
Technology and
development............ 4,907 12,152 18,953 14,816 10,594 13,876 6,072 4,458 5,655
Sales and marketing...... 2,177 6,831 13,773 20,296 22,066 28,814 11,030 13,810 17,089
General and
administrative......... 1,231 1,460 2,473 2,715 3,590 5,780 1,231 2,046 2,940
Stock-based
compensation........... -- -- -- -- 20 20 -- 962 962
Amortization of
intangibles............ -- -- -- -- -- 10,620 -- -- 5,310
------- -------- -------- -------- -------- -------- ------- ------- --------
Total operating
expenses......... 8,315 20,443 35,199 37,827 36,270 59,110 18,333 21,276 31,956
------- -------- -------- -------- -------- -------- ------- ------- --------
Loss from operations...... (8,315) (20,443) (32,476) (28,425) (16,947) (35,549) (8,224) (8,898) (16,894)
Interest income (expense),
net...................... 86 876 (113) (528) 418 529 243 (70) (143)
------- -------- -------- -------- -------- -------- ------- ------- --------
Net loss.................. $(8,229) $(19,567) $(32,589) $(28,953) $(16,529) $(35,020) $(7,981) $(8,968) $(17,037)
======= ======== ======== ======== ======== ======== ======= ======= ========
Historical net loss per
share(1) -- basic and
diluted.................. $ (1.36) $ (3.24) $ (5.36) $ (4.56) $ (2.44) $ (1.20) $ (1.21)
======= ======== ======== ======== ======== ======= =======
Historical weighted
average shares -- basic
and diluted.............. 6,047 6,048 6,078 6,355 6,776 6,627 7,431
======= ======== ======== ======== ======== ======= =======
Pro forma net loss per
share -- basic and
diluted.................. $ (0.38)(2) $ (0.67)(3) $ (0.20)(2) $ (0.32)(3)
======== ======== ======= ========
Pro forma weighted average
shares -- basic and
diluted.................. 43,603(2) 51,935(3) 45,372(2) 53,704(3)
======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------------- JULY 31,
1995 1996 1997 1998 1999 1999
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................ $17,300 $14,733 $ 1,884 $ 4,422 $ 7,143 $25,570
Working capital.......................... 15,795 14,037 (287) (1,020) 3,331 21,785
Total assets............................. 19,824 18,259 12,852 14,080 19,010 39,893
Capital lease obligations, less current
portion................................ 1,379 1,460 1,702 775 393 470
Total shareholders' equity............... $16,379 $14,537 $ 1,614 $ 208 $ 4,314 $22,847
</TABLE>
- ---------------
(1) See Note 1 to the Lightspan financial statements for a description of the
computation of the historical net loss per share and the number of shares
used in the historical per share calculation.
(2) Assumes the conversion of all of our outstanding preferred stock as of their
original dates of issuance. See Note 1 to the Lightspan financial statements
for a description of the computation of pro forma net loss per share and the
number of shares used in the pro forma per share calculation.
(3) In addition to the assumption described in (2) above, assumes the issuance
of our shares of common and preferred stock used to complete the acquisition
of Academic Systems as if such issuance had occurred at the beginning of
each of the periods presented.
21
<PAGE> 24
ACADEMIC SYSTEMS CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTH PERIOD
SEPTEMBER 30, ENDED JUNE 30,
------------------ -----------------
1997 1998 1998 1999
-------- ------- ------- -------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 4,399 $ 5,939 $ 2,947 $ 4,870
Cost of revenues......................................... 1,920 2,064 1,183 1,378
-------- ------- ------- -------
Gross profit............................................. 2,479 3,875 1,764 3,492
Operating expenses....................................... 12,737 12,893 10,013 8,003
-------- ------- ------- -------
Loss from operations..................................... (10,259) (9,018) (8,249) (4,511)
Interest income (expense), net........................... 151 347 310 (50)
Net loss................................................. $(10,108) $(8,671) $(7,939) $(4,561)
======== ======= ======= =======
</TABLE>
22
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
OVERVIEW
We develop, market and sell curriculum-based educational software and
Internet products and services used both in school and at home. Our
curriculum-based educational software consists of our Lightspan Achieve Now and
Academic Systems software. Lightspan Achieve Now is our media-rich, interactive
CD-ROM-based software for students in kindergarten through eighth grade that
covers the core curriculum of language arts, reading and math. Its technology,
delivery system and content help increase student interest in learning, parental
involvement in their children's education, and productive interaction among
teachers, parents and students. Our Academic Systems software is also
CD-ROM-based and serves the college market with an English and mathematics
curriculum designed to meet the needs of under-prepared students. We offer the
following integrated family of Internet products and services through our Web
site, Lightspan.com:
- The Lightspan Network, an online subscription service marketed to schools
for classroom and home use;
- Lightspan PageOne, an online service developed with Yahoo! that enables
teachers to easily create customized home pages for their classrooms;
- Global Schoolhouse, a leading education Web site that helps teachers
develop and manage collaborative learning projects online;
- StudyWeb, a leading research Web site that helps parents, teachers and
students find on the Web the educational information and resources they
want;
- The Lightspan Learning Store, a Web site that sells educational products
online to teachers and parents; and
- selected additional content for teachers, parents and students.
We charge an annual subscription fee of $2,500 for The Lightspan Network to
subscribing schools. We also plan to generate revenues for our free Internet
products and services, like Lightspan PageOne and Global Schoolhouse, through
sponsorships, advertising and electronic commerce.
Our products and services are sold to school districts by a direct field
sales force and supported by our professional development team who assists in
implementing our curricula in schools.
We commenced operations in September 1993, and through June 1996 our
activities consisted primarily of designing and developing Lightspan Achieve
Now. In January 1996, we released our Lightspan Achieve Now curriculum for use
on Windows-based personal computers. In the fall of that year, we released the
product for use on the Sony PlayStation game console. In January 1997, we
introduced The Lightspan Network to supplement our product offerings. In June
1999, we launched Lightspan PageOne. We acquired Academic Systems and Global
Schoolhouse in September 1999, and StudyWeb in October 1999. We also introduced
the Lightspan Learning Store in October 1999.
RESULTS OF OPERATIONS
Revenues
Our revenues from sales of Lightspan Achieve Now consist of license,
service and hardware revenues, and our revenues from sales of The Lightspan
Network consist of subscription fees. Since inception, sales of our Lightspan
Achieve Now curriculum have been our primary source of revenues, representing
approximately 97% of total revenues.
23
<PAGE> 26
License Revenues. We derive license revenues from the sale of Lightspan
Achieve Now licenses and subscriptions for The Lightspan Network. We recognize
revenue from Lightspan Achieve Now licenses after:
- a license agreement has been executed or a definitive purchase order has
been received;
- the product has been shipped;
- the license fee has become fixed and determinable;
- the collection of the fee is considered probable; and
- the related hardware, if applicable, has been shipped.
Our revenue recognition for Lightspan Achieve Now licenses is in accordance
with standards published by the American Institute of Certified Public
Accountants. As a result of changes in those standards, in February 1998 we
adopted the percentage of completion method for recognizing revenue from
Lightspan Achieve Now licenses. Under this method, we recognize the full sale
value of completed Lightspan Achieve Now titles upon shipment as well as a
portion of the sale value of as-yet uncompleted titles based on the percentage
of completion of those uncompleted titles. As previously uncompleted Lightspan
Achieve Now titles are completed, we recognize a corresponding amount of
revenue. We believe that the package of Lightspan Achieve Now titles initially
shipped to our customers is adequate to fulfill the academic objectives of our
Lightspan Achieve Now curriculum. However, we intend to deliver to our Lightspan
Achieve Now customers several as-yet-uncompleted titles to round out that
curriculum. As of July 31, 1999, 5 of our 77 titles were still under development
for the Sony platform and 9 of our 75 titles were still under development for
the Windows platform. Most of these titles were substantially complete at July
31, 1999 and are expected to be shipped by early 2000. We may elect to produce
additional Lightspan Achieve Now titles beyond those currently contemplated.
These titles would be sold separately to existing Lightspan Achieve Now users
for an additional license fee.
The net impact to license revenues of the accounting change described in
the preceding paragraph was a decrease in license revenues of $0.8 million
during the year ended January 31, 1999, and an increase in license revenues of
$0.4 million for the six months ended July 31, 1999.
We recognize revenue from subscriptions to The Lightspan Network ratably
over the term of the subscription agreement. Subscription licenses are for a
one-year term, and are paid in advance.
Amounts received in excess of revenue that is recognized are recorded as
deferred revenue.
Service Revenues. We derive service revenues from implementation services
and training for our Lightspan Achieve Now curriculum that is provided by our
professional development team and, to a lesser extent, from telephone support
and maintenance. All customers that purchase our Lightspan Achieve Now
curriculum also purchase service and support. This service and support are paid
for in advance and initially recorded as deferred revenues. Service revenues are
recognized when services are performed, in accordance with the standard
implementation, training, service, and evaluation plans that we establish for
the customer. Revenues from telephone support and maintenance arrangements are
recognized ratably over the one-year term of the support and maintenance
agreement.
Hardware Revenues. We derive hardware revenues from the sale of Sony
PlayStation game consoles and accessories. We recognize hardware revenues after
a definitive purchase order has been received, the product has been shipped and
collection of the sales price is considered probable. Substantially all of our
Lightspan Achieve Now customers also purchase Sony PlayStation game consoles.
Our future hardware revenues will vary based on the cost to us of Sony
PlayStation game consoles and accessories.
Future Revenue Sources. We anticipate that the sources of our revenues will
change over time. In the future, we plan to generate revenues from other sources
such as:
- sponsorship of, and advertising on, our Web sites;
- electronic commerce; and
- new titles that may be developed to expand Lightspan Achieve Now.
24
<PAGE> 27
As broadband technology becomes more prevalent and cable operators provide
more of their customers with digital set-top boxes, we also intend to offer both
Lightspan Achieve Now and all of our Internet products and services as
educational channels on digital cable television systems.
COST OF REVENUES
Our cost of revenues consists of:
- costs for assembly, distribution and materials for CD-ROMs, and packaging
and print material costs;
- labor costs and overhead related to professional development personnel;
- costs for Sony PlayStation game consoles and related accessories;
- costs for third-party royalties and third-party content; and
- costs for server and network fees.
OPERATING EXPENSES
During the years ended January 31, 1998 and 1999, our technology and
development and sales and marketing expenses related primarily to the
development, release, marketing, sale and distribution of Lightspan Achieve Now.
During the six months ended July 31, 1999, our expenses relating to the
development, sale and marketing of our Internet products and services increased.
We expect that we will continue to make investments in product development,
sales and marketing to enhance our Lightspan Achieve Now and Academic Systems
curricula and expand our existing customer base. However, an increasingly
important part of our strategy and spending will focus on building our
technology and development and sales and marketing teams to support our Internet
products and services.
Technology and Development. Our technology and development costs consist
primarily of payroll and related costs for design, art, production, development,
maintenance and testing of our Lightspan Achieve Now curriculum and for
performing Web site design, development and testing. We believe that continued
investment in Web site development is critical to attain our strategic
objectives and therefore anticipate that Web site development expenses will
increase significantly in future periods.
Sales and Marketing. Our sales and marketing expenses consist primarily of
salaries, commissions, bonuses, related payroll and travel costs, advertising,
promotional activities, customer incentive programs and research and evaluation
of our current customers and markets. We expect that sales and marketing
expenses will increase significantly in future periods and we intend to continue
to pursue aggressive branding and marketing campaigns to retain and increase
sales to current customers, attract new customers, and broaden our markets. We
expect that most of these activities will be directed toward the target users
and markets for our Internet products and services.
General and Administrative. Our general and administrative expenses consist
primarily of payroll and related costs for executive and administrative
personnel, professional services expenses and other general corporate expenses.
We expect that general and administrative expenses will increase as our business
grows and we expand our staff, increase our infrastructure, and incur costs
associated with being a public company.
Stock-Based Compensation. We have recorded deferred stock-based
compensation as a result of our granting of stock options to employees with
exercise prices per share deemed to be below the fair values per share for our
common stock on the dates those options were granted. The deferred stock-based
compensation is being amortized to expense on an accelerated basis over the
vesting period of the individual options, generally four years. As of July 31,
1999, there was approximately $7.0 million to be amortized in future periods.
25
<PAGE> 28
Operating Losses
We have incurred significant losses since our inception and, as of July 31,
1999, had an accumulated deficit of approximately $115.2 million. We expect to
continue to incur substantial operating losses for the foreseeable future.
COMPARISON OF SIX MONTHS ENDED JULY 31, 1999 AND JULY 31, 1998
Revenues
Our revenues increased to $19.5 million in the six months ended July 31,
1999 from $16.0 million for the comparable period of 1998, an increase of 22%.
License Revenues. Our license revenues grew to $13.5 million from $10.7
million, an increase of 26%.
Lightspan Achieve Now license revenues were $12.7 million compared to $10.4
million, an increase of 22%, and represented 94% and 97% of total license
revenues in the six months ended July 31, 1999 and 1998, respectively. This
increase was due primarily to increased sales and marketing efforts, continued
market acceptance of our products and expansion of our customer base. The
increase was also attributable to license revenue recognized under the
percentage of completion method upon further development, completion and release
to existing customers of additional Lightspan Achieve Now titles during the six
months ended July 31, 1999. No one customer accounted for more than 10% of
Lightspan Achieve Now license revenues for the six month periods ended July 31,
1999 or 1998.
Our revenues from subscription fees for The Lightspan Network increased to
$0.8 million from $0.3 million, an increase of 141%. This increase was due
primarily to an increase in the number of subscribers to The Lightspan Network.
No one customer accounted for more than 10% of subscription fee revenues from
The Lightspan Network during the six month periods ended July 31, 1999 or 1998.
Service Revenues. Our service revenues increased to $2.8 million from $1.8
million, an increase of 54%. This increase was due primarily to an increase in
sales of Lightspan Achieve Now licenses. All customers that purchase our
Lightspan Achieve Now curriculum also purchase professional service and support.
Hardware Revenues. Our hardware revenues declined to $3.2 million from $3.5
million, a decrease of 10%. This decrease was due to a decrease in the average
selling price of the Sony PlayStation game console, offset in part by an
increase in the number of units we shipped.
Cost of Revenues
Our cost of revenues increased to $7.1 million for the six months ended
July 31, 1999 from $5.9 million for the comparable period in 1998, an increase
of 20%. Gross margin as a percentage of total revenues was 63% for the six
months ended July 31, 1999 and 1998.
Cost of License Revenues. Our cost of license revenues increased to $3.0
million from $1.9 million, an increase of 59%. Gross margin as a percentage of
license revenues decreased to 78% from 82%.
Our cost of revenues for Lightspan Achieve Now licenses was $2.8 million
compared to $1.8 million, an increase of 54%. Gross margin as a percentage of
Lightspan Achieve Now license revenues decreased to 78% from 83%. In the six
months ended July 31, 1998, we elected to discontinue the development of certain
as-yet-uncompleted Lightspan Achieve Now titles and reduced our estimates of the
cost to complete other Lightspan Achieve Now titles, both of which reduced our
cost of license revenues and favorably impacted our gross margin in that period.
In addition, our cost of license revenues for the six months ended July 31, 1998
was favorably impacted when we revised our estimate of the costs to convert our
existing customer base for our Lightspan Achieve Now curriculum to a new
software Motion Picture Experts Group, or MPEG, format and Sony PlayStation game
consoles. Our gross margin in the six months ended July 31, 1999 was favorably
impacted by a reduction in material and packaging costs and third-party royalty
rates.
26
<PAGE> 29
Our cost of revenues for subscriptions to The Lightspan Network increased
to $0.2 million from $0.1 million, an increase of 145%. This growth was due
primarily to an increase in third-party content fees driven by an increase in
subscriptions. Gross margin as a percentage of subscription fee revenues from
The Lightspan Network decreased to 69% from 70%. This decrease was primarily due
to additional network and server costs and, to a lesser extent, additional
support personnel costs required to support a larger subscription base.
Cost of Service Revenues. Our cost of service revenues increased to $1.4
million from $1.1 million, an increase of 23%. This increase was primarily due
to an increase in professional services and support personnel to accommodate the
growth in sales of Lightspan Achieve Now licenses and related services. Gross
margin as a percentage of service revenues increased to 51% from 38%. This
increase was primarily due to our service revenues increasing at a greater rate
than our fixed professional development costs.
Cost of Hardware Revenues. Our cost of hardware revenues decreased to $2.7
million from $2.9 million, a decrease of 6%. This decrease was due to a decrease
in the cost to us of Sony PlayStation game consoles and accessories. Gross
margin as a percentage of hardware revenues decreased to 14% from 17%. This
decrease was primarily due to variations in the product mix of hardware
accessories, which resulted in fewer sales of higher-margin accessories than in
the prior period.
Technology and Development
Our technology and development expenses decreased to $4.5 million for the
six months ended July 31, 1999 from $6.1 million for the comparable period of
1998, a decrease of 27%. This decrease was due to a reduction in development
personnel and related costs that occurred in the second half of the prior fiscal
year. The reduction occurred following completion of initial design and
development of substantially all of our Lightspan Achieve Now titles. This
reduction was partially offset by our hiring of additional personnel for Web
site design and development and a shift of some existing development personnel
and related costs to our Internet business as we expanded our Internet
offerings.
Sales and Marketing
Our sales and marketing expenses increased to $13.8 million for the six
months ended July 31, 1999 from $11.0 million for the comparable period in 1998,
an increase of 25%. This increase was attributable to an increase in marketing
personnel and marketing and promotional activities, particularly in connection
with the launch of Lightspan PageOne.
General and Administrative
Our general and administrative expenses increased to $2.0 million for the
six months ended July 31, 1999 from $1.2 million for the comparable period in
1998, an increase of 66%. This increase was due primarily to increased personnel
and related costs, particularly in our finance and management information
systems departments.
Stock-Based Compensation
During the year ended January 31, 1999 and the six months ended July 31,
1999, we granted stock options with exercise prices that were less than the
deemed fair value of the underlying shares of common stock on the date of grant.
As a result, we have recorded and will continue to record deferred stock-based
compensation expense over the period that these options vest. The deferred
stock-based compensation expense was approximately $1.0 million for the six
months ended July 31, 1999.
Interest Income (Expense)
We incurred net interest expense of $0.1 million for the six months ended
July 31, 1999, as compared to net interest income of $0.2 million for the
comparable period in 1998. This net interest expense as compared to our net
interest income for the prior comparable period was due to higher average cash
27
<PAGE> 30
balances in the prior comparable period because of our receipt of proceeds from
a Series D preferred stock financing then. Our interest expense for the six
months ended July 31, 1999 was attributable to the utilization of our existing
equipment lease lines of credit and borrowings against our revolving line of
credit.
COMPARISON OF YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
Revenues
Our revenues increased to $30.8 million during the year ended January 31,
1999, or fiscal 1999, from $22.3 million during the year ended January 31, 1998,
or fiscal 1998, and $8.6 million during the year ended January 31, 1997, or
fiscal 1997. Revenues grew by 38% in fiscal 1999 and 160% in fiscal 1998.
Our license revenues increased to $21.0 million from $15.0 million and $5.6
million in fiscal 1998 and fiscal 1997, respectively. The 40% and 169% increases
were due to increases in the sales of Lightspan Achieve Now licenses, primarily
as a result of increased sales and marketing efforts, continued market
acceptance of our products, expansion of our customer base and availability and
release of additional Lightspan Achieve Now titles. The increases were also due,
to a lesser extent, to increases in the number of subscriptions to The Lightspan
Network.
Our service revenues were $3.7 million, $2.0 million, and $0.6 million in
fiscal 1999, fiscal 1998, and fiscal 1997, respectively, and grew by 90% in
fiscal 1999 and 256% in fiscal 1998. These increases were due primarily to
increases in sales of Lightspan Achieve Now licenses. All customers that
purchase our Lightspan Achieve Now curriculum also purchase professional service
and support.
Our hardware revenues increased to $6.1 million in fiscal 1999 from $5.3
million in fiscal 1998 and $2.4 million in fiscal 1997. These 15% and 119%
increases were due to increased sales of Lightspan Achieve Now licenses and
hardware, partially offset by reductions in the cost of Sony PlayStation game
consoles to us that we passed through to our customers.
Cost of Revenues
Our cost of revenues decreased to $11.5 million in fiscal 1999 from $12.9
million in fiscal 1998, or 11%, and increased in fiscal 1998 from $5.8 million
in fiscal 1997, or 121%. Gross margin as a percentage of revenues increased to
63% in fiscal 1999 from 42% in fiscal 1998 and 32% in fiscal 1997.
Our cost of license revenues decreased to $4.1 million in fiscal 1999 from
$6.4 million in fiscal 1998, a decrease of 35%. Our cost of license revenues
increased in fiscal 1998 from $3.0 million in fiscal 1997, or by 116%. Gross
margin as a percentage of license revenues increased to 80% in fiscal 1999 from
57% in fiscal 1998 and 47% in fiscal 1997. The improvements in gross margin each
year reflected reductions in material and packaging costs, reductions in
third-party royalty rates and an increase in the selling price of Lightspan
Achieve Now licenses. In addition, our cost of license revenues in fiscal 1998
was negatively impacted by a charge for estimated costs to convert our existing
customer base to a new software MPEG format and Sony PlayStation game console
platforms. In fiscal 1999, we revised our estimate of the cost of the
conversion, and our cost of license revenues was favorably impacted. Our cost of
license revenues in fiscal 1999 was also favorably impacted by a reduction in
our estimates of the cost to complete certain Lightspan Achieve Now titles.
Our cost of service revenues grew to $2.4 million in fiscal 1999 from $1.8
million in fiscal 1998 and $0.6 million in fiscal 1997. These increases were due
to increases in professional development services and support personnel to
accommodate the growth in sales of Lightspan Achieve Now licenses and related
services. Gross margin as a percentage of service revenue increased to 36% in
fiscal 1999 from 11% in fiscal 1998 and from (2%) in fiscal 1997. These
increases were due to increased utilization of our professional development
staff, an increase in the average number of days of service sold per license,
improved billing of customers for services provided beyond the scope of the
original license agreement, and, in general, our service revenues increasing at
a greater rate than our fixed professional development costs.
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Our cost of hardware revenues increased to $5.0 million in fiscal 1999 from
$4.7 million in fiscal 1998 and $2.3 million in fiscal 1997. These increases
were due to increased Lightspan Achieve Now license sales, offset in large part
by our transition to the Sony PlayStation game console, a less expensive
hardware platform than the hardware platforms that we had previously provided to
our Lightspan Achieve Now customers, often at low or negative margins. Gross
margin as a percentage of hardware revenues increased to 19% in fiscal 1999 from
10% in fiscal 1998 and 4% in fiscal 1997. These increases were due to the
transition to the higher-margin Sony PlayStation game console platform.
Technology and Development
Our technology and development expenses decreased to $10.6 million in
fiscal 1999 from $14.8 million in fiscal 1998, a 28% decrease, and by 22% in
fiscal 1998 from $19.0 million in fiscal 1997. These decreases were due to
reductions in development personnel and related costs associated with completion
of most of our Lightspan Achieve Now titles. By the end of fiscal 1999,
substantially all design, development and testing had been completed on our
Lightspan Achieve Now product line.
Sales and Marketing
Our sales and marketing expenses increased to $22.1 million in fiscal 1999
from $20.3 million in fiscal 1998 and $13.8 million in fiscal 1997. These 9% and
47% increases are the result of increased personnel in marketing, increased
commissions and bonuses as the result of growing sales, and additional marketing
and promotional activities. The increase from fiscal 1998 to fiscal 1999 was
partially offset by a decrease in personnel and related costs in the sales and
professional development organizations due to a reduction in headcount during
the last half of fiscal 1999.
General and Administrative
Our general and administrative expenses increased to $3.6 million in fiscal
1999 from $2.7 million in fiscal 1998 and $2.5 million in fiscal 1997. The 32%
increase in general and administrative expenses in fiscal 1999 compared to
fiscal 1998 was caused primarily by legal fees as well as an increase in
personnel and other costs related to our growth, partially offset by decreases
in bad debt expense in fiscal 1999 as compared to fiscal 1998. The 10% increase
in general and administrative expenses in fiscal 1998 compared to fiscal 1997
was caused primarily by an increase in bad debt and rent expenses.
Interest Income (Expense)
We earned net interest income of $0.4 million in fiscal 1999, as compared
to net interest expense of $0.5 million and $0.1 million in fiscal 1998 and
fiscal 1997, respectively. Our net interest income in fiscal 1999 compared to
our net interest expense in fiscal 1998 was due to higher average cash balances
in the six months ended July 31, 1998, when we received proceeds of a Series D
preferred stock financing. Our interest expense for fiscal 1999, fiscal 1998 and
fiscal 1997 is attributable to the utilization of our equipment lease lines and
borrowings against our revolving line of credit.
QUARTERLY RESULTS
The following table sets forth certain statement of operations data for us
for each of the six quarters ended July 31, 1999. This information has been
derived from our unaudited financial statements. The unaudited financial
statements have been prepared on substantially the same basis as the audited
financial statements contained in this prospectus and include all adjustments,
consisting only of normal recurring adjustments, that we consider necessary for
a fair presentation of this information. You should read this information in
conjunction with our audited and unaudited financial statements and related
notes appearing elsewhere in this prospectus. Our quarterly operating results
are expected to vary significantly because of seasonal influences on demand for
our Lightspan Achieve Now and Academic Systems curricula and our services based
on school calendars, budget cycles and timing of school districts' funding
sources. Our revenues have historically been highest in our second fiscal
quarter, and lowest in our first fiscal quarter. In
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light of these factors, our limited operating history and the rapidly evolving
nature of our business, we believe that period-to-period comparisons of our
results are not meaningful and should not be relied upon as indicators of future
performance.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
APRIL 30, JULY 31, OCT. 31, JAN. 31, APRIL 30, JULY 31,
1998 1998 1998 1999 1999 1999
--------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. $ 4,853 $11,186 $ 7,542 $ 7,250 $ 6,562 $12,938
Cost of revenues......................... 1,969 3,961 2,781 2,797 2,468 4,654
------- ------- ------- ------- ------- -------
Gross profit............................. 2,884 7,225 4,761 4,453 4,094 8,284
Operating expenses....................... 9,252 9,081 8,394 9,543 9,328 11,948
------- ------- ------- ------- ------- -------
Loss from operations..................... (6,368) (1,856) (3,633) (5,090) (5,234) (3,664)
Interest income (expense)................ 93 150 108 67 2 (72)
------- ------- ------- ------- ------- -------
Net loss................................. $(6,275) $(1,706) $(3,525) $(5,023) $(5,232) $(3,736)
======= ======= ======= ======= ======= =======
</TABLE>
ACADEMIC SYSTEMS ACQUISITION
We acquired Academic Systems in September 1999. Academic Systems develops,
markets and sells curriculum-based educational software to colleges and
universities for use by under-prepared college students. Academic Systems offers
five course programs -- four in mathematics covering elementary algebra to
college algebra, and one in English covering remedial writing and freshman
composition. Academic Systems' products also include a student management system
that can be run on the Internet or the college's own network.
Revenues consist primarily of fees for licenses and implementation of
Academic Systems' software, customer training, books and materials, upgrades and
support. Academic Systems enters into license agreements under which software,
support and other services are provided to a customer for a fixed fee for a
specified period of time. License revenues are recognized upon contract signing
and delivery of the software, provided the related fee is fixed and determinable
and collection of the fee is probable. The revenues associated with books and
materials are recognized upon shipment and revenues for services are recognized
when the services are performed.
The cost of license revenues consists of costs related to materials for
CD-ROMs, assembly and distribution of CD-ROMs, print materials and third-party
royalties.
Comparison of Nine Months Ended June 30, 1999 and June 30, 1998
Academic Systems' revenues increased to $4.9 million for the nine months
ended June 30, 1999 from $2.9 million for the comparable period in 1998, an
increase of 65%. This increase was due to increases in sales of licenses,
primarily as a result of expansion of Academic Systems' customer base. Cost of
license revenues increased to $1.4 million from $1.2 million, an increase of
16%. Gross margin as a percentage of revenues increased to 72% from 60% due to
decreases in the cost of materials and third-party royalties and increased
utilization of Academic Systems' support and operations personnel. Operating
expenses declined to $8.0 million from $10.0 million, a decrease of 20%. This
decrease was due to reductions in technology and development expense, as
Academic Systems completed the development of its product line, and sales and
marketing, as staffing and marketing programs were reduced.
Comparison of Years Ended September 30, 1998 and 1997
Academic Systems' revenues increased to $5.9 million in the year ended
September 30, 1998 from $4.4 million in the year ended September 30, 1997. The
35% increase was due to increases in sales of licenses, as a result of increased
sales and marketing efforts, continued market acceptance of the Academic Systems
curriculum, expansion of the customer base, and the availability of additional
titles. The cost of licenses increased to $2.1 million from $1.9 million. Gross
margin improved to 65% from 56% due to the
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decreasing cost of materials and improved utilization of support and operations
staffs. Operating expenses increased to $12.9 million from $12.7 million.
Technology and development expense decreased each year as Academic Systems
completed the development of its product line. Sales and marketing expense
increases accounted for the majority of the growth in operating expenses as
Academic Systems increased its sales and marketing staffs, increased commissions
and bonuses as a result of growing sales, and added marketing and promotional
activities.
Purchase Accounting
The acquisition of Academic Systems is being accounted for as a purchase.
The purchase price was allocated to the assets acquired, consisting principally
of goodwill and intangible assets, which are being amortized over useful lives
ranging from 4 to 10 years.
RECENT DEVELOPMENT
In October 1999, we agreed to pursue several potential strategic
initiatives with CINAR Corporation. CINAR is an integrated entertainment and
education company that develops, produces, markets and distributes high-quality
programming and supplemental education products for children, families and
educators. CINAR is a leading supplier of animated and live-action children's
and family programming that it markets and distributes to broadcast, cable and
other media outlets worldwide. CINAR's productions include the two-time Emmy
award-winning Arthur, the top-rated children's television program in the United
States, as well as Are You Afraid of the Dark?, Wimzie's House, Lassie, The Busy
World of Richard Scarry and The Adventures of Paddington Bear. CINAR also
publishes and distributes approximately 2,000 supplemental education products
for pre-kindergarten through eighth grade that enhance classroom curricula and
foster continued learning in the home. CINAR's products are sold each year to
more than 1.6 million teachers and 370,000 daycare providers in North America.
As part of our agreement, CINAR purchased 2.5 million shares of our Series
E preferred stock at $5.00 per share. CINAR also agreed to purchase $10 million
of our common stock in a private placement that will occur concurrently with our
initial public offering at the initial public offering price. We also granted
CINAR warrants to purchase 500,000 shares of our Series E preferred stock that
will vest upon the achievement of various agreed-to strategic goals. The planned
strategic initiatives include such projects as a convergence educational
television series (the combination of broadband interactive offerings and
standard television), the co-development of a pre-kindergarten educational
portal featuring CINAR's subsidiary HighReach Learning, and a series of other
co-marketing and distribution arrangements such as the international
distribution of Lightspan products.
As part of our agreement with CINAR, Ronald A. Weinberg, CINAR's President
and co-CEO, joined our board.
LIQUIDITY AND CAPITAL RESOURCES
From inception through July 31, 1999, we financed our operations and met
our capital expenditure requirements primarily with the net proceeds from
private sales of equity securities totaling approximately $135 million. At July
31, 1999, we had $25.6 million of cash and cash equivalents. The expansion of
our business will require significant additional capital to fund operating
losses, capital expenditures and working capital needs.
Net cash used in operating activities was $7.2 million for the six months
ended July 31, 1999, $16.5 million for fiscal 1999, $22.5 million for fiscal
1998 and $31.5 million for fiscal 1997. Net cash used during these periods was
primarily to fund technology and development, sales and marketing and general
and administrative costs associated with the development and deployment of our
Lightspan Achieve Now curriculum and Internet products and services.
Net cash used in investing activities was $0.6 million for the six months
ended July 31, 1999, $0.7 million for fiscal 1999 and insignificant in fiscal
1998. Net cash used during these periods was
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primarily for the acquisition of property and equipment. Net cash provided by
investing activities was $2.6 million for fiscal 1997, due to maturities on our
short-term investments.
Net cash provided by financing activities was $26.3 million for the six
months ended July 31, 1999, $19.9 million for fiscal 1999, $25.4 million for
fiscal 1998 and $21.5 million for fiscal 1997. Our cash provided by financing
activities during these periods was raised by issuing our Series C, D and E
preferred stock to various strategic and financial investors.
In February 1999, we extended our line of credit with a financial
institution. The line of credit bears interest at the bank's prime rate plus
1.5% and expires in April 2000. The amount available under the line of credit
was increased to $10 million or 75% of eligible accounts receivable, and is
collateralized by substantially all of our assets.
We entered into a $1.0 million capital leasing line with a financial
institution in April 1999. Under the agreement, which expires in March 2000, we
finance the purchase of capital equipment at an 8.8% interest rate over a 42
month period with a purchase option.
We have also entered into various purchase order commitments with a number
of vendors, primarily for the purchase of hardware, marketing services,
promotional activities and development activities. As of July 31, 1999, our
outstanding purchase order commitments were approximately $0.4 million.
Our future capital requirements will depend on a variety of factors,
including market acceptance of our products and services and the resources we
devote to developing, marketing, selling and supporting our products. We expect
to devote substantial capital resources in connection with:
- brand maintenance, advertising, marketing and promotional activities;
- continued development and expansion of our Internet offerings and
content;
- hiring personnel, including additional Internet systems, sales and
marketing, and product development personnel; and
- acquiring additional office space and other necessary facilities.
In addition, we may devote substantial capital resources to strategic
acquisitions and relationships.
We believe that our cash and cash equivalents and the net proceeds from
this offering will be sufficient to fund our operations for at least the next 18
months. Despite our expectations, we may need to raise additional capital before
the end of the next 18 months.
INTEREST RATE RISK
Our exposure to market risk for changes in interest rates relates primarily
to the increase or decrease in the amount of interest income we can earn on our
investment portfolio and on the increase or decrease in the amount of interest
expense we must pay with respect to our various outstanding debt instruments.
Our risk associated with fluctuating interest expense is limited, however, to
our line of credit, the interest rates under which are tied to market rates, and
our investments in interest sensitive financial instruments. Under our current
policies, we do not use interest rate derivative instruments to manage exposure
to interest rate changes. We ensure the safety and preservation of our invested
principal funds by limiting default risks, market risk and reinvestment risk. We
mitigate default risk by investing in investment grade securities. A
hypothetical 100 basis point adverse move in interest rates along the entire
interest rate yield curve would not materially affect the fair value of our
interest sensitive financial instruments at January 31 or July 31, 1999.
Declines in interest rates over time will, however, reduce our interest income
while increases in interest rates over time will increase our interest expense.
YEAR 2000 READINESS DISCLOSURE
Many existing computer programs cannot distinguish between a year beginning
with "20" and a year beginning with "19" because they use only the last two
digits to refer to a year. For example, these
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programs cannot tell the difference between the year 2000 and the year 1900. As
a result, these programs may malfunction or fail completely. If we or any third
parties with whom we have a material relationship fail to achieve year 2000
readiness, our business may be seriously harmed. In particular, year 2000
problems could temporarily prevent us from offering our products and services.
Our State of Readiness
We have made a preliminary assessment of the year 2000 readiness of our
information technology systems, including our telecommunications, order
processing, data collection, and Internet-related systems. Our assessment plan
consists of:
- evaluating our date-dependent code, software and hardware and evaluating
external dependencies;
- quality assurance testing of our internally developed software and
systems; and
- obtaining assurances or warranties regarding the year 2000 readiness of
third parties with whom we have material relationships, such as vendors
and licensors of material hardware, software and services that are
related to the delivery of our products and services.
As part of our effort to assess our year 2000 readiness, we requested year
2000 readiness statements from our significant suppliers and vendors.
Our critical systems fall into six categories: transaction processing, call
management, telecommunications, fulfillment, finance and interactive
applications. The core transaction processing and infrastructure systems are
internally maintained and hosted. To date, our assessment has determined that
these critical business systems are all year 2000 ready.
Based on our testing or representations from manufacturers, we believe our
non-critical and non-information technology systems, which include security and
mailing systems, are year 2000 ready.
All material commercial software and hardware that we depend on is either
year 2000 ready or will be upgraded to be ready in the normal course of business
through the installation of upgrades or replacements. Our material hardware,
software and service vendors have informed us that the products we use, or will
be using as upgrades or replacements, are year 2000 ready.
We also have assessed our software products and concluded that they are
year 2000 ready.
Costs to Address Our Year 2000 Issues
To date, we have not incurred any significant costs attributable to year
2000 compliance. Our recent information technology investments have been in
support of our expanding operating and decision support requirements and also
facilitated year 2000 readiness to the extent they involved a replacement of an
existing system. We are not currently aware of any material operational issues
or costs associated with preparing our systems for the year 2000. Nonetheless,
we may experience material unexpected costs caused by undetected errors or
defects in the technology used in our systems or because of the failure of a
material vendor to be year 2000 ready.
Risks of Year 2000 Issues
Notwithstanding our year 2000 readiness efforts, the failure of a material
system or vendor, or the Internet generally, to be year 2000 ready could harm
our operations or have other unforeseen, material adverse consequences for us.
We may also experience external year 2000-related failures or disruptions that
might generally affect industry and commerce, such as utility or transportation
company year 2000 readiness failures and related service interruptions. If any
of these risks occur, our business could be materially harmed.
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Our Contingency Plan
Our contingency plan is focused on those activities and functions
specifically related to processing customer orders and maintaining our
operations. It addresses only those types of failures for which contingency
operation is possible. Our contingency plan does not address any types of
failures for which contingency operations would be impossible, such as
disruption of the Internet.
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BUSINESS
OVERVIEW
The Lightspan Partnership is a leading provider of curriculum-based
educational software and Internet products and services used both in school and
at home. Our technology, delivery systems and content help increase student
interest in learning, parental involvement in their children's education, and
productive interaction among teachers, parents and students. Over 340 studies by
schools that use our products and services show that our products improve
overall student performance.
Lightspan Achieve Now, our product for students in kindergarten through
eighth grade, or K-8, is a series of media-rich, interactive software programs
that covers the core curriculum -- language arts, reading and math. We sell it
exclusively to schools and school districts, and it is used by teachers,
students and parents. We typically sell the Lightspan Achieve Now software with
a Sony PlayStation game console that the student uses to run the program at home
throughout the school year. We also provide a series of curriculum-based
software that addresses the math and writing needs of under-prepared college
students through our subsidiary, Academic Systems Corporation.
We offer the following integrated family of Internet products and services
through our Web site, Lightspan.com:
- The Lightspan Network, an online subscription service marketed to schools
for classroom and home use, introduced in January 1997 and redesigned in
September 1999;
- Lightspan PageOne, an online service developed with Yahoo! and launched
in June 1999 that enables teachers to easily create customized home pages
for their classrooms;
- Global Schoolhouse, a leading education Web site that helps teachers
develop and manage collaborative learning projects online;
- StudyWeb, a leading research Web site started in 1995 that helps parents,
teachers and students find educational information and resources on the
Web;
- The Lightspan Learning Store, a Web site that sells educational products
online to teachers and parents, introduced in October 1999; and
- selected additional content for teachers, parents and students.
We were founded in 1993 on the philosophy of using technology to increase
student achievement by connecting the school to the home. Over 400 school
districts in 46 states have purchased our Lightspan Achieve Now curriculum and
implemented it in over 2,100 schools and 10,600 classrooms, representing a total
of 113,000 student and teacher licenses. Over 900 schools currently subscribe to
The Lightspan Network. Students in over 225 colleges and universities across the
United States are currently using Academic Systems' products. Lightspan PageOne
has approximately 28,000 registered users and Global Schoolhouse has
approximately 28,400 registered users.
MARKET OPPORTUNITY
Education is the second largest sector of the United States economy, behind
health care. According to the Department of Education, the United States spent
an estimated $351 billion on kindergarten through twelfth grade, or K-12,
education in the 1997 - 1998 school year, which represented over 4% of the
United States gross domestic product. During the 1997 - 1998 school year, an
estimated 52.2 million students were enrolled in K-12 in 110,473 public and
private schools in over 16,400 school districts.
Comparative studies among industrialized countries show that American
students rank near the bottom in educational performance. Thirty-eight percent
of American fourth graders read below the basic reading level and American
eighth graders recently ranked 28th in a study comparing their mathematical
performance to that of students from 40 other countries. In addition, a recent
federal study found that
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approximately 30% of incoming college freshmen in the United States enrolled in
at least one remedial education course.
The need to improve student achievement is a top priority in American
education. Growing concerns about this issue have resulted in educators and
school districts being held increasingly accountable for their students'
educational progress. Educators have responded by seeking alternatives for more
effective K-12 education and have identified key elements that are important for
educational reform. These key elements include:
- students spending more time on core curriculum;
- students being motivated to learn;
- families becoming more actively involved in their children's schooling;
and
- educational resources being accessible to all students, families and
schools, regardless of socioeconomic status.
Educators today are challenged to effectively access and implement educational
technology that addresses key educational reform elements and improves student
performance. Industry sources estimate that spending on educational technology
was approximately $7 billion during the 1998-1999 school year, and this figure
is expected to increase to approximately $10 billion by the 2001 - 2002 school
year.
The Internet is becoming an increasingly important part of American
education, with teachers viewing the Internet as a powerful learning,
communication and information resource for use in both schools and in homes. In
a recent survey, 90% of teachers said they considered Internet access in their
classroom valuable or essential, and over 51% of classrooms had Internet access
in 1998. The number of five through twelve year-old children with Internet
access is expected to grow 155% to 21.9 million between 1998 and 2002. Teachers
are seeking ways to effectively harness the resources available on the Internet
and offer their students safe and appropriate materials.
Increased spending on educational technology, a growing commitment to
improving student achievement, and rising demand for educational reform programs
that are built around or include educational technology has created a
significant market opportunity for providers of software- and Internet-based
educational products and services.
THE LIGHTSPAN SOLUTION
Lightspan offers curriculum-based educational software featuring digital
video technology and entertainment industry production quality. Our software is
used by students in an interactive setting in schools, colleges and homes. We
combine our software offerings with Internet products and services to provide
teachers, students and families with educational tools and resources to help
students learn and succeed. We believe that our competitive advantages include
the following:
We Improve Student Achievement. We have developed curriculum-based
educational software that improves student achievement. Over 340 studies by
schools that use our products and services show that our products improve
student performance in reading or mathematics or in both subjects. A composite
analysis of studies conducted by schools at 36 sites and covering 4,650 students
shows that, on average, 24% more Lightspan Achieve Now students were successful
in reading and 46% more Lightspan Achieve Now students were successful in
mathematics than their peers who did not use the Lightspan Achieve Now
curriculum, as measured by performance on standardized tests. In part because of
its demonstrated impact on student achievement, our Lightspan Achieve Now
curriculum has been included as a skill-and-content-based reform model eligible
for funding by the U.S. Department of Education's Comprehensive School Reform
Demonstration program. Several independent studies conducted by colleges that
use our Academic Systems products have shown that these products, compared to
traditional lecture taught courses, increase pass rates, keep more students
enrolled in the courses covered and increase students' performance in follow-on
course work.
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We Increase Student Motivation. We believe that the engaging Lightspan
Achieve Now interactive learning experience, and the increased involvement of
parents when students use the curriculum at home, motivate K-8 students to focus
more effectively on core curriculum study. Approximately 60% of teachers using
our Lightspan Achieve Now program reported to us in a survey that the program
had a positive impact on student attitude and motivation in their classrooms. We
also believe that the Academic Systems interactive learning experience, which
links writing or math lessons with immediate practice and feedback and allows
students to choose the learning style that works best for them, is a unique
motivational tool for students in remediation courses.
We Extend Learning Beyond Traditional Classroom Time. In addition to their
use in the classroom, our products and services are used both in the home and in
structured after-school and summer-school programs designed to increase the
amount of time students spend learning. Schools that have implemented the
Lightspan Achieve Now curriculum report that 84% of students spend approximately
one half hour or more, and that 41% spend approximately an hour or more, at home
on core curriculum study daily. Moreover, when our products are used in the
home, parents can take a more active role in their child's learning.
Additionally, the learning resources offered through our Internet products and
services can be accessed at any time by teachers, parents and students to
further a broad range of out-of-classroom educational objectives.
We Facilitate Widespread Use of Our Products and Services. We seek to
provide schools with cost-effective ways to give access to enhanced learning
through educational technology to all students, regardless of socioeconomic
status. A school that implements Lightspan Achieve Now generally provides to
students, at no cost to the family, a Sony PlayStation game console to run the
program on a home television. Our Academic Systems software products cost
approximately as much as a textbook, which makes these learning tools accessible
to most students, either in a computer lab or in their residence. For K-12
students that have access to the Internet, we provide free or
paid-for-by-the-school Internet tools that are either customized by their
teacher or correlated to their curriculum. We believe our ability to reach
students will be enhanced as more students get Internet access at home. Also, as
broadband technology becomes more widespread among cable television subscribers,
our products may become available on a digital set-up box provided by cable
operators, and be accessible to all students with cable service whose school
districts use our products and services.
We Have Experienced Staff to Reach the Nation's Educators. We currently
employ 87 direct salespeople and 71 professional development staff members for
our Lightspan and Academic Systems products and services. They are experienced
in selling to and training educators and have established strong relationships
with key decision makers in the education community. We generally hire current
or former education professionals to serve the territories that encompass their
local education communities. As a team, our sales and professional development
staff guides educators through the decision making process for purchasing
educational technology and ease their transition to its use, thereby making
educational technology more accessible to educators and available to more
students. We believe that our ability to successfully transition educators to
the use of our curricula manifests itself in our large number of repeat
customers. For example, during our fiscal year ended January 31, 1999, 74% of
school districts that were using our Lightspan Achieve Now curriculum at the
beginning of the year bought additional products.
We Offer High-Quality, Curriculum-Based Content. We have developed and own
the rights to nearly all of the content on the 77 titles in our Lightspan
Achieve Now curriculum, which aggregate over 1,200 hours of learning-intensive
programs correlated to state academic standards. We have also developed The
Lightspan Network, an online subscription service for classroom and home use
that provides subscribers with a rich array of curriculum-based content that is
correlated to state academic standards. In addition, we have developed and own
the rights to all 5 titles in our Academic Systems curriculum, which aggregate
over 420 hours. We intend to enhance our current content-based products and
services, particularly in connection with our planned expansion of
Lightspan.com.
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STRATEGY
Our objective is to become the premier online education destination for
teachers, parents and students, as well as the leading provider of
technology-delivered, curriculum-based supplemental study materials in
kindergarten through college education. In order to achieve this objective, we
intend to pursue the following strategies:
Capitalize on Our Current Market Position. We intend to capitalize on the
relationships that we have established with educators and the strength of our
products and services and Lightspan and Academic Systems brands to increase our
market penetration. We have established our market position to date by directing
our marketing efforts toward becoming the educational technology provider of
choice among teachers. We believe that our established market position will
enable us to do the following:
- migrate our existing installed user base to our Internet offerings;
- sell The Lightspan Network and Lightspan Achieve Now to schools that use
our free Internet services;
- increase the number of schools, colleges, classrooms and college sections
that use our curriculum-based software; and
- extend the use of our Academic Systems curriculum to more high schools
that participate in outreach programs with community colleges that
currently use that curriculum.
Continue to Develop and Enhance Lightspan.com. We intend to continue to
develop and enhance our Lightspan.com Web site to make it the premier online
education destination for teachers, parents and students. To increase
connectivity between schools and homes, we plan to introduce Your School Online,
a free home page builder for schools, at our Lightspan.com Web site in early
2000. Also in early 2000, we plan to increase the offerings for teachers,
parents and students at Lightspan.com, and to further enhance Lightspan.com by
entering into strategic relationships to sell teaching supplies and other
products online. Accordingly, we will seek to ensure that our Lightspan.com Web
site will offer teachers, parents and students:
- tools to enhance communication between classroom, school and home;
- access to curriculum-based interactive K-8 educational content;
- proprietary search capabilities tailored to classroom use; and
- the opportunity to purchase a broad range of educational products and
teaching supplies.
While Lightspan.com's content is currently focused on K-8 students and their
parents and teachers, we intend to later expand its selected educational content
to address the needs of high school students.
Extend our Reach through Expansion to Other Delivery Platforms. As
technology evolves, we intend to migrate our customers to new delivery platforms
that will extend our reach. Our Lightspan Achieve Now and Academic Systems
curricula are very media-rich and are not currently delivered over the Internet,
given bandwidth limitations. However, we recently began to manage some of the
Academic Systems curriculum through our Academic Systems Web site, which enables
teachers to efficiently compile information about time-on-task and performance
for students who use that curriculum. We plan to implement use of an Internet
compatible game console or other delivery platform that will provide direct
access from the home to our Internet products and services. We anticipate this
will enable us to enhance future releases of our Lightspan Achieve Now
curriculum with content available through our Internet products and services. As
broadband technology becomes more prevalent and cable operators provide more of
their customers with digital set-top boxes, we intend to offer both Lightspan
Achieve Now and all of our Internet products and services as educational
channels on digital cable television systems. We expect that, while we will
continue to sell these products and services to schools, these products and
services will be the equivalent of channels on televisions rather than
CD-ROM-based content used by students on Sony PlayStation game consoles.
Create Additional Internet-Based Revenue Streams. We believe that the
complementary nature of our product lines will allow us to cross-promote and
cross-sell our products and services, and to generate and
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sustain multiple revenue streams in the future. With the introduction of our
first Internet service, The Lightspan Network, we gained a renewable stream of
subscription revenue to augment our revenues from software licenses. We expect
to continue to generate a subscription revenue stream with sales of The
Lightspan Network, and ultimately to sell subscriptions for Lightspan Achieve
Now to be delivered using broadband technology. In addition, we plan to focus on
the sale of "Olympic-style" sponsorships, supplemented by sales of banner
advertisements where appropriate, to fund the further development of
Lightspan.com and our other free Internet offerings. We also intend to sell an
increasing array of educational products online. The Lightspan Learning Store, a
Web site where SmarterKids.com sells educational products under the Lightspan
brand to families, was introduced in early October 1999, and we intend to
increase our offerings on that site. We also intend to develop other Web sites
that will sell teaching supplies and other products beginning in early 2000.
Leverage the Experience of the Lightspan Team. We have a management team
with extensive educational technology and Internet experience. Both John Kernan,
our Chairman and Chief Executive Officer, and Carl Zeiger, our President and
Chief Operating Officer, started educational technology companies before they
founded Lightspan. Our sales and marketing organizations are headed by people
with extensive experience in educational technology sales at Apple Computer,
Inc. Our sales and marketing personnel also have extensive contacts in school
districts or colleges within their territories and frequently can leverage their
existing relationships with school district and school decision makers. Our
Lightspan Achieve Now product development team is comprised of former classroom
teachers and experienced instructional designers, animators, and multimedia
computer programmers. Our Internet team includes several key individuals who
previously contributed to the development and management of Disney Online and
Disney.com while working at The Walt Disney Company.
Pursue Strategic Acquisitions and Relationships. We have pursued and
entered into strategic acquisitions and relationships to facilitate the growth
of our business, such as our acquisitions of Academic Systems, Global
Schoolhouse and StudyWeb and our relationships with Sony Computer Entertainment
and SmarterKids.com. We intend to continue to pursue strategic acquisitions and
relationships as we attempt to diversify our revenue sources and the delivery
platforms for our curriculum-based content. For example, in October 1999, we
agreed to pursue several potential strategic initiatives with CINAR Corporation.
PRODUCTS
Our products and services are technology-based educational tools and
resources that can be used by teachers, students and families to increase
student performance.
K-8
Lightspan Achieve Now is a series of media-rich, interactive software
programs that covers the core curriculum of language arts, reading and math, and
is designed to enhance learning in both the classroom and at home. Lightspan
Achieve Now is a supplement to textbooks and other materials used in K-8 schools
and covers more than 80% of the typical K-8 reading, language arts and
mathematics curricula. Lightspan Achieve Now incorporates a variety of
interactive formats and varying levels of difficulty to cover a specific set of
educational objectives and to address a diverse range of learning styles, making
it possible to reach each student in a class more effectively. The Lightspan
Achieve Now curriculum features stories and original characters designed around
an active learning approach, which is intended to provide the learner with the
following essential components of an effective learning environment:
- motivation to master a skill or concept;
- learning by doing;
- practice; and
- application of the skill or concept to another situation.
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The Lightspan Achieve Now curriculum was developed using entertainment industry
production techniques and features full motion digital video and 3-D animation.
We deliver our reading and language arts and mathematics curricula in
imaginary "worlds" -- episodic, interactive series with a consistent set of
characters that are designed to cover a broad range of curriculum objectives.
Generally, each world is contained on a series of CD-ROMs, or titles, which are
divided into multiple "Adventures." Our Adventures are developed with the
assistance of an advisory board of reading, language arts and mathematics
educators, an advisory board of video game developers, television writers and
commercial animators. Various characters from our Lightspan worlds are depicted
below.
[A collection of Lightspan characters from various Lightspan Worlds and
Adventures]
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Our Lightspan Achieve Now language arts and reading curriculum provides a
variety of learning paths, all with a single objective -- improving literacy and
communication -- and is designed to ensure that all students succeed in
listening, speaking, reading, writing, viewing and producing. The Adventures
that comprise our Lightspan Achieve Now reading and language arts curriculum
address vocabulary comprehension, critical thinking skills, study skills, the
writing process, print and text recognition, phonics, decoding, and many other
areas covered by the typical K-8 reading and language arts curriculum. These
Adventures currently include the following:
LIGHTSPAN ACHIEVE NOW LANGUAGE ARTS AND READING CURRICULUM
<TABLE>
<CAPTION>
ADVENTURE SERIES GRADES FOCUS
---------------- ------ -----
<S> <C> <C>
Calamity 3-4 Reading informational text
Cosmic Cookoff K-2 Reducing test-taking anxiety
Cosmic Quest K-2 Motivation in learning
Faire Games K-2 Practicing test-taking skills
K9.5 3-4 Strategies for written and oral communication
KazMania 3-4 Literary appreciation and comprehension
Liquid Books K-6 Reading with fluency
Mona & Moki 3-4 Developing vocabulary
Road Writer K-6 Steps in writing process
Stay & Play K-2 Applying skills in everyday experiences
str.at.e.s 5-8 Confidence in reading informational text
WalkAbout K-2 Theme-based activities for literacy
</TABLE>
Our Lightspan Achieve Now math curriculum is designed to provide a set of
experiences that increase student confidence and encourage students to solve
problems, think mathematically and apply and communicate their thinking. The
Adventures that comprise our Lightspan Achieve Now mathematics curriculum
address number sense, critical thinking, number theory, estimation, geometry and
many other areas covered by the typical K-8 mathematics curriculum. These
Adventures currently include the following:
LIGHTSPAN ACHIEVE NOW MATH CURRICULUM
<TABLE>
<CAPTION>
ADVENTURE SERIES GRADES FOCUS
---------------- ------ -----
<S> <C> <C>
Cali's Geo Tools K-2 Mastery of basic math concepts
Cosmic Cookoff 3-4 Reducing test-taking anxiety
Creative Tools 3-4 Interactive scenarios
Faire Games K-2 Practicing test-taking skills
Math Gallery K-6 Understanding math problems
Math on the Move! 3-6 Mental math strategies
P.K.'s Math Studio 3-4 Mastery of basic math by solving word problems
P.K.'s Place 3-4 Practicing math skills
The Quaddle Family Mysteries 3-4 Practicing active math problem solving
The Secret of Googol K-2 Developing strong math foundations
Timeless Math 5-8 Broadening students' awareness of other cultures
through math challenges
</TABLE>
The Lightspan Achieve Now curriculum is divided into grade clusters for
K-2, 3-4, and 5-6. The 5-6 materials are also used in middle schools for poorer
performing grade 7-8 students. Lightspan Achieve Now licenses are sold on a
perpetual license basis for approximately $600 per student license including the
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teacher license and materials. A complete Lightspan Achieve Now program consists
of teacher licenses containing approximately 35 CD-ROM titles appropriate to
each grade level, instructional materials, student licenses for each student
containing the same CD-ROM titles as those included with the teacher licenses,
student pre-tests, post-tests and progress checks, parenting and other
materials, professional development visits, and evaluation criteria to meet
accountability standards.
Lightspan Achieve Now's curriculum runs on both Sony PlayStation game
consoles and MPEG-capable, Windows-based personal computers, though use at home
is currently almost always on Sony PlayStation game consoles. We plan to
continue development of new titles to meet changing education trends and to
refresh the product over time.
Our revenues from sales of our Lightspan Achieve Now curriculum were $29.8
million, $22.0 million and $8.5 million for our fiscal years ended January 31,
1999, 1998 and 1997, respectively.
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K-12 INTERNET
Our family of Internet products and services provides teachers, students
and parents with a wide array of online learning resources.
Lightspan.com
All of our Internet products and services can be found at
www.lightspan.com, including Lightspan PageOne, Global Schoolhouse, The
Lightspan Network, The Lightspan Learning Store and StudyWeb. We intend to
significantly expand the products and services offered through Lightspan.com in
early 2000. Our Lightspan.com Web site home page screen is depicted below.
[Lightspan.com Home Page Screen Shot]
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Lightspan PageOne
Developed with Yahoo!, Lightspan PageOne helps teachers quickly and easily
build customized classroom home pages and assemble the best educational
resources available on the Internet to support their classroom instruction.
Lightspan PageOne allows teachers to:
- access a database of over 115,000 educational Web sites, activities and
lesson plans which have been reviewed by educators;
- bookmark favorite sites;
- post homework assignments;
- create class albums, like collections of student artwork or projects;
- access on-line reference resources such as a dictionary, thesaurus, and
encyclopedia;
- use a variety of curriculum-based interactive learning activities in
their classrooms; and
- share these features in a password-protected environment with students'
families.
Lightspan PageOne Home Page Screen Shot
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Global Schoolhouse
We recently acquired Global Schoolhouse, a Web site which has over 28,400
registered users. It enables classroom to classroom collaboration by allowing
educators to share ideas and create projects together online. Global Schoolhouse
began as a pilot project of the National Science Foundation. Global Schoolhouse
has teamed with individuals, schools, businesses, and community organizations to
design, develop and manage hundreds of collaborative online learning projects
each year. Global Schoolhouse offers:
- Cyberfair, an annual global Internet competition for children in grades
K-12, who showcase their local communities by designing their own Web
sites;
- CU-Schools Videoconferencing, a real-time, community-building
conferencing system that lets students and their teachers learn and
collaborate online; and
- Internet Projects Registry, a registry of classroom projects from
teachers all over the world.
[Global Schoolhouse Home Page Screen Shot]
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StudyWeb
We recently acquired StudyWeb, a "homework helper" Web site. StudyWeb was
started approximately four years ago to specifically address one of the needs
most frequently cited by parents, teachers and students seeking to use the Web
for educational purposes -- finding research resources as easily as possible on
the Web without encountering inappropriate materials. StudyWeb has developed a
sophisticated system for identifying and reviewing Web sites, and has built a
database with more than 115,000 Web site reviews. Reviews are categorized by
subject matter and include grade level recommendations, content descriptions and
other useful information.
[StudyWeb Home Page Screen Shot]
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The Lightspan Network
The Lightspan Network is our premium online subscription service for
classroom and home use. It provides a rich array of curriculum-based K-8 content
correlated to state academic standards in an advertising-free environment. We
charge a subscription fee of $2,500 annually to each subscribing school for The
Lightspan Network. The Lightspan Network:
- provides Internet activities and lesson plans;
- offers approximately 100 interactive, adventure-filled learning
activities developed by educators that cover reading, mathematics,
writing, vocabulary development, and Web literacy;
- provides access to a database of over 115,000 educational Web sites,
activities and lesson plans that have been reviewed by educators;
- offers teachers and students Ed-mail, a personal e-mail account featuring
special security measures created specifically for use in schools;
- provides tools to enhance Internet research and student learning with a
subscription to Compton's Encyclopedia Online, a leading online reference
tool for K-12 schools; and
- offers customer support through our professional development staff and
access to our telephone help line.
[The Lightspan Network Home Page Screen Shot]
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The Lightspan Learning Store
We developed The Lightspan Learning Store in partnership with
SmarterKids.com to offer educational products online to teachers and families.
As we expand and enhance Lightspan.com, we plan to include links from products
that SmarterKids.com recommends to specific Lightspan learning activities found
on Lightspan.com. We also expect that our Lightspan learning activities will be
linked to the Lightspan Learning Store, allowing users to make an immediate
purchase of educational products related to the learning activity.
[The Lightspan Learning Store Home Page Screen Shot]
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Your School Online
We plan to launch Your School Online, currently in beta test, in early 2000
as a free home page builder for schools. We expect Your School Online to allow
teachers to automatically integrate their classrooms' Lightspan PageOne home
pages with their school's home page. We also expect that Your School Online will
work with many other Web publishing tools that a school might have in place. Its
features include:
- the ability to organize and compile Web links;
- a calendar of events that makes it easy for parents and students to find
out what events or activities are happening at school;
- a simple way for users to connect to Lightspan PageOne home pages for
particular classrooms within a given school;
- a site for teachers to post notes and announcements and receive feedback;
- a school contact page which allows parents to easily send e-mail to a
school representative; and
- easy access to Web site usage statistics to help administrators
understand what is popular on their site.
[Your School Online Home Page Screen Shot]
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Financial information about our Lightspan Achieve Now educational software
and our Internet products and services is included in Note 8 to the Lightspan
financial statements that are included elsewhere in this prospectus.
HIGHER EDUCATION
Academic Systems' products address the needs of under-prepared college
students, and consist of:
- Interactive Mathematics -- Elementary Algebra, which covers whole
numbers, proportional reasoning, signed numbers and introductory geometry
and algebra;
- Interactive Mathematics -- Algebra, which covers polynomials, rational
expressions, linear equations and graphing;
- Interactive Mathematics -- Intermediate Algebra, which covers rational
exponents, quadratic equations, functions, exponential and logarithmic
functions, and non-linear equations and inequalities;
- Interactive Mathematics -- College Algebra, which includes non-linear
functions, equations, conic sections, matrices, determinants, induction,
sequences and counting; and
- Interactive English, which prepares students for academic writing,
including narrative writing, data analysis, text interpretation, and
persuasive writing, and contains concise grammar instructions on common
college writing errors and related reading and comprehension activities.
Academic Systems' products are media-rich with extensive graphics and video
components and are grounded in teaching techniques that focus on students as
individuals. Students take the courses in a computer lab or on a Windows-based
personal computer in their residence, at their own pace. Students review lessons
and then practice the concepts learned. Depending upon the student's performance
in the practice session, the program prompts further review or moves the student
onto the next lesson. Wrong answers will prompt an explanation of how to solve
the question. In the Elementary Algebra course, there is a special help function
featuring video characters. Each character represents a different learning style
and offers multiple approaches to solving the problem, ranging from showing the
method that can be used to solve the problem, to explaining the solution with a
picture or graph, to providing the solution from a theoretical perspective. This
often provides the help that under-prepared college students need to pass the
course and succeed in school. Academic Systems also offers printed practice
materials.
Academic Systems provides management services to educators who use its
curriculum, typically by compiling and communicating information about student
time-on-task and performance while using the curriculum. These management
services can be accessed on the Internet at academic.com or a college's Web
site, and also on a college's local area network.
Academic Systems curriculum products are licensed to colleges and then sold
by the licensing colleges to students on a student-by-student basis for use with
each class, instead of a textbook. The licensing fee to colleges of $60 to $80
per student is approximately equal to an equivalent textbook.
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[ACADEMIC SYSTEMS HOME PAGE SCREEN SHOT]
PRODUCT DESIGN AND DEVELOPMENT
We consider successful product development to be essential to maintaining
and growing our market position. We expect to continue enhancing our Lightspan
Achieve Now and Academic Systems curricula while significantly increasing our
efforts to further develop our Internet products and services.
Lightspan Achieve Now products include a diverse mix of media, formats, and
visual presentations. Every Lightspan Adventure is built according to the
following fundamental design principles, which we believe differentiate our
products from competitive products:
- we correlate each title to state and national academic standards;
- we create interesting characters in engaging stories that unfold with the
help of full-screen, full-motion video and music, and with sophisticated
interactivity representing many of the techniques of the latest video
games; and
- we develop assessment components for the teacher to monitor students'
progress for each of the titles.
All Lightspan Achieve Now programs are designed so they can be used on a
television as well as on a computer screen. Text elements are rendered on the
screen for clear visibility from across the room. Live action video and
animation segments are converted from original footage to the MPEG software
format, and then digitally optimized for a sharp television picture. We believe
these design features offer a unique opportunity to move our Lightspan Achieve
Now curriculum to a digital set-top box once broadband technology becomes widely
available to cable television subscribers. We also believe that our competitors
who have designed their educational technology for use only on a computer screen
will experience difficulties in converting their computer interfaces to
television interfaces, and that we are better positioned to move our products to
a digital set-top box platform.
We are pursuing a broad range of product development efforts to expand and
enhance our Lightspan.com Web site. These product development efforts include
developing new collaborative learning applications for Global Schoolhouse and
enhancing its existing content, developing new content for teachers, parents and
students on Lightspan.com, and expanding our electronic commerce offerings.
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Academic Systems' math and writing products combine media-rich video and
graphics with teaching techniques that focus on students as individuals and
offer extensive help and reinforcement examples. The Academic Systems curriculum
is reviewed each school year based on input from user groups made up of faculty
from across the country, and updated when appropriate.
SALES AND MARKETING
We sell our Lightspan Achieve Now curriculum and The Lightspan Network
directly to school districts. We have identified and are targeting school
districts that routinely implement new and innovative programs. Our programs are
generally sold "top down," with the first presentations made to a school
district's key decision maker, who is often the superintendent or assistant
superintendent in charge of curriculum or technology. Schools are becoming more
involved in the decision process as site-based management is implemented within
school districts. The sales cycle for the initial purchase of our Lightspan
Achieve Now curriculum is typically six to twelve months, with shorter periods
for The Lightspan Network.
A school district will typically purchase the Lightspan Achieve Now
curriculum for a few classrooms in one school. Upon the successful
implementation of the Lightspan Achieve Now curriculum, the school district will
typically add the curriculum in other schools within the district. For example,
during our fiscal year ended January 31, 1999, 74% of school districts that were
using our Lightspan Achieve Now curriculum at the beginning of the year bought
additional products. The product is also often sold deeper into individual
schools, either in additional classrooms in a given grade or in additional grade
levels.
We currently employ 74 direct salespeople for grades K-12. This sales force
is supported by a 66 person professional development team that provides pre- and
post-sales support and works with current Lightspan schools to identify
additional sales opportunities. While our sales force and professional
development team are focused on selling into new accounts and increasing our
presence in current accounts, they also act as partners with implementing
schools in identifying funding sources. Each member of our sales force has
substantial experience in educational technology sales, is generally working in
his or her home territory and has extensive contacts in school districts within
their territory.
Our marketing efforts include:
- hosting policy forums for education policy makers at industry events;
- giving keynote speeches and presentations at major education conventions;
- participating on the advisory boards of key organizations in education;
- presenting at education trade shows and customer conferences; and
- pursuing focused media relations activities in the education trade press
and in local media in communities that are implementing our Lightspan
Achieve Now curriculum.
Sales of our Internet products and services are supported by our Lightspan
field sales force, including a dedicated team of six Internet sales people that
focus on driving state-wide sales of our Internet products and services. We
offer customized versions of The Lightspan Network to states having large
contracts, and currently have contracts with the states of Illinois, North
Carolina, Pennsylvania, Oklahoma, Texas, Delaware, and Hawaii. To date, most of
the marketing focus for our Internet products and services has been on the
educational community. For example, a very active campaign of direct mail,
telemarketing and advertising focused on the educational community, along with
participation by our field sales and professional development staffs at the
school district and school site levels and appearances at trade shows, has
resulted in the registration of over 28,000 teachers for Lightspan PageOne since
its launch in June 1999.
In the future, our focus will expand to include marketing directly to
families. Print advertising will be supplemented with a variety of online
strategies. A series of promotions will be directed at encouraging usage and may
include sweepstakes, user points affinity programs, and referral programs.
Public relations efforts will focus on educational, consumer and business press.
We have formed an advisory board of educators to assist us with the design and
development of our Internet products and services. Direct marketing will
concentrate on teachers and parents. We expect the results of these marketing
efforts will
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be an increase in the number of teachers, students and parents accessing the
content and tools provided by Lightspan.com. We believe that the marketing of
Lightspan.com and our Internet products and services will contribute to sales of
The Lightspan Network and sales of our Lightspan Achieve Now curriculum.
Academic Systems currently employs 13 direct sales people in a separate
sales organization. Academic Systems' sales and marketing efforts focus on
statewide, system-wide and district sales, and specifically target potential
purchasers that offer opportunities for sales of the Academic Systems curriculum
to multiple college class sections. A typical initial sale of the Academic
Systems curriculum will be for several sections in a college course. As the
faculty becomes familiar with the Academic Systems curriculum and witnesses
improved results from sections that are using the curriculum, Academic Systems'
contracts tend to be renewed and increased. Over 90% of the institutions that
have installed any portion of the Academic Systems curriculum since it was first
offered remain as installed users. In addition, over 70% of institutions that
have renewed their contracts with Academic Systems over its last four fiscal
years have signed larger contracts. Academic Systems' marketing efforts include
print advertising in periodicals directed at the higher education market, direct
marketing, participation at trade shows, and user conferences.
PROFESSIONAL DEVELOPMENT AND SUPPORT SERVICES
We believe that successfully implementing our products and services in
schools and extending them to the home is necessary to realize potential
improvements in student achievement. We also believe that improvements in
student achievement differentiate the Lightspan Achieve Now curriculum from
products offered by our competitors and generate further support at the school
level for expanded sales. Our goal is to become the partner of schools that
implement our products and services. Given the comprehensive nature of the
Lightspan Achieve Now curriculum, its connection of schools to homes, the rapid
technological changes brought about by the Internet, and educators' needs for
ongoing technical training and mentoring, we commit substantial resources to
train educators in the use of our products and services.
We maintain a staff of 66 trained professionals, most of whom are former
educators, to provide pre-sale planning and post-sale implementation, customer
support, training services and motivation for teachers, administrators and
parents in Lightspan schools. We also operate a toll-free, five-day per week
technical and curriculum support telephone help line called Partner Line that is
accessible to both teachers and parents. We include professional development and
Partner Line services with the initial purchase of Lightspan Achieve Now.
Schools may purchase additional professional development or support services. We
believe that the on-site training provided by our professional development staff
is a key factor in encouraging school districts to implement Lightspan products
in more schools within the district and in additional classrooms within an
individual school.
We provide pre-sale and post-sale support for college campuses that use our
Academic Systems curriculum in a manner similar to that provided for our
Lightspan Achieve Now curriculum, with a greater emphasis on technical support
and installation related to the Web-based or local area networked student
management system. Installation and support are included with the software
license and additional services may be purchased.
COMPETITION
The market for educational technology content and services is highly
fragmented and competitive, with no company having significant market
penetration. We generally compete for school instructional dollars with textbook
publishers, software publishers, supplemental print publishers, Internet content
and service providers, and training services, among others. We believe our
solution is unique and competes favorably with existing products in these
categories on a price and performance basis.
In the instructional technology segment of this market, we believe our
existing and prospective competitors may be divided into the following groups:
- comprehensive curriculum software publishers which offer various
school-based computer-based learning systems, including Jostens Learning
Corporation and Computer Curriculum Corporation;
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- "edutainment" software vendors, which principally target the consumer
market but also sell to schools;
- education-oriented Internet services and the educational segments of
general on-line service providers;
- distance learning providers; and
- programs that take over management of the school or provide substantial
tutoring help, such as those provided by Edison Schools, Inc. and Sylvan
Learning Systems, Inc.
As Internet and broadband services become more widely deployed in K-12 and
colleges, we believe new and as yet unidentified competition will enter the
market. Traditional media companies and rapidly expanding Internet companies are
likely to present new competition. Many of our current and potential competitors
have longer operating histories, larger customer or user bases, greater brand
recognition and significantly greater financial, marketing and other resources
than we do. In addition, many of these current and potential competitors can
devote substantially greater resources to product development, marketing and
promotional campaigns and Web site and systems development than we can.
RIGHTS TO CONTENT
We rely principally upon a combination of copyright, trademark and trade
secret laws and contractual restrictions to protect our proprietary rights.
We developed and own the rights to nearly all of the content within the
Lightspan Achieve Now curriculum, including the worlds, characters, stories,
educational content, and games. We hold trademarks to all of our Lightspan
Achieve Now worlds, our individual CD-ROM titles, and many of our characters.
SEASONALITY
Our operating results are expected to vary significantly from quarter to
quarter because of seasonal influences on demand for our Lightspan Achieve Now
and Academic Systems curricula and our services based on school calendars,
budget cycles and timing of school districts' funding sources. Our revenues have
historically been highest in our second fiscal quarter, and lowest in our first
fiscal quarter.
EMPLOYEES
As of October 1, 1999, we employed 398 persons, including 124 in technology
and development, 48 in general and administrative, 143 in sales and marketing
and 83 in professional development. We expect that our headcount will increase,
particularly in sales and professional development and Internet marketing and
product development. None of our employees is represented by a labor union and
we consider our employee relations to be excellent.
FACILITIES
Our headquarters are located in San Diego, California, where we currently
lease approximately 47,000 square feet under a lease expiring in 2003. Warehouse
facilities are located in Carlsbad, California, where we currently lease
approximately 9,000 square feet under a lease expiring in 2002. Additional
facilities for the Internet group are located in Santa Monica, California, where
approximately 6,900 square feet are under a lease expiring in 2002, and, for
Academic Systems, in Mountain View, California, where approximately 15,500
square feet are under a lease expiring in 2001. While we consider our current
facilities adequate for our current operations, we expect that we will need to
lease additional facilities as our operations expand.
LEGAL PROCEEDINGS
We are not currently involved in any material legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS, KEY EMPLOYEES AND DIRECTORS
The following table sets forth certain information about our executive
officers, key employees and directors as of September 30, 1999:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- ----------------------------------------------
<S> <C> <C>
John T. Kernan.................... 53 Chief Executive Officer and Chairman
Carl Zeiger....................... 57 President, Chief Operating Officer and
Director
Kathleen R. McElwee............... 44 Vice President of Finance, Chief Financial
Officer
John H. Brandon................... 43 Executive Vice President, President of
Academic Systems and Director
Winifred B. Wechsler.............. 42 Executive Vice President and General Manager
of Internet and Broadband Services
Merritt D. Farren................. 39 Senior Vice President of Corporate Development
Sandra K. Fivecoat................ 50 Senior Vice President of Sales
Bernice Stafford.................. 57 Vice President of School Marketing and
Evaluation
Dr. Larry R. Vaughn............... 61 Senior Vice President of School Reform
James W. Breyer................... 38 Director(2)
L. John Doerr..................... 48 Director(2)
Bradley P. Dusto.................. 46 Director
David D. Hiller................... 46 Director(1)
Bruce W. Ravenel.................. 49 Director
Jeffrey P. Sanderson.............. 40 Director(1)
Barry J. Schiffman................ 53 Director(1)
Ronald A. Weinberg................ 48 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
John T. Kernan co-founded Lightspan and has served as our Chairman and
Chief Executive Officer since September 1993. Prior to founding Lightspan, Mr.
Kernan served as Chairman and Chief Executive Officer of Jostens Learning
Corporation, an educational software company. Mr. Kernan developed Jostens
Learning from a start-up company in 1985 (then named Education Systems
Technology Corporation) to one of the largest educational software businesses in
the United States. Under Mr. Kernan's leadership, Jostens Learning was a leading
supplier of pre-kindergarten through adult educational software. Prior to
founding Jostens Learning, Mr. Kernan was an executive with Gill Cable
Corporation, a Northern California cable TV operator. He also was Vice President
of Product Development for DELTAK, Inc. (now NETg), then the nation's largest
provider of video-based training for technical professionals. Mr. Kernan was the
President of the Software Publishers Association, has been named "Educator of
the Decade" by Electronic Learning Magazine and regional "Entrepreneur of the
Year" by Inc. Magazine, among other distinctions. Mr. Kernan helped found
Academic Systems, which has since been acquired by Lightspan, and Elemental
Software, which has since been acquired by Macromedia. Mr. Kernan sits on the
boards of Teach.com and TechNet. Mr. Kernan holds a Bachelor of Science from
Loyola College.
Carl Zeiger co-founded Lightspan and has served as our President and Chief
Operating Officer and as one of our directors since September 1993. Prior to
founding Lightspan, Mr. Zeiger served as the President and Chief Operating
Officer of Jostens Learning Corporation. Along with Mr. Kernan, Mr. Zeiger
developed Jostens Learning into a leading supplier of pre-kindergarten through
adult educational software. Prior to joining Jostens Learning, Mr. Zeiger served
as Senior Vice President of Finance for Integrated Software Systems Corporation,
a leading provider of presentation graphics software, and managed its initial
and secondary public offerings and its eventual sale to Computer Associates.
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<PAGE> 58
Mr. Zeiger is a certified public accountant in the State of California and holds
a Bachelor of Science from the University of Denver.
Kathleen R. McElwee has served as our Vice President of Finance and Chief
Financial Officer since January 1999. From November 1997 to January 1999, she
served as Vice President of Finance and Chief Financial Officer of Galoob Toys,
Inc., a developer and marketer of toys. From December 1995 to November 1997, she
served as Vice President of Planning for Galoob. From September 1993 to December
1995, she served as Assistant Controller of Nissan Motor Corporation in USA, an
automobile company. Ms. McElwee holds a Bachelor in Business Administration from
Pennsylvania State University and a Masters in Business Administration from the
Wharton School of the University of Pennsylvania.
John H. Brandon has served as our Executive Vice President and President of
Academic Systems since we acquired Academic Systems in September 1999. From June
1997 to September 1999, he served as President and Chief Executive Officer of
Academic Systems. From 1987 to May 1997, Mr. Brandon held various management
positions at Adobe Systems, a provider of Web and print publishing software, and
most recently was Vice President and General Manager of Adobe North America. Mr.
Brandon holds a Bachelor of Arts from the University of California at Davis.
Winifred B. Wechsler joined Lightspan in February 1999 and is our Executive
Vice President and General Manager of Internet and Broadband Services. From 1985
to January 1999, Ms. Wechsler served in various management positions at The Walt
Disney Company, a media and entertainment company, and most recently as Senior
Vice President of Buena Vista Internet Group, or BVIG. One of the founders of
Disney Online, Ms. Wechsler launched and managed Disney.com, directing all
operations, including design, production, electronic commerce, advertising and
marketing. In addition, Ms. Wechsler oversaw Disney's investment in Infoseek and
the launch of Go Network and set policy and direction for BVIG. Prior to joining
BVIG, Ms. Wechsler held a variety of positions at the Disney Channel, including
Senior Vice President of New Business Development. Ms. Wechsler holds a Bachelor
of Arts from Wellesley College and a Masters in Business Administration from the
Wharton School of the University of Pennsylvania.
Merritt D. Farren has served as our Senior Vice President of Corporate
Development since April 1999. From May 1988 to April 1999, Mr. Farren held
various management positions at The Walt Disney Company, a media and
entertainment company, and most recently was Senior Vice President and General
Counsel of The Disneyland Resort, Anaheim, California. Mr. Farren holds a
Bachelor of Arts from Stanford University and a Juris Doctor from the University
of California at Berkeley.
Sandra K. Fivecoat has served as our Senior Vice President of Sales since
February 1999. From April 1998 to January 1999, she served as Regional Vice
President for our South Central Region. From 1987 to April 1998, Ms. Fivecoat
held various sales management positions at Apple Computer, a manufacturer of
computers and software. Ms. Fivecoat holds a Bachelor of Science and a Masters
in Education from the University of Texas at Austin.
Bernice Stafford has served as our Vice President of School Marketing and
Evaluation since October 1993. From 1989 to 1993, she served as Director of
Sales Programs at Jostens Learning Corporation. Ms. Stafford holds a Bachelor of
Arts and a Master of Arts from the University of California at Berkeley.
Dr. Larry R. Vaughn, Ed.D. has served as our Senior Vice President of
School Reform since January 1999. From January 1993 to July 1998, he served as
superintendent of Wichita Public Schools in Wichita, Kansas. Dr. Vaughn holds a
Bachelor of Arts from Mississippi State University and a Doctorate in Education
from the University of Houston.
James W. Breyer has served as one of our directors since December 1993.
Since 1990, Mr. Breyer has been a partner at Accel Partners, a venture capital
firm. He is responsible for Accel's involvement in more than a dozen companies
that have completed public offerings or successful mergers, including Arbor
Software, Centillion/Bay Networks, Centrum/3Com, Claremont, Collabra/Netscape,
Corsair Communications, Macromedia, MicroProse, Inc. (formerly Spectrum
Holobyte) and several private companies. Mr. Breyer currently serves on the
boards of directors of Actuate, a provider of electronic business
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<PAGE> 59
services, HearMe, a provider of real-time Internet communication tools,
RealNetworks, a provider of streaming media technology on the Internet, and
several private companies. Mr. Breyer holds a Bachelor of Science degree from
Stanford University and a Masters in Business Administration from the Harvard
Business School.
L. John Doerr has served as one of our directors since December 1993. Since
1980, Mr. Doerr has been a partner at Kleiner Perkins Caufield & Byers, a
venture capital firm. Mr. Doerr was the founding Chief Executive Officer of
Silicon Compilers. Mr. Doerr currently serves on the boards of directors of
Intuit, a producer of electronic finance software, Amazon.com, an online
retailer, Macromedia, a provider of Web publishing software, and Sun
Microsystems, a provider of network computing products and services, as well as
several privately held companies. Mr. Doerr co-manages the Technology Network,
the high-technology community's political action organization. He holds a
Bachelor of Science and Master of Science from Rice University and a Masters in
Business Administration from the Harvard Business School.
Bradley P. Dusto has served as one of our directors since May 1999. Mr.
Dusto is Chief Technology Officer and Executive Vice President for Comcast Cable
Communications, a media company, and is responsible for engineering, product
development and new product operations. Prior to joining Comcast in 1992, Mr.
Dusto held management positions with several companies in the cable television
and satellite industries. He received a Bachelor of Science from Cornell
University and a Masters in Business Administration from New York University.
David D. Hiller has served as one of our directors since September 1996.
Since October 1993, Mr. Hiller has served as Senior Vice President of
Development at Tribune Company, a media company. He is responsible for strategic
planning and acquisitions for all Tribune businesses. Mr. Hiller currently
serves on the boards of directors of several private companies. He holds a
Bachelor of Arts from Harvard College and a Juris Doctor from Harvard Law
School.
Bruce W. Ravenel has served as one of our directors since 1994. Since June
1999 he has served as a director and Executive Vice President of Liberty
Digital, Inc., a new media investment company. From September 1998 to June 1999
he was employed by Liberty Media Corporation in connection with the formation of
Liberty Digital. From April 1998 to September 1998, Mr. Ravenel was Executive
Vice President -- Interactive Ventures of TCI Communications, Inc., a former
subsidiary of Tele-Communications, Inc. Mr. Ravenel also served as President and
Chief Executive Officer of TCI.Net, Inc. and Senior Vice President -- Internet
Services of TCI Communications, Inc. from January 1996 to April 1998. Mr.
Ravenel also served as Senior Vice President and Chief Operating Officer of TCI
Technology Ventures, Inc. from March 1994 to January 1996. Mr. Ravenel was a
founder and served on the board of directors of At Home Corporation, a media
company, from March 1995 until March 1999. He serves on the boards of directors
of several private companies. Mr. Ravenel holds a Bachelor of Arts from the
University of Colorado, where he also studied in the doctoral program in
computer science.
Jeffrey P. Sanderson has served as one of our directors since December
1998. Since June 1984, Mr. Sanderson has served as General Manager of Business
Development for the Consumer and Commerce Group of Microsoft Corporation, a
software company. Mr. Sanderson holds a Bachelor of Arts from Princeton
University and attended the Harvard Business School.
Barry J. Schiffman has served as one of our directors since August 1997.
Since 1996, Mr. Schiffman has served as President, Chief Investment Officer and
a director of JAFCO America Ventures, Inc., a venture capital firm. Prior to
JAFCO, he was a general partner at Weiss, Peck & Greer Venture Partners, a
venture capital firm. Mr. Schiffman is currently chairman of AirGate PCS, Inc.
(PCSA), an affiliate of Sprint, and member of the board of several private
companies. Mr. Schiffman holds a Bachelor of Science from Georgia Institute of
Technology and a Masters in Business Administration from the Stanford Graduate
School of Business.
Ronald A. Weinberg joined our board of directors in October 1999. Mr.
Weinberg serves as President and co-CEO of CINAR Corporation, an integrated
entertainment and education company, which he
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<PAGE> 60
founded in 1976. Mr. Weinberg is the producer on all CINAR productions including
some of its most successful current series, such as Arthur, Are You Afraid of
the Dark?, The Busy World of Richard Scarry, Wimzie's House, and Lassie. Mr.
Weinberg currently serves on the boards of directors of Cossette Communications
Group Inc., a communications and marketing concern, and several private
companies and institutions. Mr. Weinberg holds a Bachelor of Science from Tulane
University.
BOARD COMMITTEES
The board of directors has established an audit committee and a
compensation committee. The audit committee consists of David D. Hiller, Jeffrey
P. Sanderson and Barry J. Schiffman. The audit committee makes recommendations
to the board of directors regarding the selection of independent auditors,
reviews the results and scope of the audit and other services provided by our
independent auditors and reviews and evaluates our audit and control functions.
The compensation committee consists of James W. Breyer and L. John Doerr.
The compensation committee makes recommendations regarding our 1992 Stock Option
Plan and our 2000 Equity Incentive Plan and makes general decisions concerning
salaries and incentive compensation for our employees and consultants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended January 31, 1999, James W. Breyer and L. John
Doerr served as members of our compensation committee. During that fiscal year,
none of our executive officers or employees served as a director or as a member
of the compensation committee of any entity that has one or more executive
officers serving as a member of our board of directors or compensation
committee.
DIRECTOR COMPENSATION
Our directors do not currently receive any cash compensation for services
on the board of directors or any committee thereof, but directors may be
reimbursed for certain expenses in connection with attendance at board and
committee meetings. In addition, all directors are eligible to participate in
our 2000 Equity Incentive Plan.
EXECUTIVE COMPENSATION
The following table sets forth summary information concerning compensation
awarded to, earned by, or accrued for services rendered to us in all capacities
during the fiscal year ended January 31, 1999 by our Chief Executive Officer and
two other executive officers. The compensation described in this table does not
include medical, group life insurance or other benefits which are available
generally to all of our salaried employees and certain perquisites and other
personal benefits received which do not exceed the lesser of $50,000 or 10% of
his or her salary and bonus as disclosed in this table.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------
NAME AND PRINCIPAL POSITION SALARY($) BONUS($)
--------------------------- --------- --------
<S> <C> <C>
John T. Kernan.............................................. $192,500 --
Chairman and Chief Executive Officer
Carl Zeiger................................................. $192,500 --
President and Chief Operating Officer
Michelle M. Hays(1)......................................... $124,290 $6,000
Former Vice President of Finance and Administration
</TABLE>
- ---------------
(1) Ms. Hays resigned from Lightspan in September 1998.
No options were granted to our executive officers during the fiscal year
ended January 31, 1999.
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<PAGE> 61
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table sets forth information as of January 31, 1999 regarding
options held by the executive officers listed. No stock appreciation rights were
outstanding at January 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
JANUARY 31, 1999 JANUARY 31, 1999
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
John T. Kernan................................... 0 0 0 0
Carl Zeiger...................................... 0 0 0 0
Michelle M. Hays................................. 82,498 27,502 $66,749 $17,251
</TABLE>
Dollar values in the table above are calculated by taking the fair market
value of our common stock on January 31, 1999, as determined by our board of
directors, subtracting the per share exercise price of the options, and
multiplying the result by the number of shares. Options were granted at an
exercise price equal to the fair market value of our common stock, as determined
by the board of directors on the date of grant.
Ms. Hays resigned from Lightspan in September 1998. On March 15, 1999, her
options stopped vesting, and in April 1999 all of her unexercised options were
cancelled.
EQUITY PLANS
2000 Equity Incentive Plan
In October 1999, the board adopted our 2000 Equity Incentive Plan. A total
of 12,280,544 shares of common stock are currently reserved for issuance
pursuant to the 2000 Plan. This share reserve shall automatically increase each
year, based upon a formula, by an amount not to exceed 3% of our total
outstanding common stock at the time of the automatic increases. The 2000 Plan
provides for the grant of options to our directors, officers and key employees,
and our consultants and certain of our advisors. Options to purchase 6,817,530
shares under the 2000 Plan are currently outstanding, and 3,400,479 shares
remain available for issuance pursuant to the 2000 Plan.
The 2000 Plan permits the granting of options intended to qualify as
incentive stock options within the meaning of Section 422 of the Internal
Revenue Code to employees (including officers and employee directors) and
nonstatutory stock options to employees (including officers and employee
directors), directors and consultants (including non-employee directors). In
addition, the 2000 Plan permits the granting of stock bonuses and rights to
purchase restricted stock. No person is eligible to be granted options covering
more than one million shares of common stock in any calendar year.
The 2000 Plan is administered by the board or a committee appointed by the
board. Subject to the limitations set forth in the 2000 Plan, the board has the
authority to select the persons to whom grants are to be made, to designate the
number of shares to be covered by each stock award, to determine whether an
option is to be an incentive stock option or a nonstatutory stock option, to
establish vesting schedules, to specify the option exercise price and the type
of consideration to be paid upon exercise and, subject to certain restrictions,
to specify other terms of stock awards.
The maximum term of options granted under the 2000 Plan is ten years. The
aggregate fair market value, determined at the time of grant, of the shares of
common stock with respect to which incentive stock options are exercisable for
the first time by an optionee during any calendar year (under all of our
incentive plans) may not exceed $100,000 or the options or portion thereof which
exceed such limit (according to the order in which they are granted) shall be
treated as nonstatutory stock options. Stock options granted under the 2000 Plan
generally are non-transferable. Options expire three months after the
termination of an optionee's service. In general, if an optionee is permanently
disabled or dies during his or her service, such person's options may be
exercised up to 12 months following such disability and 18 months following such
death.
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<PAGE> 62
The exercise price of options granted under the 2000 Plan is determined by
the board of directors in accordance with the guidelines set forth in the 2000
Plan. The exercise price of an incentive stock option cannot be less than 100%
of the fair market value of the common stock on the date of the grant. The
exercise price of a nonstatutory stock option cannot be less than 85% of the
fair market value of the common stock on the date of grant. Options granted
under the 2000 Plan vest at the rate specified in the option agreement. The
exercise price of incentive stock options granted to any person who at the time
of grant owns stock representing more than 10% of the total combined voting
power of all classes of our capital stock must be at least 110% of the fair
market value of such stock on the date of grant and the term of such incentive
stock options cannot exceed five years.
Any stock bonuses or restricted stock purchase awards granted under the
2000 Plan shall be in such form and will contain such terms and conditions as
the board deems appropriate. The purchase price under any restricted stock
purchase agreement will not be less than 85% of the fair market value of our
common stock on the date of grant. Stock bonuses and restricted stock purchase
agreements awarded under the 2000 Plan are generally transferable.
Pursuant to the 2000 Plan, shares subject to stock awards that have expired
or otherwise terminated without having been exercised in full again become
available for grant, but exercised shares repurchased by us pursuant to a right
of repurchase will not again become available for grant.
Upon certain changes in control, all outstanding stock awards under the
2000 Plan must either be assumed or substituted for by the surviving entity. In
the event the surviving entity does not assume or substitute for such stock
awards, such stock awards will be accelerated and then terminated to the extent
not exercised prior to such change in control.
The board has the authority to amend or terminate the 2000 Plan. The
existence of the 2000 Plan does not affect the board's ability to grant other
incentives or compensation under other authority that it has.
2000 Employee Stock Purchase Plan
In October 1999, we adopted the 2000 Employee Stock Purchase Plan. A total
of 1,000,000 shares of common stock has been reserved for issuance under the
Purchase Plan. This share reserve shall automatically increase each year, based
upon a formula, by an amount not to exceed 1% of our total outstanding common
stock at the time of the automatic increases. The Purchase Plan is intended to
qualify as an employee stock purchase plan within the meaning of Section 423 of
the Internal Revenue Code. Under the Purchase Plan, the board may authorize
participation by eligible employees, including officers, in periodic offerings
following the commencement of the Purchase Plan.
Unless otherwise determined by the board, employees are eligible to
participate in the Purchase Plan only if they are employed by us or our
subsidiary designated by the board for at least 20 hours per week and are
customarily employed by us or our subsidiary designated by the board for at
least 5 months per calendar year. Employees who participate in an offering may
have up to 15% of their earnings withheld pursuant to the Purchase Plan. The
amount withheld is then used to purchase shares of the common stock on specified
dates determined by the board. The price of common stock purchased under the
Purchase Plan will be equal to 85% of the lower of the fair market value of the
common stock at the commencement date of each offering period or the relevant
purchase date. Employees may end their participation in the offering at any time
during the offering period, and participation ends automatically on termination
of employment.
In the event of a merger, reorganization, consolidation or liquidation, the
board has discretion to provide that each right to purchase common stock will be
assumed or an equivalent right substituted by the successor corporation or the
board may provide for all sums collected by payroll deductions to be applied to
purchase stock immediately prior to such merger or other transaction. The board
has the authority to amend or terminate the Purchase Plan, provided, however,
that no such action may adversely affect any outstanding rights to purchase
common stock.
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401(k) Plan
We have established a tax-qualified employee savings and retirement plan.
Our 401(k) Plan provides that each participant may contribute up to 20% of his
or her pre-tax gross compensation (up to a statutorily prescribed annual limit
of $10,000 in 1999). Employees must be twenty-one years old to participate and
are eligible on the first day of the quarter following six months as our
employee. All amounts contributed by employee participants and earnings on these
contributions are fully vested at all times. Employee participants may elect to
invest their contributions in various established funds.
1992 Stock Option Plan
Upon the closing of our acquisition of Academic Systems, we assumed
Academic Systems' 1992 Stock Option Plan, under which outstanding options to
purchase shares of common stock of Academic Systems became exercisable for
1,114,016 shares of Lightspan common stock. As of October 14, 1999, options to
purchase 526,808 shares of common stock were outstanding under the 1992 Stock
Option Plan.
EMPLOYMENT AGREEMENTS
We have no employment agreements with any of our officers or employees.
INDEMNIFICATION OF DIRECTORS AND OFFICERS AND LIMITATION ON LIABILITY
Our bylaws provide that we must indemnify our directors and officers and
may indemnify our employees and other agents to the fullest extent permitted by
Delaware law, except with respect to certain proceedings initiated by these
persons. Our bylaws also allow us to enter into indemnification contracts with
our directors and officers and to purchase insurance on behalf of any person we
are required or permitted to indemnify. Pursuant to this provision, we have
entered into indemnification agreements with each of our directors and executive
officers.
In addition, our restated certificate provides that our directors will not
be personally liable to us or our stockholders for monetary damages for any
breach of their fiduciary duties as a director, except for liability (i) for any
breach of the director's duty of loyalty to us or our stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derives an
improper personal benefit. The restated certificate also provides that if the
Delaware General Corporation Law is amended after our stockholders' approval of
the restated certificate to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of our
directors shall be eliminated or limited to the fullest extent permitted by the
Delaware General Corporation Law, as so amended. The provision does not affect a
director's responsibilities under any other law, such as the federal securities
laws or state or federal environmental laws.
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<PAGE> 64
RELATED-PARTY TRANSACTIONS
The following is a description of transactions occurring after February 1,
1996 to which we have been a party, in which the amount involved exceeds $60,000
and in which any director, executive officer or holder of more than 5% of our
capital stock had or will have a direct or indirect material interest, other
than compensation arrangements which are described under "Management."
The following affiliates of our directors purchased securities in the
amounts set forth below. The number of shares and price per share of the
preferred stock are calculated as if these shares were converted into common
stock.
<TABLE>
<CAPTION>
SERIES C SERIES D SERIES E
PREFERRED PREFERRED PREFERRED
PURCHASER(1) STOCK STOCK STOCK WARRANTS
------------ ---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
Entities Affiliated with Directors
Entities affiliated with Accel
Partners(2)............................. 327,381 475,410 1,224,902 38,021
Comcast Cable Corporation(3)............ 297,619 -- 1,000,000 --
Entities affiliated with JAFCO America
Ventures, Inc.(4)..................... -- 2,127,658 -- --
Entities affiliated with Kleiner,
Perkins, Caufield & Byers(5).......... 166,666 475,414 1,235,593 38,023
Entities affiliated with Liberty
Digital, Inc.(6)...................... 297,619 207,174 3,661,951 23,546
Microsoft Corporation(7)................ 297,619 475,415 1,203,243 33,313
Tribune Company(8)...................... 1,666,667 741,373 200,000 30,718
Price Per Share:........................ $6.00 $3.76 $5.00 $3.76 - $5.00
</TABLE>
- -------------------------
(1) See "Principal Stockholders" for more detail on shares held by these
purchasers.
(2) Mr. James W. Breyer, one of our directors, is a partner of Accel Partners.
(3) Mr. Bradley P. Dusto, one of our directors, is the Chief Technology Officer
and Executive Vice President of Comcast Cable Communications, Inc.
(4) Mr. Barry J. Schiffman, one of our directors, is President and Chief
Investment Officer of JAFCO America Ventures, Inc.
(5) Mr. L. John Doerr, one of our directors, is a partner of Kleiner, Perkins,
Caufield & Byers.
(6) Mr. Bruce W. Ravenel, one of our directors, is an Executive Vice President
of Liberty Digital, Inc.
(7) Mr. Jeffrey P. Sanderson, one of our directors, is General Manager of
Business Development of Microsoft Corporation.
(8) Mr. David D. Hiller, one of our directors, is Senior Vice President of
Development of Tribune Company.
In September 1999, we acquired Academic Systems. John Brandon and funds
associated with four of our other directors, Messrs. Breyer, Doerr, Ravenel and
Sanderson, were shareholders of Academic Systems and received shares of our
common stock and Series E preferred stock in the acquisition.
In October 1999, CINAR Corporation purchased 2.5 million shares of our
Series E preferred stock at $5.00 per share. CINAR also agreed to purchase $10
million of our common stock in a private placement that will occur concurrently
with our initial public offering at the initial public offering price. We also
granted CINAR warrants to purchase 500,000 shares of our Series E preferred
stock that will vest upon the achievement of various agreed-to strategic goals.
As part of our agreement with CINAR, Ronald A. Weinberg, CINAR's President and
co-CEO, joined our board.
We believe that the foregoing transactions were in our best interest and
were made on terms no less favorable to us than could have been obtained from
unaffiliated third parties. All future transactions
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<PAGE> 65
between us and any of our officers, directors or principal shareholders will be
approved by a majority of the independent and disinterested members of the board
of directors, will be on terms no less favorable to us than could be obtained
from unaffiliated third parties and will be in connection with our bona fide
business purposes.
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<PAGE> 66
PRINCIPAL STOCKHOLDERS
The following table contains information about the beneficial ownership of
our common stock before and after our initial public offering for:
- each person who beneficially owns more than five percent of the common
stock;
- each of our directors;
- each of our executive officers listed in the Summary Compensation Table
under "Management"; and
- all directors and executive officers as a group.
Unless otherwise indicated, the address for each person or entity named
below is c/o The Lightspan Partnership, Inc., 10140 Campus Point Drive, San
Diego, California 92121.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
below have sole voting and investment power with respect to all shares of common
stock shown as beneficially owned by them. The percentage of beneficial
ownership is based on 60,132,764 shares of common stock outstanding as of
September 30, 1999, as adjusted to reflect the conversion of all outstanding
shares of preferred stock upon the closing of this offering.
The table assumes no exercise of the underwriters' over-allotment option.
If the underwriters' over-allotment option is exercised in full, we will sell up
to an aggregate of additional shares of our common stock, and up
to shares of common stock will be outstanding after the
completion of this offering.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
OUTSTANDING
--------------------
NUMBER OF SHARES BEFORE AFTER
NAME OF BENEFICIAL OWNER BENEFICIALLY OWNED OFFERING OFFERING
------------------------ ------------------ -------- --------
<S> <C> <C> <C>
John T. Kernan(1)......................................... 2,602,654 4.3%
Carl Zeiger............................................... 2,577,000 4.3%
John H. Brandon(2)........................................ 292,921 *
Michelle M. Hays(3)....................................... 50,000 *
James W. Breyer(4)........................................ 6,121,964 10.2%
Accel Partners
L. John Doerr(5).......................................... 5,876,199 9.8%
Kleiner, Perkins, Caufield & Byers
Jeffrey P. Sanderson(6)................................... 5,492,111 9.1%
Microsoft Corporation
David D. Hiller(7)........................................ 3,600,948 6.0%
Tribune Company
Bradley P. Dusto(8)....................................... 4,808,257 8.0%
Comcast Cable Corporation
Bruce W. Ravenel(9)....................................... 7,677,382 12.8%
Liberty Digital, Inc.
Barry J. Schiffman(10).................................... 2,127,658 3.5%
JAFCO America Ventures, Inc.
All directors and officers as a group (10 persons)(11).... 41,177,094 68.4%
</TABLE>
- ---------------
(1) Includes 1,513 shares issuable under options exercisable by November 30,
1999.
(2) Includes 50,501 shares issuable under options exercisable by November 30,
1999.
(3) Michelle M. Hays resigned from Lightspan in September 1998.
(4) Mr. Breyer's business address is 428 University Avenue, Palo Alto, CA
94301.
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Includes:
- 4,455,882 shares held by Accel IV L.P., which represents 7.4% of the
total number of shares outstanding before this offering;
- 179,983 shares held by Accel Investors '93 L.P., which represents less
than 1% of the total number of shares outstanding before this offering;
- 107,019 shares held by Ellmore C. Patterson Partners, which represents
less than 1% of the total number of shares outstanding before this
offering;
- 92,424 shares held by Accel Keiretsu L.P., which represents less than 1%
of the total number of shares outstanding before this offering;
- 29,184 shares held by Prosper Partners, which represents less than 1% of
the total number of shares outstanding before this offering;
- 1,081,426 shares held by Accel III L.P., which represents 1.8% of the
total number of shares outstanding before this offering;
- 75,448 shares held by Accel Investors '92 L.P., which represents less
than 1% of the total number of shares outstanding before this offering;
and
- 100,598 shares held by Accel Japan L.P., which represents less than 1%
of the total number of shares outstanding before this offering.
(5) Mr. Doerr's business address is 2750 Sand Hill Road, Menlo Park, CA 94025.
Includes:
- 5,325,302 shares held by Kleiner, Perkins, Caufield & Byers VI, which
represents 8.9% of the total number of shares outstanding before this
offering; and
- 550,897 shares held by KPCB VI Founders Fund, which represents less than
1% of the total number of shares outstanding before this offering.
(6) Mr. Sanderson's business address is One Microsoft Way, Redmond, WA 98052.
(7) Mr. Hiller's business address is 435 North Michigan Avenue, Chicago, IL
60611.
(8) Mr. Dusto's business address is 1500 Market Street, Philadelphia, PA 19102
(9) Mr. Ravenel's business address is 9197 South Peoria Street, Englewood, CO
80112
(10) Mr. Schiffman's business address is 505 Hamilton Avenue, Palo Alto, CA
94301.
Includes:
- 851,062 shares held by U.S. Information Technology Investment Enterprise
Partnership, which represents 1.4% of the total number of shares
outstanding before this offering;
- 851,062 shares held by U.S. Information Technology #2 Investment
Enterprise Partnership, which represents 1.5% of the total number of
shares outstanding before this offering;
- 89,047 shares held by JAFCO G-7 (B) Investment Enterprise Partnership,
which represents less than 1% of the total number of shares outstanding
before this offering;
- 89,047 shares held by JAFCO G-7 (A) Investment Enterprise Partnership,
which represents less than 1% of the total number of shares outstanding
before this offering;
- 76,201 shares held by JAFCO R-2 Investment Enterprise Partnership, which
represents less than 1% of the total number of shares outstanding before
this offering;
- 86,128 shares held by JAFCO JS -2 Investment Enterprise Partnership,
which represents less than 1% of the total number of shares outstanding
before this offering; and
- 94,111 shares held by Japan Associated Finance Co., Ltd., which
represents less than 1% of the total number of shares outstanding before
this offering.
(11) Includes 52,014 shares issuable under options exercisable by November 30,
1999.
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<PAGE> 68
DESCRIPTION OF CAPITAL STOCK
Immediately following the closing of this offering, our authorized capital
stock will consist of 250,000,000 shares of common stock, $0.001 par value per
share, and 20,000,000 shares of preferred stock, $0.001 par value per share. As
of September 30, 1999, and assuming the conversion of all outstanding preferred
stock into common stock upon the closing of this offering, there were
outstanding 60,132,764 shares of common stock held of record by 323
stockholders, options to purchase 7,120,971 shares of common stock and warrants
to purchase 807,169 shares of common stock.
COMMON STOCK
The holders of common stock are entitled to one vote per share on all
matters to be voted on by the stockholders. Subject to preferences that may be
applicable to any outstanding shares of preferred stock, holders of common stock
are entitled to receive ratably such dividends as may be declared by the board
of directors out of funds legally available therefor. In the event of our
liquidation, dissolution or winding up, holders of common stock are entitled to
share ratably in all assets remaining after payment of liabilities and the
liquidation preferences of any outstanding shares of preferred stock. Holders of
common stock have no preemptive, conversion, subscription or other rights. There
are no redemption or sinking fund provisions applicable to the common stock. All
outstanding shares of common stock are, and all shares of common stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
As of September 30, 1999, assuming the closing of this offering, all
outstanding shares of preferred stock would have been converted into 51,058,595
shares of common stock. See Note 5 to the Lightspan financial statements for a
description of the currently outstanding preferred stock. Following the
conversion, our certificate of incorporation will be amended and restated to
delete all references to such shares of preferred stock. The certificate, as
restated, gives to the board the authority, without further action by
stockholders, to issue up to 20,000,000 shares of preferred stock in one or more
series and to fix the rights, preferences, privileges, qualifications and
restrictions granted to or imposed upon such preferred stock, including dividend
rights, conversion rights, voting rights, rights and terms of redemption,
liquidation preference and sinking fund terms, any or all of which may be
greater than the rights of the common stock. The issuance of preferred stock
could:
- adversely affect the voting power of holders of common stock and reduce
the likelihood that such holders will receive dividend payments and
payments upon liquidation;
- decrease the market price of the common stock; or
- delay, deter or prevent a change in our control.
We have no present plans to issue any shares of preferred stock.
REGISTRATION RIGHTS
Pursuant to the Amended and Restated Investor Rights Agreement, as amended,
between us and some of our investors, the investors, holding an aggregate of
51,058,595 shares of our common stock issuable upon conversion of our
outstanding preferred stock and upon exercise of outstanding warrants to
purchase common stock, have registration rights pertaining to the securities
they hold, exercisable any time following 180 days after the effective date of
this offering. If we propose to register any of our securities under the
Securities Act for our own account or the account of any of our stockholders
other than these holders of registrable shares, holders of such registrable
shares are entitled to notice of the registration and are entitled to include
registrable shares therein, provided, among other conditions, that the
underwriters of any such offering have the right to limit the number of shares
included in such registration. In addition, commencing 180 days after the
effective date of the registration statement of which this prospectus is a part,
we may be required to prepare and file a registration statement under the
Securities Act at our expense if requested to do so by the holders of at least
30% of the registrable shares, or by holders who
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<PAGE> 69
propose to register securities, the aggregate offering price of which, net of
underwriting discounts and commissions, equals or exceeds $10,000,000. We are
required to use our best efforts to effect such registration, subject to certain
conditions and limitations. We are not obligated to effect more than three of
such stockholder-initiated registrations. Further, holders of registrable
securities may require us to file additional registration statements on Form
S-3, subject to certain conditions and limitations.
We are required to bear substantially all costs incurred in connection with
any such registrations, other than underwriting discounts and commissions. The
foregoing registration rights could result in substantial future expenses for us
and adversely affect any future equity offerings.
ANTI-TAKEOVER PROVISIONS
Delaware Law
We are governed by the provisions of Section 203 of the Delaware General
Corporation Law. In general, Section 203 prohibits a public 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 in
a prescribed manner. A "business combination" includes mergers, asset sale or
other transactions resulting in a financial benefit to the stockholder. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or within three years, did own) 15% or more of the
corporation's voting stock. The statute could have the effect of delaying,
deferring or preventing a change in our control.
Certificate of Incorporation and Bylaw Provisions
Our restated certificate, which will become effective upon the closing of
the offering, provides that the board of directors will be divided into three
classes of directors, with each class serving a staggered three-year term. The
classification system of electing directors may tend to discourage a third party
from making a tender offer or otherwise attempting to obtain control of us and
may maintain the composition of the board of directors, as the classification of
the board of directors generally increases the difficulty of replacing a
majority of directors. Our restated certificate provides that any action
required or permitted to be taken by our stockholders must be effected at a duly
called annual or special meeting of stockholders and may not be effected by any
consent in writing. In addition, our bylaws provide that special meetings of our
stockholders may be called only by the Chairman of the board of directors, our
President, our Chief Executive Officer, or by the board of directors pursuant to
a resolution adopted by a majority of the total number of authorized directors.
Our restated certificate also specifies that the authorized number of directors
may be changed only by resolution of the board of directors and does not include
a provision for cumulative voting for directors. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors. These and other provisions
contained in our restated certificate and bylaws could delay or discourage
certain types of transactions involving an actual or potential change in control
of us or our management (including transactions in which stockholders might
otherwise receive a premium for their shares over then current prices) and may
limit the ability of stockholders to remove current management or approve
transactions that stockholders may deem to be in their best interests and,
therefore, could adversely affect the price of our common stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is Harris Trust
Company of California.
THE NASDAQ STOCK MARKET'S NATIONAL MARKET
We have applied to list our common stock on the Nasdaq Stock Market's
National Market under the trading symbol "LSPN."
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<PAGE> 70
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no market for our common stock, and
we cannot assure you that a significant public market for our common stock will
develop or be sustained after this offering. As described below, no shares
currently outstanding will be available for sale immediately after this offering
due to certain contractual and securities law restrictions on resale. Sales of
substantial amounts of our common stock in the public market after the
restrictions lapse could adversely affect the prevailing market price and our
ability to raise equity capital in the future.
Upon completion of this offering, we will have outstanding shares of
common stock, assuming no exercise of the underwriters' over-allotment option
and no exercise of outstanding options. Of these shares, the shares offered for
sale through the underwriters will be freely tradable without restriction under
the Securities Act unless purchased by our affiliates or covered by a separate
lock-up agreement with the underwriters.
The remaining shares of common stock held by existing stockholders
are restricted securities. Restricted securities may be sold in the public
market only if registered or if they qualify for an exemption from registration
described below under Rules 144, 144(k) or 701 promulgated under the Securities
Act.
As a result of the lock-up agreements and the provisions of Rules 144,
144(k) and 701 described below, these restricted shares will be available for
sale in the public market as follows:
- no shares may be sold prior to 180 days from the date of this prospectus;
- shares will have been held long enough to be sold under Rule
144 or Rule 701 beginning 181 days after the date of this prospectus; and
- the remaining shares may be sold under Rule 144 or 144(k) once they have
been held for the required time.
Lock-Up Agreements. We and our officers, directors and stockholders have
agreed not to transfer or dispose of, directly or indirectly, any shares of our
common stock or any securities convertible into or exercisable or exchangeable
for shares of our common stock, for a period of 180 days after the date of this
prospectus. Transfers or dispositions can be made sooner with the prior written
consent of Credit Suisse First Boston Corporation.
Rule 144. In general, under Rule 144, a person who has beneficially owned
restricted securities for at least one year would be entitled to sell within any
three-month period a number of shares that does not exceed the greater of:
- 1% of the number of shares of our common stock then outstanding which
will equal approximately shares immediately after this offering;
or
- the average weekly trading volume of our common stock on the Nasdaq
National Market during the four calendar weeks preceding the filing of a
notice on Form 144 with respect to the sale.
Sales under Rule 144 are also limited by manner-of-sale provisions and
notice requirements and to the availability of current public information about
us.
Rule 144(k). Under Rule 144(k), a person who is not deemed to have been one
of our affiliates at any time during the 3 months preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years is
entitled to sell these shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144 discussed above.
Rule 701. In general, under Rule 701, any of our employees, consultants or
advisors who purchases or receives shares from us under a compensatory stock
purchase plan or option plan or other written agreement will be eligible to
resell their shares beginning 90 days after the date of this prospectus. Non-
affiliates will be able to sell their shares subject only to the manner-of-sale
provisions of Rule 144.
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<PAGE> 71
Affiliates will be able to sell their shares without compliance with the holding
period requirements of Rule 144.
Registration Rights. Upon completion of this offering, the holders of
shares of our common stock have rights to have their shares registered
under the Securities Act. Except for shares purchased by affiliates or covered
by lock-up agreements, registration of their shares under the Securities Act
would result in these shares becoming freely tradable without restriction under
the Securities Act immediately upon the effectiveness of the registration.
Stock Options. Immediately after this offering, we intend to file a
registration statement under the Securities Act covering the shares of common
stock reserved for issuance upon exercise of outstanding options. The
registration statement is expected to be filed and become effective as soon as
practicable after the closing of this offering. Accordingly, shares registered
under the registration statement will be available for resale in the open market
beginning 180 days after the effective date of the registration statement of
which this prospectus is a part, except with respect to Rule 144 volume
limitations that apply to our affiliates.
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<PAGE> 72
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Thomas Weisel Partners LLC and U.S. Bancorp Piper Jaffray Inc. 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......................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc..............................
--------
Total.............................................
========
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the 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 from us 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 dealers may be changed by the
representatives.
The following table summarizes the compensation and 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 discretionary
sales 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 acted
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<PAGE> 73
as lead or co-manager on numerous 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.
We and our officers, directors and stockholders have agreed that we will
not 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 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.
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 the offering will be reduced to the extent such persons
purchase such 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 to contribute to payments which the underwriters may be
required to make in that respect.
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol "LSPN."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the representatives. The principal factors to be considered in
determining the public offering price include the following:
- the information included in this prospectus and otherwise available to
the representatives;
- market conditions for initial public offerings;
- the history of, and the prospects for, the industry in which we will
compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly-traded common
stock of companies that are generally comparable to us.
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.
- 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 securities in
the open market after the distribution has been completed in order to
cover syndicate short positions.
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<PAGE> 74
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the securities originally sold by the
syndicate member are purchased 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 Stock Market's National Market or otherwise and, if commenced, may be
discontinued at any time.
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<PAGE> 75
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. Purchasers 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 laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, 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 Canadian 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 sale 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.
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<PAGE> 76
LEGAL MATTERS
Cooley Godward LLP, San Diego, California will pass upon the validity of
the shares of common stock offered by this prospectus for us. As of the date of
this prospectus, an investment fund created by Cooley Godward LLP owns an
aggregate of 70,000 shares of Series E preferred stock (convertible into 70,000
shares of common stock). O'Melveny & Myers LLP, Newport Beach, California will
pass upon certain legal matters in connection with this offering for the
underwriters.
EXPERTS
Ernst & Young LLP have audited our financial statements as of January 31,
1998 and 1999 and for the years ended January 31, 1997, 1998 and 1999 and the
financial statements of Academic Systems as of September 30, 1997 and 1998 and
for the years then ended, as set forth in their reports. We have included our
financial statements (including those of Academic Systems) in this prospectus
and elsewhere in the registration statement in reliance on their reports, given
on their authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
We have 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 by this prospectus. As permitted by the rules and regulations of the
Commission, this prospectus, which is a part of the registration statement,
omits certain information, exhibits, schedules and undertakings set forth in the
registration statement. For further information pertaining to us and the common
stock offered hereby, reference is made to such registration statement and the
exhibits and schedules thereto. Statements contained in this prospectus as to
the contents or provisions of any contract or other document referred to herein
are not necessarily complete, and in each instance reference is made to the copy
of such contract or other document filed as an exhibit to the registration
statement, each such statement being qualified in all respects by such
reference. A copy of the registration statement may be inspected without charge
at the office of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at the Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and
Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of all or
any part of the registration statement may be obtained from such offices upon
the payment of the fees prescribed by the Commission. In addition, registration
statements and certain other filings made with the Commission through its
Electronic Data Gathering, Analysis and Retrieval ("EDGAR") system, including
our registration statement and all exhibits and amendments to our registration
statements, are publicly available through the Commission's Web site at
http://www.sec.gov.
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<PAGE> 77
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
THE LIGHTSPAN PARTNERSHIP, INC.
Report of Ernst & Young LLP, Independent Auditors........... F-2
Balance Sheets as of January 31, 1998 and 1999 and July 31,
1999 (unaudited).......................................... F-3
Statements of Operations for the years ended January 31,
1997, 1998 and 1999 and the six months ended July 31, 1998
and 1999 (unaudited)...................................... F-4
Statements of Shareholders' Equity for the years ended
January 31, 1997, 1998 and 1999 and the six months ended
July 31, 1999 (unaudited)................................. F-5
Statements of Cash Flows for the years ended January 31,
1997, 1998 and 1999 and the six months ended July 31, 1998
and 1999 (unaudited)...................................... F-6
Notes to Financial Statements............................... F-7
ACADEMIC SYSTEMS CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-22
Balance Sheets as of September 30, 1997 and 1998 and June
30, 1999 (unaudited)...................................... F-23
Statements of Operations for the years ended September 30,
1997 and 1998 and the nine months ended June 30, 1998 and
1999 (unaudited).......................................... F-24
Statements of Shareholders' Equity for the years ended
September 30, 1997 and 1998 and the nine months ended June
30, 1998 and 1999 (unaudited)............................. F-25
Statements of Cash Flows for the years ended September 30,
1997 and 1998 and the nine months ended June 30, 1998 and
1999 (unaudited).......................................... F-26
Notes to Financial Statements............................... F-27
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Balance Sheet as of
July 31, 1999............................................. F-34
Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended January 31, 1999............ F-35
Unaudited Pro Forma Combined Condensed Statement of
Operations for the six months ended July 31, 1999......... F-36
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements................................................ F-37
</TABLE>
F-1
<PAGE> 78
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
The Lightspan Partnership, Inc.
We have audited the accompanying balance sheets of The Lightspan
Partnership, Inc. as of January 31, 1998 and 1999 and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended January 31, 1999. These financial statements are the
responsibility of Lightspan'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 The Lightspan Partnership,
Inc. at January 31, 1998 and 1999, and the results of its operations and its
cash flows for each of the three years in the period ended January 31, 1999, in
conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
San Diego, California
March 25, 1999
F-2
<PAGE> 79
THE LIGHTSPAN PARTNERSHIP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, PRO FORMA
----------------------------- JULY 31, SHAREHOLDERS'
1998 1999 1999 EQUITY
------------ ------------- ------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........................ $ 4,421,617 $ 7,142,938 $ 25,569,628
Accounts receivable, less allowance for doubtful
accounts of $533,168, $400,000 and $649,995 at
January 31, 1998 and 1999 and July 31, 1999,
respectively................................... 5,243,838 7,794,981 11,253,006
Finished goods inventory......................... 919,142 1,267,237 463,734
Other current assets............................. 1,086,017 1,045,997 743,765
------------ ------------- -------------
Total current assets...................... 11,670,614 17,251,153 38,030,133
Property and equipment, net........................ 2,241,784 1,637,886 1,694,328
Deposits and other assets.......................... 167,494 121,178 168,143
------------ ------------- -------------
Total assets.............................. $ 14,079,892 $ 19,010,217 $ 39,892,604
============ ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................. $ 3,285,340 $ 3,069,280 $ 3,343,527
Accrued liabilities.............................. 5,677,311 5,721,065 7,144,726
Deferred revenue................................. 2,494,072 4,199,589 5,180,070
Current portion of capital lease obligations..... 1,234,358 930,040 576,477
------------ ------------- -------------
Total current liabilities................. 12,691,081 13,919,974 16,244,800
Deferred rent...................................... 406,281 382,486 331,061
Capital lease obligations, less current portion.... 774,889 393,480 469,824
Commitments
Shareholders' equity:
Convertible preferred stock, par value $0.001:
Authorized shares -- 56,795,074
Issued and outstanding shares --
30,049,176 and 35,527,893 at January 31, 1998
and 1999, respectively, and 40,822,078 at
July 31, 1999; no shares pro forma...........
Aggregate liquidation preference --
$90,819,936 and $111,419,912 at January 31,
1998 and 1999, respectively, and $137,890,837
at July 31, 1999............................. 30,049 35,527 40,821 $ --
Common stock, par value $0.001:
Authorized shares -- 75,000,000
Issued and outstanding shares --
6,551,236 and 7,081,156 at January 31, 1998
and 1999, respectively, and 7,831,150 at July
31, 1999; 50,597,908 shares pro forma........ 6,552 7,081 7,831 50,598
Additional paid-in capital....................... 89,849,633 110,671,293 144,986,033 144,984,087
Deferred compensation............................ -- (192,196) (7,012,176) (7,012,176)
Accumulated deficit.............................. (89,678,593) (106,207,428) (115,175,590) (115,175,590)
------------ ------------- ------------- -------------
Total shareholders' equity................ 207,641 4,314,277 22,846,919 $ 22,846,919
------------ ------------- ------------- =============
Total liabilities and shareholders'
equity.................................. $ 14,079,892 $ 19,010,217 $ 39,892,604
============ ============= =============
</TABLE>
F-3
<PAGE> 80
THE LIGHTSPAN PARTNERSHIP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
-------------------------------------------- --------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses...................... $ 5,591,769 $ 15,041,742 $ 20,985,230 $10,723,900 $13,539,415
Services.................... 553,912 1,973,595 3,742,237 1,808,920 2,789,220
Hardware.................... 2,419,360 5,293,671 6,103,957 3,505,683 3,170,894
------------ ------------ ------------ ----------- -----------
Total revenues...... 8,565,041 22,309,008 30,831,424 16,038,503 19,499,529
Cost of revenues:
Licenses.................... 2,963,848 6,408,733 4,149,915 1,901,833 3,029,567
Services.................... 563,403 1,753,808 2,385,056 1,116,017 1,367,257
Hardware.................... 2,314,844 4,744,887 4,973,166 2,911,595 2,724,748
------------ ------------ ------------ ----------- -----------
Total cost of
revenues.......... 5,842,095 12,907,428 11,508,137 5,929,445 7,121,572
------------ ------------ ------------ ----------- -----------
Gross profit.................. 2,722,946 9,401,580 19,323,287 10,109,058 12,377,957
Operating expenses:
Technology and
development.............. 18,953,329 14,816,050 10,593,735 6,071,391 4,458,012
Sales and marketing......... 13,773,048 20,295,916 22,066,261 11,029,927 13,809,139
General and
administrative........... 2,472,717 2,714,544 3,590,159 1,231,262 2,046,209
Stock-based compensation.... -- -- 19,680 -- 962,462
------------ ------------ ------------ ----------- -----------
35,199,094 37,826,510 36,269,835 18,332,580 21,275,822
------------ ------------ ------------ ----------- -----------
Loss from operations.......... (32,476,148) (28,424,930) (16,946,548) (8,223,522) (8,897,865)
Interest income (expense),
net......................... (112,559) (527,659) 417,713 242,580 (70,297)
------------ ------------ ------------ ----------- -----------
Net loss...................... $(32,588,707) $(28,952,589) $(16,528,835) $(7,980,942) $(8,968,162)
============ ============ ============ =========== ===========
Historical net loss per share:
Basic and diluted........... $ (5.36) $ (4.56) $ (2.44) $ (1.20) $ (1.21)
============ ============ ============ =========== ===========
Weighted average shares --
basic and diluted........ 6,077,648 6,354,630 6,775,544 6,627,252 7,431,082
============ ============ ============ =========== ===========
Pro forma net loss per share:
Basic and diluted........... $ (0.38) $ (0.20)
============ ===========
Weighted average shares --
basic and diluted........ 43,602,679 45,371,650
============ ===========
</TABLE>
See accompanying notes.
F-4
<PAGE> 81
THE LIGHTSPAN PARTNERSHIP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL
-------------------- ------------------ PAID-IN DEFERRED STOCK ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL COMPENSATION DEFICIT
---------- ------- --------- ------ ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1996........ 19,134,164 $19,134 6,048,875 $6,049 $ 42,649,455 $ $ (28,137,297)
Issuance of Series C convertible
preferred stock at $6.00 per share
for cash, net of offering costs of
$30,994............................ 3,264,285 3,264 -- -- 19,551,452 -- --
Issuance of warrants to purchase
convertible
preferred stock................ -- -- -- -- 99,124 -- --
Exercise of stock options........ -- -- 88,854 89 11,920 -- --
Net loss......................... -- -- -- -- -- -- (32,588,707)
---------- ------- --------- ------ ------------ ----------- -------------
Balance at January 31, 1997........ 22,398,449 22,398 6,137,729 6,138 62,311,951 (60,726,004)
Issuance of Series D convertible
preferred stock at $3.76 per
share for cash, net of offering
costs of $1,405,286............ 5,984,038 5,984 -- -- 21,088,712 -- --
Issuance of Series D convertible
preferred stock at $3.76 per
share in exchange for bridge
loans from shareholders........ 1,666,689 1,667 -- -- 6,265,085 -- --
Issuance of warrants to purchase
convertible
preferred stock................ -- -- -- -- 102,536 -- --
Exercise of stock options........ -- -- 489,549 490 82,779 -- --
Repurchase of common stock for
cash........................... -- -- (76,042) (76) (1,430) -- --
Net loss......................... -- -- -- -- -- -- (28,952,589)
---------- ------- --------- ------ ------------ ----------- -------------
Balance at January 31, 1998........ 30,049,176 30,049 6,551,236 6,552 89,849,633 (89,678,593)
Issuance of Series D convertible
preferred stock at $3.76 per
share for cash, net of offering
costs of $127,132.............. 5,478,717 5,478 -- -- 20,467,364 -- --
Exercise of stock options........ -- -- 529,920 529 142,420 -- --
Deferred compensation related to
stock options.................. -- -- -- -- 211,876 (211,876) --
Amortization of deferred
compensation................... -- -- -- -- -- 19,680 --
Net loss......................... -- -- -- -- -- -- (16,528,835)
---------- ------- --------- ------ ------------ ----------- -------------
Balance at January 31, 1999........ 35,527,893 35,527 7,081,156 7,081 110,671,293 (192,196) (106,207,428)
Issuance of Series E convertible
preferred stock at
$5.00 per share for cash, net
of offering costs
of $8,861 (unaudited).......... 5,294,185 5,294 -- -- 26,456,770 -- --
Exercise of stock options
(unaudited).................... -- -- 749,994 750 75,528 -- --
Deferred compensation related to
stock
options (unaudited)............ -- -- -- -- 7,782,442 (7,782,442) --
Amortization of deferred
compensation (unaudited)....... -- -- -- -- -- 962,462 --
Net loss (unaudited)............. -- -- -- -- -- -- (8,968,162)
---------- ------- --------- ------ ------------ ----------- -------------
Balance at July 31, 1999
(unaudited)...................... 40,822,078 $40,821 7,831,150 $7,831 $144,986,033 $(7,012,176) $(115,175,590)
========== ======= ========= ====== ============ =========== =============
<CAPTION>
TOTAL
SHAREHOLDERS'
EQUITY
-------------
<S> <C>
Balance at January 31, 1996........ $ 14,537,341
Issuance of Series C convertible
preferred stock at $6.00 per share
for cash, net of offering costs of
$30,994............................ 19,554,716
Issuance of warrants to purchase
convertible
preferred stock................ 99,124
Exercise of stock options........ 12,009
Net loss......................... (32,588,707)
------------
Balance at January 31, 1997........ 1,614,483
Issuance of Series D convertible
preferred stock at $3.76 per
share for cash, net of offering
costs of $1,405,286............ 21,094,696
Issuance of Series D convertible
preferred stock at $3.76 per
share in exchange for bridge
loans from shareholders........ 6,266,752
Issuance of warrants to purchase
convertible
preferred stock................ 102,536
Exercise of stock options........ 83,269
Repurchase of common stock for
cash........................... (1,506)
Net loss......................... (28,952,589)
------------
Balance at January 31, 1998........ 207,641
Issuance of Series D convertible
preferred stock at $3.76 per
share for cash, net of offering
costs of $127,132.............. 20,472,842
Exercise of stock options........ 142,949
Deferred compensation related to
stock options.................. --
Amortization of deferred
compensation................... 19,680
Net loss......................... (16,528,835)
------------
Balance at January 31, 1999........ 4,314,277
Issuance of Series E convertible
preferred stock at
$5.00 per share for cash, net
of offering costs
of $8,861 (unaudited).......... 26,462,064
Exercise of stock options
(unaudited).................... 76,278
Deferred compensation related to
stock
options (unaudited)............ --
Amortization of deferred
compensation (unaudited)....... 962,462
Net loss (unaudited)............. (8,968,162)
------------
Balance at July 31, 1999
(unaudited)...................... $ 22,846,919
============
</TABLE>
See accompanying notes.
F-5
<PAGE> 82
THE LIGHTSPAN PARTNERSHIP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31, SIX MONTHS ENDED JULY 31,
------------------------------------------ -------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss................................ $(32,588,707) $(28,952,589) $(16,528,835) $(7,980,942) $(8,968,162)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization....... 982,665 1,637,485 1,310,498 680,064 588,993
(Gain) loss on disposal of assets... (64,827) 37,774 (5,060) -- --
Provision for doubtful accounts..... 235,991 297,177 (133,168) 106,832 249,995
Amortization of deferred stock-based
compensation...................... -- -- 19,680 -- 962,462
Amortization of interest expense
issued in connection with debt.... 61,509 140,151 -- -- --
Changes in operating assets and
liabilities:
Accounts receivable............ (5,620,093) (156,913) (2,417,975) (2,165,740) (3,708,020)
Inventory...................... (284,871) 174,579 (348,095) (681,534) 803,503
Deposits and other assets...... 160,654 (288,659) 86,336 (67,122) 255,267
Accounts payable............... 2,136,259 (149,262) (216,060) 664,347 274,247
Deferred revenue............... 1,769,315 724,757 1,705,517 1,115,379 980,481
Accrued liabilities............ 1,732,330 4,055,077 19,959 (762,739) 1,372,236
------------ ------------ ------------ ----------- -----------
Net cash flows used in operating
activities............................ (31,479,775) (22,480,423) (16,507,203) (9,091,455) (7,188,998)
INVESTING ACTIVITIES:
Decrease in short-term investments...... 5,423,307 414,000 -- -- --
Purchase of property and equipment...... (2,850,709) (422,808) (725,707) (604,585) (645,435)
Proceeds from sale of fixed assets...... -- 30,816 24,167 -- --
------------ ------------ ------------ ----------- -----------
Net cash flows provided by (used in)
investing activities.................. 2,572,598 22,008 (701,540) (604,585) (645,435)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred
stock................................. 19,554,716 21,094,696 20,472,842 20,472,842 26,462,064
Proceeds from convertible bridge
notes................................. -- 6,266,752 -- -- --
Proceeds from lessor from capital
leases................................ 2,287,118 339,112 699,538 416,474 431,788
Principal repayments on capital
leases................................ (1,216,743) (1,527,864) (1,385,265) (454,169) (709,007)
Proceeds from notes payable............. 1,600,000 -- -- -- --
Principal repayments on notes payable... (755,152) (844,848) -- -- --
Proceeds from exercise of stock
options............................... 12,009 83,269 142,949 67,523 76,278
Repurchase of common stock.............. -- (1,506) -- -- --
------------ ------------ ------------ ----------- -----------
Net cash flows provided by financing
activities............................ 21,481,948 25,409,611 19,930,064 20,502,670 26,261,123
Increase (decrease) in cash and cash
equivalents........................... (7,425,229) 2,951,196 2,721,321 10,806,630 18,426,690
Cash and cash equivalents at beginning
of period............................. 8,895,650 1,470,421 4,421,617 4,421,617 7,142,938
------------ ------------ ------------ ----------- -----------
Cash and cash equivalents at end of
period................................ $ 1,470,421 $ 4,421,617 $ 7,142,938 $15,228,247 $25,569,628
============ ============ ============ =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Interest paid........................... $ 495,966 $ 584,035 $ 193,058 $ 110,353 $ 94,351
============ ============ ============ =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Conversion of bridge notes into Series D
convertible preferred stock........... $ -- $ 6,266,752 $ -- $ -- $ --
============ ============ ============ =========== ===========
Deferred stock-based compensation....... $ -- $ -- $ 211,876 $ -- $ 7,782,442
============ ============ ============ =========== ===========
</TABLE>
See accompanying notes.
F-6
<PAGE> 83
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
The Lightspan Partnership ("Lightspan") was founded in 1993. Lightspan
provides curriculum-based educational software and Internet products and
services to schools and school districts that are used both in school and at
home. Lightspan Achieve Now is an interactive CD-ROM-based software product for
kindergarten through eighth grade, or K-8, that covers the core curriculum of
language arts, reading and math. The Lightspan Achieve Now program typically
includes the Lightspan Achieve Now software and a Sony PlayStation(R) game
console that the student uses to run the program at home throughout the school
year. The Lightspan Network is an online subscription service that provides
curriculum-based content for classroom and home use.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
which include debt securities with remaining maturities when acquired of three
months or less.
CONCENTRATION OF CREDIT RISK
Substantially all of Lightspan's accounts receivable are from school
districts located throughout the United States. Lightspan provides for estimated
losses from uncollectible accounts and such losses have historically not
exceeded management's expectations.
INVENTORY
Inventory consists primarily of software for resale and is stated at the
lower of cost (first in, first out method) or market.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated or amortized over
the shorter of the estimated useful life of the related asset (two to five
years) or the term of the lease, using the straight-line method.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, Lightspan regularly evaluates its long-lived assets for
indicators of possible impairment by comparison of the carrying amounts to
undiscounted estimated cash flows to be generated by such assets. Should an
impairment exist, the impairment loss would be measured based on the excess of
the carrying value of the asset over the asset's fair value or discounted
estimates of future cash flows. Lightspan has not identified any such impairment
losses to date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities, and capital lease
obligations, are carried at cost, which management believes approximates fair
value because of the short-term maturity of these instruments.
F-7
<PAGE> 84
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
DEFERRED RENT
Rent expense is recorded on a straight-line basis over the term of the
lease. The difference between rent expense accrued and amounts paid under the
lease agreements is recorded as deferred rent in the accompanying balance sheet.
REVENUE RECOGNITION
Revenue is derived from the licensing of software, product implementation
and training services, customer support services (PCS), Internet subscriptions
and the sale of PlayStation(R) game consoles and accessories. In software
arrangements that include rights to software products, PCS and product
implementation and training services, Lightspan allocates the total arrangement
fee among each deliverable based on the relative fair value of each element as
determined by vendor-specific objective evidence.
Software Licenses
Prior to fiscal year 1999, Lightspan recognized revenue under AICPA
Statement of Position, or SOP, 91-1, Software Revenue Recognition. Under SOP
91-1, Lightspan recognized the full sales value of Lightspan Achieve Now
software licenses, including both completed and as-yet uncompleted titles, upon
shipment of the then-completed titles provided that there were no contractual
performance obligations to deliver the uncompleted titles and the collection of
the related receivable was deemed probable. Lightspan accrued the production
costs associated with the undelivered titles in the period in which the revenue
was recognized, and included these costs in the cost of software license
revenues and on the balance sheet as accrued cost of revenues.
Effective February 1, 1998, Lightspan adopted SOP 97-2, Software Revenue
Recognition, which superseded SOP 91-1. Under SOP 97-2, Lightspan changed its
method of revenue recognition for licenses containing as-yet uncompleted titles
and began recognizing revenue using the percentage of completion method of
accounting based on the actual titles delivered and the estimated progress to
completion on as-yet uncompleted titles.
Post Customer Support
Revenue derived from telephone support and maintenance arrangements
provided by the professional development organization is recognized ratably over
the one-year term of the support and maintenance period.
Product Implementation and Training Services
Revenue derived from product implementation and customer training provided
by the professional development organization is recognized when services are
performed, in accordance with the standard implementation, training, service,
and evaluation plans that Lightspan establishes for its customers.
Internet Subscriptions
Revenue derived from Internet subscriptions is recognized on a
straight-line basis over the term of the agreement (generally one year).
F-8
<PAGE> 85
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PlayStation(R) Game Consoles and Related Accessories
Revenue derived from the sale of PlayStation(R) game consoles and related
accessories is recognized upon delivery of the console and the related software
product.
Deferred Revenue
Payments received in advance of amounts earned are recorded as deferred
revenue in the accompanying financial statements.
SOFTWARE DEVELOPMENT COSTS
Software development costs are expensed as incurred until technological
feasibility has been established and a definitive decision has been made to
proceed with the commercial launch of the title. To date, these factors have
been met upon substantial completion of the title, and therefore software
development costs subsequent to technological feasibility have been
insignificant.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,
Lightspan has elected to follow Accounting Principles Board Opinion, or APB, No.
25, Accounting for Stock Issued to Employees, and related Interpretations in
accounting for stock-based employee compensation. Under APB No. 25, if the
exercise price of Lightspan's employee and director stock options equals or
exceeds the fair value of the underlying stock on the date of grant, no
compensation expense is recognized. When the exercise price of the employee or
director stock options is less than the fair value of the underlying stock on
the grant date, Lightspan records deferred stock compensation for the difference
and amortizes this amount to expense in accordance with FASB Interpretation No.
28, or FIN 28, over the vesting period of the options. Options or stock awards
issued to non-employees are recorded at their fair value as determined in
accordance with SFAS No. 123 and recognized over the related service period.
COMPREHENSIVE INCOME
In accordance with SFAS No. 130, Reporting Comprehensive Income, all
components of comprehensive income, including net income, are reported in the
financial statements in the period in which they are recognized. Comprehensive
income is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income (loss) and
other comprehensive income (loss), including unrealized gains and losses on
investments, are reported net of their related tax effect, to arrive at
comprehensive income (loss). For the years ended January 31, 1997, 1998 and 1999
and the six month periods ended July 31, 1998 and 1999, comprehensive loss
equals the net loss as reported.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires Lightspan management to make estimates
and assumptions that affect the amounts reported in the financial statements and
disclosures made in the accompanying notes to the financial statements. Actual
results could differ from those estimates.
F-9
<PAGE> 86
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified
to conform with the current year presentation.
INTERIM FINANCIAL DATA
The financial statements as of July 31, 1999 and for the six months ended
July 31, 1998 and 1999 are unaudited. The unaudited financial statements have
been prepared on the same basis as the audited financial statements and, in the
opinion of Lightspan management, include all adjustments, consisting only of
normal recurring adjustments, necessary to state fairly the financial
information included in accordance with generally accepted accounting
principles. The results of operations for the interim period ended July 31, 1999
are not necessarily indicative of the results which may be reported for any
other interim period or for the full fiscal year ending January 31, 2000.
NET LOSS PER SHARE AND UNAUDITED PRO FORMA SHAREHOLDERS' EQUITY
Lightspan computes net loss per share in accordance with SFAS No. 128,
Earnings Per Share, and SEC Staff Accounting Bulletin (or SAB) No. 98. Under the
provisions of SFAS No. 128, basic net income (loss) per share is computed by
dividing the net income (loss) for the period by the weighted average number of
common shares outstanding during the period. Diluted net income (loss) per share
is computed by dividing the net income (loss) for the period by the weighted
average number of common and common equivalent shares outstanding during the
period. Potentially dilutive securities composed of incremental common shares
issuable upon the exercise of stock options and warrants, and common shares
issuable on conversion of preferred stock, were excluded from historical diluted
loss per share because of their anti-dilutive effect.
Under the provisions of SAB No. 98, common shares issued for nominal
consideration, if any, would be included in the per share calculations as if
they were outstanding for all periods presented. No common shares have been
issued for nominal consideration.
The following table sets forth the computation of historical net loss per
share, basic and diluted:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JANUARY 31, JULY 31,
------------------------------------------ -------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Numerator:
Net loss................. $(32,588,707) $(28,952,589) $(16,528,835) $(7,980,942) $(8,968,162)
============ ============ ============ =========== ===========
Denominator for
historical basic and
diluted calculations:
Weighted average common
shares
outstanding......... 6,077,648 6,354,630 6,775,544 6,627,252 7,431,082
============ ============ ============ =========== ===========
Historical net loss per
share:
Basic and diluted...... $ (5.36) $ (4.56) $ (2.44) $ (1.20) $ (1.21)
============ ============ ============ =========== ===========
</TABLE>
F-10
<PAGE> 87
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Pro forma net loss per share has been computed as described above and also
gives effect to common equivalent shares arising from preferred stock that will
automatically convert upon the closing of the initial public offering
contemplated by this prospectus (using the as-if converted method from the
original date of issuance).
Unaudited pro forma shareholders' equity at July 31, 1999, as adjusted for
the conversion of the convertible preferred stock into common stock, is
disclosed on the balance sheet.
2. BALANCE SHEET DETAILS
Cash equivalents consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------ JULY 31,
1998 1999 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
U.S. Corporate master notes................... $1,825,000 $3,425,000 $ --
U.S. Corporate repurchase agreements.......... 262,000 1,741,000 --
Money market accounts......................... 25,823 27,748 19,308,152
U.S. Government repurchase agreements......... 700,000 1,226,000 --
---------- ---------- -----------
$2,812,823 $6,419,748 $19,308,152
========== ========== ===========
</TABLE>
Other current assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- JULY 31,
1998 1999 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Prepaid royalties............................ $ 594,883 $ 450,983 $101,362
Other receivables............................ 147,587 284,832 136,448
Short-term deposits.......................... 221,946 235,578 296,168
Other current assets......................... 121,601 74,604 209,787
---------- ---------- --------
$1,086,017 $1,045,997 $743,765
========== ========== ========
</TABLE>
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
-------------------------- JULY 31,
1998 1999 1999
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment..................... $ 3,978,385 $ 4,339,758 $ 4,748,560
Software.................................... 140,719 244,455 366,870
Office furniture and equipment.............. 1,163,078 1,186,394 1,300,612
----------- ----------- -----------
5,282,182 5,770,607 6,416,042
Less accumulated depreciation and
amortization.............................. (3,040,398) (4,132,721) (4,721,714)
----------- ----------- -----------
$ 2,241,784 $ 1,637,886 $ 1,694,328
=========== =========== ===========
</TABLE>
F-11
<PAGE> 88
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
2. BALANCE SHEET DETAILS (CONTINUED)
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------ JULY 31,
1998 1999 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Other accrued liabilities...................... $1,337,516 $2,341,934 $2,559,769
Accrued bonuses and commissions................ 1,130,438 1,669,737 2,904,217
Accrued vacation............................... 572,857 533,157 644,236
Accrued cost of revenues....................... 2,636,500 1,176,237 1,036,504
---------- ---------- ----------
$5,677,311 $5,721,065 $7,144,726
========== ========== ==========
</TABLE>
3. LINE OF CREDIT
Lightspan has a line of credit with a bank which allows Lightspan to borrow
up to a maximum of the lesser of (a) 75% of eligible accounts receivable (as
defined) or (b) $10,000,000, at any one time outstanding. The line of credit was
renewed in February 1999 and expires in April 2000 and bears interest at the
bank's prime rate plus 1.5% (9.25% at January 31, 1999), payable monthly. The
line of credit is collateralized by substantially all of Lightspan's assets. The
loan agreement with the bank contains various covenants. As of January 31, 1999
and July 31, 1999, there were no amounts outstanding under the line of credit.
4. COMMITMENTS
Lightspan leases its facilities under an operating lease agreement. The
facilities lease is subject to annual escalation provisions based upon the
Consumer Price Index.
Cost of equipment acquired under capital leases totaled $4,615,354,
$3,697,293 and $3,506,874 (and accumulated amortization totaled $2,657,047,
$2,647,881 and $2,580,790) at January 31, 1998 and 1999 and July 31, 1999,
respectively. Facilities rent and operating lease expenses were $1,062,433,
$1,302,815 and $405,299 for the years ended January 31, 1998 and 1999 and the
six months ended July 31, 1999, respectively.
In addition, Lightspan subleases a portion of their facility for a period
of one year subject to one-year renewal options. Sublease income was $0,
$125,323 and $213,123 for the years ended January 31, 1997, 1998 and 1999,
respectively.
F-12
<PAGE> 89
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
4. COMMITMENTS (CONTINUED)
Future minimum lease payments for all leases with initial terms of one year
or more are as follows at January 31, 1999:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
2000........................................................ $1,366,129 $1,121,192
2001........................................................ 1,277,130 333,158
2002........................................................ 1,310,154 84,960
2003........................................................ 1,295,473 --
2004........................................................ 1,013,153 --
---------- ----------
Total minimum lease payments................................ $6,262,039 1,539,310
==========
Less amounts representing interest.......................... 215,790
----------
Present value of future minimum lease payments.............. 1,323,520
Less current portion of capital lease obligations........... 930,040
----------
Long-term capital lease obligations......................... $ 393,480
==========
</TABLE>
5. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
At July 31, 1999, convertible preferred stock outstanding is as follows:
<TABLE>
<CAPTION>
PRICE PER NUMBER OF LIQUIDATION
DATE ISSUED SERIES SHARE SHARES VALUE
----------- ------ --------- ---------- ------------
<S> <C> <C> <C> <C>
December 1993.................................. A $1.00 7,135,000 $ 7,135,000
March 1994..................................... A $1.00 332,500 332,500
February 1995.................................. B $3.00 5,833,336 17,500,008
June 1995...................................... B $3.00 5,833,328 17,499,984
September 1996................................. C $6.00 3,264,285 19,585,710
June 1997...................................... D $3.76 5,984,038 22,499,983
March 1997..................................... D $3.76 1,666,689 6,266,751
March 1998..................................... D $3.76 5,478,717 20,599,976
July 1999...................................... E $5.00 5,294,185 26,470,925
---------- ------------
40,822,078 $137,890,837
========== ============
</TABLE>
The preferred stock will automatically be converted into shares of common
stock at the then effective conversion price upon the closing of the initial
public offering contemplated by this prospectus as long as the initial public
offering price and aggregate proceeds meet minimum requirements, as defined by
the agreements. As of July 31, 1999, the Series A, B, C, D and E preferred stock
are convertible, at the option of the holder, into 7,467,500, 11,666,664,
5,208,965, 13,129,444 and 5,294,185 shares of common stock, respectively, which
has been reserved for issuance upon conversion of the preferred stock, subject
to certain antidilution adjustments.
Holders of the Series A, B, C, D and E preferred stock are entitled to
receive dividends at a rate of $.10, $.30, $.60, $.376 and $.50 per share per
annum, whenever funds are legally available and as declared by Lightspan's board
of directors. The holder of each share of preferred stock is entitled to the
number of votes equal to the number of shares of common stock into which the
preferred stock could be converted.
F-13
<PAGE> 90
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
5. SHAREHOLDERS' EQUITY (CONTINUED)
Lightspan is subject to certain covenants under the agreements that require the
vote or written consent by a majority of the then outstanding preferred shares
regarding certain changes in the rights and interests of the preferred shares.
In the event of any liquidation, dissolution or winding up of Lightspan,
the holders of preferred stock are entitled to receive their liquidation value
prior to and in preference to any distribution of the assets or surplus funds of
Lightspan to the holders of common stock. If, upon the occurrence of such event,
the assets and funds distributed among the holders of preferred stock are
insufficient to permit full payment, the entire assets and funds of Lightspan
would be distributed among the preferred shareholders in proportion to the
product of the liquidation preference of each such share and the number of
shares owned by each such holder.
All series of preferred stock have redemption features, at the option of
Lightspan, which are subject to approval and written consent of a majority of
the shareholders for Series A, C, D and E, voting separately as a single class,
and 57% of the shareholders for Series B, voting separately as single class. The
right of redemption cannot be exercised with respect to any series of preferred
stock prior to the fifth anniversary of the original issue date of the Series D
preferred stock, but may be exercised at any time and from time to time
thereafter.
Upon the sale of Lightspan's common stock in a qualified public offering
within 24 months of the second date on which Series D preferred stock was
issued, and subject to certain criteria being met, additional warrants to
purchase up to 3,326,112 shares of common stock at $.01 per share could be
issued. These "springing warrants" will be issued only if on the measurement
date (the date on which the qualified public offering occurs), the measurement
price (the closing per share price of Lightspan's common stock on the tenth
business day immediately preceding the measurement date) is less than the return
benchmark (as defined by the agreement). The number of shares issuable upon
exercise of the warrants will be equal to the wealth shortfall (as defined by
the agreement) divided by the measurement price. If the offering contemplated by
this prospectus is completed under the terms set forth on the cover, warrants to
purchase an additional shares of common stock would be issued.
STOCK OPTION PLAN
In 1993, Lightspan adopted its Stock Option Plan (the "Plan"). Options for
common stock may be incentive stock options or non-statutory stock options and
are granted at the discretion of the Board of Directors. The Plan permits
immediate exercise of options with the unvested portion subject to repurchase by
Lightspan at the original exercise price, in the event of termination of
employment or engagement. Non-statutory stock options may be granted to
employees, directors and consultants whereas incentive stock options may be
granted to employees and directors only. The option price for incentive stock
options shall not be less than 100% of the fair value on the date of grant, and
the option price of non-statutory options shall not be less than 85% of the fair
value on the date of grant. The maximum term of options granted under the Plan
is ten years. Incentive stock options granted under the Plan are immediately
exercisable in full and generally vest at the rate of 25% after one year from
the vesting commencement date and 1/36 of the remaining shares every month
thereafter. Non-statutory stock options are immediately exercisable in full and
generally vest at the rate of 50% after one year from the vesting commencement
date and the remaining 50% after two years from such date.
F-14
<PAGE> 91
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
5. SHAREHOLDERS' EQUITY (CONTINUED)
Lightspan is authorized to issue 5,765,000 shares of common stock to
eligible employees, officers, directors and consultants under the Plan, of which
options to purchase 1,089,427 shares were available for future grant at January
31, 1999.
A summary of Lightspan's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
-------------------------------------------------------------------------------------------
1997 1998 1999
---------------------------- ----------------------------- ----------------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE OPTIONS EXERCISE PRICE
--------- ---------------- ---------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding --
beginning of
year............... 2,289,000 $.18 3,717,500 $.27 3,902,167 $.30
Granted.............. 1,786,000 $.38 1,717,000 $.43 1,034,875 $.68
Exercised.......... (88,854) $.14 (489,549) $.17 (529,920) $.27
Forfeited.......... (268,646) $.27 (1,042,784) $.47 (841,747) $.40
--------- ---------- ---------
Outstanding -- end of
year............... 3,717,500 $.27 3,902,167 $.30 3,565,375 $.39
========= ========== =========
Exercisable at end of
year............... 1,245,233 1,936,773 2,062,010
========= ========== =========
Weighted average fair
value of options
granted during the
year............... $ .07 $ .10 $ .15
========= ========== =========
</TABLE>
The following table summarizes information about stock options outstanding
as of January 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED ----------------------------
RANGE OF AVERAGE REMAINING WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE PRICE NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
-------------- ----------- ----------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$.0000 - $ .10............. 684,000 .5 $ .10 660,561 $ .10
$.2001 - $ .30............. 1,074,000 1.9 $ .30 858,623 $ .30
$.3001 - $ .40............. 1,309,250 3.8 $ .40 494,390 $ .40
$.5001 - $ .60............. 43,000 3.1 $ .60 22,163 $ .60
$.9001 - $1.00............. 455,125 4.5 $1.00 250 $1.00
--------- ---------
3,565,375 $ .3913 2,035,987 $ .2627
========= =========
</TABLE>
Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if Lightspan had accounted for its employee stock options
under the fair value method of that statement. The fair value of these options
was estimated at the date of grant using the minimum value option pricing model
with the following weighted average assumptions for 1997, 1998 and 1999,
respectively: risk-free interest rates of 6.00%, 5.13% and 5.00%, respectively;
dividend yields of 0%; and a weighted-average expected life of the options of
four to five years.
The minimum value option pricing model is similar to the Black-Scholes
option valuation model which was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor of volatility. In addition, option
F-15
<PAGE> 92
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
5. SHAREHOLDERS' EQUITY (CONTINUED)
valuation models require the input of highly subjective assumptions. Because
Lightspan's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective assumptions
can materially affect the fair value estimate, in management's opinion the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of such options.
Lightspan's pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------------------
1997 1998 1999
------------ ------------ ------------
<S> <C> <C> <C>
Pro forma net loss......................... $(32,615,453) $(29,020,517) $(16,587,899)
============ ============ ============
Pro forma historical net loss per share,
basic and diluted.......................... $ (5.37) $ (4.57) $ (2.45)
============ ============ ============
</TABLE>
WARRANTS
In connection with debt and equipment lease financing agreements entered
into at various dates, Lightspan issued warrants to purchase an aggregate of up
to 150,000 shares of Series A preferred stock at $1.00 per share, up to 150,000
shares of Series B preferred stock at $3.00 per share, up to 96,625 shares and
57,564 shares of Series C preferred stock at $6.00 per share and $0.01 per
share, respectively, and up to 183,105 shares and 127,659 shares of Series D
preferred stock at $3.76 and $4.70 per share, respectively. The warrants expire
on various dates commencing in 2002 through 2006.
The warrants were valued at an aggregate of $201,660, which was recorded as
debt discounts and accreted into interest expense over the life of the
applicable agreements. The fair value of the warrants were estimated at the
dates of grant using the minimum value method with the following assumptions:
risk free interest rate of 6.00%; an expected warrant life of two years; and no
annual dividends. Interest expense related to the accretion of the debt
discounts totaled $61,509 and $140,151 for the years ended January 31, 1997 and
1998, respectively. There were no such amounts included in interest expense for
the year ended January 31, 1999 or the six month periods ended July 31, 1998 and
1999.
STOCK-BASED COMPENSATION
Lightspan has recorded deferred compensation of $211,876 and $7,782,442 for
the year ended January 31, 1999 and the six months ended July 31, 1999,
respectively, in connection with the grants of certain stock options to
employees and consultants. Amortization of deferred stock compensation was
$19,680 and $962,462 during the year ended January 31, 1999 and the six months
ended July 31, 1999, respectively.
F-16
<PAGE> 93
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
5. SHAREHOLDERS' EQUITY (CONTINUED)
COMMON SHARES RESERVED FOR FUTURE ISSUANCE
The following table summarizes common shares reserved for future issuance:
<TABLE>
<CAPTION>
JANUARY 31, JULY 31,
1999 1999
----------- -----------
(UNAUDITED)
<S> <C> <C>
Convertible preferred stock................................. 37,472,573 42,766,758
Convertible preferred stock warrants........................ 764,953 764,953
Common stock options........................................ 3,565,375 5,679,766
---------- ----------
Total common shares reserved for issuance................... 41,802,901 49,211,477
========== ==========
</TABLE>
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Significant components of
Lightspan's deferred tax assets are shown below:
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------
1998 1999
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 29,993,000 $ 35,586,000
Capitalized research expenses......................... 2,111,000 2,119,000
Research and development credits...................... 2,608,000 3,257,000
Other................................................. 1,989,000 1,467,000
------------ ------------
Total deferred tax assets............................... 36,701,000 42,429,000
Valuation allowance for deferred tax assets........... (36,701,000) (42,429,000)
------------ ------------
Net deferred tax assets................................. $ -- $ --
============ ============
</TABLE>
A reconciliation of income taxes at the statutory federal income tax rate
to the provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
------------------------------------------
1997 1998 1999
------------ ----------- -----------
<S> <C> <C> <C>
U.S. federal taxes at statutory rate....... $(11,080,000) $(9,844,000) $(5,620,000)
State taxes, net of federal benefit........ (1,955,000) (1,737,000) (992,000)
Change in valuation allowance.............. 12,783,000 12,753,000 5,728,000
Other nondeductible expenses and expiration
of net operating loss carryforwards,
net...................................... 252,000 (1,172,000) 884,000
------------ ----------- -----------
$ -- $ -- $ --
============ =========== ===========
</TABLE>
A valuation allowance has been recognized to offset the deferred tax assets
as realization of such assets is uncertain.
At January 31, 1999, Lightspan had federal and California net operating
loss carryforwards of approximately $98,670,000 and $18,288,000, respectively.
The difference between the federal and California tax loss carryforwards is
primarily attributable to capitalization of research expenses and limitations on
net operating losses for California tax purposes. The federal tax loss
carryforwards will begin
F-17
<PAGE> 94
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
6. INCOME TAXES (CONTINUED)
expiring in 2008 unless previously utilized. Through January 31, 1999,
California tax loss carryforwards of $2,774,000 had expired, and additional loss
carryforwards will continue to expire in fiscal 2000. Lightspan also has federal
and California research and development tax credit carryforwards of $2,338,000
and $1,414,000, respectively, which will begin expiring in 2008 unless
previously utilized.
Pursuant to Internal Revenue Code Section 382 and 383, the use of
Lightspan's net operating loss and credit carryforwards could be limited in the
event of a cumulative change in ownership of more than 50%.
7. RETIREMENT PLAN
Lightspan has a 401(k) defined contribution savings and retirement plan
(the "Retirement Plan"). The Retirement Plan is for the benefit of all
qualifying employees and permits employees voluntary contributions up to 20% of
base salary limited by the IRS imposed maximum. On January 1, 1999, Lightspan
began matching 10% of employee contributions up to 4% of eligible compensation.
Employer contributions were $3,459 for the year ended January 31, 1999.
8. REPORTABLE SEGMENTS
DESCRIPTION OF THE TYPES OF PRODUCTS FROM WHICH EACH REPORTABLE SEGMENT DERIVES
ITS REVENUES
Lightspan has two reportable segments: Lightspan Achieve Now and K-12
Internet. Revenues derived from the Lightspan Achieve Now segment typically
include the sale of Lightspan Achieve Now software licenses, Sony PlayStation(R)
game consoles and related accessories, and implementation, training and support
services. Revenues derived from the K-12 Internet segment primarily include
subscription fees for The Lightspan Network.
MEASUREMENT OF SEGMENT PROFIT OR LOSS AND SEGMENT ASSETS
Lightspan evaluates performance and allocates resources based on profit or
loss from operations before income taxes. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies.
FACTORS MANAGEMENT USED TO IDENTIFY LIGHTSPAN'S REPORTABLE SEGMENTS
Lightspan's reportable segments are business units that offer different
products and services.
F-18
<PAGE> 95
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
8. REPORTABLE SEGMENTS (CONTINUED)
FINANCIAL INFORMATION FOR LIGHTSPAN'S SEGMENTS
The following information is for the Lightspan Achieve Now and K-12
Internet segments:
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1997
----------------------------------------------------------
LIGHTSPAN
ACHIEVE
NOW K-12 INTERNET ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues from external customers........... $ 8,487,916 $ 77,125 -- $ 8,565,041
Inter segment revenues..................... -- -- -- --
Interest income (expense), net............. (107,184) (5,375) -- (112,559)
Depreciation and amortization.............. 977,752 4,913 982,665
Segment profit (loss) before income
taxes.................................... (31,032,452) (1,556,255) -- (32,588,707)
Segment assets............................. 12,773,740 78,407 -- 12,852,147
Other significant non cash items:
Deferred stock compensation.............. -- -- -- --
Amortization of deferred stock
compensation.......................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1998
-----------------------------------------------------------
LIGHTSPAN
ACHIEVE
NOW K-12 INTERNET ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues from external customers.......... $ 22,020,363 $ 288,645 -- $ 22,309,008
Inter segment revenues.................... -- -- -- --
Interest income (expense), net............ (504,087) (23,572) -- (527,659)
Depreciation and amortization............. 1,629,299 8,187 1,637,486
Segment profit (loss) before income
taxes................................... (27,659,200) (1,293,389) -- (29,952,589)
Segment assets............................ 13,925,617 154,275 -- 14,079,892
Other significant non cash items:
Deferred stock compensation............. -- -- -- --
Amortization of deferred stock
compensation......................... -- -- -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31, 1999
-----------------------------------------------------------
LIGHTSPAN
ACHIEVE
NOW K-12 INTERNET ELIMINATIONS CONSOLIDATED
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Revenues from external customers.......... $ 29,807,710 $ 1,023,714 -- $ 30,831,424
Inter segment revenues.................... -- -- -- --
Interest income (expense), net............ 359,654 58,059 -- 417,713
Depreciation and amortization............. 1,297,390 13,108 1,310,498
Segment profit (loss) before income
taxes................................... $(14,231,589) (2,297,246) -- (16,528,835)
Segment assets............................ 18,541,785 468,432 -- 19,010,217
Other significant non cash items:
Deferred stock compensation............. 211,876 -- -- 211,876
Amortization of deferred stock
compensation......................... -- -- -- 19,680
</TABLE>
F-19
<PAGE> 96
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
9. SUBSEQUENT EVENTS (UNAUDITED)
EQUIPMENT LEASE FINANCING
In April 1999, Lightspan entered into a $1.0 million capital lease with a
financial institution. Under the agreement, which expires March 2000, Lightspan
finances the purchase of substantially all capital equipment at an 8.8% interest
rate, with payments due over a 42-month period and a purchase option at the end
of the lease term.
SERIES E PREFERRED STOCK
Subsequent to July 31, 1999, Lightspan issued an additional 1,149,998
shares of Series E convertible preferred stock for cash at $5.00 per share and
an additional 7,191,839 shares of Series E convertible preferred stock in
conjunction with the acquisition of Academic Systems Corporation, as discussed
below.
ACQUISITION OF ACADEMIC SYSTEMS CORPORATION
On May 10, 1999, Lightspan entered into a merger agreement with Academic
Systems Corporation ("Academic"), which was consummated on September 20, 1999,
pursuant to which Lightspan issued 7,191,839 shares of Series E convertible
preferred stock, 1,140,712 shares of common stock and $1,735,840 cash in
exchange for all of the outstanding common and preferred shares of Academic. The
acquisition was accounted for as a purchase. The Series E convertible preferred
stock was valued at $5.00 per share (the same price such shares were sold for
cash in July and September 1999). The merger agreement included a "put right"
whereby Academic common shareholders could elect to receive cash of $.50 per
Academic common share ($4.13 per Lightspan common share on an as-converted
basis) in lieu of shares of Lightspan common stock. Shareholders holding
approximately 21% of Academic's common shares and outstanding options exercised
the "put right," resulting in an aggregate cash payment to Academic common
shareholders and optionholders of $1,735,840. The remaining Academic common
shares and options to purchase Academic common shares were converted to
Lightspan common shares and options to purchase Lightspan common shares at a
ratio of .12121-to-1. Lightspan issued options to purchase 524,987 shares of
Lightspan common stock to Academic optionholders. All Lightspan common stock and
options to purchase Lightspan common stock that were issued to effect the merger
were valued at $4.13 and $3.41 per share, respectively. The aggregate purchase
price totaled $44,314,711.
The purchase price was allocated to the assets acquired, consisting
principally of intangible assets and goodwill, which are being amortized over
useful lives ranging from four to ten years.
The following unaudited pro forma financial information assumes the
acquisition of Academic was consummated on February 1, 1998:
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS
JANUARY 31, ENDED JULY 31,
1999 1999
------------ --------------
<S> <C> <C>
Revenues................................................ $ 37,207,665 $ 23,190,120
Net loss................................................ (35,019,888) (17,037,076)
Historical net loss per share, basic and diluted........ $ (4.42) $ (1.99)
</TABLE>
ACQUISITION OF GLOBALSCHOOLHOUSE.COM
On September 2, 1999, Lightspan acquired certain assets of The Global
SchoolNet Foundation, principally consisting of the web site
GlobalSchoolhouse.com and related intellectual property, for
F-20
<PAGE> 97
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(Information subsequent to January 31, 1999 and pertaining to July 31, 1999
and for the six months ended July 31, 1998 and 1999 is unaudited)
9. SUBSEQUENT EVENTS (UNAUDITED) (CONTINUED)
$2.5 million in cash. The purchase price was allocated to the assets acquired,
principally intangible assets related to the web site, which are being amortized
over three years.
ACQUISITION OF STUDYWEB.COM
On October 28, 1999, Lightspan acquired certain assets of American Computer
Resource, principally consisting of the web site StudyWeb.com and related
intellectual property, for $1.0 million in cash and 217,000 shares of
Lightspan's Series E Preferred Stock. The purchase price was allocated to the
assets acquired, principally intangible assets related to the web site, which
are being amortized over three years.
STOCK-BASED COMPENSATION
Subsequent to July 31, 1999, Lightspan granted additional options to
purchase 1,530,156 shares of common stock at $4.13 per share, and recorded
additional deferred compensation related to such grants.
AGREEMENT WITH CINAR CORPORATION
On October 28, 1999, Lightspan entered into an agreement with CINAR
Corporation (CINAR) pursuant to which CINAR purchased 2.5 million shares of
Lightspan's Series E Preferred Stock at $5.00 per share and agreed to purchase
$10 million of Lightspan common stock in a private placement that will occur
concurrently with the initial public offering contemplated by this prospectus
and at the same price per share. Lightspan also granted CINAR warrants to
purchase 500,000 shares of Lightspan's Series E Preferred Stock that will vest
upon the achievement of various agreed-to strategic goals. To the extent that
the fair value per share of Lightspan's stock exceeds the exercise price of the
warrants at the date of vesting, Lightspan will record an expense for the amount
of such difference.
F-21
<PAGE> 98
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors
Academic Systems Corporation
We have audited the accompanying balance sheets of Academic Systems
Corporation as of September 30, 1997 and 1998, and the related statements of
operations, shareholders' equity and cash flows for the years then ended. 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 Academic Systems Corporation
as of September 30, 1997 and 1998, and the results of its operations and its
cash flows for the years then ended, in conformity with generally accepted
accounting principles.
ERNST & YOUNG LLP
San Diego, California
October 28, 1999
F-22
<PAGE> 99
ACADEMIC SYSTEMS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------- JUNE 30,
1997 1998 1999
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents...................... $ 13,157,705 $ 4,521,895 $ 2,341,984
Accounts receivable, less allowance for
doubtful accounts of $0, $63,724 and $63,724
at September 30, 1997 and 1998 and June 30,
1999, respectively.......................... 1,142,576 828,931 2,603,255
Other current assets........................... 514,630 582,822 170,622
------------ ------------ ------------
Total current assets............................. 14,814,911 5,933,648 5,115,861
Property and equipment, net...................... 1,131,684 932,918 670,975
------------ ------------ ------------
Total assets........................... $ 15,946,594 $ 6,866,566 $ 5,786,836
============ ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable............................... $ 231,733 $ 849,162 $ 304,864
Accrued liabilities............................ 635,439 790,115 1,340,758
Deferred revenue............................... 2,392,049 2,155,423 2,349,934
Current portion of long-term debt.............. 93,731 206,849 3,503,020
Current portion of capital lease obligations... 189,443 140,794 98,769
------------ ------------ ------------
Total current liabilities........................ 3,542,395 4,142,343 7,597,345
Long-term debt, less current portion............. 388,316 241,323 86,187
Capital lease obligations, less current
portion........................................ 242,703 120,768 --
Commitments
Shareholders' equity (deficit):
Convertible preferred stock, no par value:
Authorized shares --
Issued and outstanding shares -- 29,535,529
and 27,504,693 at September 30, 1997 and
1998, and at June 30, 1999,
respectively..............................
Aggregate liquidation
preference -- $43,197,149 and $41,715,227
at September 30, 1997 and 1998, and June
30, 1999, respectively.................... 42,895,034 42,115,864 42,115,864
Common stock, no par value:
Authorized shares -- 50,000,000
Issued and outstanding shares -- 4,353,339
and 4,715,454 at September 30, 1997 and
1998, respectively, and 8,111,713 at June
30, 1999.................................. 62,681 102,032 404,520
Accumulated deficit............................ (31,184,535) (39,855,764) (44,417,080)
------------ ------------ ------------
Total shareholders' equity (deficit)... 11,773,180 2,362,132 (1,896,696)
------------ ------------ ------------
Total liabilities and shareholders'
equity (deficit)..................... $ 15,946,594 $ 6,866,566 $ 5,786,836
============ ============ ============
</TABLE>
See accompanying notes.
F-23
<PAGE> 100
ACADEMIC SYSTEMS CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
--------------------------- --------------------------
1997 1998 1998 1999
------------ ------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Revenues................................. $ 4,398,994 $ 5,938,618 $ 2,946,885 $ 4,869,613
Cost of revenue.......................... 1,920,439 2,063,800 1,183,409 1,377,878
------------ ------------ ------------ -----------
Gross profit............................. 2,478,555 3,874,818 1,763,476 3,491,735
------------ ------------ ------------ -----------
Operating expenses:
Technology and development............. 4,321,114 3,863,785 3,072,660 1,965,752
Sales and marketing.................... 6,088,928 7,175,302 5,696,939 4,675,330
General and administrative............. 2,327,203 1,853,968 1,243,126 1,362,097
------------ ------------ ------------ -----------
12,737,245 12,893,055 10,012,725 8,003,179
------------ ------------ ------------ -----------
Loss from operations..................... (10,258,690) (9,018,237) (8,249,249) (4,511,444)
Interest income (expense), net........... 150,490 347,008 310,187 (49,872)
------------ ------------ ------------ -----------
Net loss................................. $(10,108,200) $ (8,671,229) $ (7,939,062) $(4,561,316)
============ ============ ============ ===========
</TABLE>
See accompanying notes.
F-24
<PAGE> 101
ACADEMIC SYSTEMS CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK TOTAL
------------------------ -------------------- ACCUMULATED SHAREHOLDERS'
SHARES AMOUNT SHARES AMOUNT DEFICIT EQUITY
---------- ----------- --------- -------- ------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at September 30,
1996........................ 14,720,720 $26,943,956 4,024,052 $ 45,865 $(21,076,335) $ 5,913,486
Sale of Series F convertible
preferred stock, net of
issuance costs of $48,932..... 12,962,998 13,951,078 -- -- -- 13,951,078
Conversion of bridge loans
into Series F convertible
preferred stock.......... 1,851,811 2,000,000 -- -- -- 2,000,000
Exercise of stock options... -- -- 329,287 16,816 -- 16,816
Net loss.................... -- -- -- -- (10,108,200) (10,108,200)
---------- ----------- --------- -------- ------------ ------------
Balance at September 30,
1997........................ 29,535,529 42,895,034 4,353,339 62,681 (31,184,535) 11,773,180
Repurchase of convertible
preferred stock.......... (2,116,484) (871,670) -- -- -- (871,670)
Issuance of Series F
convertible preferred
stock for services....... 85,648 92,500 -- -- -- 92,500
Exercise of stock options... -- -- 362,115 39,351 -- 39,351
Net loss.................... -- -- -- -- (8,671,229) (8,671,229)
---------- ----------- --------- -------- ------------ ------------
Balance at September 30,
1998........................ 27,504,693 42,115,864 4,715,454 102,032 (39,855,764) 2,362,132
Exercise of stock options
(unaudited)................. -- -- 3,396,259 302,488 -- 302,488
Net loss (unaudited).......... -- -- -- -- (4,561,316) (4,561,316)
---------- ----------- --------- -------- ------------ ------------
Balance at June 30, 1999
(unaudited)................. 27,504,693 $42,115,864 8,111,713 $404,520 $(44,417,080) $ (1,896,696)
========== =========== ========= ======== ============ ============
</TABLE>
See accompanying notes.
F-25
<PAGE> 102
ACADEMIC SYSTEMS CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
-------------------------- -------------------------
1997 1998 1998 1999
------------ ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss.............................................. $(10,108,200) $(8,671,229) $(7,939,062) $(4,561,316)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization....................... 533,494 597,810 407,728 436,544
Loss on sale of property and equipment.............. 17,209 70,451 -- --
Preferred stock issued for services................. -- 92,500 92,500 --
Changes in operating assets and liabilities:
Accounts receivable............................... (686,029) (558,025) (1,979,909) (1,774,324)
Other assets...................................... (192,840) (68,192) 265,701 412,200
Accounts payable.................................. (122,449) 617,429 281,087 (544,298)
Accrued liabilities............................... 280,733 (236,626) 528,927 550,643
Deferred revenue.................................. 1,409,355 154,676 1,251,260 194,511
------------ ----------- ----------- -----------
Net cash flows used in operating activities........... (8,868,727) (8,001,205) (7,091,768) (5,286,040)
INVESTING ACTIVITIES:
Purchase of property and equipment.................... (474,927) (474,332) (363,352) (174,601)
Proceeds from sale of property and equipment.......... 7,573 4,835 -- --
------------ ----------- ----------- -----------
Net cash flows used in investing activities........... (467,354) (469,497) (363,352) (174,601)
------------ ----------- ----------- -----------
FINANCING ACTIVITIES:
Net proceeds from issuance of convertible preferred
stock............................................... 13,951,078 -- -- --
Exercise of stock options............................. 16,816 39,351 25,877 302,488
Proceeds from debt.................................... 482,048 138,000 138,000 --
Repayment of debt..................................... -- (171,875) (120,163) (158,965)
Proceeds from convertible bridge notes................ 2,000,000 -- -- 3,300,000
Principal payments under capital lease obligations.... (215,034) (170,584) (133,699) (162,793
------------ ----------- ----------- -----------
Net cash flows provided by (used in) financing
activities.......................................... 16,234,908 (165,108) (89,985) 3,280,730
------------ ----------- ----------- -----------
Increase (decrease) in cash and cash equivalents...... 6,898,827 (8,635,810) (7,545,105) (2,179,911)
Cash and cash equivalents at beginning of period...... 6,258,878 13,157,705 13,157,705 4,521,895
------------ ----------- ----------- -----------
Cash and cash equivalents at end of period............ $ 13,157,705 $ 4,521,895 $ 5,612,600 $ 2,341,984
============ =========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid....................................... $ 130,804 $ 108,774 $ 85,197 $ 49,168
============ =========== =========== ===========
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES:
Return of convertible preferred stock in
satisfaction of accounts receivable............... $ -- $ 871,670 871,670 --
============ =========== =========== ===========
Conversion of bridge notes into Series F
convertible preferred stock....................... $ 2,000,000 $ -- -- --
============ =========== =========== ===========
</TABLE>
See accompanying notes.
F-26
<PAGE> 103
ACADEMIC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS ACTIVITY
Academic Systems Corporation ("Academic") was founded in 1992. Academic
sells and supports interactive multimedia learning systems, principally to
colleges and universities that install Academic's software systems on campus
servers to deliver instruction, assessment and support to students and faculty.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of cash and highly liquid investments
which include debt securities with remaining maturities when acquired of three
months or less.
CONCENTRATION OF CREDIT RISK
Substantially all of Academic's accounts receivable are from colleges and
universities located throughout the United States. Academic provides for
estimated losses from uncollectible accounts and such losses have historically
not exceeded management's expectations.
For the years ended September 30, 1997 and 1998, one customer represented
26% and 13% of Academic's revenues, respectively. Accounts receivable from this
customer was $270,000 and $0 at September 30, 1997 and 1998, respectively.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost and depreciated and amortized over
the shorter of the estimated useful life of the assets (three to five years) or
the term of the lease using the straight line method.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
121, Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of, Academic regularly evaluates its long-lived assets for
indicators of possible impairment by comparison of the carrying amounts to
undiscounted estimated cash flows to be generated by such assets. Should an
impairment exist, the impairment loss would be measured based on the excess of
the carrying value of the asset over the asset's fair value or discounted
estimates of future cash flows. Academic has not identified any such impairment
losses to date.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments, including cash and cash equivalents, accounts
receivable, accounts payable, accrued liabilities, and capital lease
obligations, are carried at cost, which management believes approximates fair
value because of the short-term maturity of these instruments.
REVENUE RECOGNITION
Revenue consists primarily of fees for licenses and implementation of
Academic's software products and for customer training, books and materials,
upgrades and support.
F-27
<PAGE> 104
ACADEMIC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Through September 30, 1997, Academic recognized revenue in accordance with
American Institute of Certified Public Accountants Statement of Position (SOP)
91-1, Software Revenue Recognition. Effective October 1, 1997, Academic adopted
the provisions of SOP 97-2, Software Revenue Recognition, as amended by SOP
98-4.
Academic enters into software license agreements under which software,
support and other services are provided to a customer for a fixed fee for a
specified period of time. The arrangement fee is allocated to the various
elements of the arrangements based upon vendor-specific objective evidence of
the fair value of each of the elements. Software license revenues are recognized
upon contract signing and delivery of the software provided the related fee is
fixed and determinable, and collectability of the fee is probable. The fee for
implementation services is recognized upon completion of the services. The
Company defers revenue related to specified upgrades based upon the established
fair value of the upgrade, until the upgrade has been delivered. The revenue
relating to books and materials is recognized upon shipment. Revenue for
training is recognized when the services are performed.
SOFTWARE DEVELOPMENT COSTS
Software development costs are expensed as incurred until technological
feasibility has been established. To date, the Company's software has been
available for general release concurrent with the establishment of technological
feasibility and, accordingly, no costs have been capitalized.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, Accounting for Stock-Based Compensation,
Academic has elected to follow Accounting Principles Board Opinion, or APB, No.
25, Accounting for Stock Issued to Employees, and related Interpretations in
accounting for stock-based employee compensation. Under APB 25, if the exercise
price of Academic's employee stock options equals or exceeds the fair value of
the underlying stock on the date of grant, no compensation expense is
recognized. When the exercise price of the employee stock options is less than
the fair value of the underlying stock on the grant date, Academic records
deferred stock compensation for the difference and amortizes the difference to
expense in accordance with FASB Interpretation No. 28 over the vesting period of
the individual options. Options or stock awards issued to non-employees are
recorded at their fair value and recognized over the related service period.
USE OF 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 these estimates.
COMPREHENSIVE INCOME
In accordance with SFAS No. 130, Reporting Comprehensive Income, all
components of comprehensive income, including net income, are reported in the
financial statements in the period in which they are recognized. Comprehensive
income is defined as the change in equity during a period from transactions and
other events and circumstances from non-owner sources. Net income (loss) and
other
F-28
<PAGE> 105
ACADEMIC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
comprehensive income (loss), including unrealized gains and losses on
investments, are reported net of their related tax effect, to arrive at
comprehensive income (loss). For the years ended September 30, 1997 and 1998 and
the nine month periods ended June 30, 1998 and 1999, comprehensive loss equals
the net loss as reported.
2. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------- JUNE 30,
1997 1998 1999
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Computer equipment....................................... $1,708,512 $1,738,579 $1,415,837
Software................................................. 428,566 500,873 511,577
Furniture and fixtures................................... 281,517 306,483 793,124
---------- ---------- ----------
2,418,595 2,545,935 2,720,538
Less accumulated depreciation and amortization........... 1,286,911 1,613,017 2,049,563
---------- ---------- ----------
$1,131,684 $ 932,918 $ 670,975
========== ========== ==========
</TABLE>
Equipment and furniture and fixtures under capital leases aggregated
$1,077,491 and $508,939 as of September 30, 1997 and 1998, respectively, and the
related accumulated amortization was $744,623 and $371,800, respectively.
3. DEBT
Academic has entered into a loan agreement with a bank whereby Academic can
borrow up to $1,000,000 with interest payable monthly at prime plus 0.50 percent
per annum. As of September 30, 1997 and 1998, principal of $482,047 and
$448,172, respectively, was outstanding. Amounts drawn against the loan
agreement are payable in 36 equal monthly installments.
4. LEASE COMMITMENTS
The Company leases its facility under an operating lease and certain
equipment and furniture and fixtures under capital leases. These leases expire
at various dates through fiscal 2001.
Future minimum lease payments for all leases with initial terms of one year
or more are as follows at September 30, 1998:
<TABLE>
<CAPTION>
OPERATING CAPITAL
YEARS ENDING SEPTEMBER 30 LEASES LEASES
------------------------- ---------- --------
<S> <C> <C>
1999........................................................ $ 413,162 $172,172
2000........................................................ 417,843 39,745
2001........................................................ 312,672 81,039
---------- --------
Future minimum lease payments............................... $1,143,677 292,956
==========
Less amount representing interest........................... 31,394
--------
Present value of future minimum lease....................... 261,562
Less current portion........................................ 140,794
--------
Long-term portion........................................... $120,768
========
</TABLE>
F-29
<PAGE> 106
ACADEMIC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
4. LEASE COMMITMENTS (CONTINUED)
Rent expense was $429,592 and $440,640 for the years ended September 30,
1997 and 1998, respectively.
5. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
At September 30, 1998, convertible preferred stock outstanding is as
follows:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PRICE PER SHARES SHARES LIQUIDATION
DATE ISSUED SERIES SHARE AUTHORIZED OUTSTANDING VALUE
----------- ------ --------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
February 1993.............................. A $ .40 1,173,107 653,382 $ 261,353
February 1993.............................. B $ .75 435,000 217,500 163,125
February 1993.............................. C $ .80 5,995,741 3,995,741 3,196,593
August 1994................................ D $2.725 4,404,280 4,404,280 12,001,663
August 1996................................ E $ 3.00 5,478,717 3,333,333 9,999,999
July 1997.................................. F $ 1.08 15,740,740 14,900,457 16,092,494
---------- -----------
27,504,693 $41,715,227
========== ===========
</TABLE>
The preferred stock will automatically be converted into shares of common
stock at the then effective conversion price upon the closing of a sale of
Academic common stock in a public offering registered under the Securities Act
of 1933 which meets certain minimum requirements, as defined by the agreements.
The shares of preferred stock are convertible, at the option of the holder, into
an aggregate of 27,504,693 shares of common stock, which have been reserved for
issuance upon conversion of the preferred stock, subject to certain antidilution
adjustments.
Holders of the Series A, B, C, D, E and F preferred stock are entitled to
receive dividends at a rate of $.04, $.075, $.08, $.2725, $.30 and $.108 per
share per annum, whenever funds are legally available and as declared by
Academic's Board of Directors. The holder of each share of preferred stock is
entitled to the number of votes equal to the number of shares of common stock
into which the preferred stock could be converted. Academic is subject to
certain covenants under the agreements that require the vote or written consent
by a majority of the then outstanding preferred shares regarding certain changes
in the rights and interests of the preferred shares.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of preferred stock are entitled to receive their liquidation value
prior to and in preference to any distribution of the assets or surplus funds of
the Company to the holders of common stock. If, upon the occurrence of such
event, the assets and funds distributed among the holders of preferred stock are
insufficient to permit full payment, the entire assets and funds of the Company
would be distributed among the preferred shareholders in proportion to the
product of the liquidation preference of each such share and the number of
shares owned by each such holder.
All series of preferred stock have redemption features, at the option of
the Company, which are subject to approval and written consent of a majority of
the shareholders for Series A, B and C, voting separately as a single class, and
75% of the shareholders for Series D and E, voting separately as single class.
F-30
<PAGE> 107
ACADEMIC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN
In 1992, Academic adopted the 1992 Incentive Stock Option Plan (the
"Plan"). Options for common stock may be incentive stock options or
non-statutory stock options and are granted at the discretion of the Board of
Directors. The Plan permits immediate exercise of options with the unvested
portion subject to repurchase by the Company at the original exercise price, in
the event of termination of employment or engagement. Non-statutory stock
options may be granted to employees and consultants whereas incentive stock
options may be granted to employees only. The option price for incentive stock
options shall not be less than 100% of the fair value on the date of grant, and
the option price of non-statutory options shall not be less than 85% of the fair
value on the date of grant. The maximum term of options granted under the Plan
is ten years. Options granted under the Plan are immediately exercisable in full
and generally vest at the rate of 25% after one year from the date of employment
and 1/36 of the remaining shares every month thereafter.
Academic is authorized to issue 10,798,792 shares of common stock to
eligible employees, officers, directors and consultants under the Plan, of which
options to purchase 1,408,277 shares are available for future grant at September
30, 1998.
A summary of the Company's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------------------------
1997 1998
--------------------- ---------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Outstanding -- beginning of year..................... 2,328,500 $.154 8,121,333 $.095
Granted............................................ 7,874,000 $.107 2,615,000 $.100
Exercised.......................................... (329,287) $.087 (362,115) $.087
Forfeited.......................................... (1,751,880) $ .23 (1,618,251) $.100
---------- ----------
Outstanding -- end of year........................... 8,121,333 $.095 8,755,967 $.096
========== ==========
Exercisable -- end of year........................... 1,315,059 3,167,551
========== ==========
Weighted-average fair value of options granted during
the year........................................... $ .021 $ .018
========== ==========
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1998:
<TABLE>
<CAPTION>
RANGE OF EXERCISE
PRICE OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- ----------------- ------------------------------------------------- ----------------------------
WEIGHTED-AVERAGE WEIGHTED-
REMAINING WEIGHTED-AVERAGE AVERAGE
NUMBER CONTRACTUAL LIFE EXERCISE PRICE NUMBER EXERCISE PRICE
----------- ---------------- ---------------- --------- ----------------
<S> <C> <C> <C> <C> <C>
$.05 775,000 0.27 $ .05 775,000 $ .05
$.10 7,977,217 3.87 $ .10 2,390,051 $ .10
$.25 3,750 1.51 $ .25 2,500 $ .25
--------- ---------
8,755,967 $.096 3,167,551 $.088
========= =========
</TABLE>
Pro forma information regarding net loss is required by SFAS No. 123, and
has been determined as if Academic had accounted for its employee stock options
under the fair value method of that statement. The fair value of these options
was estimated at the date of grant using the minimum value option pricing
F-31
<PAGE> 108
ACADEMIC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
model with the following weighted average assumption for 1997 and 1998,
respectively: risk-free interest rates of 6.09% and 6.29%, respectively;
dividend yields of 0%; and a weighted-average expected life of the options of
3.66 and 3.75 years, respectively.
The minimum value option pricing model is similar to the Black-Scholes
option valuation model which was developed for use in estimating the fair value
of traded options which have no vesting restrictions and are fully transferable,
except that it excludes the factor of volatility. In addition, option valuation
models require the input of highly subjective assumptions. Because the Company's
employee stock options have characteristics significantly different from those
of traded options, and because changes in the subjective assumptions can
materially affect the fair value estimate, in management's opinion the existing
models do not necessarily provide a reliable single measure of the fair value of
its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the vesting period of such options. The
Company's pro forma information is as follows:
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
---------------------------
1997 1998
------------ -----------
<S> <C> <C>
Pro forma net loss....................................... $(10,138,200) $(8,682,944)
============ ===========
</TABLE>
6. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amount of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Significant components of
Academic's deferred tax assets are shown below:
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------------
1997 1998
------------ ------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards........................ $ 10,915,000 $ 13,917,000
Deferred revenue...................................... 600,000 608,000
Research and development credits...................... 852,000 1,020,000
Other................................................. 251,000 181,000
------------ ------------
Total deferred tax assets............................... 12,618,000 15,726,000
Valuation allowance for deferred tax assets........... (12,618,000) (15,726,000)
------------ ------------
Net deferred tax assets................................. $ -- $ --
============ ============
</TABLE>
A valuation allowance has been recognized to offset the deferred tax assets
as realization of such assets is uncertain.
At September 30, 1998, Academic has federal and California net operating
loss carryforwards of approximately $37,000,000 and $22,000,000 respectively.
The difference between the federal and California tax loss carryforwards is
primarily attributable to capitalization of research expenses and limitations on
net operating losses for California tax purposes. The federal tax loss
carryforwards will begin expiring in 2008 unless previously utilized. The
Company also has federal and California research and development tax credit
carryforwards of $689,000 and $486,000, respectively, which will begin expiring
in 2007 unless previously utilized. The above carryforwards were determined as
if the Company were filing tax returns at September 30, 1998. However, for tax
return purposes, the Company uses a June 30 year end.
F-32
<PAGE> 109
ACADEMIC SYSTEMS CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
(INFORMATION SUBSEQUENT TO SEPTEMBER 30, 1998 AND PERTAINING TO JUNE 30, 1999
AND FOR THE NINE MONTHS ENDED JUNE 30, 1998 AND 1999 IS UNAUDITED)
6. INCOME TAXES (CONTINUED)
Pursuant to Internal Revenue Code Section 382 and 383, the use of the
Company's net operating loss and credit carryforwards may be limited in the
event of a cumulative change in ownership of more than 50%. Management believes
such limitations will not have a material impact on Academic's ability to use
its carryforwards.
7. SUBSEQUENT EVENTS
CONVERTIBLE PROMISSORY NOTES
In March 1999, Academic issued Convertible Promissory Notes (Notes) in the
amount of approximately $3,300,000 from certain of its existing investors. The
Notes bear interest at the prime rate, and all principal and interest is due and
payable on June 30, 1999. The Notes are convertible into the number and type of
equity security issued in the next equity financing completed by the Company
which results in gross proceeds of at least $5,000,000. The Notes allow for the
issuance of warrants to the noteholders if the Notes are not repaid or converted
by May 1, 1999. Upon the consummation of the merger discussed below, the Notes
were converted into 3,168,165 shares of Academic's Series F convertible
preferred stock.
ACQUISITION BY THE LIGHTSPAN PARTNERSHIP, INC.
On September 17, 1999, Academic entered into a merger agreement with The
Lightspan Partnership, Inc. ("Lightspan") pursuant to which Lightspan acquired
all of Academic's outstanding shares of common and preferred stock in exchange
for an aggregate of 7,191,839 shares of Lightspan Series E convertible preferred
stock, 1,140,712 shares of Lightspan common stock and cash of $1,735,840.
F-33
<PAGE> 110
THE LIGHTSPAN PARTNERSHIP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEETS
JULY 31, 1999
<TABLE>
<CAPTION>
THE LIGHTSPAN PRO FORMA
PARTNERSHIP, ACADEMIC ADJUSTMENTS COMBINED
INC. SYSTEMS (NOTE 5) PRO FORMA
------------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............... $25,569,628 $1,029,645 $(1,735,840) $24,863,433
Accounts receivable, net................ 11,253,006 1,950,582 -- 13,203,588
Finished goods inventory................ 463,734 282,835 -- 746,569
Other current assets.................... 743,765 60,154 -- 803,919
----------- ---------- ----------- -----------
Total current assets...................... 38,030,133 3,287,669 (1,735,840) 39,617,509
Property and equipment, net............... 1,694,328 445,317 -- 2,139,645
Goodwill.................................. -- -- 18,183,722(1) 18,183,722
Other intangibles......................... -- -- 25,800,000(1) 25,800,000
Deposits and other assets................. 168,143 -- -- 168,143
----------- ---------- ----------- -----------
Total assets.............................. $39,892,604 $3,768,533 $42,247,882 $85,909,019
=========== ========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................ $ 3,343,527 $ 389,555 $ -- $ 3,733,082
Deferred revenue........................ 5,180,070 1,297,944 -- 6,478,014
Accrued liabilities..................... 7,144,726 1,417,272 97,036(3) 8,659,034
Note payable............................ -- 206,849 -- 206,849
Current portion, capital lease
obligations.......................... 576,477 108,062 -- 684,539
----------- ---------- ----------- -----------
Total current liabilities................. 16,244,800 3,419,682 97,036 19,761,518
Other liabilities......................... 800,885 17,862 -- 818,746
42,481,835
Shareholders' equity...................... 22,846,919 330,989 (330,989)(2) 65,328,755
----------- ---------- ----------- -----------
Total liabilities and shareholders'
equity.................................. $39,892,604 $3,768,533 $42,247,882 $85,909,019
=========== ========== =========== ===========
</TABLE>
- ---------------
(1) Represents the purchase price assigned to the fair value of the intangibles
acquired (See Note 1).
(2) Represents the elimination of shareholders' equity of Academic Systems at
the date of acquisition.
(3) Represents estimated merger costs to be incurred by Lightspan, less amounts
paid through July 31, 1999.
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-34
<PAGE> 111
THE LIGHTSPAN PARTNERSHIP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
THE LIGHTSPAN ACADEMIC ADJUSTMENTS COMBINED
PARTNERSHIP, INC. SYSTEMS (NOTE 5) PRO FORMA
----------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues.......................... $ 30,831,424 $ 6,376,241 $ -- $ 37,207,665
Cost of revenues.................. 11,508,137 2,138,785 -- 13,646,922
------------ ----------- ------------- ------------
Gross profit...................... 19,323,287 4,237,456 -- 23,560,743
Operating expenses:
Technology and development...... 10,593,735 3,281,876 -- 13,875,611
Sales and marketing............. 22,066,261 6,747,590 -- 28,813,851
General and administrative...... 3,609,839 2,189,785 10,620,930(4) 16,420,554
------------ ----------- ------------- ------------
Total operating expenses.......... 36,269,835 12,219,251 10,620,930 59,110,016
------------ ----------- ------------- ------------
Loss from operations.............. (16,946,548) (7,981,795) (10,620,930) (35,549,273)
Other income (expense), net....... 417,713 163,747 (52,075)(5) 529,385
------------ ----------- ------------- ------------
Net loss.......................... $(16,528,835) $(7,818,048) $ (10,673,005) $(35,019,888)
============ =========== ============= ============
Pro forma net loss per share,
basic and diluted............... $ (0.67)
============
Shares used in the computation of
pro forma net loss per share,
basic and diluted............... 51,935,230(6)
============
</TABLE>
- ---------------
(4) Represents the amortization of intangible assets and goodwill over estimated
useful lives ranging from four to ten years.
(5) Represents the forgone interest income on the cash paid to effect the
acquisition, based on an assumed 3% rate of return.
(6) Pro forma net loss per share is based on Lightspan's weighted average common
shares outstanding, after giving effect to the issuance of shares of
Lightspan common and preferred stock used to complete the acquisition as if
such issuance had occurred at the beginning of the period, and the assumed
conversion of all of Lightspan's outstanding shares of preferred stock as of
their original dates of issuance.
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-35
<PAGE> 112
THE LIGHTSPAN PARTNERSHIP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JULY 31, 1999
<TABLE>
<CAPTION>
THE LIGHTSPAN ACADEMIC PRO FORMA COMBINED
PARTNERSHIP, INC. SYSTEMS ADJUSTMENTS PRO FORMA
----------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues.............................. $19,499,529 $ 3,690,591 $ -- $ 23,190,120
Cost of revenues...................... 7,121,572 1,006,699 -- 8,128,271
----------- ----------- ----------- ------------
Gross profit.......................... 12,377,957 2,683,892 -- 15,061,849
Operating expenses:
Technology and development.......... 4,458,012 1,197,420 -- 5,655,432
Sales and marketing................. 13,809,139 3,279,971 -- 17,089,110
General and administrative.......... 3,008,671 892,082 5,310,465(4) 9,211,218
----------- ----------- ----------- ------------
Total operating expenses.............. 21,275,822 5,369,473 5,310,465 31,955,760
----------- ----------- ----------- ------------
Loss from operations.................. (8,897,865) (2,685,581) (5,310,465) (16,893,911)
Other income (expense), net........... (70,297) (46,830) (26,038)(5) (143,165)
----------- ----------- ----------- ------------
Net loss.............................. $(8,968,162) $(2,732,411) $(5,336,503) $(17,037,076)
=========== =========== =========== ============
Pro forma net loss per share, basic
and diluted......................... $ (0.32)
============
Shares used in the computation of pro
forma net loss per share, basic and
diluted............................. 53,704,201(6)
============
</TABLE>
- ---------------
(4) Represents the amortization of intangible assets and goodwill over estimated
useful lives ranging from four to ten years.
(5) Represents the forgone interest income on the cash paid to effect the
acquisition, based on an assumed 3% rate of return.
(6) Pro forma net loss per share is based on Lightspan's weighted average common
shares outstanding, after giving effect to the issuance of shares of
Lightspan common and preferred stock used to complete the acquisition as if
such issuance had occurred at the beginning of the period, and the assumed
conversion of all of Lightspan's outstanding shares of preferred stock as of
their original dates of issuance.
See accompanying notes to unaudited pro forma combined condensed financial
statements.
F-36
<PAGE> 113
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
NOTE 1.
On September 20, 1999, The Lightspan Partnership ("Lightspan") acquired all
of the outstanding shares of Academic Systems Corporation ("Academic") for the
following consideration: (i) cash of $1,735,840; (ii) 1,140,712 shares of
Lightspan's common stock valued at $4.13 per share; (iii) 7,191,839 shares of
its Series E Convertible Preferred stock valued at $5.00 per share; (iv) options
to acquire 524,987 shares of the Lightspan's common stock, valued at $3.41 per
share; and (v) warrants to purchase 42,216 shares of Lightspan's common stock,
valued at $1.25 per share for 8,000 shares and $0.33 per share for the remaining
34,216 shares. As a result, the aggregate purchase price is calculated to be
$44,314,711, which includes acquisition costs of $368,037. The purchase price
was allocated as follows:
<TABLE>
<S> <C>
Current assets acquired..................................... $ 3,287,669
Property, equipment and other assets........................ 480,864
Goodwill.................................................... 18,183,722
Customer base............................................... 16,200,000
Core technology............................................. 5,600,000
Trademark and trade name.................................... 3,000,000
Assembled workforce......................................... 1,000,000
Deferred revenue............................................ (1,297,944)
Liabilities assumed......................................... (2,139,600)
-----------
$44,314,711
===========
</TABLE>
NOTE 2.
The unaudited pro forma combined condensed financial statements have been
prepared by Lightspan based upon the historical financial statements of
Lightspan and Academic, and may not be indicative of the results that may have
actually occurred if the combination had been in effect on the date indicated or
for the periods presented or which may be obtained in the future. The unaudited
pro forma combined condensed statements of operations include the statements of
operations of Lightspan and Academic for the twelve months ended January 31,
1999 and the six months ended July 31, 1999. The pro forma combined condensed
financial statements should be read in conjunction with the audited financial
statements and notes of Lightspan and Academic included elsewhere in the
Prospectus.
NOTE 3.
The unaudited pro forma combined condensed balance sheet assumes the
purchase of Academic had been consummated on July 31, 1999. The pro forma
information is based on historical financial statements of Lightspan at such
date and Academic as of the acquisition date, giving effect to the transaction
under the purchase method of accounting.
NOTE 4.
The unaudited pro forma combined condensed statements of operations of
Lightspan and Academic for the twelve months ended January 31, 1999 and the six
months ended July 31, 1999 assume the purchase of Academic had been consummated
on February 1, 1998. The pro forma information is based on the historical
financial statements of Lightspan and Academic giving effect to the transaction
under the purchase method of accounting and the assumptions and adjustments in
the accompanying footnotes to the pro forma financial statements.
F-37
<PAGE> 114
LIGHTSPANLOGO
<PAGE> 115
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all expenses payable by the Registrant in
connection with the sale of the common stock being registered. All of the
amounts shown are estimates, except for the SEC registration fee, the NASD
filing fee and the Nasdaq National Market application fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE PAID
----------
<S> <C>
Registration fee............................................ $31,970
NASD filing fee............................................. 12,000
Nasdaq Stock Market Listing Application fee................. 95,000
Blue sky qualification fees and expenses....................
Printing and engraving expenses.............................
Legal fees and expenses.....................................
Accounting fees and expenses................................
Transfer agent and registrar fees...........................
Miscellaneous...............................................
-------
Total.............................................
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its Directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act").
The Registrant's Certificate of Incorporation and Bylaws include provisions
to (i) eliminate the personal liability of its directors for monetary damages
resulting from breaches of their fiduciary duty to the extent permitted by
Section 102(b)(7) of the General Corporation Law of Delaware (the "Delaware
Law") and (ii) require the Registrant to indemnify its Directors and officers to
the fullest extent permitted by Section 145 of the Delaware Law, including
circumstances in which indemnification is otherwise discretionary. Pursuant to
Section 145 of the Delaware Law, a corporation generally has the power to
indemnify its present and former directors, officers, employees and agents
against expenses incurred by them in connection with any suit to which they are
or are threatened to be made, a party by reason of their serving in such
positions so long as they acted in good faith and in a manner they reasonably
believed to be in or not opposed to, the best interests of the corporation and
with respect to any criminal action, they had no reasonable cause to believe
their conduct was unlawful. The Registrant believes that these provisions are
necessary to attract and retain qualified persons as Directors and officers.
These provisions do not eliminate the Directors' duty of care, and, in
appropriate circumstances, equitable remedies such as injunctive or other forms
of non-monetary relief will remain available under Delaware Law. In addition,
each Director will continue to be subject to liability for breach of the
Director's duty of loyalty to the Registrant, for acts or omissions not in good
faith or involving intentional misconduct, for knowing violations of law, for
acts or omissions that the Director believes to be contrary to the best
interests of the Registrant or its stockholders, for any transaction from which
the Director derived an improper personal benefit, for acts or omissions
involving a reckless disregard for the Director's duty to the Registrant or its
stockholders when the Director was aware or should have been aware of a risk of
serious injury to the Registrant or its stockholders, for acts or omissions that
constitute an unexcused pattern of inattention that amounts to an abdication of
the Director's duty to the Registrant or its stockholders, for improper
transactions between the Director and the Registrant and for improper
distributions to stockholders and loans to Directors and officers. The provision
also does not affect a Director's responsibilities under any other law, such as
the federal securities law or state or federal environmental laws.
II-1
<PAGE> 116
The Registrant has entered into indemnity agreements with each of its
Directors and executive officers that require the Registrant to indemnify such
persons against expenses, judgments, fines, settlements and other amounts
incurred (including expenses of a derivative action) in connection with any
proceeding, whether actual or threatened, to which any such person may be made a
party by reason of the fact that such person is or was a Director or an
executive officer of the Registrant or any of its affiliated enterprises,
provided that such person acted in good faith and in a manner such person
reasonably believed to be in or not opposed to the best interests of the
Registrant and, with respect to any criminal proceeding, had no reasonable cause
to believe his conduct was unlawful. The indemnification agreements also set
forth certain procedures that will apply in the event of a claim for
indemnification thereunder.
At present, there is no pending litigation or proceeding involving a
Director or officer of the Registrant as to which indemnification is being
sought nor is the Registrant aware of any threatened litigation that may result
in claims for indemnification by any officer or Director.
The Registrant has an insurance policy covering the officers and Directors
of the Registrant with respect to certain liabilities, including liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Since February 1, 1996, we have sold and issued the following unregistered
securities:
(a) On April 26, 1996, we issued and sold a warrant to purchase 26,625
shares of our Series C preferred stock at an exercise price of $6.00 per
share to Comdisco, Inc., an accredited investor. We relied on the exemption
provided by Section 4(2) of the Securities Act of 1933.
(b) On September 20, 1996, we issued and sold an aggregate of
3,222,618 shares of our Series C preferred stock (convertible into
5,142,469 shares of common stock) to 14 accredited investors for an
aggregate purchase price of $19,335,708. We relied on the exemption
provided by Section 4(2) of the Securities Act of 1933.
(c) On November 13, 1996, we issued and sold an aggregate of 41,667
shares of our Series C preferred stock (convertible into 66,489 shares of
common stock) to two accredited investors for an aggregate purchase price
of $250,002. We relied on the exemption provided by Section 4(2) of the
Securities Act of 1933.
(d) On March 24, 1997, we issued a warrant to purchase 70,000 shares
of our Series C preferred stock to Silicon Valley Bank, an accredited
investor, at an exercise price of $6.00 per share. We relied on the
exemption provided by Section 4(2) of the Securities Act of 1933.
(e) In March, May and June 1997, we issued warrants to purchase an
aggregate of 156,510 shares of Series D preferred stock to twelve
accredited investors at an exercise price of $3.76 per share. We relied on
the exemption provided by Section 4(2) of the Securities Act of 1933.
(f) On June 24, 1997, we issued and sold an aggregate of 6,985,833
shares of our Series D preferred stock (convertible into 6,985,833 shares
of common stock) to twenty-one accredited investors for an aggregate
purchase price of $26,266,732.08. We relied on the exemption provided by
Section 4(2) of the Securities Act of 1933.
(g) On November 14, 1997, we issued and sold an aggregate of 132,978
shares of our Series D preferred stock (convertible into 132,978 shares of
common stock) to Anderson Lightspan Partners, an accredited investor, for
an aggregate purchase price of $499,997.28. We relied on the exemption
provided by Section 4(2) of the Securities Act of 1933.
(h) On December 15, 1997, we issued and sold an aggregate of 531,915
shares of our Series D preferred stock (convertible into 531,915 shares of
common stock) to three accredited investors for an
II-2
<PAGE> 117
aggregate purchase price of $2,000,000.40. We relied on the exemption
provided by Section 4(2) of the Securities Act of 1933.
(i) On March 10, 1998, we issued and sold an aggregate of 5,478,717
shares of our Series D preferred stock (convertible into 5,478,717 shares
of common stock) to twenty-five accredited investors for an aggregate
purchase price of $20,599,975.92. We relied on the exemption provided by
Section 4(2) of the Securities Act of 1933.
(j) On March 10, 1998, we issued warrants to purchase up to 3,326,112
shares of our Series D Preferred Stock to 33 accredited investors at an
exercise price of $0.01 per share. For the issuance of the warrant, we
relied on the exemption provided by Section 4(2) of the Securities Act of
1933.
(k) On June 24, 1998, we issued a warrant to purchase 127,659 shares
of Series D preferred stock to Montgomery Securities, an accredited
investor, at an exercise price of $4.70 per share. We relied on the
exemption provided by Section 4(2) of the Securities Act of 1933.
(l) On August 16, 1998, we issued and sold an aggregate of 1,150,000
shares of our Series E preferred stock (convertible into 1,150,000 shares
of common stock) to thirteen accredited investors for an aggregate purchase
price of $5,750,000. We relied on the exemption provided by Section 4(2) of
the Securities Act of 1933.
(m) On July 8, 1999 we issued and sold an aggregate of 4,294,183
shares of our Series E preferred stock (convertible into 4,294,183 shares
of common stock) to eight accredited investors for an aggregate purchase
price of $21,470,923. We relied on the exemption provided by Section 4(2)
of the Securities Act of 1933.
(n) On July 27, 1999, we issued and sold an aggregate of 1,000,000
shares of our Series E preferred stock (convertible into 1,000,000 shares
of common stock) to Comcast Interactive Investments, Inc., and accredited
investors for an aggregate purchase price of $5,000,000. We relied on the
exemption provided by Section 4(2) of the Securities Act of 1933.
(o) In September 1999, in connection with our acquisition of Academic
Systems, we issued shares of our Series E preferred stock and shares of our
common stock to the former preferred and common shareholders of Academic
Systems. We relied on the exemption provided by 3(a)(10) of the Securities
Act of 1933.
(p) On October 29, 1999, we sold an aggregate of 250,000 shares of our
Series E preferred stock to three accredited investors for an aggregate
purchase price of $1,250,000. We relied on the exemption provided by
Section 4(2) of the Securities Act and Regulation D promulgated thereunder.
(q) On October 29, 1999, we sold and issued 2,500,000 shares of our
Series E preferred stock and a warrant to purchase up to 500,000 shares of
our Series E preferred stock to CINAR Corporation, an accredited investor,
in connection with a strategic relationship. We relied on the exemption
provided by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.
(r) On October 29, 1999 we issued and sold 217,000 shares of our
Series E preferred stock as partial consideration for assets we purchased
from American Computer Resources, Inc., an accredited investor. We relied
on the exemption provided by Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
The recipients of the above-described securities represented their intention to
acquire the securities for investment only and not with a view to distribution
thereof. Appropriate legends were affixed to the stock certificates issued in
such transactions. All recipients had adequate access, through employment or
other relationships, to information about us.
II-3
<PAGE> 118
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Agreement and Plan of Merger.
3.1 Amended and Restated Articles of Incorporation, as currently
in effect.
3.2 Bylaws, as currently in effect.
3.3 Amended and Restated Certificate of Incorporation, to be
filed and become effective upon re-incorporation into
Delaware.
3.4 Bylaws to become effective upon re-incorporation into
Delaware.
3.5 Amended and Restated Certificate of Incorporation, to be
filed and become effective upon the closing of the offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.(1)
10.1 1992 Stock Option Plan.
10.2 Forms of Incentive and Nonstatutory Stock Option Agreement
under the 1992 Stock Option Plan.
10.3 2000 Equity Incentive Plan.
10.4 Form of Stock Option Agreement pursuant to the 2000 Equity
Incentive Plan.
10.5 2000 Employee Stock Purchase Plan and related offering
documents.
10.6+ Office Lease by and between the Company and Insurance
Company of the West dated as of May 28, 1996.(1)
10.7 Lease by and between the Travelers Insurance Company and
Academic Systems Corporation dated as of July 1, 1996 and
amended December 3, 1996.
10.8+ Office Sublease by and between the Company and Qualcomm
Incorporated dated as of December 1, 1997 and amended
September 21, 1998.(1)
10.9 Office Lease by and between the Company and McWin
Corporation dated as of May 1, 1997.
10.10 Office Lease by and between the Company and Auerbach Plaza
Limited Partnership and Goliac, Inc., dated as of June 4,
1999.(1)
10.11 Loan and Security Agreement by and between the Company and
Silicon Valley Bank dated as of February 25, 1997 and
amended December 31, 1997, March 31, 1998 and March 26,
1999.
10.12 Master Lease Agreement by and between the Company and
Transamerica Business Credit Corporation dated as of August
14, 1997, including Schedules 1, 2, 3, 4 and 5 thereto.
10.13 Master Equipment Lease by and between the Company and
Pentech Financial Services, Inc. dated as of July 25, 1999,
including supplements 1, 2 and 3 thereto.
10.14 Equipment Financing Agreement by and between the Company and
Pentech Financial Services, Inc. dated as of July 1, 1999.
10.15 Amended and Restated Investor Rights Agreement by and among
the Company and certain stockholders of the Company dated
July 8, 1999.
10.16 Amendment and Waiver dated October 28, 1999.
10.17 Amendment to Investor Rights Agreement dated October 29,
1999.
10.18 Form of Indemnity Agreement between the Company and its
directors and officers.
10.19 Developer Agreement by and between the Company and Sony
Computer Entertainment America dated as of January 26, 1996.
10.20+ Sale and License Agreement by and between the Company and
Sony Computer Entertainment America dated as of January 26,
1996.(1)
10.21+ Letter Agreement by and between the Company and
SmarterKids.com, Inc. dated as of July 12, 1999.(1)
10.22 Academic Systems Fulfillment Agreement by and between
Academic Systems Corporation and FGI Print Management dated
as of June 12, 1998.
</TABLE>
II-4
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.23 Series E Stock Purchase Agreement by and between the Company
and CINAR Corporation dated as of October 29, 1999.
10.24 Warrant Agreement to purchase Series A preferred stock by
and between the Company and Comdisco, Inc. dated as of March
15, 1994.
10.25 Warrant Agreement to purchase Series B preferred stock by
and between the Company and Comdisco, Inc. dated as of May
30, 1995.
10.26 Warrant Agreement to purchase Series B preferred stock by
and between the Company and Comdisco, Inc. dated as of April
26, 1996.
10.27 Warrant to purchase Series C preferred stock by and between
the Company and Silicon Valley Bank dated as of March 24,
1997.
10.28 Warrant Agreement to purchase Series C preferred stock by
and between the Company and Comdisco, Inc. dated as of April
26, 1996.
10.29 Warrant to purchase Series D preferred stock by and between
the Company and Montgomery Securities.
10.30 Form of Warrant to purchase Series D preferred stock.
10.31 Form of Warrant to purchase Series D preferred stock.
10.32 Letter Agreement regarding strategic initiatives by and
between the Company and CINAR Corporation dated as of
October 29, 1999.(1)
10.33 Amendment and Waiver dated October 28, 1999.
10.34 Warrant to purchase Series E preferred stock by and between
the Company and Comdisco, Inc.(1)
10.35 Form of Warrant to purchase Series E preferred stock.(1)
10.36 Warrant to purchase Series D preferred stock by and between
the Company and SZ Investments L.L.C. dated as of June 6,
1997.(1)
10.37 Oracle Reseller agreement, dated as of August 9, 1994,
including Addendums.(1)
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP., Independent Auditors.
23.3 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.(1)
24.1 Power of Attorney. Reference is made to page II-5.
27 Financial Data Schedule.
</TABLE>
- ---------------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to provisions described in Item 14 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 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 Act and will be governed by the final adjudication of
such issue.
II-5
<PAGE> 120
The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the 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.
(b) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Diego,
County of San Diego, State of California, on November 1, 1999.
By: /s/ JOHN T. KERNAN
------------------------------------
John T. Kernan
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints John T. Kernan and Carl Zeiger and each
of them, as his true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments, exhibits thereto and other documents in connection therewith) to
this Registration Statement and any subsequent registration statement filed by
the registrant pursuant to Rule 462(b) of the Securities Act of 1933, as
amended, which relates to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or their or his substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ JOHN T. KERNAN Chief Executive Officer November 1, 1999
- --------------------------------------------------- and Chairman
John T. Kernan (Principal Executive Officer)
/s/ CARL ZEIGER President, Chief Operating November 1, 1999
- --------------------------------------------------- Officer and Director
Carl Zeiger
/s/ KATHLEEN R. MCELWEE Vice President of Finance November 1, 1999
- --------------------------------------------------- and Chief Financial Officer
Kathleen R. McElwee (Principal Financial and
Accounting Officer)
/s/ JOHN H. BRANDON Executive Vice President, November 1, 1999
- --------------------------------------------------- President of Academic Systems
John H. Brandon and Director
/s/ JAMES W. BREYER Director November 1, 1999
- ---------------------------------------------------
James W. Breyer
/s/ L. JOHN DOERR Director November 1, 1999
- ---------------------------------------------------
L. John Doerr
/s/ JEFFREY P. SANDERSON Director November 1, 1999
- ---------------------------------------------------
Jeffrey P. Sanderson
</TABLE>
II-7
<PAGE> 122
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ DAVID D. HILLER Director November 1, 1999
- ---------------------------------------------------
David D. Hiller
Director
- ---------------------------------------------------
Bradley P. Dusto
Director
- ---------------------------------------------------
Bruce W. Ravenel
/s/ BARRY J. SCHIFFMAN Director November 1, 1999
- ---------------------------------------------------
Barry J. Schiffman
Director
- ---------------------------------------------------
Ronald A. Weinberg
</TABLE>
II-8
<PAGE> 123
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement.(1)
2.1 Agreement and Plan of Merger.
3.1 Amended and Restated Articles of Incorporation, as currently
in effect.
3.2 Bylaws, as currently in effect.
3.3 Amended and Restated Certificate of Incorporation, to be
filed and become effective upon re-incorporation into
Delaware.
3.4 Bylaws to become effective upon re-incorporation into
Delaware.
3.5 Amended and Restated Certificate of Incorporation, to be
filed and become effective upon the closing of the offering.
4.1 Reference is made to Exhibits 3.1, 3.2, 3.3, 3.4 and 3.5.
4.2 Specimen Stock Certificate.(1)
5.1 Opinion of Cooley Godward LLP.(1)
10.1 1992 Stock Option Plan.
10.2 Forms of Incentive and Nonstatutory Stock Option Agreement
under the 1992 Stock Option Plan.
10.3 2000 Equity Incentive Plan.
10.4 Form of Stock Option Agreement pursuant to the 2000 Equity
Incentive Plan.
10.5 2000 Employee Stock Purchase Plan and related offering
documents.
10.6+ Office Lease by and between the Company and Insurance
Company of the West dated as of May 28, 1996.(1)
10.7 Lease by and between the Travelers Insurance Company and
Academic Systems Corporation dated as of July 1, 1996 and
amended December 3, 1996.
10.8+ Office Sublease by and between the Company and Qualcomm
Incorporated dated as of December 1, 1997 and amended
September 21, 1998.(1)
10.9 Office Lease by and between the Company and McWin
Corporation dated as of May 1, 1997.
10.10 Office Lease by and between the Company and Auerbach Plaza
Limited Partnership and Goliac, Inc., dated as of June 4,
1999.(1)
10.11 Loan and Security Agreement by and between the Company and
Silicon Valley Bank dated as of February 25, 1997 and
amended December 31, 1997, March 31, 1998 and March 26,
1999.
10.12 Master Lease Agreement by and between the Company and
Transamerica Business Credit Corporation dated as of August
14, 1997, including Schedules 1, 2, 3, 4 and 5 thereto.
10.13 Master Equipment Lease by and between the Company and
Pentech Financial Services, Inc. dated as of July 25, 1999,
including supplements 1, 2 and 3 thereto.
10.14 Equipment Financing Agreement by and between the Company and
Pentech Financial Services, Inc. dated as of July 1, 1999.
10.15 Amended and Restated Investor Rights Agreement by and among
the Company and certain stockholders of the Company dated
July 8, 1999.
10.16 Amendment and Waiver dated October 28, 1999.
10.17 Amendment to Investor Rights Agreement dated October 29,
1999.
10.18 Form of Indemnity Agreement between the Company and its
directors and officers.
10.19 Developer Agreement by and between the Company and Sony
Computer Entertainment America dated as of January 26, 1996.
10.20+ Sale and License Agreement by and between the Company and
Sony Computer Entertainment America dated as of January 26,
1996.(1)
10.21+ Letter Agreement by and between the Company and
SmarterKids.com, Inc. dated as of July 12, 1999.(1)
10.22 Academic Systems Fulfillment Agreement by and between
Academic Systems Corporation and FGI Print Management dated
as of June 12, 1998.
10.23 Series E Stock Purchase Agreement by and between the Company
and CINAR Corporation dated as of October 29, 1999.
</TABLE>
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
10.24 Warrant Agreement to purchase Series A preferred stock by
and between the Company and Comdisco, Inc. dated as of March
15, 1994.
10.25 Warrant Agreement to purchase Series B preferred stock by
and between the Company and Comdisco, Inc. dated as of May
30, 1995.
10.26 Warrant Agreement to purchase Series B preferred stock by
and between the Company and Comdisco, Inc. dated as of April
26, 1996.
10.27 Warrant to purchase Series C preferred stock by and between
the Company and Silicon Valley Bank dated as of March 24,
1997.
10.28 Warrant Agreement to purchase Series C preferred stock by
and between the Company and Comdisco, Inc. dated as of April
26, 1996.
10.29 Warrant to purchase Series D preferred stock by and between
the Company and Montgomery Securities.
10.30 Form of Warrant to purchase Series D preferred stock.
10.31 Form of Warrant to purchase Series D preferred stock.
10.32 Letter Agreement regarding strategic initiatives by and
between the Company and CINAR Corporation dated as of
October 29, 1999.(1)
10.33 Amendment and Waiver dated October 28, 1999.
10.34 Warrant to purchase Series E preferred stock by and between
the Company and Comdisco, Inc.(1)
10.35 Form of Warrant to purchase Series E preferred stock.(1)
10.36 Warrant to purchase Series D preferred stock by and between
the Company and SZ Investments L.L.C. dated as of June 6,
1997.(1)
10.37 Oracle Reseller Agreement dated as of August 9, 1994,
including Addendums(1).
21.1 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.3 Consent of Cooley Godward LLP. Reference is made to Exhibit
5.1.(1)
24.1 Power of Attorney. Reference is made to page II-5.
27 Financial Data Schedule.
</TABLE>
- ---------------
+ Confidential treatment has been requested with respect to certain portions
of this exhibit. Omitted portions have been filed separately with the
Securities and Exchange Commission.
(1) To be filed by amendment.
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (hereinafter called the "MERGER
AGREEMENT") is made as of __, 1999 by and between THE LIGHTSPAN PARTNERSHIP,
INC., a California corporation ("LIGHTSPAN CALIFORNIA"), and THE LIGHTSPAN
PARTNERSHIP, INC., a Delaware corporation ("LIGHTSPAN DELAWARE"). Lightspan
California and Lightspan Delaware are sometimes referred to as the "CONSTITUENT
CORPORATIONS."
The authorized capital stock of Lightspan California consists of
149,000,000 shares of Common Stock, par value $0.001 per share, and 61,795,074
shares of Preferred Stock, par value $0.001 per share. The authorized capital
stock of Lightspan Delaware consists of 149,000,000 shares of Common Stock, par
value $0.001 per share, and 61,795,074 shares of Preferred Stock, par value
$0.001 per share.
The directors of the Constituent Corporations deem it advisable and to
the advantage of said corporations that Lightspan California merge into
Lightspan Delaware upon the terms and conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that Lightspan
California shall merge into Lightspan Delaware on the following terms,
conditions and other provisions:
I. TERMS AND CONDITIONS
A. MERGER. Lightspan California shall be merged with and into Lightspan
Delaware (the "MERGER"), and Lightspan Delaware shall be the surviving
corporation (the "SURVIVING CORPORATION") effective at 9:00 a.m. (Eastern
Standard Time) on __, 1999 (the "EFFECTIVE Time").
B. SUCCESSION. At the Effective Time, Lightspan Delaware shall continue
its corporate existence under the laws of the State of Delaware, and the
separate existence and corporate organization of Lightspan California, except
insofar as it may be continued by operation of law, shall be terminated and
cease.
C. TRANSFER OF ASSETS AND LIABILITIES. At the Effective Time, the
rights, privileges, powers and franchises, both of a public as well as of a
private nature, of each of the Constituent Corporations shall be vested in and
possessed by the Surviving Corporation, subject to all of the disabilities,
duties and restrictions of or upon each of the Constituent Corporations; and all
and singular rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and mixed, of each of
the Constituent Corporations, and all debts due to each of the Constituent
Corporations on whatever account, and all things in action or belonging to each
of the Constituent Corporations shall be transferred to and vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be thereafter the property
of the Surviving Corporation as they were of the Constituent Corporations, and
the title to any real estate vested by deed or otherwise in either of the
Constituent Corporations shall not revert or be in any way impaired by reason of
the Merger; provided, however, that the liabilities of the Constituent
Corporations and of their shareholders,
<PAGE> 2
directors and officers shall not be affected and all rights of creditors and all
liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and any claim existing or action or proceeding pending by
or against either of the Constituent Corporations may be prosecuted to judgment
as if the Merger had not taken place except as they may be modified with the
consent of such creditors and all debts, liabilities and duties of or upon each
of the Constituent Corporations shall attach to the Surviving Corporation, and
may be enforced against it to the same extent as if such debts, liabilities and
duties had been incurred or contracted by it.
D. COMMON STOCK OF LIGHTSPAN CALIFORNIA AND LIGHTSPAN DELAWARE. At the
Effective Time, by virtue of the Merger and without any further action on the
part of the Constituent Corporations or their shareholders, (i) each share of
Common Stock of Lightspan California issued and outstanding immediately prior
thereto shall be changed and converted into one fully paid and nonassessable
share of Common Stock of Lightspan Delaware; and (ii) each share of Common Stock
of Lightspan Delaware issued and outstanding immediately prior thereto shall be
canceled and returned to the status of authorized but unissued shares.
E. PREFERRED STOCK OF LIGHTSPAN CALIFORNIA. At the Effective Time, by
virtue of the Merger and without any further action on the part of the
Constituent Corporations or their shareholders, (i) each share of Series A
Preferred Stock of Lightspan California issued and outstanding immediately prior
thereto shall be changed and converted into one fully paid and nonassessable
share of Series A Preferred Stock of Lightspan Delaware, (ii) each share of
Series B Preferred Stock of Lightspan California issued and outstanding
immediately prior thereto shall be changed and converted into one fully paid and
nonassessable share of Series B Preferred Stock of Lightspan Delaware, (iii)
each share of Series C Preferred Stock of Lightspan California issued and
outstanding immediately prior thereto shall be changed and converted into one
fully paid and nonassessable share of Series C Preferred Stock of Lightspan
Delaware, (iv) each share of Series D Preferred Stock of Lightspan California
issued and outstanding immediately prior thereto shall be changed and converted
into one fully paid and nonassessable share of Series D Preferred Stock of
Lightspan Delaware, and (iv) each share of Series E Preferred Stock of Lightspan
California issued and outstanding immediately prior thereto shall be changed and
converted into one fully paid and nonassessable share of Series E Preferred
Stock of Lightspan Delaware.
F. STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates which prior to that time represented shares of the
Common Stock and Preferred Stock of Lightspan California shall be deemed for all
purposes to evidence ownership of and to represent the shares of Lightspan
Delaware into which the shares of Lightspan California represented by such
certificates have been converted as herein provided and shall be so registered
on the books and records of the Surviving Corporation or its transfer agents.
The registered owner of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Surviving Corporation or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to receive
any dividend and other distributions upon the shares of Lightspan Delaware
evidenced by such outstanding certificate as above provided.
G. WARRANTS OF LIGHTSPAN CALIFORNIA. At and after the Effective Time,
the outstanding Warrants which prior to that time represented Warrants of
Lightspan California shall
<PAGE> 3
be deemed for all purposes to evidence ownership of and to represent Warrants of
Lightspan Delaware (each Warrant of Lightspan Delaware being exercisable to
purchase one share of stock of Lightspan Delaware at the per share exercise
price of the Warrant of Lightspan California) and shall be so registered on the
books and records of the Surviving Corporation or its transfer agents.
H. OPTIONS OF LIGHTSPAN CALIFORNIA. At the Effective Time, the Surviving
Corporation will assume and continue all of Lightspan California's stock option
plans and agreements in existence at the Effective Time, including but not
limited to the 1992 Stock Option Plan and the 1993 Stock Option Plan and the
outstanding and unexercised portions of all options to purchase Common Stock of
Lightspan California, including without limitation all options outstanding under
such stock option plans and any other outstanding options, shall become options
to purchase one share of Common Stock of Lightspan Delaware at the per share
exercise price of the Lightspan California option, with no other changes in the
terms and conditions of such options. Effective at the Effective Time, Lightspan
Delaware hereby assumes the outstanding and unexercised portions of such options
and the obligations of Lightspan California with respect thereto (subject to the
adjustments provided in this Section H and the provisions of the Certificate of
Incorporation and Bylaws of Lightspan Delaware).
I. EMPLOYEE BENEFIT PLANS. At the Effective Time, the Surviving
Corporation shall assume all obligations of Lightspan California under its
employee benefit plans, including, but not limited to, its Employee Stock
Purchase Plan (including obligations to reserve shares for issuance thereunder)
which shall become effective on the same day as the initial, firmly
underwritten, public offering of Common Stock of Lightspan Delaware referenced
in Sections D and E, above).
J. FRACTIONAL SHARES. No fractional shares of Lightspan Delaware Common
Stock or Preferred Stock shall be issued in connection with the Merger. In lieu
of such fractional shares, any holder who would otherwise be entitled to receive
a fraction of a share of Lightspan Delaware Common Stock or Preferred Stock, as
applicable (after separately aggregating all fractional shares of each type of
stock issuable to such holder), shall be paid in cash the dollar value (rounded
to the nearest whole cent), without interest, of such fractional share(s).
II. CHARTER DOCUMENTS, DIRECTORS AND OFFICERS
A. CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation and Bylaws of Lightspan Delaware in effect at the Effective Time
shall continue to be the Certificate of Incorporation and Bylaws of the
Surviving Corporation.
B. DIRECTORS. The directors of Lightspan California immediately
preceding the Effective Time shall become the directors of the Surviving
Corporation at and after the Effective Time to serve until the expiration of
their terms and until their successors are elected and qualified.
C. OFFICERS. The officers of Lightspan California immediately preceding
the Effective Time shall become the officers of the Surviving Corporation at and
after the Effective Time to serve at the pleasure of its Board of Directors.
<PAGE> 4
III. MISCELLANEOUS
A. FURTHER ASSURANCES. From time to time, and when required by the
Surviving Corporation or by its successors and assigns, there shall be executed
and delivered on behalf of Lightspan California such deeds and other
instruments, and there shall be taken or caused to be taken by it such further
and other action, as shall be appropriate or necessary in order to vest or
perfect in or to conform of record or otherwise, in the Surviving Corporation
the title to and possession of all the property, interests, assets, rights,
privileges, immunities, powers, franchises and authority of Lightspan California
and otherwise to carry out the purposes of this Merger Agreement, and the
officers and directors of the Surviving Corporation are fully authorized in the
name and on behalf of Lightspan California or otherwise to take any and all such
action and to execute and deliver any and all such deeds and other instruments.
B. AMENDMENT. At any time before or after approval by the shareholders
of Lightspan California, this Merger Agreement may be amended in any manner
(except that, after the approval of the Merger Agreement by the shareholders of
Lightspan California, the principal terms may not be amended without the further
approval of the shareholders of Lightspan California) as may be determined in
the judgment of the respective Board of Directors of Lightspan Delaware and
Lightspan California to be necessary, desirable, or expedient in order to
clarify the intention of the parties hereto or to effect or facilitate the
purpose and intent of this Merger Agreement.
C. CONDITIONS TO MERGER. The obligation of the Constituent Corporations
to effect the transactions contemplated hereby is subject to satisfaction of the
following conditions (any or all of which may be waived by either of the
Constituent Corporations in its sole discretion to the extent permitted by law):
a. the Merger shall have been approved by the shareholders of
Lightspan California in accordance with applicable provisions of the General
Corporation Law of the State of California; and
b. Lightspan California, as sole stockholder of Lightspan
Delaware, shall have approved the Merger in accordance with the General
Corporation Law of the State of Delaware; and
c. any and all consents, permits, authorizations, approvals, and
orders deemed in the sole discretion of Lightspan California to be material to
consummation of the Merger shall have been obtained.
D. ABANDONMENT OR DEFERRAL. At any time before the Effective Time, this
Merger Agreement may be terminated and the Merger may be abandoned by the Board
of Directors of either Lightspan California or Lightspan Delaware or both,
notwithstanding the approval of this Merger Agreement by the shareholders of
Lightspan California or Lightspan Delaware or the prior filing of this Merger
Agreement with the Secretary of State of the State of Delaware, or the
consummation of the Merger may be deferred for a reasonable period of time if,
in the opinion of the Boards of Directors of Lightspan California and Lightspan
Delaware, such action would be in the best interest of such corporations. In the
event of termination of this Merger Agreement,
<PAGE> 5
this Merger Agreement shall become void and of no effect and there shall be no
liability on the part of either Constituent Corporation or its Board of
Directors or shareholders with respect thereto, except that Lightspan California
shall pay all expenses incurred in connection with the Merger or in respect of
this Merger Agreement or relating thereto.
E. COUNTERPARTS. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in any number of counterparts, each
of which shall be deemed to be an original.
<PAGE> 6
IN WITNESS WHEREOF, this Merger Agreement, having first been fully
approved by the Board of Directors of Lightspan California and Lightspan
Delaware, is hereby executed on behalf of each said corporation and attested by
their respective officers thereunto duly authorized.
THE LIGHTSPAN PARTNERSHIP, INC.,
a California corporation
By:________________________________
John Kernan
Chief Executive Officer
ATTEST:
_________________________________________
Kathy R. McElwee, Vice President Finance,
and Chief Financial Officer
THE LIGHTSPAN PARTNERSHIP, INC.,
a Delaware corporation
By:________________________________
John Kernan
Chief Executive Officer
ATTEST:
_________________________________________
Kathy R. McElwee, Vice President Finance,
and Chief Financial Officer
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
THE LIGHTSPAN PARTNERSHIP, INC.
The undersigned, Carl E. Zeiger and Kathleen R. McElwee, certify that:
1. They are the duly elected and acting President and Chief Operating
Officer, and Vice President, Finance, and Chief Financial Officer, respectively,
of The Lightspan Partnership, Inc., a California corporation (the "Company").
2. The Articles of Incorporation of the Company are amended and restated
in full to read as set forth in Exhibit A attached hereto.
3. The Amended and Restated Articles of Incorporation of the Company
attached hereto have been duly approved by the Board of Directors of the
Company.
4. The Amended and Restated Articles of Incorporation of the Company
attached hereto have been duly approved by the shareholders of this Company in
accordance with Sections 902 and 903 of the California Corporations Code. The
total number of outstanding shares of Common Stock is 7,555,527. The total
number of outstanding shares of Preferred Stock is 35,527,893. The number of
shares voting in favor of the Amended and Restated Articles of Incorporation
equaled or exceeded the vote required. The percentage vote required was a simple
majority of the outstanding shares of Preferred Stock, voting separately as a
single class, a simple majority of the Common Stock, voting separately as a
single class and a simple majority of the Common Stock and Preferred Stock,
voting together as a single class.
The undersigned further declare under penalty of perjury under the laws
of the State of California that the matters set forth in this certificate are
true and correct of their own knowledge.
Date: June ___, 1999
-----------------------------------
Carl E. Zeiger, President
and Chief Operating Officer
-----------------------------------
Kathleen R. McElwee, Vice President,
Finance, and Chief Financial Officer
<PAGE> 2
EXHIBIT A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
THE LIGHTSPAN PARTNERSHIP, INC.
FIRST. The name of the corporation is The Lightspan Partnership, Inc.
SECOND. The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business or
the practice of a profession permitted to be incorporated under the California
Corporations Code.
THIRD. (a) The aggregate number of shares that the corporation shall
have authority to issue is one hundred forty-eight million seven hundred
ninety-five thousand seventy-four (148,795,074) which is comprised of
eighty-seven million (87,000,000) shares of Common Stock each with the par value
of $0.001 per share, and sixty-one million seven hundred ninety-five thousand
seventy-four (61,795,074) shares of Preferred Stock each with the par value of
$0.001 per share. The Preferred Stock shall be issued in five series, which
shall be designated "Series A Preferred Stock," "Series B Preferred Stock,"
"Series C Preferred Stock," "Series D Preferred Stock," "Series E Preferred
Stock." The Series A Preferred Stock shall consist of seven million six hundred
seventeen thousand five hundred (7,617,500) shares. The Series B Preferred Stock
shall consist of eleven million eight hundred sixteen thousand six hundred
sixty-four (11,816,664) shares. The Series C Preferred Stock shall consist of
three million three hundred sixty thousand nine hundred ten (3,360,910) shares.
The Series D Preferred Stock shall consist of seventeen million (17,000,000)
shares. The Series E Preferred Stock shall consist of twenty-two million
(22,000,000) shares.
(b) The terms and provisions of the Preferred Stock are as
follows:
1. Definitions. For purposes of this Article, the following definitions
shall apply:
(a) "Company" shall mean the corporation.
(b) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities (other than shares of Preferred Stock)
convertible into or exchangeable for Common Stock or convertible into or
exchangeable for securities that are convertible into or exchangeable for Common
Stock.
-2-
<PAGE> 3
(c) "Employee Sale" shall mean the sale or grant of any right to
purchase (including any option or warrant) any shares of Common Stock to any
employee, officer or director of, or consultant to, the Company pursuant to any
employee, officer, director or consultant plan or agreement adopted or approved
by the Board of Directors of the Company, and any exercise of any such right,
net of any such rights to purchase expiring unexercised and net of any shares
repurchased by the Company from employees, officers, directors or consultants at
cost upon termination of employment or tenure pursuant to such agreements.
Employee Sale shall also mean (in addition to the shares described in the
preceding sentence) the sale or grant of any right to purchase (including any
option or warrant) shares of Common Stock to any bank, equipment lessor or other
similar financial institution if and to the extent that the transaction in which
such sale or grant is to be made is approved by the Company's Board of
Directors.
(d) "Liquidation Preference" shall mean $1.00 per share for the
Series A Preferred Stock, $3.00 per share for the Series B Preferred Stock,
$6.00 per share for the Series C Preferred Stock, $3.76 per share for the Series
D Preferred Stock and $5.00 per share for the Series E Preferred Stock (subject
to adjustment from time to time as set forth elsewhere herein).
(e) "Options" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(f) "Original Issue Date" shall mean, respectively, the dates
upon which shares of each of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock, Series D Preferred Stock and Series E Preferred
Stock are first issued.
(g) "Original Issue Price" shall mean $1.00 per share for the
Series A Preferred Stock, $3.00 per share for the Series B Preferred Stock,
$6.00 per share for the Series C Preferred Stock, $3.76 per share for the Series
D Preferred Stock and $5.00 per share for the Series E Preferred Stock.
(h) "Preferred Stock" shall mean, collectively, the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the
Series D Preferred Stock and the Series E Preferred Stock.
2. Dividends.
(a) Dividend Preference. The holders of outstanding shares of
Preferred Stock shall be entitled to receive dividends, out of any assets at the
time legally available therefore, prior and in preference to any declaration or
payment of any dividend (payable other than in Common Stock of this Companyny)
on the Common Stock of this Company, at the rate of ten cents ($0.10) per share
per annum for the Series A Preferred Stock, thirty cents ($0.30) per share per
annum for the Series B Preferred Stock, sixty cents ($0.60) per share per annum
for the Series C Preferred Stock, thirty-seven and six-tenths cents ($0.376) per
share per annum for the Series D Preferred Stock and
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fifty cents ($0.50) per share per annum for the Series E Preferred Stock, when,
as and if declared by the Board of Directors; provided, however, that the Board
of Directors is under no obligation to pay dividends to such holders, and such
dividends, if any, shall be noncumulative such that no rights shall accrue to
the holders of the Preferred Stock as a result of the failure to declare such
dividends in any prior year. Such dividends may be payable quarterly or
otherwise as the Board of Directors may from time to time determine. No such
dividend shall be declared or paid on the Preferred Stock of any series in
accordance with the preceding sentences unless dividends are simultaneously
declared or paid on the Preferred Stock of each other series, and if less than
the full annual dividend for each series is so declared or paid, the amounts
declared and paid for each series shall be determined pro rata on the basis of
the Liquidation Preferences for the shares of the respective series. If and to
the extent that the Board of Directors of the Company shall declare and set
aside for payment any other and further amount of cash or property (other than
Common Stock of the Company) as a distribution, such distribution shall be made
with equal priority to the Common Stock and the Preferred Stock, with each share
of Preferred Stock of each series being treated for such purpose as if it had
been converted into Common Stock at the then effective Conversion Rate for such
series. For such purpose, all shares of Preferred Stock held by each holder of
Preferred Stock shall be aggregated, and any resulting fractional share of
Common Stock shall be disregarded.
(b) Priority of Dividends. The Company shall make no
Distribution (as defined below) to the holders of shares of Common Stock in any
fiscal year unless and until full annual dividends shall have been paid, or
declared and set apart, upon all shares of Preferred Stock of each series. The
Company shall not permit any subsidiary of the Company to purchase or otherwise
acquire for consideration any shares of stock of the Company, or take any other
action, unless the Company could, under this Section 2, purchase or otherwise
acquire such shares or take such other action at such time and in such manner.
(c) Distribution. As used in this section, "Distribution" means
the transfer of cash or property without consideration, whether by way of
dividend or otherwise (except a dividend in shares of the Company) or the
purchase of shares of the Company (other than in connection with the repurchase
of shares of Common Stock issued to or held by employees, consultants, officers
and directors, at a price not greater than the amount paid by such persons for
such shares upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase, which agreements were
authorized by the unanimous approval of the Board of Directors) for cash or
property.
(d) Consent to Certain Repurchases. As authorized by Section
402.5(c) of the California Corporations Code, Sections 502 and 503 of the
California Corporations Code shall not apply with respect to Distributions made
by the Companym in connection with the repurchase of shares of Common Stock
issued to or held by employees, consultants, officers and directors, at a price
not greater than the amount paid by such persons for such shares, upon
termination of their employment or services pursuant to agreements providing for
the right of said repurchase upon the unanimous approval of the Board of
Directors.
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<PAGE> 5
3. Liquidation Rights.
(a) Liquidation Preference. In the event of any liquidation,
dissolution or winding up of the Company, either voluntary or involuntary, the
holders of the Preferred Stock shall be entitled to receive, out of the assets
of the Company, the Liquidation Preference specified for each share of Preferred
Stock then held by them plus an amount equal to all declared and unpaid
dividends thereon, if any, to the date that payment is made, before any payment
shall be made or any assets distributed to the holders of Common Stock.
(b) Priority. If upon the liquidation, dissolution or winding up
of the Company, the assets to be distributed among the holders of the Preferred
Stock are insufficient to permit the payment to such holders of the full
Liquidation Preference for their shares, then the entire assets of the Company
legally available for distribution shall be distributed with equal priority and
pro rata among the holders of the Preferred Stock in proportion to the numbers
of shares of Preferred Stock of each series held by them multiplied by the
Liquidation Preference for the shares of such series of Preferred Stock.
(c) Remaining Assets. After the payment to the holders of
Preferred Stock of the full preferential amounts specified herein, any remaining
assets of the Company shall be distributed ratably to the holders of the
Company's capital stock then outstanding, with each share of Preferred Stock of
each series being treated for such purpose as if it had been converted into
Common Stock at the then effective Conversion Rate for such series. For such
purpose, all shares of Preferred Stock of each series held by each holder of
Preferred Stock shall be aggregated, and any resulting fractional share of
Common Stock shall be disregarded.
(d) Reorganization. Notwithstanding anything else in these
Articles of Incorporation, a liquidation, dissolution or winding up of the
Company shall be deemed to be occasioned by, or to include, (a) the acquisition
of the Company by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation, whether of the Company with or into any other corporation or
corporations or of any other corporation or corporations with or into the
Company but excluding any merger effected exclusively for the purpose of
changing the domicile of the Company); or (b) a sale of all or substantially all
of the assets of the Company; provided, however, that a consolidation or merger
as a result of which the holders of capital stock of the Company immediately
prior to such merger or consolidation possess (by reason of such holdings) 50%
or more of the voting power of the Company surviving such merger or
consolidation (or other corporation which is the issuer of the capital stock
into which the capital stock of the Company is converted or exchanged in such
merger or consolidation) shall not be treated as a liquidation, dissolution or
winding up of the Company within the meaning of this Section 3.
4. Conversion. The holders of the Preferred Stock shall have conversion
rights as follows (the "Conversion Rights"):
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<PAGE> 6
(a) Right to Convert. Each share of Preferred Stock shall be
convertible, without payment of additional consideration, into shares of Common
Stock, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Company or any transfer agent for
the Preferred Stock. Each share of Series A Preferred Stock shall be converted
into that number of fully-paid and nonassessable shares of Common Stock that is
determined by dividing $1.00 by the appropriate Conversion Price (as hereinafter
defined). Each share of Series B Preferred Stock shall be convertible into that
number of fully paid and nonassessable shares of Common Stock that is determined
by dividing $3.00 by the appropriate Conversion Price (as hereinafter defined).
Each share of Series C Preferred Stock shall be convertible into that number of
fully paid and nonassessable shares of Common Stock that is determined by
dividing $6.00 by the appropriate Conversion Price (as hereinafter defined).
Each share of Series D Preferred Stock shall be convertible into that number of
fully paid and nonassessable shares of Common Stock that is determined by
dividing $3.76 by the appropriate Conversion Price (as hereinafter defined).
Each share of Series E Preferred Stock shall be convertible into that number of
fully paid and nonassessable shares of Common Stock that is determined by
dividing $5.00 by the appropriate Conversion Price (as hereinafter defined). The
initial Conversion Price for the Series A Preferred Stock shall be $1.00, and
shall be subject to adjustment as provided herein. The initial Conversion Price
for the Series B Preferred Stock shall be $3.00, and shall be subject to
adjustment as provided herein. The initial Conversion Price for the Series C
Preferred Stock shall be $3.76, and shall be subject to adjustment as provided
herein. The initial Conversion Price for the Series D Preferred Stock shall be
$3.76, and shall be subject to adjustment as provided herein. The initial
Conversion Price for the Series E Preferred Stock shall be $5.00, and shall be
subject to adjustment as provided herein. (The number of shares of Common Stock
into which each share of Preferred Stock may be converted is hereinafter
referred to as the "Conversion Rate" for each such series.) Upon any decrease or
increase in the Conversion Price or the Conversion Rate for a series, as
described in this Section 4, the Conversion Rate or Conversion Price for such
series, as the case may be, shall be appropriately increased or decreased.
(b) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Rate for such share immediately upon the consummation of a firm
commitment underwritten public offering of Common Stock on Form S-1, provided
that the public offering price per share is not less than $10.00 (subject to
appropriate adjustment for stock splits, stock dividends, combinations,
recapitalizations and the like) and the aggregate gross proceeds to the Company
are not less than $20,000,000 (a "Qualifying Public Offering").
(c) Mechanics of Conversion. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock. All shares of Common
Stock (including fractions) issuable upon conversion of shares of Preferred
Stock held by each holder of Preferred Stock shall be aggregated for the purpose
of determining whether the conversion would result in the issuance of any
fractional share. If, after aggregation, the conversion would result in the
issuance of a fractional share of Common Stock, the Company shall, in lieu of
issuing any fractional shares to which the
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<PAGE> 7
holder would otherwise be entitled, pay a sum of cash equal to the then fair
market value of such fractional share as determined in good faith by the Board
of Directors of the Company. Before any holder of Preferred Stock shall be
entitled to convert the same into full shares of Common Stock, and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or of any transfer agent
for the Preferred Stock, and shall give written notice to the Companyom at such
office that he elects to convert the same; provided, however, that in the event
of an automatic conversion pursuant to paragraph 4(b) above, the outstanding
shares of Preferred Stock shall be converted automatically without any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided further, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such automatic
conversion unless either the certificates evidencing such shares of Preferred
Stock are delivered to the Company or its transfer agent as provided above, or
the holder notifies the Company or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Company to indemnify the Company from any loss incurred by it in connection
with such certificates.
The Companyy shall, as soon as practicable after such delivery,
or after such agreement and indemnification, issue and deliver at such office to
such holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock, plus any declared and
unpaid dividends on the converted Preferred Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date; provided, however, that if
the conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of the
sale of such securities.
(d) Adjustments to Conversion Price for Diluting Issues.
(i) Special Definition. For purposes of this paragraph
4(d), "Additional Shares of Common" shall mean all shares of Common Stock issued
(or, pursuant to paragraph 4(d)(iii), deemed to be issued) by the Companypany
after the Original Issue Date of a particular series of Preferred Stock, other
than:
a. shares of Common Stock issued or issuable
upon conversion of shares of Preferred Stock;
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<PAGE> 8
b. shares of Common Stock issued or issuable
pursuant to the exercise or conversion of Series A Preferred Stock Purchase
Warrants, Series B Preferred Stock Purchase Warrants, Series C Preferred Stock
Purchase Warrants, Series D Preferred Stock Purchase Warrants, Series E
Preferred Stock Purchase Warrants or any warrants or shares of capital stock
assumed or issued by the Company in any acquisition of another business or
entity;
c. shares of Common Stock issued or issuable in
an Employee Sale; and
d. shares of Common Stock issued or issuable as
a dividend or distribution on Preferred Stock or pursuant to any event for which
adjustment is made pursuant to paragraph 4(d)(vi), (vii) or (viii) hereof.
(ii) No Adjustment of Conversion Price. No adjustment in
the Conversion Price of a particular share of Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common unless the consideration
per share for an Additional Share of Common issued or deemed to be issued by the
Company is less than the Conversion Price in effect on the date of, and
immediately prior to such issue, for such share of Preferred Stock. No
adjustment in the Conversion Price otherwise required by this paragraph 4 shall
affect any shares of Common Stock issued upon conversion of Preferred Stock
prior to such adjustment.
(iii) Deemed Issue of Additional Shares of Common.
a. Options and Convertible Securities. In the
event the Company at any time or from time to time after the Original Issue Date
of a particular series of Preferred Stock shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities or exercise of such
Options, shall be deemed to be Additional Shares of Common issued as of the time
of such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares of Common
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to paragraph 4(d)(v) hereof) of such Additional Shares of
Common would be less than the Conversion Price of such series of Preferred Stock
in effect on the date of and immediately prior to such issue, or such record
date, as the case may be, and provided further that in any such case in which
Additional Shares of Common are deemed to be issued:
(1) no further adjustment in the
Conversion Price of such series of Preferred Stock shall be made upon the
subsequent issue of Convertible Securities or shares
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<PAGE> 9
of Common Stock upon the exercise of such Options or conversion or exchange of
such Convertible Securities;
(2) if such Options or Convertible
Securities by their terms provide, with the passage of time or otherwise, for
any increase in the consideration payable to the Company, or decrease in the
number of shares of Common Stock issuable, upon the exercise, conversion or
exchange thereof, the Conversion Price of such series of Preferred Stock
computed upon the original issue thereof (or upon the occurrence of a record
date with respect thereto), and any subsequent adjustments based thereon, shall,
upon any such increase or decrease becoming effective, be recomputed to reflect
such increase or decrease insofar as it affects such Options or the rights of
conversion or exchange under such Convertible Securities;
(3) no readjustment pursuant to clause
(b) above shall have the effect of increasing the Conversion Price of such
series of Preferred Stock to an amount which exceeds the lower of (i) the
Conversion Price of such Series of Preferred Stock on the original adjustment
date, or (ii) the Conversion Price of such Series of Preferred Stock that would
have resulted from any issuance of Additional Shares of Common between the
original adjustment date and such readjustment date;
(4) upon the expiration of any such
Options or any rights of conversion or exchange under such Convertible
Securities which shall not have been exercised, the Conversion Prices computed
upon the original issue thereof (or upon the occurrence of a record date with
respect thereto) and any subsequent adjustments based thereon shall, upon such
expiration, be recomputed as if:
i) in the case of Convertible
Securities or Options for Common Stock, the only Additional Shares of Common
issued were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities and the consideration received therefor was the consideration
actually received by the Companyny for the issue of such exercised Options plus
the consideration actually received by the Company upon such exercise or for the
issue of all such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually received by the
Companyy upon such conversion or exchange, and
ii) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually issued
upon the exercise thereof were issued at the time of issue of such Options, and
the consideration received by the Company for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Company for the issue of such exercised Options, plus the consideration deemed
to have been received by the Companypany (determined pursuant to paragraph
4(d)(v)) upon the issue of the Convertible Securities with respect to which such
Options were actually exercised; and
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<PAGE> 10
(5) if such record date shall have been
fixed and such Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the Conversion Prices which
became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Prices shall be
adjusted pursuant to this paragraph 4(d)(iii) as of the actual date of their
issuance.
b. Stock Dividends. In the event the Company at
any time or from time to time after the Original Issue Date of a particular
series of Preferred Stock shall declare or pay any dividend on the Common Stock
payable in Common Stock, and with respect to which no similar Common Stock
dividend is to be distributed to holders of such series of Preferred Stock, then
and in any such event, Additional Shares of Common shall be deemed to have been
issued immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend.
(iv) Adjustment of Conversion Price Upon Issuance of
Additional Shares of Common. In the event this Company shall issue Additional
Shares of Common (including Additional Shares of Common deemed to be issued
pursuant to paragraph 4(d)(iii)) without consideration or for a consideration
per share less than the applicable Conversion Price for any series of Preferred
Stock in effect on the date of and immediately prior to such issue, then and in
such event, the Conversion Price for such series of the Preferred Stock shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock and Preferred
Stock outstanding immediately prior to such issue (without counting as
outstanding any Options or Convertible Securities) plus the number of shares of
Common Stock which the aggregate consideration received by the Company for the
total number of Additional Shares of Common so issued would purchase at such
Conversion Price, and the denominator of which shall be the number of shares of
Common Stock and Preferred Stock outstanding immediately prior to such issue
(without counting as outstanding any Options or Convertible Securities) plus the
number of such Additional Shares of Common so issued.
(v) Determination of Consideration. For purposes of this
subsection 4(d), the consideration received by the Company for the issue of any
Additional Shares of Common shall be computed as follows:
a. Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Company excluding
amounts paid or payable for accrued interest or accrued dividends and excluding
any discounts, commissions or placement fees payable by the Company to any
underwriter or placement agent in connection with the issuance of any Additional
Shares of Common;
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<PAGE> 11
(2) insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board; and
(3) in the event Additional Shares of
Common are issued together with other shares or securities or other assets of
the Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
reasonably determined in good faith by the Board.
b. Options and Convertible Securities. The
consideration per share received by the Companyy for Additional Shares of Common
deemed to have been issued pursuant to paragraph 4(d)(iii)(1), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received
or receivable by the Company as consideration for the issue of such Options or
Convertible Securities (determined in the manner described in subparagraph (a)
above), plus the minimum aggregate amount of additional consideration (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Company upon the exercise of such Options or the conversion or exchange of
such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of
Common Stock (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such number)
issuable upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
c. Stock Dividends. Any Additional
Shares of Common deemed to have been issued relating to stock dividends shall be
deemed to have been issued for no consideration.
(vi) Adjustments for Subdivisions or Combinations of
Common. In the event the outstanding shares of Common Stock shall be subdivided
(by stock split or otherwise than by payment of a dividend in Common Stock),
into a greater number of shares of Common Stock, the Conversion Price for each
series of Preferred Stock in effect immediately prior to such subdivision shall,
concurrently with the effectiveness of such subdivision, be proportionately
decreased. In the event the outstanding shares of Common Stock shall be combined
(by reclassification or otherwise) into a lesser number of shares of Common
Stock, the Conversion Prices in effect immediately prior to such combination
shall, concurrently with the effectiveness of such combination, be
proportionately increased.
(vii) Adjustments for Reclassification, Exchange and
Substitution. Subject to Section 3(d) above ("Liquidation Rights"), if the
Common Stock issuable upon conversion of the
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<PAGE> 12
Preferred Stock shall be changed into the same or a different number of shares
of any other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than a subdivision or combination of shares
provided for above), the Conversion Prices then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the Preferred Stock shall be convertible
into, in lieu of the number of shares of Common Stock which the holders would
otherwise have been entitled to receive, a number of shares of such other class
or classes of stock which a holder of the number of shares of Common Stock
deliverable upon conversion of the Preferred Stock immediately before that
change would have been entitled to receive in such reorganization or
reclassification.
(e) No Impairment. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Companyany but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Preferred Stock against
impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 4,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Prices at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Preferred Stock.
(g) Notices of Record Date. In the event that this Companyany
shall propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders
of any class or series of its stock any additional shares of stock of any class
or series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
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<PAGE> 13
(iv) to merge with or into any other corporation, or
sell, lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, this Company shall send to the holders
of the Preferred Stock at least 20 days' prior written notice of the date on
which a record shall be taken for such dividend, distribution or subscription
rights (and specifying the date on which the holders of Common Stock shall be
entitled thereto) or for determining rights to vote in respect of the matters
referred to in (iii) and (iv) above.
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this Company.
(h) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Company will take such corporate action as may, in the opinion of its counsel,
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
5. Redemption. Subject to the provisions of this Section 5, the Company
may redeem, at the applicable Redemption Price (defined below) and ratably among
the holders of the then outstanding Preferred Stock to be redeemed, all or any
portion of the Consenting Preferred (as defined below) outstanding on the
Redemption Date (defined below). As more fully set forth below in Section 5(a),
in order to redeem any shares of Preferred Stock, the Company shall give notice
pursuant to this Section 5 to all holders of the then outstanding Preferred
Stock of all series at the address of each such holder appearing on the books of
the Company or given by such holder to the Company for the purpose of notice.
Any such notice, however, shall be effective (and the Company shall have the
right to redeem any shares of Preferred Stock) only as follows: (i) with respect
to shares of Series A Preferred Stock, the Company shall have the right to
redeem such shares of Series A Preferred Stock (ratably and with equal priority
among each holder thereof), only with the written consent of holders of not less
than a majority of such shares of Series A Preferred Stock, voting separately as
a single class, (ii) with respect to shares of Series B Preferred Stock, the
Company shall have the right to redeem such shares of Series B Preferred Stock
(ratably and with equal priority among each holder thereof), only with the
written consent of holders of not less than 57% of such shares of Series B
Preferred Stock, voting separately as a single class, (iii) with respect to
shares of Series C Preferred Stock, the Company shall have the right to redeem
such shares of Series C Preferred Stock (ratably and with equal priority among
each holder thereof), only with the written consent of holders of not less than
a majority of such shares of Series C Preferred Stock, voting separately as a
single class, (iv) with respect to shares of Series D Preferred Stock, the
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<PAGE> 14
Company shall have the right to redeem such shares of Series D Preferred Stock
(ratably and with equal priority among each holder thereof), only with the
written consent of holders of not less than a majority of such shares of Series
D Preferred Stock, and (v) with respect to shares of Series E Preferred Stock,
the Company shall have the right to redeem such shares of Series E Preferred
Stock (ratably and with equal priority among each holder thereof), only with the
written consent of holders of not less than a majority of such shares of Series
E Preferred Stock, voting separately as a single class. In the event that the
appropriate consents for redemption have been obtained from the holders of each
of the Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Series D Preferred Stock and the Series E Preferred Stock,
all of such shares of Preferred Stock shall be referred to hereinafter as
"Consenting Preferred". The right of redemption contained in this Section 5
shall not be exercised with respect to any series of Preferred Stock prior to
the fifth anniversary of the Original Issue Date of the Series E Preferred
Stock, but may be exercised at any time and from time to time thereafter. No
such notice of redemption shall be effective if and to the extent that the
Company, at the date of such redemption, shall be prohibited by applicable law
from effecting such redemption.
(a) Notice. If the Company determines to effect a redemption, it
shall give not less than 60 days prior written notice to all holders of the
Preferred Stock that up to a specified percentage of the outstanding shares of
the Preferred Stock shall be redeemed on the date specified in such notice (the
"Redemption Date") at the applicable Redemption Price, which shall equal the
Original Issue Price per share, as adjusted for any stock split, reverse or
similar recapitalization with respect to such shares, plus any declared and
unpaid dividends on the Preferred Stock (the "Redemption Price"). The notice
shall further call upon such holders to surrender to the Company on or before
the Redemption Date, at the place designated in the notice, such holder's
certificate or certificates representing the shares of Preferred Stock to be
redeemed. On or after the Redemption Date, each holder of shares of Consenting
Preferred called for redemption shall surrender the certificate or certificates
evidencing such shares to the Company, at the place designated in such notice
and shall thereupon be entitled to receive payment of the appropriate Redemption
Price. The Company shall be under no obligation to redeem shares of Preferred
Stock (i) for which no stock certificate or affidavit of lost stock certificate
is surrendered or (ii) to the extent that any such redemption would be in
violation of applicable law.
(b) Cessation of Rights. From and after the Redemption Date,
unless there shall have been a default in payment of the appropriate Redemption
Price, all rights of the holders of shares of the Preferred Stock designated and
called for redemption in the redemption notice (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be outstanding for any purpose whatsoever. The shares of Preferred
Stock not redeemed shall remain outstanding and entitled to all rights and
preferences provided herein.
(c) Deposit of Redemption Price. Two days prior to the
Redemption Date, the Company shall deposit in cash the Redemption Price of all
outstanding shares of the Preferred Stock designated for redemption in the
redemption notice, and not yet redeemed or converted, with a bank
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<PAGE> 15
or trust company having aggregate capital and surplus in excess of $50,000,000
as a trust fund for the benefit of the respective holders of the shares
designated for redemption and not yet redeemed. Simultaneously, the Company
shall deposit irrevocable instructions and authority to such bank or trust
company to pay, on and after the Redemption Date, the Redemption Price of the
Preferred Stock to the holders thereof upon surrender of their certificates. Any
monies deposited by the Company pursuant to this Section 5(c) for the redemption
of shares that are thereafter converted into shares of Common Stock pursuant to
Section 4 above no later than the close of business on the Redemption Date shall
be returned to the Company forthwith upon such conversion. The balance of any
monies deposited by the Company pursuant to this Subsection 5(c) remaining
unclaimed at the expiration of six (6) months following the Redemption Date
shall thereafter be returned to the Company, provided that the shareholder to
which such monies would be payable hereunder shall be entitled, upon proof of
its ownership of the Preferred Stock and payment of any bond requested by the
Company, to receive such monies but without interest from the Redemption Date.
6. Voting. Except as otherwise expressly provided herein or as required
by law, the holders of Preferred Stock and the holders of Common Stock shall
vote together and not as separate classes.
(a) Preferred Stock. Each holder of shares of Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Preferred Stock held by such holder of Preferred
Stock could then be converted. The holders of shares of the Preferred Stock
shall be entitled to vote on all matters on which the Common Stock shall be
entitled to vote. The holders of the Preferred Stock shall be entitled to notice
of any shareholders' meeting in accordance with the Bylaws of the Company.
Fractional votes shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Preferred Stock held by each holder could be converted), shall be
disregarded.
(b) Common Stock. Each holder of shares of Common Stock shall be
entitled to one vote for each share thereof held.
(c) Election of Directors. The holders of the Series A Preferred
Stock, voting separately as a single class, shall be entitled to elect two (2)
directors. The holders of the Series B Preferred Stock, voting separately as a
single class, shall be entitled to elect three (3) directors. The holders of the
Series C Preferred Stock, voting separately as a single class, shall be entitled
to elect one (1) director. The holders of the Series D Preferred Stock, voting
separately as a single class, shall be entitled to elect two (2) directors. The
holders of Common Stock, voting separately as a single class, shall be entitled
to elect two (2) directors. Any vacancy among the directors to be elected by any
class or series of Preferred Stock or Common Stock shall be filled, if by the
Board of Directors, only at the written direction of the holders of the class or
series entitled to elect the directors as to whom a vacancy has arisen, or, if
by the shareholders, by the shareholders of the class or series entitled to
elect such directors. A meeting of shareholders to fill any such vacancy shall
promptly be called upon request of holders of not less than 25% of the shares of
such class or series
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<PAGE> 16
(as applicable) entitled to elect the directors as to whom
a vacancy has arisen. In the event the Bylaws of the Company provide for more
than ten (10) directors to be elected, such additional directors shall be
elected by the holders of the Common Stock and the Preferred Stock, voting
together as a single class.
7. Amendments and Changes.
(a) No Series Voting. Other than as provided in these Amended
and Restated Articles of Incorporation or by law, there shall be no series
voting.
(b) Approval by Class. As long as any of the Preferred Stock
shall be issued and outstanding, the Company shall not, without first obtaining
the approval (by vote or consent as provided by law) of the holders of not less
than a majority of the total number of shares of the Preferred Stock then
outstanding (considered together for such purpose as a single class):
(i) amend or repeal any provision of, or add any
provision to, the Company's Amended and Restated Articles of Incorporation or
Bylaws;
(ii) authorize, create or issue shares of any class or
series of stock having any preference or priority superior to or on a parity
with any such preference or priority of the Preferred Stock;
(iii) enter into any transaction or series of related
transactions, as a result of which voting control of the Company shall have
passed to another person or entity (or group of related persons or entities);
(iv) increase or decrease (other than for decreases
resulting from conversion of the Preferred Stock) the number of authorized
shares of Preferred Stock;
(v) issue, at any time prior to the second anniversary
of the Original Issue Date of the Series E Preferred Stock, any Additional
Shares of Common if such issuance would result in an adjustment of the
Conversion Price of the Series E Preferred Stock pursuant to Section 4(d)(iv)
above;
(vi) effect a fundamental change in the Company's
business strategy as set forth in the Company's Business Plan dated February
1999; or
(vii) amend this Subsection 7(b).
For purposes of clause (i) of this Section 7(b), such an amendment shall
be deemed to occur upon the conversion or exchange of the Preferred Stock in any
reorganization into or for securities of any other corporation or cash or
property other than preferred stock having like rights, preferences, privileges
and powers as, and like restrictions provided for the benefit of, the Preferred
Stock. Like
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<PAGE> 17
preferences shall be deemed to include the right to convert such preferred stock
into the kind and amount of securities, cash or other property receivable in
such reorganization by a holder of the number of shares of Common Stock into
which such shares of Preferred Stock might have been converted immediately prior
to such reorganization. Notwithstanding anything herein to the contrary, no
separate series vote of the Preferred Stock shall be necessary to approve any
consolidation, merger or sale deemed to be, and treated as, a liquidation,
dissolution or winding up under Section 3(d).
8. Notices. Any notice required by the provisions of this Article THIRD
to be given to the holders of Preferred Stock shall be deemed given if deposited
in the United States mail, postage prepaid, and addressed to each holder of
record at such holder's address appearing on the books of the Company.
FOURTH. (a) Limitation of Directors' Liability. The liability of the
directors of this Company for monetary damages shall be eliminated to the
fullest extent permissible under California law.
(b) Indemnification of Corporate Agents. The Company is
authorized to provide indemnification of agents (as defined in Section 317 of
the California Corporations Code) through bylaw provisions, agreements with
agents, votes of shareholders or disinterested directors or otherwise, in excess
of the indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the Company and its shareholders.
(c) Repeal or Modification. Any repeal or modification of the
foregoing provisions of this Article FOURTH shall not adversely affect any right
of indemnification or limitation of liability of an agent of this Company
relating to acts or omissions occurring prior to such repeal or modification.
-17-
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
<PAGE> 2
BYLAWS OF
THE LIGHTSPAN PARTNERSHIP, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE 1 -- CORPORATE OFFICES ............................................................................ 1
1.1 PRINCIPAL OFFICE ...................................................................... 1
1.2 OTHER OFFICES ......................................................................... 1
ARTICLE 2 -- MEETINGS OF SHAREHOLDERS ..................................................................... 1
2.1 PLACE OF MEETINGS ..................................................................... 1
2.2 ANNUAL MEETING......................................................................... 1
2.3 SPECIAL MEETING ...................................................................... 1
2.4 NOTICE OF SHAREHOLDERS' MEETINGS ...................................................... 2
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE .......................................... 3
2.6 QUORUM ................................................................................ 3
2.7 ADJOURNED MEETING, NOTICE ............................................................. 4
2.8 VOTING ................................................................................ 4
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT ..................................... 5
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ............................... 5
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS............................ 6
2.12 PROXIES ............................................................................... 7
2.13 INSPECTORS OF ELECTION ................................................................ 7
ARTICLE 3 -- DIRECTORS .................................................................................... 8
3.1 POWERS ................................................................................ 8
3.2 NUMBER OF DIRECTORS ................................................................... 8
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS .............................................. 9
3.4 RESIGNATION AND VACANCIES ............................................................. 9
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE .............................................. 10
3.6 REGULAR MEETINGS ...................................................................... 10
3.7 SPECIAL MEETINGS; NOTICE .............................................................. 10
3.8 QUORUM ................................................................................ 10
3.9 WAIVER OF NOTICE ...................................................................... 11
3.10 ADJOURNMENT ........................................................................... 11
3.11 NOTICE OF ADJOURNMENT ................................................................. 11
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING ..................................... 11
</TABLE>
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<PAGE> 3
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
3.13 FEES AND COMPENSATION OF DIRECTORS .................................................... 12
3.14 APPROVAL OF LOANS TO OFFICERS ......................................................... 12
ARTICLE 4 -- COMMITTEES ................................................................................... 12
4.1 COMMITTEES OF DIRECTORS ............................................................... 12
4.2 MEETINGS AND ACTION OF COMMITTEES ..................................................... 13
ARTICLE 5 -- OFFICERS ..................................................................................... 13
5.1 OFFICERS .............................................................................. 13
5.2 ELECTION OF OFFICERS .................................................................. 14
5.3 SUBORDINATE OFFICERS .................................................................. 14
5.4 REMOVAL AND RESIGNATION OF OFFICERS ................................................... 14
5.5 VACANCIES IN OFFICES .................................................................. 14
5.6 CHAIRMAN OF THE BOARD ................................................................. 14
5.7 PRESIDENT ............................................................................. 15
5.8 VICE PRESIDENTS ....................................................................... 15
5.9 SECRETARY ............................................................................. 15
5.1 CHIEF FINANCIAL OFFICER ............................................................... 16
ARTICLE 6 -- INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES, AND OTHER AGENTS .......................... 16
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ............................................. 16
6.2 INDEMNIFICATION OF OTHERS ............................................................. 16
6.3 PAYMENT OF EXPENSES IN ADVANCE ........................................................ 17
6.4 INDEMNITY NOT EXCLUSIVE ............................................................... 17
6.5 INSURANCE INDEMNIFICATION ............................................................. 17
6.6 CONFLICTS ............................................................................. 17
ARTICLE 7 -- RECORDS AND REPORTS .......................................................................... 18
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER .......................................... 18
7.2 MAINTENANCE AND INSPECTION OF BYLAWS .................................................. 18
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS ................................. 19
7.4 INSPECTION BY DIRECTORS ............................................................... 19
7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER ................................................. 19
</TABLE>
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<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
Page
<S> <C>
7.6 FINANCIAL STATEMENTS .................................................................. 20
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS ........................................ 20
ARTICLE 8 -- GENERAL MATTERS .............................................................................. 21
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING ................................. 21
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS ............................................. 21
8.3 CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED ..................................... 21
8.4 CERTIFICATES FOR SHARES ............................................................... 21
8.5 LOST CERTIFICATES ..................................................................... 22
8.6 CONSTRUCTION; DEFINITIONS ............................................................. 22
ARTICLE 9 AMENDMENTS ...................................................................................... 22
9.1 AMENDMENT BY SHAREHOLDERS ............................................................. 22
9.2 AMENDMENT BY DIRECTORS ................................................................ 23
</TABLE>
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<PAGE> 5
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
ARTICLE 1
CORPORATE OFFICES
1.1 PRINCIPAL OFFICE
The board of directors shall fix the location of the principal
executive office of the corporation at any place within or outside the State of
California. If the principal executive office is located outside such state and
the corporation has one or more business offices in such state, then the board
of directors shall fix and designate a principal business office in the State of
California.
1.2 OTHER OFFICES
The board of directors may at any time establish branch or subordinate
offices at any place or places where the corporation is qualified to do
business.
ARTICLE 2
MEETINGS OF SHAREHOLDERS
2.1 PLACE OF MEETINGS
Meetings of shareholders shall be held at any place within or outside
the State of California designated by the board of directors. In the absence of
any such designation, shareholders' meetings shall be held at the principal
executive office of the corporation.
2.2 ANNUAL MEETING
The annual meeting of shareholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting, directors
shall be elected, and any other proper business may be transacted.
2.3 SPECIAL MEETING
A special meeting of the shareholders may be called at any time by the
board of directors, or by the chairman of the board, or by the president, or by
one or more shareholders holding shares in the aggregate entitled to cast not
less than ten percent (10%) of the votes at that meeting.
<PAGE> 6
If a special meeting is called by any person or persons other than the
board of directors or the president or the chairman of the board, then the
request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the chairman of the board, the president, any vice president or
the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote, in accordance
with the provisions of Sections 2.4 and 2.5 of these bylaws, that a meeting will
be held at the time requested by the person or persons calling the meeting, so
long as that time is not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, then the person or persons requesting
the meeting may give the notice. Nothing contained in this paragraph of this
Section 2.3 shall be construed as limiting, fixing or affecting the time when a
meeting of shareholders called by action of the board of directors may be held.
2.4 NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise
given in accordance with Section 2.5 of these bylaws not less than ten (10) (or,
if sent by third-class mail pursuant to Section 2.5 of these bylaws, thirty
(30)) nor more than sixty (60) days before the date of the meeting. The notice
shall specify the place, date, and hour of the meeting and (i) in the case of a
special meeting, the general nature of the business to be transacted (no
business other than that specified in the notice may be transacted) or (ii) in
the case of the annual meeting, those matters which the board of directors, at
the time of giving the notice, intends to present for action by the shareholders
(but subject to the provisions of the next paragraph of this Section 2.4 any
proper matter may be presented at the meeting for such action). The notice of
any meeting at which directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, the board intends to present
for election.
If action is proposed to be taken at any meeting for approval of (i) a
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Corporations Code of California (the
"Code"), (ii) an amendment of the articles of incorporation, pursuant to Section
902 of the Code, (iii) a reorganization of the corporation, pursuant to Section
1201 of the Code, (iv) a voluntary dissolution of the corporation, pursuant to
Section 1900 of the Code, or (v) a distribution in dissolution other than in
accordance with the rights of outstanding preferred shares, pursuant to Section
2007 of the Code, then the notice shall also state the general nature of that
proposal.
2.5 MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Written notice of any meeting of shareholders shall be given either (i)
personally or (ii) by first-class mail or (iii) by third-class mail but only if
the corporation has outstanding shares held of record by five hundred (500) or
more persons (determined as provided in Section 605 of the Code) on the record
date for the shareholders' meeting, or (iv) by telegraphic or other written
com-
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<PAGE> 7
munication. Notices not personally delivered shall be sent charges prepaid and
shall be addressed to the shareholder at the address of that shareholder
appearing on the books of the corporation or given by the shareholder to the
corporation for the purpose of notice. If no such address appears on the
corporation's books or is given, notice shall be deemed to have been given if
sent to that shareholder by mail or telegraphic or other written communication
to the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when delivered
personally or deposited in the mail or sent by telegram or other means of
written communication.
If any notice addressed to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, then all future notices or reports shall be deemed to have been
duly given without further mailing if the same shall be available to the
shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice.
2.6 QUORUM
The presence in person or by proxy of the holders of a majority of the
shares entitled to vote thereat constitutes a quorum for the transaction of
business at all meetings of shareholders. The shareholders present at a duly
called or held meeting at which a quorum is present may continue to do business
until adjournment, notwithstanding the withdrawal of enough shareholders to
leave less than a quorum if any action taken (other than adjournment) is
approved by at least a majority of the shares required to constitute a quorum.
2.7 ADJOURNED MEETING; NOTICE
Any shareholders' meeting, annual or special, whether or not a quorum
is present, may be adjourned from time to time by the vote of the majority of
the shares represented at that meeting, either in person or by proxy. In the
absence of a quorum, no other business may be transacted at that meeting except
as provided in Section 2.6 of these bylaws.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at the meeting at which the
adjournment is taken. However, if a new record date for the adjourned meeting is
fixed or if the adjournment is for more than forty-five (45) days from the date
set for the original meeting, then notice of the adjourned meeting shall be
given. Notice of any such adjourned meeting shall be given to each shareholder
of record entitled to vote at the adjourned meeting in accordance
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<PAGE> 8
with the provisions of Sections 2.4 and 2.5 of these bylaws. At any adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting.
2.8 VOTING
The shareholders entitled to vote at any meeting of shareholders shall
be determined in accordance with the provisions of Section 2.11 of these bylaws,
subject to the provisions of Sections 702 through 704 of the Code (relating to
voting shares held by a fiduciary, in the name of a corporation or in joint
ownership).
The shareholders' vote may be by voice vote or by ballot; provided,
however, that any election for directors must be by ballot if demanded by any
shareholder at the meeting and before the voting has begun.
Except as provided in the last paragraph of this Section 2.8, or as may
be otherwise provided in the articles of incorporation, each outstanding share,
regardless of class, shall be entitled to one vote on each matter submitted to a
vote of the shareholders. Any shareholder entitled to vote on any matter may
vote part of the shares in favor of the proposal and refrain from voting the
remaining shares or, except when the matter is the election of directors, may
vote them against the proposal; but, if the shareholder fails to specify the
number of shares which the shareholder is voting affirmatively, it will be
conclusively presumed that the shareholder's approving vote is with respect to
all shares which the shareholder is entitled to vote.
If a quorum is present, the affirmative vote of the majority of the
shares represented and voting at a duly held meeting (which shares voting
affirmatively also constitute at least a majority of the required quorum) shall
be the act of the shareholders, unless the vote of a greater number or a vote by
classes is required by the Code or by the articles of incorporation.
At a shareholders' meeting at which directors are to be elected, a
shareholder shall be entitled to cumulate votes (i.e., cast for any candidate a
number of votes greater than the number of votes which such shareholder normally
is entitled to cast) if the candidates' names have been placed in nomination
prior to commencement of the voting and the shareholder has given notice prior
to commencement of the voting of the shareholder's intention to cumulate votes.
If any shareholder has given such a notice, then every shareholder entitled to
vote may cumulate votes for candidates in nomination either (i) by giving one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which that shareholder's shares are
normally entitled or (ii) by distributing the shareholder's votes on the same
principle among any or all of the candidates, as the shareholder thinks fit. The
candidates receiving the highest number of affirmative votes, up to the number
of directors to be elected, shall be elected; votes against any candidate and
votes withheld shall have no legal effect.
-4-
<PAGE> 9
2.9 VALIDATION OF MEETINGS; WAIVER OF NOTICE; CONSENT
The transactions of any meeting of shareholders, either annual or
special, however called and noticed, and wherever held, shall be as valid as
though they had been taken at a meeting duly held after regular call and notice,
if a quorum be present either in person or by proxy, and if, either before or
after the meeting, each person entitled to vote, who was not present in person
or by proxy, signs a written waiver of notice or a consent to the holding of the
meeting or an approval of the minutes thereof. The waiver of notice or consent
or approval need not specify either the business to be transacted or the purpose
of any annual or special meeting of shareholders, except that if action is taken
or proposed to be taken for approval of any of those matters specified in the
second paragraph of Section 2.4 of these bylaws, the waiver of notice or consent
or approval shall state the general nature of the proposal. All such waivers,
consents, and approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by the Code to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting.
2.10 SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice, if a
consent in writing, setting forth the action so taken, is signed by the holders
of outstanding shares having not less than the minimum number of votes that
would be necessary to authorize or take that action at a meeting at which all
shares entitled to vote on that action were present and voted.
In the case of election of directors, such a consent shall be effective
only if signed by the holders of all outstanding shares entitled to vote for the
election of directors. However, a director may be elected at any time to fill
any vacancy on the board of directors, provided that it was not created by
removal of a director and that it has not been filled by the directors, by the
written consent of the holders of a majority of the outstanding shares entitled
to vote for the election of directors.
All such consents shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxy holders, or a
transferee of the shares, or a personal representative of the shareholder, or
their respective proxy holders, may revoke the consent by a writing received by
the secretary of the corporation before written consents of the number of shares
required to authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not been
solicited in writing and if the unanimous written consent of all such
shareholders has not been received, then the secretary shall give prompt notice
of the corporate action approved by the shareholders without a meeting. Such
notice shall be given to those shareholders entitled to vote who have not
consented in writing and shall be given in the manner specified in Section 2.5
of these bylaws. In the case of approval of (i) a
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<PAGE> 10
contract or transaction in which a director has a direct or indirect financial
interest, pursuant to Section 310 of the Code, (ii) indemnification of a
corporate "agent," pursuant to Section 317 of the Code, (iii) a reorganization
of the corporation, pursuant to Section 1201 of the Code, and (iv) a
distribution in dissolution other than in accordance with the rights of
outstanding preferred shares, pursuant to Section 2007 of the Code, the notice
shall be given at least ten (10) days before the consummation of any action
authorized by that approval.
2.11 RECORD DATE FOR SHAREHOLDER NOTICE; VOTING; GIVING CONSENTS
For purposes of determining the shareholders entitled to notice of any
meeting or to vote thereat or entitled to give consent to corporate action
without a meeting, the board of directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of any such meeting nor more than sixty (60) days before any such
action without a meeting, and in such event only shareholders of record on the
date so fixed are entitled to notice and to vote or to give consents, as the
case may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date, except as otherwise provided in the Code.
If the board of directors does not so fix a record date:
2.11.1 the record date for determining shareholders entitled to
notice of or to vote at a meeting of shareholders shall be at the close of
business on the business day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the business day next preceding
the day on which the meeting is held; and
2.11.2 the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, (i) when no prior
action by the board has been taken, shall be the day on which the first written
consent is given, or (ii) when prior action by the board has been taken, shall
be at the close of business on the day on which the board adopts the resolution
relating to that action, or the sixtieth (60th) day before the date of such
other action, whichever is later.
The record date for any other purpose shall be as provided in Article 8
of these bylaws.
2.12 PROXIES
Every person entitled to vote for directors, or on any other matter,
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the person and filed with the secretary
of the corporation. A proxy shall be deemed signed if the shareholder's name is
placed on the proxy (whether by manual signature, typewriting, telegraphic
transmission or otherwise) by the shareholder or the shareholder's
attorney-in-fact. A validly executed proxy which does not state that it is
irrevocable shall continue in fun force and effect unless (i) the person who
executed the proxy revokes it prior to the time of voting by delivering a
writing to the corporation stating that the proxy is revoked or by executing a
subsequent proxy and presenting it to the meeting
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or by voting in person at the meeting, or (ii) written notice of the death or
incapacity of the maker of that proxy is received by the corporation before the
vote pursuant to that proxy is counted; provided, however, that no proxy shall
be valid after the expiration of eleven (11) months from the date of the proxy,
unless otherwise provided in the proxy. The dates contained on the forms of
proxy presumptively determine the order of execution, regardless of the postmark
dates on the envelopes in which they are mailed. The revocability of a proxy
that states on its face that it is irrevocable shall be governed by the
provisions of Sections 705(e) and 705(f) of the Code.
2.13 INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint
an inspector or inspectors of election to act at the meeting or its adjournment.
If no inspector of election is so appointed, then the chairman of the meeting
may, and on the request of any shareholder or a shareholder's proxy shall,
appoint an inspector or inspectors of election to act at the meeting. The number
of inspectors shall be either one (1) or three (3). If inspectors are appointed
at a meeting pursuant to the request of one (1) or more shareholders or proxies,
then the holders of a majority of shares or their proxies present at the meeting
shall determine whether one (1) or three (3) inspectors are to be appointed. If
any person appointed as inspector fails to appear or fails or refuses to act,
then the chairman of the meeting may, and upon the request of any shareholder or
a shareholder's proxy shall, appoint a person to fill that vacancy.
Such inspectors shall:
(a) determine the number of shares outstanding and the voting power
of each, the number of shares represented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way
arising in connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or
vote with fairness to all shareholders.
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ARTICLE 3
DIRECTORS
3.1 POWERS
Subject to the provisions of the Code and any limitations in the
articles of incorporation and these bylaws relating to action required to be
approved by the shareholders or by the outstanding shares, the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised by or under the direction of the board of directors.
3.2 NUMBER OF DIRECTORS
The authorized number of directors of the corporation shall be not less
than five (5) nor more than eleven (11). The exact number of directors shall be
eleven (11) until changed, within the limits specified above, by a bylaw
amending this Section 3.2, duly adopted by the board of directors or by
shareholders. The indefinite number of directors may be changed, or a definite
number may be fixed without provision for an indefinite number, by a duly
adopted amendment to the articles of incorporation or by an amendment to this
bylaw adopted by the vote or written consent of holders of a majority of the
outstanding shares entitled to vote; provided, however, that an amendment
reducing the fixed number or the minimum number of directors to a number less
than five (5) cannot be adopted if the votes cast against its adoption at a
meeting, or the shares not consenting in the case of an action by written
consent, are equal to more than sixteen and two-thirds percent (16-2/3%) of the
outstanding shares entitled to vote thereon.
No reduction of the authorized number of directors shall have the
effect of removing any director before that director's term of office expires.
3.3 ELECTION AND TERM OF OFFICE OF DIRECTORS
Directors shall be elected at each annual meeting of shareholders to
hold office until the next annual meeting. Each director, including a director
elected to fill a vacancy, shall hold office until the expiration of the term
for which elected and until a successor has been elected and qualified.
3.4 RESIGNATION AND VACANCIES
Any director may resign effective on giving written notice to the
chairman of the board, the president, the secretary or the board of directors,
unless the notice specifies a later time for that resignation to become
effective. If the resignation of a director is effective at a future time, the
board of directors may elect a successor to take office when the resignation
becomes effective.
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Vacancies in the board of directors may be filled by a majority of the
remaining directors, even if less than a quorum, or by a sole remaining
director; however, a vacancy created by the removal of a director by the vote or
written consent of the shareholders or by court order may be filled only by the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute a majority of the required quorum), or by the unanimous written
consent of all shares entitled to vote thereon. Each director so elected shall
hold office until the next annual meeting of the shareholders and until a
successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be deemed to
exist (i) in the event of the death, resignation or removal of any director,
(ii) if the board of directors by resolution declares vacant the office of a
director who has been declared of unsound mind by an order of court or convicted
of a felony, (iii) if the authorized number of directors is increased, or (iv)
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be elected at that
meeting.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors, but any such election
other than to fill a vacancy created by removal, if by written consent, shall
require the consent of the holders of a majority of the outstanding shares
entitled to vote thereon.
3.5 PLACE OF MEETING; MEETINGS BY TELEPHONE
Regular meetings of the board of directors may be held at any place
within or outside the State of California that has been designated from time to
time by resolution of the board. In the absence of such a designation, regular
meetings shall be held at the principal executive office of the corporation.
Special meetings of the board may be held at any place within or outside the
State of California that has been designated in the notice of the meeting or, if
not stated in the notice or if there is no notice, at the principal executive
office of the corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.6 REGULAR MEETINGS
Regular meetings of the board of directors may be held without notice
if the times of such meetings are fixed by the board of directors.
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3.7 SPECIAL MEETINGS; NOTICE
Special meetings of the board of directors for any purpose or purposes
may be called at any time by the chairman of the board, the president, any vice
president, the secretary or any two directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by first-class mail or
telegram, charges prepaid, addressed to each director at that director's address
as it is shown on the records of the corporation. If the notice is mailed, it
shall be deposited in the United States mail at least four (4) days before the
time of the holding of the meeting. If the notice is delivered personally or by
telephone or telegram, it shall be delivered personally or by telephone or to
the telegraph company at least forty-eight (48) hours before the time of the
holding of the meeting. Any oral notice given personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
it to the director. The notice need not specify the purpose or the place of the
meeting, if the meeting is to be held at the principal executive office of the
corporation.
3.8 QUORUM
A majority of the authorized number of directors shall constitute a
quorum for the transaction of business, except to adjourn as provided in Section
3.10 of these bylaws. Every act or decision done or made by a majority of the
directors present at a duly held meeting at which a quorum is present shall be
regarded as the act of the board of directors, subject to the provisions of
Section 310 of the Code (as to approval of contracts or transactions in which a
director has a direct or indirect material financial interest), Section 311 of
the Code (as to appointment of committees), Section 317(e) of the Code (as to
indemnification of directors), the articles of incorporation, and other
applicable law.
A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for that
meeting.
3.9 WAIVER OF NOTICE
Notice of a meeting need not be given to any director (i) who signs a
waiver of notice or a consent to holding the meeting or an approval of the
minutes thereof, whether before or after the meeting, or (ii) who attends the
meeting without protesting, prior thereto or at its commencement, the lack of
notice to such directors. All such waivers, consents, and approvals shall be
filed with the corporate records or made part of the minutes of the meeting. A
waiver of notice need not specify the purpose of any regular or special meeting
of the board of directors.
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3.10 ADJOURNMENT
A majority of the directors present, whether or not constituting a
quorum, may adjourn any meeting to another time and place.
3.11 NOTICE OF ADJOURNMENT
Notice of the time and place of holding an adjourned meeting need not
be given unless the meeting is adjourned for more than twenty-four (24) hours.
If the meeting is adjourned for more than twenty-four (24) hours, then notice of
the time and place of the adjourned meeting shall be given before the adjourned
meeting takes place, in the manner specified in Section 3.7 of these bylaws, to
the directors who were not present at the time of the adjournment.
3.12 BOARD ACTION BY WRITTEN CONSENT WITHOUT A MEETING
Any action required or permitted to be taken by the board of directors
may be taken without a meeting, provided that all members of the board
individually or collectively consent in writing to that action. Such action by
written consent shall have the same force and effect as a unanimous vote of the
board of directors. Such written consent and any counterparts thereof shall be
filed with the minutes of the proceedings of the board.
3.13 FEES AND COMPENSATION OF DIRECTORS
Directors and members of committees may receive such compensation, if
any, for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the board of directors. This Section 3.13 shall not
be construed to preclude any director from serving the corporation in any other
capacity as an officer, agent, employee or otherwise and receiving compensation
for those services.
3.14 APPROVAL OF LOANS TO OFFICERS*
The corporation may, upon the approval of the board of directors alone,
make loans of money or property to, or guarantee the obligations of, any officer
of the corporation or its parent or subsidiary, whether or not a director, or
adopt an employee benefit plan or plans authorizing such loans or guaranties
provided that (i) the board of directors determines that such a loan or guaranty
or plan may reasonably be expected to benefit the corporation, (ii) the
corporation has outstanding shares held of record by 100 or more persons
(determined as provided in Section 605 of the Code) on the date of approval by
the board of directors, and (iii) the approval of the board of directors is by a
vote sufficient without counting the vote of any interested director or
directors.
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* This section is effective only if it has been approved by the
shareholders in accordance with Sections 315(b) and 152 of the Code.
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ARTICLE 4
COMMITTEES
4.1 COMMITTEES OF DIRECTORS
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one (1) or more committees, each
consisting of two or more directors, to serve at the pleasure of the board. The
board may designate one (1) or more directors as alternate members of any
committee, who may replace any absent member at any meeting of the committee.
The appointment of members or alternate members of a committee requires the vote
of a majority of the authorized number of directors. Any committee, to the
extent provided in the resolution of the board, shall have all the authority of
the board, except with respect to:
(a) the approval of any action which, under the Code, also requires
shareholders' approval or approval of the outstanding shares;
(b) the filling of vacancies on the board of directors or in any
committee;
(c) the fixing of compensation of the directors for serving on the
board or any committee;
(d) the amendment or repeal of these bylaws or the adoption of new
bylaws;
(e) the amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) a distribution to the shareholders of the corporation, except at
a rate or in a periodic amount or within a price range determined by the board
of directors; or
(g) the appointment of any other committees of the board of
directors or the members of such committees.
4.2 MEETINGS AND ACTION OF COMMITTEES
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Article 3 of these bylaws, Section
3.5 (place of meetings), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice),
Section 3.10 (adjournment), Section 3.11 (notice of adjournment), and Section
3.12 (action without meeting), with such changes in the context of those bylaws
as are necessary to substitute the committee and its members for the board of
directors and its members; provided, however, that the time of regular meetings
of committees may be determined either by resolution of the board of
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directors or by resolution of the committee, that special meetings of committees
may also be called by resolution of the board of directors, and that notice of
special meetings of committees shall also be given to all alternate members, who
shall have the right to attend all meetings of the committee. The board of
directors may adopt rules for the government of any committee not inconsistent
with the provisions of these bylaws.
ARTICLE 5
OFFICERS
5.1 OFFICER
The officers of the corporation shall be a president, a secretary, and
a chief financial officer. The corporation may also have, at the discretion of
the board of directors, a chairman of the board, one or more vice presidents,
one or more assistant secretaries, one or more assistant treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
5.3 of these bylaws. Any number of offices may be held by the same person.
5.2 ELECTION OF OFFICERS
The officers of the corporation, except such officers as may be
appointed in accordance with the provisions of Section 5.3 or Section 5.5 of
these bylaws, shall be chosen by the board, subject to the rights, if any, of an
officer under any contract of employment.
5.3 SUBORDINATE OFFICERS
The board of directors may appoint, or may empower the president to
appoint, such other officers as the business of the corporation may require,
each of whom shall hold office for such period, have such authority, and perform
such duties as are provided in these bylaws or as the board of directors may
from time to time determine.
5.4 REMOVAL AND RESIGNATION OF OFFICERS
Subject to the rights, if any, of an officer under any contract of
employment, any officer may be removed, either with or without cause, by the
board of directors at any regular or special meeting of the board or, except in
case of an officer chosen by the board of directors, by any officer upon whom
such power of removal may be conferred by the board of directors.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not
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be necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
5.5 VACANCIES IN OFFICES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed in
these bylaws for regular appointments to that office.
5.6 CHAIRMAN OF THE BOARD
The chairman of the board, if such an officer be elected, shall, if
present, preside at meetings of the board of directors and exercise and perform
such other powers and duties as may from time to time be assigned to him by the
board of directors or as may be prescribed by these bylaws. If there is no
president, then the chairman of the board shall also be the chief executive
officer of the corporation and shall have the powers and duties prescribed in
Section 5.7 of these bylaws.
5.7 PRESIDENT
Subject to such supervisory powers, if any, as may be given by the
board of directors to the chairman of the board, if there be such an officer,
the president shall be the chief executive officer of the corporation and shall,
subject to the control of the board of directors, have general supervision,
direction, and control of the business and the officers of the corporation. He
shall preside at all meetings of the shareholders and, in the absence or
nonexistence of a chairman of the board, at all meetings of the board of
directors. He shall have the general powers and duties of management usually
vested in the office of president of a corporation, and shall have such other
powers and duties as may be prescribed by the board of directors or these
bylaws.
5.8 VICE PRESIDENTS
In the absence or disability of the president, the vice presidents, if
any, in order of their rank as fixed by the board of directors or, if not
ranked, a vice president designated by the board of directors, shall perform all
the duties of the president and when so acting shall have all the powers of, and
be subject to all the restrictions upon, the president. The vice presidents
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the board of directors, these bylaws,
the president or the chairman of the board.
5.9 SECRETARY
The secretary shall keep or cause to be kept, at the principal
executive office of the corporation or such other place as the board of
directors may direct, a book of minutes of all meetings and actions of
directors, committees of directors and shareholders. The minutes shall show the
time and place of each meeting, whether regular or special (and, if special, how
authorized and the
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notice given), the names of those present at directors' meetings or committee
meetings, the number of shares present or represented at shareholders' meetings,
and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office of the corporation or at the office of the corporation's
transfer agent or registrar, as determined by resolution of the board of
directors, a share register, or a duplicate share register, showing the names of
all shareholders and their addresses, the number and classes of shares held by
each, the number and date of certificates evidencing such shares, and the number
and date of cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the board of directors required to be given by law or
by these bylaws. He shall keep the seat of the corporation, if one be adopted,
in safe custody and shall have such other powers and perform such other duties
as may be prescribed by the board of directors or by these bylaws.
5.10 CHIEF FINANCIAL OFFICER
The chief financial officer shall keep and maintain or cause to be kept
and maintained, adequate and correct books and records of accounts of the
properties and business transactions of the corporation, including accounts of
its assets, liabilities, receipts, disbursements, gains, losses, capital,
retained earnings, and shares. The books of account shall at all reasonable
times be open to inspection by any director.
The chief financial officer shall deposit all money and other valuables
in the name and to the credit of the corporation with such depositaries as may
be designated by the board of directors. He shall disburse the funds of the
corporation as may be ordered by the board of directors, shall render to the
president and directors, whenever they request it, an account of all of his
transactions as chief financial officer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the board of directors or these bylaws.
ARTICLE 6
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES,
AND OTHER AGENTS
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
The corporation shall, to the maximum extent and in the manner
permitted by the Code, indemnify each of its directors and officers against
expenses (as defined in Section 317(a) of the Code), judgments, fines,
settlements, and other amounts actually and reasonably incurred in connection
with any proceeding (as defined in Section 317(a) of the Code), arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Article 6, a
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"director" or "officer" of the corporation includes any person (i) who is or was
a director or officer of the corporation, (ii) who is or was serving at the
request of the corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was a
director or officer of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.2 INDEMNIFICATION OF OTHERS
The corporation shall have the power, to the extent and in the manner
permitted by the Code, to indemnify each of its employees and agents (other than
directors and officers) against expenses (as defined in Section 317(a) of the
Code), judgments, fines, settlements, and other amounts actually and reasonably
incurred in connection with any proceeding (as defined in Section 317(a) of the
Code), arising by reason of the fact that such person is or was an agent of the
corporation. For purposes of this Article 6, an "employee" or "agent" of the
corporation (other than a director or officer) includes any person (i) who is or
was an employee or agent of the corporation, (ii) who is or was serving at the
request of the corporation as an employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or (iii) who was an
employee or agent of a corporation which was a predecessor corporation of the
corporation or of another enterprise at the request of such predecessor
corporation.
6.3 PAYMENT OF EXPENSES IN ADVANCE
Expenses incurred in defending any civil or criminal action or
proceeding for which indemnification is required pursuant to Section 6.1 or for
which indemnification is permitted pursuant to Section 6.2 following
authorization thereof by the Board of Directors shall be paid by the corporation
in advance of the final disposition of such action or proceeding upon receipt of
an undertaking by or on behalf of the indemnified party to repay such amount if
it shall ultimately be determined that the indemnified party is not entitled to
be indemnified as authorized in this Article 6.
6.4 INDEMNITY NOT EXCLUSIVE
The indemnification provided by this Article 6 shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaw, agreement, vote of shareholders or disinterested
directors or otherwise, both as to action in an official capacity and as to
action in another capacity while holding such office, to the extent that such
additional rights to indemnification are authorized in the Articles of
Incorporation.
6.5 INSURANCE INDEMNIFICATION
The corporation shall have the power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent of
the corporation against any liability asserted against or incurred by such
person in such capacity or arising out of such person's status as
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such, whether or not the corporation would have the power to indemnify him
against such liability under the provisions of this Article 6.
6.6 CONFLICTS
No indemnification or advance shall be made under this Article 6,
except where such indemnification or advance is mandated by law or the order,
judgment or decree of any court of competent jurisdiction, in any circumstance
where it appears:
(a) That it would be inconsistent with a provision of the Articles
of Incorporation, these bylaws, a resolution of the shareholders or an agreement
in effect at the time of the accrual of the alleged cause of the action asserted
in the proceeding in which the expenses were incurred or other amounts were
paid, which prohibits or otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
ARTICLE 7
RECORDS AND REPORTS
7.1 MAINTENANCE AND INSPECTION OF SHARE REGISTER
The corporation shall keep either at its principal executive office or
at the office of its transfer agent or registrar (if either be appointed), as
determined by resolution of the board of directors, a record of its shareholders
listing the names and addresses of all shareholders and the number and class of
shares held by each shareholder.
A shareholder or shareholders of the corporation who holds at least
five percent (5%) in the aggregate of the outstanding voting shares of the
corporation or who holds at least one percent (1%) of such voting shares and has
filed a Schedule 14B with the Securities and Exchange Commission relating to the
election of directors, may (i) inspect and copy the records of shareholders'
names, addresses, and shareholdings during usual business hours on five (5)
days' prior written demand on the corporation, (ii) obtain from the transfer
agent of the corporation, on written demand and on the tender of such transfer
agent's usual charges for such list, a list of the names and addresses of the
shareholders who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which that list has been
compiled or as of a date specified by the shareholder after the date of demand.
Such list shall be made available to any such shareholder by the transfer agent
on or before the later of five (5) days after the demand is received or five (5)
days after the date specified in the demand as the date as of which the list is
to be compiled.
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The record of shareholders shall also be open to inspection on the
written demand of any shareholder or holder of a voting trust certificate, at
any time during usual business hours, for a purpose reasonably related to the
holder's interests as a shareholder or as the holder of a voting trust
certificate.
Any inspection and copying under this Section 7.1 may be made in person
or by an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
7.2 MAINTENANCE AND INSPECTION OF BYLAWS
The corporation shall keep at its principal executive office or, if its
principal executive office is not in the State of California, at its principal
business office in California the original or a copy of these bylaws as amended
to date, which bylaws shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in such state, then the secretary shall, upon the
written request of any shareholder, furnish to that shareholder a copy of these
bylaws as amended to date.
7.3 MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS
The accounting books and records and the minutes of proceedings of the
shareholders, of the board of directors, and of any committee or committees of
the board of directors shall be kept at such place or places as are designated
by the board of directors or, in absence of such designation, at the principal
executive office of the corporation. The minutes shall be kept in written form,
and the accounting books and records shall be kept either in written form or in
any other form capable of being converted into written form.
The minutes and accounting books and records shall be open to
inspection upon the written demand of any shareholder or holder of a voting
trust certificate, at any reasonable time during usual business hours, for a
purpose reasonably related to the holder's interests as a shareholder or as the
holder of a voting trust certificate. The inspection may be made in person or by
an agent or attorney and shall include the right to copy and make extracts. Such
rights of inspection shall extend to the records of each subsidiary corporation
of the corporation.
7.4 INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records, and documents of every kind as well as the physical
properties of the corporation and each of its subsidiary corporations. Such
inspection by a director may be made in person or by an agent or attorney. The
right of inspection includes the right to copy and make extracts of documents.
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7.5 ANNUAL REPORT TO SHAREHOLDERS; WAIVER
The board of directors shall cause an annual report to be sent to the
shareholders not later than one hundred twenty (120) days after the close of the
fiscal year adopted by the corporation. Such report shall be sent at least
fifteen (15) days (or, if sent by third-class mail, thirty-five (35) days)
before the annual meeting of shareholders to be held during the next fiscal year
and in the manner specified in Section 2.5 of these bylaws for giving notice to
shareholders of the corporation.
The annual report shall contain (i) a balance sheet as of the end of
the fiscal year, (ii) an income statement, (iii) a statement of changes in
financial position for the fiscal year, and (iv) any report of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the corporation that the statements were prepared without audit from
the books and records of the corporation.
The foregoing requirement of an annual report shall be waived so long
as the shares of the corporation are held by fewer than one hundred (100)
holders of record.
7.6 FINANCIAL STATEMENTS
If no annual report for the fiscal year has been sent to shareholders,
then the corporation shall, upon the written request of any shareholder made
more than one hundred twenty (120) days after the close of such fiscal year,
deliver or mail to the person making the request, within thirty (30) days
thereafter, a copy of a balance sheet as of the end of such fiscal year and an
income statement and statement of changes in financial position for such fiscal
year.
If a shareholder or shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation makes a written
request to the corporation for an income statement of the corporation for the
three-month, six-month or nine-month period of the then current fiscal year
ended more than thirty (30) days before the date of the request, and for a
balance sheet of the corporation as of the end of that period, then the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request. If the corporation has not sent to the shareholders its annual report
for the last fiscal year, the statements referred to in the first paragraph of
this Section 7.6 shall likewise be delivered or mailed to the shareholder or
shareholders within thirty (30) days after the request.
The quarterly income statements and balance sheets referred to in this
section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or by the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
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<PAGE> 24
7.7 REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The chairman of the board, the president, any vice president, the chief
financial officer, the secretary or assistant secretary of this corporation, or
any other person authorized by the board of directors or the president or a vice
president, is authorized to vote, represent, and exercise on behalf of this
corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of this corporation. The authority herein
granted may be exercised either by such person directly or by any other person
authorized to do so by proxy or power of attorney duly executed by such person
having the authority.
ARTICLE 8
GENERAL MATTERS
8.1 RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING
For purposes of determining the shareholders entitled to receive
payment of any dividend or other distribution or allotment of any rights or the
shareholders entitled to exercise any rights in respect of any other lawful
action (other than action by shareholders by written consent without a meeting),
the board of directors may fix, in advance, a record date, which shall not be
more than sixty (60) days before any such action. In that case, only
shareholders of record at the close of business on the date so fixed are
entitled to receive the dividend, distribution or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after the record date so fixed, except as
otherwise provided in the Code.
If the board of directors does not so fix a record date, then the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (60th) day before the date of that action, whichever is later.
8.2 CHECKS; DRAFTS; EVIDENCES OF INDEBTEDNESS
From time to time, the board of directors shall determine by resolution
which person or persons may sign or endorse all checks, drafts, other orders for
payment of money, notes or other evidences of indebtedness that are issued in
the name of or payable to the corporation, and only the persons so authorized
shall sign or endorse those instruments.
8.3 CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws,
may authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific instances.
Unless so authorized or ratified by the board of directors or within the agency
power of an
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<PAGE> 25
officer, no officer, agent or employee shall have any power or authority to bind
the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
8.4 CERTIFICATES FOR SHARES
A certificate or certificates for shares of the corporation shall be
issued to each shareholder when any of such shares are fully paid. The board of
directors may authorize the issuance of certificates for shares partly paid
provided that these certificates shall state the total amount of the
consideration to be paid for them and the amount actually paid. All certificates
shall be signed in the name of the corporation by the chairman of the board or
the vice chairman of the board or the president or a vice president and by the
chief financial officer or an assistant treasurer or the secretary or an
assistant secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the certificate
may be facsimile.
In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed on a certificate ceases to be that
officer, transfer agent or registrar before that certificate is issued, it may
be issued by the corporation with the same effect as if that person were an
officer, transfer agent or registrar at the date of issue.
8.5 LOST CERTIFICATES
Except as provided in this Section 8.5, no new certificates for shares
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and cancelled at the same time. The board of
directors may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of replacement
certificates on such terms and conditions as the board may require; the board
may require indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
8.6 CONSTRUCTION; DEFINITIONS
Unless the context requires otherwise, the general provisions, rules of
construction, and definitions in the Code shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
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<PAGE> 26
ARTICLE 9
AMENDMENTS
9.1 AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by
the vote or written consent of holders of a majority of the outstanding shares
entitled to vote; provided, however, that if the articles of incorporation of
the corporation set forth the number of authorized directors of the corporation,
then the authorized number of directors may be changed only by an amendment of
the articles of incorporation.
9.2 AMENDMENTS BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 9.1 of
these bylaws, bylaws, other than a bylaw or an amendment of a bylaw changing the
authorized number of directors (except to fix the authorized number of directors
pursuant to a bylaw providing for a variable number of directors), may be
adopted, amended or repealed by the board of directors.
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<PAGE> 27
CERTIFICATE OF ADOPTION AND AMENDMENT OF BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
Certificate by Secretary of Adoption
by Incorporator and Amendment
The undersigned hereby certifies that (i) he is the duly elected,
qualified and acting Secretary of The Lightspan Partnership, Inc. (the
"Company"); (ii) the foregoing Bylaws, comprising twenty-three (23) pages, were
adopted as the Bylaws of the Company on September 24, 1993 by the person
appointed in the Articles of Incorporation to act as the Incorporator of the
Company; (iii) the Board of Directors of the Company by unanimous written
consent effective November 18, 1993 approved the amendment of Section 3.2 of
such duly adopted Bylaws; (iv) the Board of Directors and the shareholders of
the Company by written consent effective January 30, 1995 approved the further
amendment of Section 3.2 of such duly adopted Bylaws; and (v) the Board of
Directors of the Company by written consent effective September 13, 1996
approved the further amendment of Section 3.2 of such duly adopted Bylaws in
their current form.
IN WITNESS WHEREOF, the undersigned has thereunto set his hand and
affixed the corporate seal this 13th day of September, 1996.
/s/ Allen L. Morgan
-----------------------------------
Allen L. Morgan, Secretary
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<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE LIGHTSPAN PARTNERSHIP, INC.
John T. Kernan hereby certifies that:
ONE: The original name of this corporation is The Lightspan Partnership,
Inc. and the date of filing the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is _____, 1999.
TWO: He is the duly elected and acting Chief Executive Officer of The
Lightspan Partnership, Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated in its entirety to read as follows:
I.
The name of this corporation is The Lightspan Partnership, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
IV.
A. The aggregate number of shares that the corporation shall have
authority to issue is one hundred forty-nine million (149,000,000) which is
comprised of eighty-seven million (87,000,000) shares of Common Stock each with
the par value of $0.001 per share, and sixty-one million seven hundred
ninety-five thousand seventy-four (61,795,074) shares of Preferred Stock each
with the par value of $0.001 per share. The Preferred Stock shall be issued in
five series, which shall be designated "SERIES A PREFERRED STOCK," "SERIES B
PREFERRED STOCK," "SERIES C PREFERRED STOCK," "SERIES D PREFERRED STOCK" and
"SERIES E PREFERRED STOCK." The Series A Preferred Stock shall consist of seven
million six hundred seventeen thousand five hundred (7,617,500) shares. The
Series B Preferred Stock shall consist of eleven million eight hundred sixteen
thousand six hundred sixty-four (11,816,664) shares. The Series C Preferred
Stock shall
1.
<PAGE> 2
consist of three million three hundred sixty thousand nine hundred ten
(3,360,910) shares. The Series D Preferred Stock shall consist of seventeen
million (17,000,000) shares. The Series E Preferred Stock shall consist of
twenty-two million (22,000,000) shares.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, by filing a
certificate (a "PREFERRED STOCK DESIGNATION") pursuant to the Delaware General
Corporation Law ("DGCL"), to fix or alter from time to time the designation,
powers, preferences and rights of the shares of each such series and the
qualifications, limitations or restrictions of any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
C. The terms and provisions of the Preferred Stock are as follows:
1. DEFINITIONS. For purposes of this Article, the following
definitions shall apply:
a. "COMPANY" shall mean the corporation.
b. "CONVERTIBLE SECURITIES" shall mean any evidences of
indebtedness, shares or other securities (other than shares of Preferred Stock)
convertible into or exchangeable for Common Stock or convertible into or
exchangeable for securities that are convertible into or exchangeable for Common
Stock.
c. "EMPLOYEE SALE" shall mean the sale or grant of any
right to purchase (including any option or warrant) any shares of Common Stock
to any employee, officer or director of, or consultant to, the Company pursuant
to any employee, officer, director or consultant plan or agreement adopted or
approved by the Board of Directors of the Company, and any exercise of any such
right, net of any such rights to purchase expiring unexercised and net of any
shares repurchased by the Company from employees, officers, directors or
consultants at cost upon termination of employment or tenure pursuant to such
agreements. Employee Sale shall also mean (in addition to the shares described
in the preceding sentence) the sale or grant of any right to purchase (including
any option or warrant) shares of Common Stock to any bank, equipment lessor or
other similar financial institution if and to the extent that the transaction in
which such sale or grant is to be made is approved by the Company's Board of
Directors.
d. "LIQUIDATION PREFERENCE" shall mean $1.00 per share for
the Series A Preferred Stock, $3.00 per share for the Series B Preferred Stock,
$6.00 per share for the Series C Preferred Stock, $3.76 per share for the Series
D Preferred Stock and $5.00 per share for the Series E Preferred Stock (subject
to adjustment from time to time as set forth elsewhere herein).
2.
<PAGE> 3
e. "OPTIONS" shall mean rights, options or warrants to
subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
f. "ORIGINAL ISSUE DATE" shall mean, respectively, the
dates upon which shares of each of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock, Series D Preferred Stock and Series E
Preferred Stock are first issued.
g. "ORIGINAL ISSUE PRICE" shall mean $1.00 per share for
the Series A Preferred Stock, $3.00 per share for the Series B Preferred Stock,
$6.00 per share for the Series C Preferred Stock, $3.76 per share for the Series
D Preferred Stock and $5.00 per share for the Series E Preferred Stock.
h. "PREFERRED STOCK" shall mean, collectively, the Series
A Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock,
the Series D Preferred Stock and the Series E Preferred Stock.
2. DIVIDENDS.
a. DIVIDEND PREFERENCE. The holders of outstanding shares
of Preferred Stock shall be entitled to receive dividends, out of any assets at
the time legally available therefore, prior and in preference to any declaration
or payment of any dividend (payable other than in Common Stock of this Company)
on the Common Stock of this Company, at the rate of ten cents ($0.10) per share
per annum for the Series A Preferred Stock, thirty cents ($0.30) per share per
annum for the Series B Preferred Stock, sixty cents ($0.60) per share per annum
for the Series C Preferred Stock, thirty-seven and six-tenths cents ($0.376) per
share per annum for the Series D Preferred Stock and fifty cents ($0.50) per
share per annum for the Series E Preferred Stock, when, as and if declared by
the Board of Directors; provided, however, that the Board of Directors is under
no obligation to pay dividends to such holders, and such dividends, if any,
shall be noncumulative such that no rights shall accrue to the holders of the
Preferred Stock as a result of the failure to declare such dividends in any
prior year. Such dividends may be payable quarterly or otherwise as the Board of
Directors may from time to time determine. No such dividend shall be declared or
paid on the Preferred Stock of any series in accordance with the preceding
sentences unless dividends are simultaneously declared or paid on the Preferred
Stock of each other series, and if less than the full annual dividend for each
series is so declared or paid, the amounts declared and paid for each series
shall be determined pro rata on the basis of the Liquidation Preferences for the
shares of the respective series. If and to the extent that the Board of
Directors of the Company shall declare and set aside for payment any other and
further amount of cash or property (other than Common Stock of the Company) as a
distribution, such distribution shall be made with equal priority to the Common
Stock and the Preferred Stock, with each share of Preferred Stock of each series
being treated for such purpose as if it had been converted into Common Stock at
the then effective Conversion Rate for such series. For such purpose, all shares
of Preferred Stock held by each holder of Preferred Stock shall be aggregated,
and any resulting fractional share of Common Stock shall be disregarded.
b. PRIORITY OF DIVIDENDS. The Company shall make no
Distribution (as defined below) to the holders of shares of Common Stock in any
fiscal year unless and until full annual dividends shall have been paid, or
declared and set apart, upon all shares of Preferred
3.
<PAGE> 4
Stock of each series. The Company shall not permit any subsidiary of the Company
to purchase or otherwise acquire for consideration any shares of stock of the
Company, or take any other action, unless the Company could, under this Section
2, purchase or otherwise acquire such shares or take such other action at such
time and in such manner.
c. DISTRIBUTION. As used in this section, "DISTRIBUTION"
means the transfer of cash or property without consideration, whether by way of
dividend or otherwise (except a dividend in shares of the Company) or the
purchase of shares of the Company (other than in connection with the repurchase
of shares of Common Stock issued to or held by employees, consultants, officers
and directors, at a price not greater than the amount paid by such persons for
such shares upon termination of their employment or services pursuant to
agreements providing for the right of said repurchase, which agreements were
authorized by the unanimous approval of the Board of Directors) for cash or
property.
d. CONSENT TO CERTAIN REPURCHASES. As authorized by
Section 402.5(c) of the California Corporations Code, Sections 502 and 503 of
the California Corporations Code shall not apply with respect to Distributions
made by the Company in connection with the repurchase of shares of Common Stock
issued to or held by employees, consultants, officers and directors, at a price
not greater than the amount paid by such persons for such shares, upon
termination of their employment or services pursuant to agreements providing for
the right of said repurchase upon the unanimous approval of the Board of
Directors.
3. LIQUIDATION RIGHTS.
a. LIQUIDATION PREFERENCE. In the event of any
liquidation, dissolution or winding up of the Company, either voluntary or
involuntary, the holders of the Preferred Stock shall be entitled to receive,
out of the assets of the Company, the Liquidation Preference specified for each
share of Preferred Stock then held by them plus an amount equal to all declared
and unpaid dividends thereon, if any, to the date that payment is made, before
any payment shall be made or any assets distributed to the holders of Common
Stock.
b. PRIORITY. If upon the liquidation, dissolution or
winding up of the Company, the assets to be distributed among the holders of the
Preferred Stock are insufficient to permit the payment to such holders of the
full Liquidation Preference for their shares, then the entire assets of the
Company legally available for distribution shall be distributed with equal
priority and pro rata among the holders of the Preferred Stock in proportion to
the numbers of shares of Preferred Stock of each series held by them multiplied
by the Liquidation Preference for the shares of such series of Preferred Stock.
c. REMAINING ASSETS. After the payment to the holders of
Preferred Stock of the full preferential amounts specified herein, any remaining
assets of the Company shall be distributed ratably to the holders of the
Company's capital stock then outstanding, with each share of Preferred Stock of
each series being treated for such purpose as if it had been converted into
Common Stock at the then effective Conversion Rate for such series. For such
purpose, all shares of Preferred Stock of each series held by each holder of
Preferred Stock shall be aggregated, and any resulting fractional share of
Common Stock shall be disregarded.
4.
<PAGE> 5
d. REORGANIZATION. Notwithstanding anything else in these
Articles of Incorporation, a liquidation, dissolution or winding up of the
Company shall be deemed to be occasioned by, or to include, (a) the acquisition
of the Company by another entity by means of any transaction or series of
related transactions (including, without limitation, any reorganization, merger
or consolidation, whether of the Company with or into any other corporation or
corporations or of any other corporation or corporations with or into the
Company but excluding any merger effected exclusively for the purpose of
changing the domicile of the Company); or (b) a sale of all or substantially all
of the assets of the Company; provided, however, that a consolidation or merger
as a result of which the holders of capital stock of the Company immediately
prior to such merger or consolidation possess (by reason of such holdings) 50%
or more of the voting power of the Company surviving such merger or
consolidation (or other corporation which is the issuer of the capital stock
into which the capital stock of the Company is converted or exchanged in such
merger or consolidation) shall not be treated as a liquidation, dissolution or
winding up of the Company within the meaning of this Section 3.
4. CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows (the "CONVERSION RIGHTS"):
a. RIGHT TO CONVERT. Each share of Preferred Stock shall
be convertible, without payment of additional consideration, into shares of
Common Stock, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Company or any transfer agent for
the Preferred Stock. Each share of Series A Preferred Stock shall be converted
into that number of fully-paid and nonassessable shares of Common Stock that is
determined by dividing $1.00 by the appropriate Conversion Price (as hereinafter
defined). Each share of Series B Preferred Stock shall be convertible into that
number of fully paid and nonassessable shares of Common Stock that is determined
by dividing $3.00 by the appropriate Conversion Price (as hereinafter defined).
Each share of Series C Preferred Stock shall be convertible into that number of
fully paid and nonassessable shares of Common Stock that is determined by
dividing $6.00 by the appropriate Conversion Price (as hereinafter defined).
Each share of Series D Preferred Stock shall be convertible into that number of
fully paid and nonassessable shares of Common Stock that is determined by
dividing $3.76 by the appropriate Conversion Price (as hereinafter defined).
Each share of Series E Preferred Stock shall be convertible into that number of
fully paid and nonassessable shares of Common Stock that is determined by
dividing $5.00 by the appropriate Conversion Price (as hereinafter defined). The
initial Conversion Price for the Series A Preferred Stock shall be $1.00, and
shall be subject to adjustment as provided herein. The initial Conversion Price
for the Series B Preferred Stock shall be $3.00, and shall be subject to
adjustment as provided herein. The initial Conversion Price for the Series C
Preferred Stock shall be $3.76, and shall be subject to adjustment as provided
herein. The initial Conversion Price for the Series D Preferred Stock shall be
$3.76, and shall be subject to adjustment as provided herein. The initial
Conversion Price for the Series E Preferred Stock shall be $5.00, and shall be
subject to adjustment as provided herein. (The number of shares of Common Stock
into which each share of Preferred Stock may be converted is hereinafter
referred to as the "CONVERSION RATE" for each such series.) Upon any decrease or
increase in the Conversion Price or the Conversion Rate for a series, as
described in this Section 4, the Conversion Rate or Conversion Price for such
series, as the case may be, shall be appropriately increased or decreased.
5.
<PAGE> 6
b. AUTOMATIC CONVERSION. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Conversion Rate for such share immediately upon the consummation of a
firm commitment underwritten public offering of Common Stock on Form S-1,
provided that the aggregate gross proceeds to the Company are not less than
$20,000,000 (a "QUALIFYING PUBLIC OFFERING").
c. MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon conversion of Preferred Stock. All shares of Common
Stock (including fractions) issuable upon conversion of shares of Preferred
Stock held by each holder of Preferred Stock shall be aggregated for the purpose
of determining whether the conversion would result in the issuance of any
fractional share. If, after aggregation, the conversion would result in the
issuance of a fractional share of Common Stock, the Company shall, in lieu of
issuing any fractional shares to which the holder would otherwise be entitled,
pay a sum of cash equal to the then fair market value of such fractional share
as determined in good faith by the Board of Directors of the Company. Before any
holder of Preferred Stock shall be entitled to convert the same into full shares
of Common Stock, and to receive certificates therefor, he shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or of any transfer agent for the Preferred Stock, and shall give written
notice to the Company at such office that he elects to convert the same;
provided, however, that in the event of an automatic conversion pursuant to
paragraph 4(b) above, the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Company or its transfer agent; provided further, however, that the Company
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless either the certificates
evidencing such shares of Preferred Stock are delivered to the Company or its
transfer agent as provided above, or the holder notifies the Company or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Company to indemnify the Company from
any loss incurred by it in connection with such certificates.
The Company shall, as soon as practicable after such delivery, or after
such agreement and indemnification, issue and deliver at such office to such
holder of Preferred Stock, a certificate or certificates for the number of
shares of Common Stock to which he shall be entitled as aforesaid and a check
payable to the holder in the amount of any cash amounts payable as the result of
a conversion into fractional shares of Common Stock, plus any declared and
unpaid dividends on the converted Preferred Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of such surrender of the shares of Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date; provided, however, that if
the conversion is in connection with an underwritten offer of securities
registered pursuant to the Securities Act of 1933, as amended, the conversion
may, at the option of any holder tendering Preferred Stock for conversion, be
conditioned upon the closing of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the closing of the
sale of such securities.
6.
<PAGE> 7
d. ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITION. For purposes of this paragraph
4(d), "ADDITIONAL SHARES OF COMMON" shall mean all shares of Common Stock issued
(or, pursuant to paragraph 4(d)(iii), deemed to be issued) by the Company after
the Original Issue Date of a particular series of Preferred Stock, other than:
(a) shares of Common Stock issued or issuable upon
conversion of shares of Preferred Stock;
(b) shares of Common Stock issued or issuable
pursuant to the exercise or conversion of Series A Preferred Stock Purchase
Warrants, Series B Preferred Stock Purchase Warrants, Series C Preferred Stock
Purchase Warrants, Series D Preferred Stock Purchase Warrants, Series E
Preferred Stock Purchase Warrants or any warrants or shares of capital stock
assumed or issued by the Company in any acquisition of another business or
entity;
(c) shares of Common Stock issued or issuable in an
Employee Sale; and
(d) shares of Common Stock issued or issuable as a
dividend or distribution on Preferred Stock or pursuant to any event for which
adjustment is made pursuant to paragraph 4(d)(vi) or (vii) hereof.
(ii) NO ADJUSTMENT OF CONVERSION PRICE. No adjustment in
the Conversion Price of a particular share of Preferred Stock shall be made in
respect of the issuance of Additional Shares of Common unless the consideration
per share for an Additional Share of Common issued or deemed to be issued by the
Company is less than the Conversion Price in effect on the date of, and
immediately prior to such issue, for such share of Preferred Stock. No
adjustment in the Conversion Price otherwise required by this paragraph 4 shall
affect any shares of Common Stock issued upon conversion of Preferred Stock
prior to such adjustment.
(iii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON.
(a) OPTIONS AND CONVERTIBLE SECURITIES. In the
event the Company at any time or from time to time after the Original Issue Date
of a particular series of Preferred Stock shall issue any Options or Convertible
Securities or shall fix a record date for the determination of holders of any
class of securities entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the instrument
relating thereto without regard to any provisions contained therein for a
subsequent adjustment of such number) of Common Stock issuable upon the exercise
of such Options or, in the case of Convertible Securities and Options therefor,
the conversion or exchange of such Convertible Securities or exercise of such
Options, shall be deemed to be Additional Shares of Common issued as of the time
of such issue or, in case such a record date shall have been fixed, as of the
close of business on such record date, provided that Additional Shares of Common
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to paragraph 4(d)(v) hereof) of such Additional Shares of
Common would be less than the Conversion Price
7.
<PAGE> 8
of such series of Preferred Stock in effect on the date of and immediately prior
to such issue, or such record date, as the case may be, and provided further
that in any such case in which Additional Shares of Common are deemed to be
issued:
(1) no further adjustment in the Conversion Price of such
series of Preferred Stock shall be made upon the subsequent issue of Convertible
Securities or shares of Common Stock upon the exercise of such Options or
conversion or exchange of such Convertible Securities;
(2) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price of such series of Preferred Stock computed upon the original
issue thereof (or upon the occurrence of a record date with respect thereto),
and any subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase or decrease
insofar as it affects such Options or the rights of conversion or exchange under
such Convertible Securities;
(3) no readjustment pursuant to clause (2) above shall
have the effect of increasing the Conversion Price of such series of Preferred
Stock to an amount which exceeds the lower of (i) the Conversion Price of such
Series of Preferred Stock on the original adjustment date, or (ii) the
Conversion Price of such Series of Preferred Stock that would have resulted from
any issuance of Additional Shares of Common between the original adjustment date
and such readjustment date;
(4) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Prices computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto) and any
subsequent adjustments based thereon shall, upon such expiration, be recomputed
as if:
i) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common issued were the shares of
Common Stock, if any, actually issued upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Company for the
issue of such exercised Options plus the consideration actually received by the
Company upon such exercise or for the issue of all such Convertible Securities
which were actually converted or exchanged, plus the additional consideration,
if any, actually received by the Company upon such conversion or exchange, and
ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Company for the Additional Shares of Common deemed
to have been then issued was the consideration actually received by the Company
for the issue of such exercised Options, plus the consideration deemed to have
been received by the Company (determined pursuant to paragraph
8.
<PAGE> 9
4(d)(v)) upon the issue of the Convertible Securities with respect to which such
Options were actually exercised; and
(5) if such record date shall have been
fixed and such Options or Convertible Securities are not issued on the date
fixed therefor, the adjustment previously made in the Conversion Prices which
became effective on such record date shall be canceled as of the close of
business on such record date, and thereafter the Conversion Prices shall be
adjusted pursuant to this paragraph 4(d)(iii) as of the actual date of their
issuance.
(b) STOCK DIVIDENDS. In the event the
Company at any time or from time to time after the Original Issue Date of a
particular series of Preferred Stock shall declare or pay any dividend on the
Common Stock payable in Common Stock, and with respect to which no similar
Common Stock dividend is to be distributed to holders of such series of
Preferred Stock, then and in any such event, Additional Shares of Common shall
be deemed to have been issued immediately after the close of business on the
record date for the determination of holders of any class of securities entitled
to receive such dividend.
(iv) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE
OF ADDITIONAL SHARES OF COMMON. In the event this Company shall issue Additional
Shares of Common (including Additional Shares of Common deemed to be issued
pursuant to paragraph 4(d)(iii)) without consideration or for a consideration
per share less than the applicable Conversion Price for any series of Preferred
Stock in effect on the date of and immediately prior to such issue, then and in
such event, the Conversion Price for such series of the Preferred Stock shall be
reduced, concurrently with such issue, to a price (calculated to the nearest
cent) determined by multiplying such Conversion Price by a fraction, the
numerator of which shall be the number of shares of Common Stock and Preferred
Stock outstanding immediately prior to such issue (without counting as
outstanding any Options or Convertible Securities) plus the number of shares of
Common Stock which the aggregate consideration received by the Company for the
total number of Additional Shares of Common so issued would purchase at such
Conversion Price, and the denominator of which shall be the number of shares of
Common Stock and Preferred Stock outstanding immediately prior to such issue
(without counting as outstanding any Options or Convertible Securities) plus the
number of such Additional Shares of Common so issued.
(v) DETERMINATION OF CONSIDERATION. For purposes of
this subsection 4(d), the consideration received by the Company for the issue of
any Additional Shares of Common shall be computed as follows:
(a) CASH AND PROPERTY. Such consideration
shall:
(1) insofar as it consists of cash, be
computed at the aggregate amount of cash received by the Company excluding
amounts paid or payable for accrued interest or accrued dividends and excluding
any discounts, commissions or placement fees payable by the Company to any
underwriter or placement agent in connection with the issuance of any Additional
Shares of Common;
9.
<PAGE> 10
(2) insofar as it consists of property
other than cash, be computed at the fair value thereof at the time of such
issue, as determined in good faith by the Board; and
(3) in the event Additional Shares of
Common are issued together with other shares or securities or other assets of
the Company for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
reasonably determined in good faith by the Board.
(b) OPTIONS AND CONVERTIBLE SECURITIES. The
consideration per share received by the Company for Additional Shares of Common
deemed to have been issued pursuant to paragraph 4(d)(iii)(a), relating to
Options and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by the Company as
consideration for the issue of such Options or Convertible Securities
(determined in the manner described in subparagraph (a) above), plus the minimum
aggregate amount of additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such consideration) payable to the Company upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities, or in the case of Options for Convertible Securities, the exercise
of such Options for Convertible Securities and the conversion or exchange of
such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set forth in the
instruments relating thereto, without regard to any provision contained therein
for a subsequent adjustment of such number) issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
(c) STOCK DIVIDENDS. Any Additional Shares
of Common deemed to have been issued relating to stock dividends shall be deemed
to have been issued for no consideration.
(vi) ADJUSTMENTS FOR SUBDIVISIONS OR COMBINATIONS
OF COMMON. In the event the outstanding shares of Common Stock shall be
subdivided (by stock split or otherwise than by payment of a dividend in Common
Stock), into a greater number of shares of Common Stock, the Conversion Price
for each series of Preferred Stock in effect immediately prior to such
subdivision shall, concurrently with the effectiveness of such subdivision, be
proportionately decreased. In the event the outstanding shares of Common Stock
shall be combined (by reclassification or otherwise) into a lesser number of
shares of Common Stock, the Conversion Prices in effect immediately prior to
such combination shall, concurrently with the effectiveness of such combination,
be proportionately increased.
(vii) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE
AND SUBSTITUTION. Subject to Section 3(d) above ("LIQUIDATION RIGHTS"), if the
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares provided for
10.
<PAGE> 11
above), the Conversion Prices then in effect shall, concurrently with the
effectiveness of such reorganization or reclassification, be proportionately
adjusted such that the Preferred Stock shall be convertible into, in lieu of the
number of shares of Common Stock which the holders would otherwise have been
entitled to receive, a number of shares of such other class or classes of stock
which a holder of the number of shares of Common Stock deliverable upon
conversion of the Preferred Stock immediately before that change would have been
entitled to receive in such reorganization or reclassification.
e. NO IMPAIRMENT. The Company will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company but will at all times in good
faith assist in the carrying out of all the provisions of this Section 4 and in
the taking of all such action as may be necessary or appropriate in order to
protect the Conversion Rights of the holders of the Preferred Stock against
impairment.
f. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Price pursuant to this Section 4,
the Company at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each holder of
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request at any time of any holder of
Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Prices at the time in effect, and (iii) the number of shares of
Common Stock and the amount, if any, of other property which at the time would
be received upon the conversion of Preferred Stock.
g. NOTICES OF RECORD DATE. In the event that this Company shall
propose at any time:
(i) to declare any dividend or distribution upon its
Common Stock, whether in cash, property, stock or other securities, whether or
not a regular cash dividend and whether or not out of earnings or earned
surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization
of its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge with or into any other corporation, or sell,
lease or convey all or substantially all its property or business, or to
liquidate, dissolve or wind up;
then, in connection with each such event, this Company shall send to the
holders of the Preferred Stock at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (iii) and (iv) above.
11.
<PAGE> 12
Each such written notice shall be given by first class mail, postage
prepaid, addressed to the holders of Preferred Stock at the address for each
such holder as shown on the books of this Company.
h. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Company shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock solely for the purpose of effecting the
conversion of the shares of the Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all then outstanding shares of the Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Preferred Stock,
the Company will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
5. REDEMPTION. Subject to the provisions of this Section 5, the
Company may redeem, at the applicable Redemption Price (defined below) and
ratably among the holders of the then outstanding Preferred Stock to be
redeemed, all or any portion of the Consenting Preferred (as defined below)
outstanding on the Redemption Date (defined below). As more fully set forth
below in Section 5(a), in order to redeem any shares of Preferred Stock, the
Company shall give notice pursuant to this Section 5 to all holders of the then
outstanding Preferred Stock of all series at the address of each such holder
appearing on the books of the Company or given by such holder to the Company for
the purpose of notice. Any such notice, however, shall be effective (and the
Company shall have the right to redeem any shares of Preferred Stock) only as
follows: (i) with respect to shares of Series A Preferred Stock, the Company
shall have the right to redeem such shares of Series A Preferred Stock (ratably
and with equal priority among each holder thereof), only with the written
consent of holders of not less than a majority of such shares of Series A
Preferred Stock, voting separately as a single class, (ii) with respect to
shares of Series B Preferred Stock, the Company shall have the right to redeem
such shares of Series B Preferred Stock (ratably and with equal priority among
each holder thereof), only with the written consent of holders of not less than
57% of such shares of Series B Preferred Stock, voting separately as a single
class, (iii) with respect to shares of Series C Preferred Stock, the Company
shall have the right to redeem such shares of Series C Preferred Stock (ratably
and with equal priority among each holder thereof), only with the written
consent of holders of not less than a majority of such shares of Series C
Preferred Stock, voting separately as a single class, (iv) with respect to
shares of Series D Preferred Stock, the Company shall have the right to redeem
such shares of Series D Preferred Stock (ratably and with equal priority among
each holder thereof), only with the written consent of holders of not less than
a majority of such shares of Series D Preferred Stock, and (v) with respect to
shares of Series E Preferred Stock, the Company shall have the right to redeem
such shares of Series E Preferred Stock (ratably and with equal priority among
each holder thereof), only with the written consent of holders of not less than
a majority of such shares of Series E Preferred Stock, voting separately as a
single class. In the event that the appropriate consents for redemption have
been obtained from the holders of each of the Series A Preferred Stock, the
Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred
Stock and the Series E Preferred Stock, all of such shares of Preferred Stock
shall be referred to hereinafter as "CONSENTING PREFERRED". The right of
redemption contained in this Section 5 shall not be exercised with respect to
any series of Preferred Stock prior to the fifth anniversary of the Original
Issue Date of the Series E
12.
<PAGE> 13
Preferred Stock, but may be exercised at any time and from time to time
thereafter. No such notice of redemption shall be effective if and to the extent
that the Company, at the date of such redemption, shall be prohibited by
applicable law from effecting such redemption.
a. NOTICE. If the Company determines to effect a
redemption, it shall give not less than 60 days prior written notice to all
holders of the Preferred Stock that up to a specified percentage of the
outstanding shares of the Preferred Stock shall be redeemed on the date
specified in such notice (the "REDEMPTION DATE") at the applicable Redemption
Price, which shall equal the Original Issue Price per share, as adjusted for any
stock split, reverse or similar recapitalization with respect to such shares,
plus any declared and unpaid dividends on the Preferred Stock (the "REDEMPTION
PRICE"). The notice shall further call upon such holders to surrender to the
Company on or before the Redemption Date, at the place designated in the notice,
such holder's certificate or certificates representing the shares of Preferred
Stock to be redeemed. On or after the Redemption Date, each holder of shares of
Consenting Preferred called for redemption shall surrender the certificate or
certificates evidencing such shares to the Company, at the place designated in
such notice and shall thereupon be entitled to receive payment of the
appropriate Redemption Price. The Company shall be under no obligation to redeem
shares of Preferred Stock (i) for which no stock certificate or affidavit of
lost stock certificate is surrendered or (ii) to the extent that any such
redemption would be in violation of applicable law.
b. CESSATION OF RIGHTS. From and after the Redemption
Date, unless there shall have been a default in payment of the appropriate
Redemption Price, all rights of the holders of shares of the Preferred Stock
designated and called for redemption in the redemption notice (except the right
to receive the Redemption Price without interest upon surrender of their
certificate or certificates) shall cease with respect to such shares, and such
shares shall not thereafter be outstanding for any purpose whatsoever. The
shares of Preferred Stock not redeemed shall remain outstanding and entitled to
all rights and preferences provided herein.
c. DEPOSIT OF REDEMPTION PRICE. Two days prior to the
Redemption Date, the Company shall deposit in cash the Redemption Price of all
outstanding shares of the Preferred Stock designated for redemption in the
redemption notice, and not yet redeemed or converted, with a bank or trust
company having aggregate capital and surplus in excess of $50,000,000 as a trust
fund for the benefit of the respective holders of the shares designated for
redemption and not yet redeemed. Simultaneously, the Company shall deposit
irrevocable instructions and authority to such bank or trust company to pay, on
and after the Redemption Date, the Redemption Price of the Preferred Stock to
the holders thereof upon surrender of their certificates. Any monies deposited
by the Company pursuant to this Section 5(c) for the redemption of shares that
are thereafter converted into shares of Common Stock pursuant to Section 4 above
no later than the close of business on the Redemption Date shall be returned to
the Company forthwith upon such conversion. The balance of any monies deposited
by the Company pursuant to this Subsection 5(c) remaining unclaimed at the
expiration of six (6) months following the Redemption Date shall thereafter be
returned to the Company, provided that the shareholder to which such monies
would be payable hereunder shall be entitled, upon proof of its ownership of the
Preferred Stock and payment of any bond requested by the Company, to receive
such monies but without interest from the Redemption Date.
13.
<PAGE> 14
6. VOTING. Except as otherwise expressly provided herein or as
required by law, the holders of Preferred Stock and the holders of Common Stock
shall vote together and not as separate classes.
a. PREFERRED STOCK. Each holder of shares of Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which such shares of Preferred Stock held by such holder of
Preferred Stock could then be converted. The holders of shares of the Preferred
Stock shall be entitled to vote on all matters on which the Common Stock shall
be entitled to vote. The holders of the Preferred Stock shall be entitled to
notice of any shareholders' meeting in accordance with the Bylaws of the
Company. Fractional votes shall not, however, be permitted and any fractional
voting rights resulting from the above formula (after aggregating all shares
into which shares of Preferred Stock held by each holder could be converted),
shall be disregarded.
b. COMMON STOCK. Each holder of shares of Common Stock
shall be entitled to one vote for each share thereof held.
c. ELECTION OF DIRECTORS. The holders of the Series A
Preferred Stock, voting separately as a single class, shall be entitled to elect
two (2) directors. The holders of the Series B Preferred Stock, voting
separately as a single class, shall be entitled to elect three (3) directors.
The holders of the Series C Preferred Stock, voting separately as a single
class, shall be entitled to elect one (1) director. The holders of the Series D
Preferred Stock, voting separately as a single class, shall be entitled to elect
two (2) directors. The holders of Common Stock, voting separately as a single
class, shall be entitled to elect two (2) directors. Any vacancy among the
directors to be elected by any class or series of Preferred Stock or Common
Stock shall be filled, if by the Board of Directors, only at the written
direction of the holders of the class or series entitled to elect the directors
as to whom a vacancy has arisen, or, if by the shareholders, by the shareholders
of the class or series entitled to elect such directors. A meeting of
shareholders to fill any such vacancy shall promptly be called upon request of
holders of not less than 25% of the shares of such class or series (as
applicable) entitled to elect the directors as to whom a vacancy has arisen. In
the event the Bylaws of the Company provide for more than ten (10) directors to
be elected, such additional directors shall be elected by the holders of the
Common Stock and the Preferred Stock, voting together as a single class.
7. AMENDMENTS AND CHANGES.
a. NO SERIES VOTING. Other than as provided in these
Amended and Restated Articles of Incorporation or by law, there shall be no
series voting.
b. APPROVAL BY CLASS. As long as any of the Preferred
Stock shall be issued and outstanding, the Company shall not, without first
obtaining the approval (by vote or consent as provided by law) of the holders of
not less than a majority of the total number of shares of the Preferred Stock
then outstanding (considered together for such purpose as a single class):
(i) amend or repeal any provision of, or add any
provision to, the Company's Amended and Restated Articles of Incorporation or
Bylaws;
14.
<PAGE> 15
(ii) authorize, create or issue shares of any class
or series of stock having any preference or priority superior to or on a parity
with any such preference or priority of the Preferred Stock;
(iii) enter into any transaction or series of
related transactions, as a result of which voting control of the Company shall
have passed to another person or entity (or group of related persons or
entities);
(iv) increase or decrease (other than for decreases
resulting from conversion of the Preferred Stock) the number of authorized
shares of Preferred Stock;
(v) issue, at any time prior to the second
anniversary of the Original Issue Date of the Series E Preferred Stock, any
Additional Shares of Common if such issuance would result in an adjustment of
the Conversion Price of the Series E Preferred Stock pursuant to Section
4(d)(iv) above;
(vi) effect a fundamental change in the Company's
business strategy as set forth in the Company's Business Plan dated February
1999; or
(vii) amend this Subsection 7(b).
For purposes of clause (i) of this Section 7(b), such an amendment shall
be deemed to occur upon the conversion or exchange of the Preferred Stock in any
reorganization into or for securities of any other corporation or cash or
property other than preferred stock having like rights, preferences, privileges
and powers as, and like restrictions provided for the benefit of, the Preferred
Stock. Like preferences shall be deemed to include the right to convert such
preferred stock into the kind and amount of securities, cash or other property
receivable in such reorganization by a holder of the number of shares of Common
Stock into which such shares of Preferred Stock might have been converted
immediately prior to such reorganization. Notwithstanding anything herein to the
contrary, no separate series vote of the Preferred Stock shall be necessary to
approve any consolidation, merger or sale deemed to be, and treated as, a
liquidation, dissolution or winding up under Section 3(d).
8. NOTICES. Any notice required by the provisions of this Article
IV to be given to the holders of Preferred Stock shall be deemed given if
deposited in the United States mail, postage prepaid, and addressed to each
holder of record at such holder's address appearing on the books of the Company.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the
15.
<PAGE> 16
whole Board of Directors shall be fixed exclusively by one or more resolutions
adopted by the Board of Directors.
B. BOARD OF DIRECTORS.
1. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "1933
Act"), covering the offer and sale of Common Stock to the public (the "Initial
Public Offering"), the directors shall be divided into three classes designated
as Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
2. Notwithstanding the foregoing provisions of this section, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
C. VACANCIES.
1. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
2. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the
16.
<PAGE> 17
directors chosen by the directors then in offices as aforesaid, which election
shall be governed by Section 211 of the DGCL.
D. Subject to paragraph (h) of Section 42 of the Bylaws, the Bylaws may
be altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
E. The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
F. No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering and following the closing of
the Initial Public Offering no action shall be taken by the stockholders by
written consent.
G. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. Any repeal or modification of this Article VI shall be prospective
and shall not affect the rights under this Article VI in effect at the time of
the alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. 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, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
* * * *
17.
<PAGE> 18
FOUR: This Restated Certificate of Incorporation has been duly approved
by the Board of Directors of this Corporation.
FIVE: This Restated Certificate of Incorporation has been duly adopted
in accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and a
majority of the stockholders of the Corporation.
18.
<PAGE> 19
IN WITNESS WHEREOF, THE LIGHTSPAN PARTNERSHIP, INC. has caused this
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer in San Diego, California this ____ day of _______ 2000.
THE LIGHTSPAN PARTNERSHIP, INC.
________________________________________
JOHN T. KERNAN,
Chief Executive Officer
19.
<PAGE> 1
EXHIBIT 3.4
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
(A DELAWARE CORPORATION)
<PAGE> 2
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of New Castle, County of
Wilmington.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by
any stockholder of the corporation who was a stockholder of record at the time
of giving of notice provided for in the following paragraph,
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who is entitled to vote at the meeting and who complied with the notice
procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if
the stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement of
an adjournment of an annual meeting commence a new time period for the giving of
a stockholder's notice as described above. Such stockholder's notice shall set
forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (C) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (i) the name and address of such
stockholder, as they appear on the corporation's books, and of such beneficial
owner, (ii) the class and number of shares of the corporation which are owned
beneficially and of record by such stockholder and such beneficial owner, and
(iii)
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whether either such stockholder or beneficial owner intends to deliver a proxy
statement and form of proxy to holders of, in the case of the proposal, at least
the percentage of the corporation's voting shares required under applicable law
to carry the proposal or, in the case of a nomination or nominations, a
sufficient number of holders of the corporation's voting shares to elect such
nominee or nominees (an affirmative statement of such intent, a "Solicitation
Notice").
(c) Notwithstanding anything in the second sentence of Section
5(b) of these Bylaws to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation is increased and
there is no public announcement naming all of the nominees for director or
specifying the size of the increased Board of Directors made by the corporation
at least one hundred (100) days prior to the first anniversary of the preceding
year's annual meeting, a stockholder's notice required by this Section 5 shall
also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to the Secretary at
the principal executive offices of the corporation not later than the close of
business on the tenth (10th) day following the day on which such public
announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or President, or (iii) the Board of
Directors pursuant to a resolution adopted by a majority of the total number of
authorized directors (whether or not there exist any vacancies in
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previously authorized directorships at the time any such resolution is presented
to the Board of Directors for adoption).
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may be
transacted at such special meeting otherwise than specified in such notice. The
Board of Directors shall determine the time and place of such special meeting,
which shall be held not less than thirty-five (35) nor more than one hundred
twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of Directors
may be made at a special meeting of stockholders at which directors are to be
elected pursuant to the corporation's notice of meeting (i) by or at the
direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the event
the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
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bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a quorum,
any meeting of stockholders may be adjourned, from time to time, either by the
chairman of the meeting or by vote of the holders of a majority of the shares
represented thereat, but no other business shall be transacted at such meeting.
The stockholders present at a duly called or convened meeting, at which a quorum
is present, may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum. Except as
otherwise provided by statute, the Certificate of Incorporation or these Bylaws,
in all matters other than the election of directors, the affirmative vote of the
majority of shares present in person or represented by proxy at the meeting and
entitled to vote on the subject matter shall be the act of the stockholders.
Except as otherwise provided by statute, the Certificate of Incorporation or
these Bylaws, directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Certificate of Incorporation or these Bylaws, a majority of the outstanding
shares of such class or classes or series, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter and, except where otherwise provided by the statute or by
the Certificate of Incorporation or these Bylaws, the affirmative vote of the
majority (plurality, in the case of the election of directors) of the votes cast
by the holders of shares of such class or classes or series shall be the act of
such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting, the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than thirty
(30) days or if after the adjournment a new record date is fixed for the
adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
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SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the DGCL, Section 217(b). If the instrument filed with the
Secretary shows that any such tenancy is held in unequal interests, a majority
or even-split for the purpose of subsection (c) shall be a majority or
even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, 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 ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented
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in writing. If the action which is consented to is such as would have required
the filing of a certificate under any section of the DGCL if such action had
been voted on by stockholders at a meeting thereof, then the certificate filed
under such section shall state, in lieu of any statement required by such
section concerning any vote of stockholders, that written consent has been given
in accordance with Section 228 of the DGCL.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting 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 chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
Subject to the rights of the holders of any series of Preferred Stock to
elect additional directors under specified circumstances, following the closing
of the Initial Public Offering, the directors shall be divided into three
classes designated as Class I, Class II and Class III, respectively. Directors
shall be assigned to each class in accordance with a resolution or resolutions
adopted by the Board of Directors. At the first annual meeting of stockholders
following the closing of the Initial Public Offering, the term of office of the
Class I directors shall expire and Class I directors shall be elected for a full
term of three years. At the second annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class II
directors shall expire and Class II directors shall be elected for a full term
of three years. At the third annual meeting of stockholders following the
closing of the Initial Public Offering, the term of office of the Class III
directors shall expire and Class III directors shall be elected for a full term
of three years. At each succeeding annual meeting of stockholders, directors
shall be elected for a full term of three years to succeed the directors of the
class whose terms expire at such annual meeting.
Notwithstanding the foregoing provisions of this section, each director shall
serve until his successor is duly elected and qualified or until his death,
resignation or removal. No decrease in the number of directors constituting the
Board of Directors shall shorten the term of any incumbent director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
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until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Section 18 in the
case of the death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately before or after the annual meeting of stockholders and
at the place where such meeting is held. No notice of an annual meeting of the
Board of Directors shall be necessary and such meeting shall be held for the
purpose of electing officers and transacting such other business as may lawfully
come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may be
held at any time and place within or without the State of Delaware whenever
called by the Chairman of the Board, the President or any two of the directors
(d) TELEPHONE MEETINGS. Any member of the Board of Directors, or
of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear
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each other, and participation in a meeting by such means shall constitute
presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a written
waiver of notice. All such waivers shall be filed with the corporate records or
made a part of the minutes of the meeting.
SECTION 21. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 42 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; provided, however, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 22. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 23. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so
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approved, by resolution of the Board of Directors, a fixed sum and expenses of
attendance, if any, for attendance at each regular or special meeting of the
Board of Directors and at any meeting of a committee of the Board of Directors.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity as an officer, agent, employee, or
otherwise and receiving compensation therefor.
SECTION 24. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors 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; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors 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, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof 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.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 24 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings
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of any such committee may be held at any place which has been determined from
time to time by such committee, and may be called by any director who is a
member of such committee, upon written notice to the members of such committee
of the time and place of such special meeting given in the manner provided for
the giving of written notice to members of the Board of Directors of the time
and place of special meetings of the Board of Directors. Notice of any special
meeting of any committee may be waived in writing at any time before or after
the meeting and will be waived by any director by attendance thereat, except
when the director attends such special meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. A majority of the
authorized number of members of any such committee shall constitute a quorum for
the transaction of business, and the act of a majority of those present at any
meeting at which a quorum is present shall be the act of such committee
SECTION 25. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 26. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 27. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of
the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly
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incident to his office and shall also perform such other duties and have such
other powers, as the Board of Directors shall designate from time to time. If
there is no President, then the Chairman of the Board of Directors shall also
serve as the Chief Executive Officer of the corporation and shall have the
powers and duties prescribed in paragraph (c) of this Section 27.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform other duties commonly incident to his
office and shall also perform such other duties and have such other powers, as
the Board of Directors shall designate from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all meetings
of the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
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SECTION 28. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 29. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 30. REMOVAL. Any officer may be removed from office at any time,
either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION
SECTION 31. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the agency
power of an officer, no officer, agent or employee shall have any power or
authority to bind the corporation by any contract or engagement or to pledge its
credit or to render it liable for any purpose or for any amount.
SECTION 32. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and
other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
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ARTICLE VII
SHARES OF STOCK
SECTION 33. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the President
or any Vice President and by the Treasurer or Assistant Treasurer or the
Secretary or Assistant Secretary, certifying the number of shares owned by him
in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests 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. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests 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. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical
SECTION 34. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 35. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
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(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the DGCL.
SECTION 36. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, 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 next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. 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.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a
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record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted, and which record date shall be not
more than sixty (60) days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the Board of Directors adopts the
resolution relating thereto.
SECTION 37. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 38. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 39. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting.
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Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation and applicable
law.
SECTION 40. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 41. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 42. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND OFFICERS. The corporation shall indemnify its
directors and officers (for the purposes of this Article XI, "officers" shall
have the meaning defined in Rule 3b-7 promulgated under the 1934 Act) to the
fullest extent not prohibited by the DGCL or any other applicable law; provided,
however, that the corporation may modify the extent of such indemnification by
individual contracts with its directors and officers; and, provided, further,
that the corporation shall not be required to indemnify any director or officer
in connection with any proceeding (or part thereof) initiated by such person
unless (i) such indemnification is expressly required to be made by law, (ii)
the proceeding was authorized by the Board of Directors of the corporation,
(iii) such indemnification is provided by the corporation, in its sole
discretion, pursuant to the powers vested in the corporation under the DGCL or
any other applicable law or (iv) such indemnification is required to be made
under subsection (d).
(b) EMPLOYEES AND OTHER AGENTS. The corporation shall have power
to indemnify its employees and other agents as set forth in the DGCL or any
other applicable law. The Board of Directors shall have the power to delegate
the determination of whether indemnification shall be given to any such person
except officers to such other persons as the Board of Directors shall determine.
(c) EXPENSES. The corporation shall advance to any person who was
or is a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, partnership, joint venture, trust or
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other enterprise, prior to the final disposition of the proceeding, promptly
following request therefor, all expenses incurred by any director or officer in
connection with such proceeding upon receipt of an undertaking by or on behalf
of such person to repay said amounts if it should be determined ultimately that
such person is not entitled to be indemnified under this Section 42 or
otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Section 42, no advance shall be made by the corporation to
an officer of the corporation (except by reason of the fact that such officer is
or was a director of the corporation in which event this paragraph shall not
apply) in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, if a determination is reasonably and promptly
made (i) by the Board of Directors by a majority vote of a quorum consisting of
directors who were not parties to the proceeding, or (ii) if such quorum is not
obtainable, or, even if obtainable, a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, that the facts known
to the decision-making party at the time such determination is made demonstrate
clearly and convincingly that such person acted in bad faith or in a manner that
such person did not believe to be in or not opposed to the best interests of the
corporation.
(d) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Section 42 to a director or officer shall be enforceable by or on behalf of
the person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim. In
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standards of conduct that make it permissible under the DGCL or any other
applicable law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such executive officer is or was a
director of the corporation) for advances, the corporation shall be entitled to
raise a defense as to any such action clear and convincing evidence that such
person acted in bad faith or in a manner that such person did not believe to be
in or not opposed to the best interests of the corporation, or with respect to
any criminal action or proceeding that such person acted without reasonable
cause to believe that his conduct was lawful. Neither the failure of the
corporation (including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the DGCL or
any other applicable law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that
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the director or officer is not entitled to be indemnified, or to such
advancement of expenses, under this Section 42 or otherwise shall be on the
corporation.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person
by this Bylaw shall not be exclusive of any other right which such person may
have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the DGCL or any
other applicable law, the corporation, upon approval by the Board of Directors,
may purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Section 42.
(h) AMENDMENTS. Any repeal or modification of this Section 42
shall only be prospective and shall not affect the rights under this Bylaw in
effect at the time of the alleged occurrence of any action or omission to act
that is the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Section 42 that
shall not have been invalidated, or by any other applicable law. If this Section
42 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement, arbitration and appeal of, and the giving of testimony in,
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
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(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Section 42 with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Section 42.
ARTICLE XII
NOTICES
SECTION 43. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a
duly authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and
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addresses of the stockholder or stockholders, or director or directors, to whom
any such notice or notices was or were given, and the time and method of giving
the same, shall in the absence of fraud, be prima facie evidence of the facts
therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate shall state, if such is the fact and if
notice is required, that notice was given to all persons entitled to receive
notice except such persons with whom communication is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice
is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the DGCL, the certificate need not state that notice was not given
to persons to whom notice was not required to be given pursuant to this
paragraph.
22.
<PAGE> 24
ARTICLE XIII
AMENDMENTS
SECTION 44. AMENDMENTS. Subject to paragraph (h) of Section 42 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 45. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
23.
<PAGE> 25
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
ARTICLE I OFFICES....................................................................1
Section 1. Registered Office......................................................1
Section 2. Other Offices..........................................................1
ARTICLE II CORPORATE SEAL.............................................................1
Section 3. Corporate Seal.........................................................1
ARTICLE III STOCKHOLDERS' MEETINGS.....................................................1
Section 4. Place Of Meetings......................................................1
Section 5. Annual Meetings........................................................1
Section 6. Special Meetings.......................................................3
Section 7. Notice Of Meetings.....................................................4
Section 8. Quorum.................................................................5
Section 9. Adjournment And Notice Of Adjourned Meetings...........................5
Section 10. Voting Rights..........................................................5
Section 11. Joint Owners Of Stock..................................................5
Section 12. List Of Stockholders...................................................6
Section 13. Action Without Meeting.................................................6
Section 14. Organization...........................................................7
ARTICLE IV DIRECTORS..................................................................7
Section 15. Number And Term Of Office..............................................7
Section 16. Powers.................................................................7
Section 17. Classes of Directors...................................................8
Section 18. Vacancies..............................................................8
Section 19. Resignation............................................................8
Section 20. Meetings...............................................................9
Section 21. Quorum And Voting.....................................................10
Section 22. Action Without Meeting................................................10
Section 23. Fees And Compensation.................................................10
Section 24. Committees............................................................10
Section 25. Organization..........................................................11
ARTICLE V OFFICERS..................................................................12
</TABLE>
i.
<PAGE> 26
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Section 26. Officers Designated...................................................12
Section 27. Tenure And Duties Of Officers.........................................12
Section 28. Delegation Of Authority...............................................13
Section 29. Resignations..........................................................13
Section 30. Removal...............................................................13
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED
BY THE CORPORATION........................................................14
Section 31. Execution Of Corporate Instruments....................................14
Section 32. Voting Of Securities Owned By The Corporation.........................14
ARTICLE VII SHARES OF STOCK...........................................................14
Section 33. Form And Execution Of Certificates....................................14
Section 34. Lost Certificates.....................................................15
Section 35. Transfers.............................................................15
Section 36. Fixing Record Dates...................................................15
Section 37. Registered Stockholders...............................................16
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION.......................................17
Section 38. Execution Of Other Securities.........................................17
ARTICLE IX DIVIDENDS.................................................................17
Section 39. Declaration Of Dividends..............................................17
Section 40. Dividend Reserve......................................................17
ARTICLE X FISCAL YEAR...............................................................18
Section 41. Fiscal Year...........................................................18
ARTICLE XI INDEMNIFICATION...........................................................18
Section 42. Indemnification Of Directors, Executive Officers, Other
Officers, Employees And Other Agents..................................18
ARTICLE XII NOTICES...................................................................21
Section 43. Notices...............................................................21
ARTICLE XIII AMENDMENTS................................................................22
Section 44. Amendments............................................................22
ARTICLE XIV LOANS TO OFFICERS.........................................................23
Section 45. Loans To Officers.....................................................23
</TABLE>
ii.
<PAGE> 1
EXHIBIT 3.5
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
THE LIGHTSPAN PARTNERSHIP, INC.
John T. Kernan hereby certifies that:
ONE: The original name of this corporation is The Lightspan Partnership,
Inc. and the date of filing the original Certificate of Incorporation of this
corporation with the Secretary of State of the State of Delaware is _____, 1999.
TWO: He is the duly elected and acting Chief Executive Officer of The
Lightspan Partnership, Inc., a Delaware corporation.
THREE: The Certificate of Incorporation of this corporation is hereby
amended and restated in its entirety to read as follows:
I.
The name of this corporation is The Lightspan Partnership, Inc.
II.
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle, and the
name of the registered agent of the corporation in the State of Delaware at such
address is Corporation Service Company.
III.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
IV.
A. The aggregate number of shares that the corporation shall have authority
to issue is Two Hundred Seventy Million (270,000,000) which is comprised of Two
Hundred Fifty Million (250,000,000) shares of Common Stock each with the par
value of $0.001 per share, and Twenty Million (20,000,000) shares of Preferred
Stock each with the par value of $0.001 per share.
B. The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors is hereby authorized, within the limitations and
restrictions stated in this Certificate of Incorporation, by filing a
certificate (a "PREFERRED STOCK DESIGNATION") pursuant to the Delaware General
Corporation Law ("DGCL"), to fix or alter from time to time the
1.
<PAGE> 2
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions of any wholly unissued
series of Preferred Stock, and to establish from time to time the number of
shares constituting any such series or any of them; and to increase or decrease
the number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A. The management of the business and the conduct of the affairs of the
corporation shall be vested in its Board of Directors. The number of directors
which shall constitute the whole Board of Directors shall be fixed exclusively
by one or more resolutions adopted by the Board of Directors.
B. BOARD OF DIRECTORS.
1. Subject to the rights of the holders of any series of Preferred
Stock to elect additional directors under specified circumstances, following the
closing of the initial public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "1933 Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the closing of the
Initial Public Offering, the term of office of the Class II directors shall
expire and Class II directors shall be elected for a full term of three years.
At the third annual meeting of stockholders following the closing of the Initial
Public Offering, the term of office of the Class III directors shall expire and
Class III directors shall be elected for a full term of three years. At each
succeeding annual meeting of stockholders, directors shall be elected for a full
term of three years to succeed the directors of the class whose terms expire at
such annual meeting.
2. Notwithstanding the foregoing provisions of this section, each
director shall serve until his successor is duly elected and qualified or until
his death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
2.
<PAGE> 3
C. VACANCIES.
1. Subject to the rights of the holders of any series of Preferred
Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by the stockholders, except as
otherwise provided by law, be filled only by the affirmative vote of a majority
of the directors then in office, even though less than a quorum of the Board of
Directors, and not by the stockholders. Any director elected in accordance with
the preceding sentence shall hold office for the remainder of the full term of
the director for which the vacancy was created or occurred and until such
director's successor shall have been elected and qualified.
2. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
D. Subject to paragraph (h) of Section 42 of the Bylaws, the Bylaws may be
altered or amended or new Bylaws adopted by the affirmative vote of at least
sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the
then-outstanding shares of the voting stock of the corporation entitled to vote.
The Board of Directors shall also have the power to adopt, amend, or repeal
Bylaws.
E. The directors of the corporation need not be elected by written ballot
unless the Bylaws so provide.
F. No action shall be taken by the stockholders of the corporation except
at an annual or special meeting of stockholders called in accordance with the
Bylaws or by written consent of stockholders in accordance with the Bylaws prior
to the closing of the Initial Public Offering and following the closing of the
Initial Public Offering no action shall be taken by the stockholders by written
consent.
G. Advance notice of stockholder nominations for the election of directors
and of business to be brought by stockholders before any meeting of the
stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be eliminated
to the fullest extent under applicable law.
3.
<PAGE> 4
B. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. 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, except as provided in paragraph B. of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI,
and VII.
* * * *
FOUR: This Restated Certificate of Incorporation has been duly approved by
the Board of Directors of this Corporation.
FIVE: This Restated Certificate of Incorporation has been duly adopted in
accordance with the provisions of Sections 242 and 245 of the General
Corporation Law of the State of Delaware by the Board of Directors and a
majority of the stockholders of the Corporation.
4.
<PAGE> 5
IN WITNESS WHEREOF, THE LIGHTSPAN PARTNERSHIP, INC. has caused this
Restated Certificate of Incorporation to be signed by its Chief Executive
Officer in San Diego, California this ____ day of _______ 2000.
THE LIGHTSPAN PARTNERSHIP, INC.
----------------------------------------
JOHN T. KERNAN,
Chief Executive Officer
5.
<PAGE> 1
EXHIBIT 10.1
ACADEMIC SYSTEMS CORPORATION
1992 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Stock Option Plan are to
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to such individuals of the
Company and to promote the success of the Company's business.
Options granted hereunder may be either Incentive Stock Options or
Nonstatutory Stock Options, at the discretion of the Board and as reflected in
the terms of the written option agreement.
2. Definition. As used herein, the following definitions shall apply:
(a) "Administrator" shall mean the Board or any of its Committees as
shall be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" shall mean the legal requirements relating to
the administration of stock options plans under state corporate and securities
laws and the Code.
(c) "Board" shall mean the Committee, if one has been appointed, or
the Board of Directors of the Company, if no Committee is appointed.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended,
or any successor statute.
(e) "Committee" shall mean the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan, if one is
appointed.
(f) "Common Stock" shall mean the Common Stock, no par value, of the
Company.
(g) "Company" shall mean the Academic Systems Corporation, a
California corporation.
(h) "Consultant" shall mean any person who is engaged by the Company
or any Parent or Subsidiary to render consulting services and is compensated
for such consulting services, and any director of the Company whether
compensated for such services or not; provided that if and in the event the
Company registers any class of any equity security pursuant to Section 12 of
the Exchange Act, the term Consultant shall thereafter not include directors
who are not compensated for their services or are paid only a director's fee by
the Company.
(i) "Continuous Status as an Employee or Consultant" shall mean the
absence of any interruption or termination of service as an Employee or
Consultant. Continuous Status as an Employee or Consultant shall not be
considered interrupted in the
<PAGE> 2
case of sick leave, military leave, or any other leave of absence approved by
the Board; provided that such leave is for a period of not more than 90 days or
reemployment upon the expiration of such leave is guaranteed by contract or
statute.
(j) "Employee" shall mean any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company shall not be sufficient to constitute
"employment" by the Company.
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" shall mean, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange
or a national market system, including without limitation the National Market
System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no
sales were reported) as quoted on such system or exchange (or the exchange with
the greatest volume of trading in Common Stock) on the last market trading day
prior to the day of determination, as reported in The Wall Street Journal or
such other source as the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not on
the National Market System thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common Stock,
the Fair Market Value shall be determined in good faith by the Administrator.
(m) "Incentive Stock Option" shall mean any Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code.
(n) "Nonstatutory Stock Option" shall mean an Option not intended to
qualify as an Incentive Stock Option.
(o) "Option" shall mean a stock option granted pursuant to the Plan.
(p) "Optioned Stock" shall mean the Common Stock subject to an Option.
(q) "Optionee" shall mean an Employee or Consultant who receives an Option.
2
<PAGE> 3
(r) "Parent" shall mean a "parent corporation", whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(s) "Plan" shall mean this 1992 Stock Option Plan.
(s) "Rule 16b-3" shall mean Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(t) "Share" shall mean a share of the Common Stock, as adjusted in
accordance with Section 11 of the Plan.
3. Stock Subject to the Plan. Subject to the provisions of Section 11 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 11,011,689 shares of Common Stock. The Shares may be
authorized, but unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan. Notwithstanding any other provision of the Plan,
shares issued under the Plan and later repurchased by the Company shall not
become available for future grant or sale under the Plan.
4. Administration of the Plan.
(a) Procedure.
(i) Multiple Administrative Bodies. If permitted by Rule 16b-3,
the Plan may be administered by different bodies with respect to Directors,
Officers who are not Directors, and Employees who are neither Directors nor
Officers.
(ii) Administration With Respect to Directors and Officers
Subject to Section 16(b). With respect to Option grants made to Employees who
are also Officers or Directors subject to Section 16(b) of the Exchange Act, the
Plan shall be administered by (A) the Board, if the Board may administer the
Plan in compliance with the rules governing a plan intended to qualify as a
discretionary plan under Rule 16b-3, or (B) a committee designated by the Board
to administer the Plan, which committee shall be constituted to comply with the
rules governing a plan intended to qualify as a discretionary plan under Rule
16b-3. Once appointed, such Committee shall continue to serve in its designated
capacity until otherwise directed by the Board. From time to time the Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by the rules governing
a plan intended to qualify as a discretionary plan under Rule 16b-3.
3
<PAGE> 4
(iii) Administration With Respect to Other Persons. With respect to
Option grants made to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a committee designated by the Board, which committee shall be constituted to
satisfy Applicable Laws. Once appointed, such Committee shall serve in its
designated capacity until otherwise directed by the Board. The Board may
increase the size of the Committee and appoint additional members, remove
members (with or without cause) and substitute new members, fill vacancies
(however caused), and remove all members of the Committee and thereafter
directly administer the Plan, all to the extent permitted by Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the Plan, and
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(1) of the Plan;
(ii) to select the Consultants and Employees to whom Options may be
granted hereunder;
(iii) to determine whether and to what extent Options or any
combination thereof, are granted hereunder;
(iv) to determine the number of shares of Common Stock to be covered by
each Option granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any award granted hereunder. Such terms and conditions
include, but are not limited to, the exercise price, the time or times when
Options may be exercised (which may be based on performance criteria), and any
restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of the Common Stock covered by such
Option shall have declined since the date the Option was granted;
(viii) to construe and interpret the terms of the Plan;
(ix) to prescribe, amend and rescind rules and regulations relating to
the Plan;
(x) to modify or amend each Option (subject to Section 13(c) of the
Plan);
4
<PAGE> 5
(xi) to authorize any person to execute on behalf of the Company
any instrument required to effect the grant of an Option previously granted by
the Administrator;
(xii) to determine the terms and restrictions applicable to
Options;
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options granted under the Plan.
5. Eligibility.
(a) Nonstatutory Stock Options may be granted to Employees and
Consultants. Incentive Stock Options may be granted only to Employees.
(b) Each Option shall be designated in the written option agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, if the aggregate Fair Market Value of the
Shares with respect to which Options designated as Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year (under
all plans of the Company) exceeds $100,000, such portion of such Options in
excess of $100,000, and no more, shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Options shall be taken into account
in the order in which they were granted, and the Fair Market Value of the Shares
shall be determined as of the time the Option with respect to such Shares is
granted.
(d) NOTHING IN THE PLAN OR ANY OPTION GRANTED HEREUNDER SHALL CONFER
UPON ANY OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR
CONSULTING RELATIONSHIP WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH
THE OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT OR
CONSULTING RELATIONSHIP AT ANY TIME, WITH OR WITHOUT CAUSE.
6. Term of Plan. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 19 of the Plan. It shall
continue in effect for a term of ten (10) years from that date unless sooner
terminated under Section 15 of the Plan.
7. Term of Option. The term of each Option shall be no more than ten (10)
years from the date of grant. However, in the case of an Incentive Stock Option
granted to an Optionee who, at the time the Option is granted, owns stock
representing more than ten
5
<PAGE> 6
percent (10%) of the voting power of all classes of stock of the Company or any
Parent or Subsidiary, the term of the Incentive Stock Option shall be no more
than five (5) years from the date of grant.
8. Exercise Price and Consideration.
(a) The per Share exercise price for the Shares to be issued
pursuant to exercise of an Option shall be such price as is determined by the
Board, but shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant
of such Incentive Stock Option, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value
per Share on the date of the grant.
(B) granted to any person, the per Share exercise price
shall be no less than 85% of the Fair Market Value per Share on the date of
grant.
For purposes of this Section 8(a), in the event that an Option is amended to
reduce the exercise price, the date of grant of such Option shall thereafter be
considered to be the date of such amendment.
(b) The Administrator shall determine the acceptable form of
consideration for exercising an Option, including the method of payment. In the
case of an Incentive Stock Option, the Administrator shall determine the
acceptable form of consideration at the time of grant. Such consideration may
consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
6
<PAGE> 7
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than six months
on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) delivery of a properly executed exercise notice together
with such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery to
the Company of the sale or loan proceeds required to pay the exercise price; or
(vi) any combination of the foregoing methods of payment.
9. Exercise of Option.
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Administrator, at the time of grant, including performance
criteria with respect to the Company and/or the Optionee, and as shall be
permissible under the terms of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such
exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Administrator, consist of any
consideration and method of payment allowable under Section 8(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause to
be issued) such stock certificate promptly upon exercise of the Option. In the
event that the exercise of an Option is treated in part as the exercise of an
Incentive Stock Option and in part as the exercise of a Nonstatutory Stock
Option pursuant to Section 5(b), the Company shall issue a separate stock
certificate evidencing the Shares treated as acquired upon exercise of an
Incentive Stock Option and a separate stock certificate evidencing the Shares
treated as acquired upon exercise of a Nonstatutory Stock Option, and shall
identify each such certificate accordingly in its stock transfer records. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 11 of the Plan.
Exercise of an Option in any manner shall result in a decrease in the
number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
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<PAGE> 8
(b) Termination of Status as an Employee or Consultant. In the event of
termination of an Optionee's Continuous Status as an Employee or Consultant (as
the case may be), such Optionee may exercise stock options to the extent
exercisable on the date of termination, of at least thirty (30) days, up to
three (3) months (or such shorter time, of at least thirty (30) days, as may be
specified in the grant) in the case of an Incentive Stock Option or up to six
(6) months (or such shorter time, of at least thirty (30) days, as may be
specified in the grant) in the case of a Nonstatutory Stock Option, after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement). To the extent
that the Optionee was not entitled to exercise the option at the date of such
termination, or does not exercise such Option (to the extent exercisable)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. Notwithstanding the provisions of Section 9(b)
above, in the event of termination of an Optionee's Continuous Status as an
Employee or Consultant as a result of his disability, he may exercise his Option
to the extent he was entitled to exercise it at the date of such termination
within twelve (12) months (or such shorter period as is specified in the grant)
from the date of such termination (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement);
provided, however, that if such disability is not a "disability" as such term is
defined in Section 22(e)(3) of the Code, in the case of an Incentive Stock
Option, such Incentive Stock shall automatically convert to a Nonstatutory Stock
Option on the day three months and one day following such termination. To the
extent that the Optionee was not entitled to exercise the Option at the date of
termination, or does not exercise such Option (to the extent exercisable) within
the time specified herein, the Option shall terminate.
(d) Death of Optionee. Notwithstanding the provisions of Section 9(b)
above, in the event of the death of an Optionee:
(i) during the term of the Option who is at the time of his death an
Employee or Consultant of the Company and who shall have been in Continuous
Status as an Employee or Consultant since the date of grant of the Option, the
Option may be exercised, at any time within twelve (12) months (or such shorter
period as is specified in the grant) following the date of death (but in no
event later than the date of expiration of the term of such Option as set forth
in the Option Agreement) by the Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent of the right to exercise that would have accrued had the Optionee
continued living and remained in Continuous Status as an Employee or Consultant
six (6) months after the date of death; or
(ii) within three (3) months (or such shorter period as is specified
in the grant) or such shorter period as may be specified at time of grant after
the termination of Continuous Status as an Employee or Consultant, the Option
may be exercised, at any time within twelve (12) months following the date of
death (but in no event later than the date of expiration of the term of such
Option as set forth in the Option Agreement) by the Optionee's estate or by a
person who acquired the right to exercise the Option by bequest or inheritance,
but only to the extent of the right to exercise that had accrued at the date of
termination.
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10. Non-Transferability of Options. The Option may not be sold, pledged,
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
11. Changes in Capitalization. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
12. Dissolution or Liquidation. In the event of the proposed dissolution
or liquidation of the Company, the Board shall notify the Optionee at least
fifteen (15) days prior to such proposed action. To the extent it has not been
previously exercised, the Option will terminate immediately prior to the
consummation of such proposed action.
13. Merger. In the event of a merger of the Company with or into another
corporation, the Option shall be assumed or an equivalent option shall be
substituted by such successor corporation or a parent or subsidiary of such
successor corporation. If, in such event, the Option is not assumed or
substituted, the Option shall terminate as of the date of the closing of the
merger. For the purposes of this paragraph, the Option shall be considered
assumed if, following the merger, the option confers the right to purchase, for
each Share of Optioned Stock subject to the Option immediately prior to the
merger, the consideration (whether stock, cash, or other securities or property)
received in the merger by holders of Common Stock for each Share held on the
effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares); provided, however, that if such consideration received
in the merger was not solely common stock of the successor corporation or its
Parent, the Administrator may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon the exercise
of the Option, for each Share of Optioned Stock subject to the Option, to be
solely common stock of the successor corporation or its Parent equal in fair
market value to the per share consideration received by holders of Common Stock
in the merger.
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14. Time of Granting Options. The date of grant of an Option shall, for
all purposes, be the date on which the Board makes the determination granting
such Option. Notice of the determination shall be given to each Employee or
Consultant to whom an Option is so granted within a reasonable time after the
date of such grant.
15. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that, the following revisions or amendments shall require approval of
the shareholders of the Company in the manner described in Section 19 of the
Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 11 of the Plan;
(ii) any change in the designation of the class of persons
eligible to be granted Options; or
(iii) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
any material increase in the benefits accruing to participants under the Plan.
(b) Shareholder Approval. If any amendment requiring shareholder
approval under Section 15(a) of the Plan is made subsequent to the first
registration of any class of equity securities by the Company under Section 12
of the Exchange Act, such shareholder approval shall be solicited as described
in Section 19 of the Plan.
(c) Effect of Amendment or Termination. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
16. Conditions Upon Issuance of Shares. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares.
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17. Reservation of Shares. The Company, during the term of this Plan, will
at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
18. Option Agreement. Options shall be evidenced by written option
agreements in such form as the Board shall approve.
19. Shareholder Approval.
(a) Continuance of the Plan shall be subject to approval by the
shareholders of the Company within twelve (12) months before or after the date
the Plan is adopted.
(b) If and in the event that the Company registers any class of equity
securities pursuant to Section 12 of the Exchange Act, any required approval of
the shareholders of the Company obtained after such registration shall be
solicited substantially in accordance with Section 14(a) of the Exchange Act and
the rules and regulations promulgated thereunder.
(c) If any required approval by the shareholders of the Plan itself or
of any amendment thereto is solicited at any time otherwise than in the manner
described in Section 19(b) hereof, then the Company shall, at or prior to the
first annual meeting of shareholders held subsequent to the later of (1) the
first registration of any class of equity securities of the Company under
Section 12 of the Exchange Act or (2) the granting of an Option hereunder to an
officer or director after such registration, do the following:
(i) furnish in writing to the holders entitled to vote for the Plan
substantially the same information which would be required (if proxies to be
voted with respect to approval or disapproval of the Plan or amendment were then
being solicited) by the rules and regulations in effect under Section 14(a) of
the Exchange Act at the time such information is furnished; and
(ii) file with, or mail for filing to, the Securities and Exchange
Commission four copies of the written information referred to in subsection (i)
hereof not later than the date on which such information is first sent or given
to shareholders.
20. Information to Optionees and Purchasers. The Company shall provide to
each Optionee and to each individual who acquired Shares pursuant to the Plan,
during the period such Optionee or purchaser has one or more Options
outstanding, and, in the case of an individual who acquired Shares pursuant to
the Plan, during the period such individual owns such Shares, copies of all
annual reports and other information. The Company shall not be
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required to provide such information to key employees whose duties in connection
with the Company assure their access to equivalent information.
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EXHIBIT 10.2
ACADEMIC SYSTEMS CORPORATION
NONSTATUTORY STOCK OPTION AGREEMENT
Academic Systems Corporation, a California corporation (the "Company"),
has granted to [1] (the "Optionee"), an option (the "Option") to purchase a
total of [2] shares of Common Stock (the "Shares"), at the price determined as
provided herein, and in all respects subject to the terms, definitions and
provisions of the 1992 Stock Option Plan (the "Plan") adopted by the Company,
which is incorporated herein by reference. Unless otherwise defined herein, the
terms defined in the Plan shall have the same defined meanings herein.
1. Nature of the Option. This Option is intended by the Company and the
Optionee to be a Nonstatutory Stock Option, and does not qualify for any
special tax benefits to the Optionee. This Option is not an Incentive Stock
Option and is not subject to Section 5(b) of the Plan.
2. Exercise Price. The exercise price is $[3] for each share of Common
Stock.
3. Exercise of Option. This Option shall be exercisable during its term in
accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) Subject to subsections 3(i)(b), (c) and (d) below, this
Option shall be immediately exercisable in full.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of employment or consulting relationship, the exercisability of the
Option is governed by Sections 7, 8 and 9 below, subject to the limitations
contained in subsection 3(i)(d).
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.
(ii) Method of Exercise. This Option shall be exercisable by
completion of the written notice attached hereto as Exhibit A. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company or the Secretary's designee. The
written notice shall be accompanied by payment of the exercise price. This
Option shall be deemed exercised upon receipt by the Company of such written
notice accompanied by the exercise price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax purposes the Shares shall be considered
transferred to the Optionee on the date on which the Option is exercised with
respect to such Shares.
<PAGE> 2
4. Optionee's Representations. In the event this Option and the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the "33 Act"), at the time this
Option is exercised, Optionee shall, concurrently with the exercise of all or
any portion of this Option, deliver to the Company his Investment Representation
Statement in the form attached hereto as Exhibit B.
5. Method of Payment. Payment of the exercise price shall be by any of
the following, or a combination thereof, at the election of the Board, in its
sole discretion:
(i) cash;
(ii) check;
(iii) surrender of other shares of Common Stock of the Company which
(A) either have been owned by the Optionee for more than six (6) months on the
date of surrender or were not acquired, directly or indirectly, from the Company
and (B) have a fair market value on the date of surrender equal to the exercise
price of the Shares as to which the Option is being exercised; or
(iv) tender of such other legal consideration, including a full
recourse promissory note, where permitted by applicable law, having such terms
as the Board of Directors or the committee thereof that administers the Plan may
approve at the time of exercise.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
7. Termination of Status as an Employee or Consultant. In the event of
termination of Optionee's Continuous Status as an Employee or Consultant, he
may, but only within thirty (30) days after the date of such termination (but in
no event later than the date of expiration of the term of this Option as set
forth in Section 11 below), exercise this Option to the extent that he was
entitled to exercise it at the date of such termination. To the extent that he
was not entitled to exercise this Option at the date of such termination, or if
he does not exercise this Option within the time specified herein, the Option
shall terminate.
8. Disability of Optionee. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee or Consultant as a result of his disability, he may, but only within
ninety (90) days from the date of such termination (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise his Option to the extent he was entitled to exercise it at the
date of such termination. To the extent that he was not entitled to exercise the
Option at the date of
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termination, or if he does not exercise such Option (which he was entitled to
exercise) within the time specified herein, the Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option and while an Employee or
Consultant of the Company and having been in Continuous Status as an Employee or
Consultant since the date of grant of the Option, the Option may be exercised,
at any time within ninety (90) days following the date of death (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that would have accrued had Optionee continued living and
remained in Continuous Status as an Employee or Consultant ninety (90) days
after the date of death; or
(ii) within thirty (30) days after the termination of Optionee's
Continuous Status as an Employee or Consultant, the Option may be exercised, at
any time within ninety (90) days following the date of death (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 11 below), by Optionee's estate or by a person who acquired the right to
exercise the Option by bequest or inheritance, but only to the extent of the
right to exercise that had accrued at the date of termination.
10. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
11. Term of Option. This Option may not be exercised more than five (5)
years from the date of grant of this Option, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.
12. Restrictions on Transfer.
(i) The Optionee acknowledges that the Optioned Stock acquired
pursuant to this Option may not be sold, exchanged, assigned, bequeathed or
gifted, pledged, mortgaged, hypothecated or otherwise encumbered, transferred or
permitted to be transferred, or otherwise disposed of, whether voluntarily,
involuntarily or by operation of law so long as the Optionee is employed by the
Company and for a period of ninety (90) days thereafter.
(ii) Right of First Refusal.
(a) In the event that Optionee shall receive a Bona Fide Offer
(as defined in Section 12(ii)(b) hereof) to purchase all or a portion of his
Shares (assuming he has purchased some or all of the Optioned Stock), and in the
further event that he is willing to accept such Bona Fide Offer, Optionee shall
promptly send Registered Notice (as defined in Section 12(ii)(c) hereof) to the
Company, offering to sell his Shares to the Company at the same price and upon
the same terms and conditions as are contained in the Bona Fide Offer. The
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<PAGE> 4
Company or its assignee shall then have such rights and privileges, for the
prescribed time periods, as are set forth in Section 12(ii)(d) hereof.
(b) Whenever in this Agreement the term "Bona Fide Offer" is
used, such term shall mean an offer in writing, signed by an offeror or offerors
(who must be a person or persons financially capable of carrying out the terms
of such Bona Fide Offer) not affiliated in any manner with, or related to,
Optionee, in a form legally enforceable against such nonaffiliated and unrelated
offeror or offerors.
(c) Whenever in this Agreement the term "Registered Notice" is
used, such term shall mean notice sent by registered or certified mail, return
receipt requested, and first-class postage prepaid; and, if such Registered
Notice is sent with respect to a Bona Fide Offer, such Registered Notice shall
contain a true and complete copy of the Bona Fide Offer, setting forth the price
and all terms and conditions, with the name(s), address(es) (both home and
office) and business(es) or other occupation(s) of the nonaffiliated and
unrelated offeror or offerors. Any notice which does not contain all such
requisite information shall not be considered a "Registered Notice" for the
purpose of this Agreement.
(d) Whenever under this Agreement a Bona Fide Offer to
purchase Shares has been received by Optionee, and Registered Notice thereof has
been sent to the Company, the following procedure shall be complied with: For a
period of thirty (30) days from its receipt of such Registered Notice, the
Company shall have the right, at its option, to purchase the Shares so offered.
If the Company shall not elect, within such thirty (30) day period, to purchase
all of the Shares covered by the Bona Fide Offer, Optionee shall have the right
to accept the Bona Fide Offer in whole (but not in part) and to sell such
Shares, subject to the provisions and restrictions of this Agreement, but only
in strict accordance with all of the provisions of the Bona Fide Offer and only
if the sale is fully consummated within ninety (90) days after the mailing of
such Registered Notice. In the event that such sale is not fully consummated
within ninety (90) days after the mailing of such Registered Notice, the
provisions of this Section 12 must again be complied with by Optionee.
(e) Any option of the Company specified in this Section 12 may
be assigned by the Company to any person or entity and, in such event, any
reference in this Agreement to such option of the Company shall, unless the
context otherwise requires, be deemed to be a reference to such other person or
entity.
(f) The Company's right of first refusal shall be exercisable
at the fair market value of the Shares in the case of proposed transfers by the
Optionee without consideration (e.g., gifts).
(g) The provisions of this Section 12 shall terminate (a) upon
the first sale of Common Stock of the Company to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the 1933 Act; or (b) upon action of the Board of
Directors of the Company, by a majority of the total number of directors then
serving; provided, however, that no such termination shall be deemed to affect
any
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<PAGE> 5
restrictions imposed by any applicable federal or state securities law, rule,
regulation or order with respect to the ownership, sale or disposition by
Optionee of any of the Shares.
13. Market Standoff Agreement. Purchaser hereby agrees that if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
14. Withholding and Employment Taxes Upon Exercise of Option. Optionee
understands that, upon exercise of this Option, he will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
shares over the exercise price. The Company will be required to withhold tax
from Optionee's current compensation with respect to such income; to the extent
that Optionee's current compensation is insufficient to satisfy the withholding
tax liability, the Company may require the Optionee to make a cash payment to
cover such liability as a condition of exercise of this Option. To the extent
authorized by the Board in its sole discretion, Optionee may make an election,
by means of a form of election to be prescribed by the Board, to have shares of
Common Stock or other securities of the Company which are acquired upon exercise
of the Option withheld by the Company or to tender other shares of Common Stock
or other securities of the Company owned by Optionee to the Company at the time
of exercise of the Option to pay the amount of tax that would otherwise be
required by law to be withheld by the Company as a result of any exercise of the
Option from amounts payable to such person, subject to the following
limitations:
(i) such election shall be irrevocable;
(ii) such election shall be subject to the disapproval of the Board
at any time;
(iii) such election may not be made within six months of the grant
date of the Option (except that this limitation shall not apply in the event of
death or disability of such person occurring prior to the expiration of the
six-month period); and
(iv) such election must be made either (A) six months prior to the
date that the amount of tax to be withheld upon such exercise is determined or
(B) in any ten-day period beginning on the third business day following the date
of release by the Company for publication of quarterly or annual summary
statements of sales or earnings of the Company.
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<PAGE> 6
Any securities so withheld or tendered will be valued by the Company as
of the day of exercise.
DATE OF GRANT: [4]
ACADEMIC SYSTEMS CORPORATION
a California corporation
By:
----------------------------------
Title:
----------------------------------
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OPTIONEE ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN
THE COMPANY'S STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL
CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR
CONSULTANCY WITH THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY TIME,
WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto and represents that he is familiar with the terms
and provisions thereof, and hereby accepts this Option subject to all of the
terms and provisions thereof. Optionee has reviewed the Plan and this Option in
their entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under the Plan.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:
--------------- ---------------------------------------
Optionee
Residence Address:
---------------------------------------
---------------------------------------
<PAGE> 8
EXHIBIT A
NOTICE OF EXERCISE OF
NONSTATUTORY STOCK OPTION
Academic Systems Corporation Date of
444 Castro Street, Suite 1200 Exercise: __________
Mountain View, CA 94101
Re: Nonstatutory Stock Option Grant Dated [__]
Gentlemen:
This constitutes notice under my Nonstatutory Stock Option Agreement that
I elect to purchase the number of shares of Academic Systems Corporation Common
Stock set forth below for the price set forth below:
Stock option dated: [_____]
Number of shares as to which option is exercised: _____
Total exercise price: _____
Cash payment delivered herewith: _____
Unless such documents are enclosed herewith, I hereby agree to execute
such additional documents evidencing such other representations and agreements
as to my investment intent with respect to these shares of Common Stock as may
be required by the Company pursuant to the provisions of the 1992 Stock Option
Plan. Please advise what additional documents may be required.
Very truly yours,
----------------------------------------
[_____]
<PAGE> 9
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: [F5]
SELLER: ACADEMIC SYSTEMS CORPORATION
COMPANY: ACADEMIC SYSTEMS CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom, which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from the
issuer thereof, in a non-public offering subject to the satisfaction of certain
conditions. Rule 701 provides that if the issuer qualifies under Rule 701 at the
time of issuance of the Securities, such issuance will be exempt from
<PAGE> 10
registration under the Securities Act. In the event the Company later becomes
subject to the reporting requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, ninety (90) days thereafter the securities exempt under
Rule 701 may be resold, subject to the satisfaction of certain of the conditions
specified by Rule 144, including among other things: (1) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934); and, in the case of an affiliate, (2) the availability of
certain public information about the Company, and the amount of securities being
sold during any three month period not exceeding the limitations specified in
Rule 144(e), if applicable. Notwithstanding this paragraph (d), I acknowledge
and agree to the restrictions set forth in paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the time
of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about the
Company, (2) the resale occurring not less than one year after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than two years, (3) the sale being made through
a broker in an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Securities Exchange Act
of 1934) and the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable.
(e) I agree, in connection with the Company's initial underwritten public
offering of the Company's securities, (1) not to sell, make short sale of, loan,
grant any options for the purchase of, or otherwise dispose of any shares of
Common Stock of the Company held by me (other than those shares included in the
registration) without the prior written consent of the Company or the
underwriters managing such initial underwritten public offering of the Company's
securities for one hundred eighty (180) days from the effective date of such
registration, and (2) I further agree to execute any agreement reflecting (1)
above as may be requested by the underwriters at the time of the public
offering; provided however that the officers and directors of the Company who
own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144 and
Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion that
persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 701 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their own
risk.
(g) I understand that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities without
the consent of the Commissioner of
2
<PAGE> 11
Corporations of California. I have read the applicable Commissioner's Rules with
respect to such restriction, a copy of which is attached.
Signature of Purchaser:
-----------------------------------------
Date: , 19
---------------------- --------
3
<PAGE> 12
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restrictions on Transfer: (a) The issuer of any security upon
which a restriction on transfer has been imposed pursuant to Sections 260.102.6,
260.141.10 or 260.534 shall cause a copy of this section be delivered to each
issuee or transferee of such security at the time the certificate evidencing the
security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferror's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferror or the
transferror's ancestors, descendants, or spouse; or to a transferee by a
trustee or custodian for the account of the transferee or the transferee's
ancestors, descendants or spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory
or country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities law of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate
or selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not
required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 or the Code, of the securities to be transferred, provided that
no order under Section 25140 or Subdivision (a) of Section 25143 is in
effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the code, provided that no order under Section 25140 or
subdivision (a) of Section 25143 is in effect with respect to such
qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law
or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at
the sale that transfer of the securities is restricted under this rule,
(ii) delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities; or
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement
by subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, readings as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF
THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
<PAGE> 13
ACADEMIC SYSTEMS CORPORATION
INCENTIVE STOCK OPTION AGREEMENT
Academic Systems Corporation, a California corporation (the "Company"),
has granted to [name] (the "Optionee"), an option (the "Option") to purchase a
total of [shares_no] shares of Common Stock (the "Shares"), at the price
determined as provided herein, and in all respects subject to the terms,
definitions and provisions of the 1992 Stock Option Plan (the "Plan") adopted by
the Company, which is incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings
herein.
1. Nature of the Option. This Option is intended to qualify as an
Incentive Stock Option as defined in Section 422 of the Code.
2. Exercise Price. The exercise price is $[share price] for each share of
Common Stock, which price is not less than the fair market value per share of
the Common Stock on the date of grant.
3. Exercise of Option. This Option shall be exercisable during its term in
accordance with the provisions of Section 9 of the Plan as follows:
(i) Right to Exercise.
(a) Subject to subsections 3(i)(b), (c) and (d) below, this
Option shall be exercisable cumulatively, to the extent of 1/48th of the Shares
subject to the Option at the end of each month following the vesting
commencement date, which date is [date of shares]. This Option may be exercised
in whole or in part at any time as to Shares which have not yet vested under the
above vesting schedule; provided, however, that the Optionee shall execute as a
condition to such exercise of this Option, the Restricted Stock Purchase
Agreement attached hereto as Exhibit A.
(b) This Option may not be exercised for a fraction of a
share.
(c) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 7, 8 and 9 below, subject to the limitations contained in subsection
3(i)(d).
(d) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in Section 11 below.
(ii) Method of Exercise. This Option shall be exercisable by
completion of the written notice attached hereto as Exhibit B. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company or the Secretary's designee. The
written notice shall be accompanied by payment of the exercise price. This
Option shall be deemed to be exercised upon receipt by the Company of such
written notice accompanied by the exercise price.
<PAGE> 14
No Shares will be issued pursuant to the exercise of an Option
unless such issuance and such exercise shall comply with all relevant provisions
of law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall be
considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
4. Optionee's Representations. In the event this Option and the Shares
purchasable pursuant to the exercise of this Option have not been registered
under the Securities Act of 1933, as amended (the "1933 Act"), at the time this
Option is exercised, Optionee shall, concurrently with the exercise of all or
any portion of this Option, deliver to the Company his Investment Representation
Statement in the form attached hereto as Exhibit C.
5. Method of Payment. Payment of the exercise price shall be by any of the
following, or a combination thereof, at the election of the Board, in its sole
discretion:
(i) cash;
(ii) check;
(iii) surrender of other shares of Common Stock of the Company which
(A) either have been owned by the Optionee for more than six (6) months on the
date of surrender or were not acquired, directly or indirectly, from the Company
and (B) have a fair market value on the date of surrender equal to the exercise
price of the Shares as to which the Option is being exercised; or
(iv) tender of such other legal consideration, including a full
recourse promissory note, where permitted by applicable law, having such terms
as the Board of Directors or the committee thereof that administers the Plan may
approve at the time of exercise.
6. Restrictions on Exercise. This Option may not be exercised until such
time as the Plan has been approved by the shareholders of the Company, or if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of this
Option, the Company may require Optionee to make any representation and warranty
to the Company as may be required by any applicable law or regulation.
7. Termination of Status as an Employee. In the event of termination of
Optionee's Continuous Status as an Employee, the Optionee may, but only within
thirty (30) days after the date of such termination (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise this Option to the extent exercisable at the date of such
termination. To the extent this Option was not exercisable at the date of such
termination, or if the Optionee does not exercise this Option within the time
specified herein, the Option shall terminate.
2
<PAGE> 15
8. Disability of Optionee. Notwithstanding the provisions of Section 7
above, in the event of termination of Optionee's Continuous Status as an
Employee as a result of his disability, the Optionee may, but only within ninety
(90) days from the date of termination of employment (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), exercise this Option to the extent exercisable at the date of such
termination. To the extent that the Option was not exercisable at the date of
termination, or if the Optionee does not exercise such Option within the time
specified herein, the Option shall terminate.
9. Death of Optionee. In the event of the death of Optionee:
(i) during the term of this Option and while an Employee of the
Company and having been in Continuous Status as an Employee since the date of
grant of the Option, the Option may be exercised, at any time within ninety (90)
days following the date of death (but in no event later than the date of
expiration of the term of this Option as set forth in Section 11 below), by
Optionee's estate or by a person who acquired the right to exercise the Option
by bequest or inheritance, but only to the extent of the right to exercise that
would have accrued had the Optionee continued living and remained in Continuous
Status as an Employee ninety (90) days after the date of death; or
(ii) within thirty days after the termination of Optionee's
Continuous Status as an Employee, the Option may be exercised, at any time
within ninety (90) days following the date of death (but in no event later than
the date of expiration of the term of this Option as set forth in Section 11
below), by Optionee's estate or by a person who acquired the right to exercise
the Option by bequest or inheritance, but only to the extent of the right to
exercise that had accrued at the date of termination
10. Non-Transferability of Option. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by him. The terms of this
Option shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
11. Term of Option. This Option may not be exercised more than five (5)
years from the date of grant of this Option, and may be exercised during such
term only in accordance with the Plan and the terms of this Option.
12. Restrictions on Transfer.
(i) The Optionee acknowledges that the Optioned Stock acquired
pursuant to this Option may not be sold, exchanged, assigned, bequeathed or
gifted, pledged, mortgaged, hypothecated or otherwise encumbered, transferred or
permitted to be transferred, or otherwise disposed of, whether voluntarily,
involuntarily or by operation of law so long as the Optionee is employed by the
Company and for a period of ninety (90) days thereafter.
3
<PAGE> 16
(ii) Right of First Refusal.
(a) In the event that Optionee shall receive a Bona Fide Offer
(as defined in Section 12(ii)(b) hereof) to purchase all or a portion of his
Shares (assuming he has purchased some or all of the Optioned Stock), and in the
further event that he is willing to accept such Bona Fide Offer, Optionee shall
promptly send Registered Notice (as defined in Section 12(ii)(c) hereof) to the
Company, offering to sell his Shares to the Company at the same price and upon
the same terms and conditions as are contained in the Bona Fide Offer. The
Company or its assignee shall then have such rights and privileges, for the
prescribed time periods, as are set forth in Section 12(ii)(d) hereof.
(b) Whenever in this Agreement the term "Bona Fide Offer" is
used, such term shall mean an offer in writing, signed by an offeror or
offerors (who must be a person or persons financially capable of carrying out
the terms of such Bona Fide Offer) not affiliated in any manner with, or related
to, Optionee, in a form legally enforceable against such nonaffiliated and
unrelated offeror or offerors.
(c) Whenever in this Agreement the term "Registered Notice" is
used, such term shall mean notice sent by registered or certified mail, return
receipt requested, and first class postage prepaid and, if such Registered
Notice is sent with respect to a Bona Fide Offer, such Registered Notice shall
contain a true and complete copy of the Bona Fide Offer, setting forth the price
and all terms and conditions, with the name(s), address(es) (both home and
office) and business(es) or other occupation(s) of the nonaffiliated and
unrelated offeror or offerors. Any notice which does not contain all such
requisite information shall not be considered a "Registered Notice" for the
purpose of this Agreement.
(d) Whenever under this Agreement a Bona Fide Offer to
purchase Shares has been received by Optionee, and Registered Notice thereof has
been sent to the Company, the fol1owing procedure shall be complied with: For a
period of thirty (30) days from its receipt of such Registered Notice, the
Company shall have the right, at its option, to purchase the Shares so offered.
If the Company shall not elect, within such thirty (30) day period, to purchase
all of the Shares covered by the Bona Fide Offer, Optionee shall have the right
to accept the Bona Fide Offer in whole (but not in part) and to sell such
Shares, subject to the provisions and restrictions of this Agreement, but only
in strict accordance with all of the provisions of the Bona Fide Offer and only
if the sale is fully consummated within ninety (90) days after the mailing of
such Registered Notice. In the event that such sale is not fully consummated
within ninety (90) days after the mailing of such Registered Notice, the
provisions of this Section 12 must again be complied with by Optionee.
(e) Any option of the Company specified in this Section 12 may
be assigned by the Company to any person or entity and, in such event, any
reference in this Agreement to such option of the Company shall, unless the
context otherwise requires, be deemed to be a reference to such other person or
entity.
4
<PAGE> 17
(f) The Company's right of first refusal shall be exercisable
at the fair market value of the Shares in the case of proposed transfers by the
Optionee without consideration (e.g., gifts).
(g) The provisions of this Section 12 shall terminate (a) upon
the first sale of Common Stock of the Company to the public pursuant to a
registration statement filed with, and declared effective by, the Securities
and Exchange Commission under the 1933 Act; or (b) upon action of the Board of
Directors of the Company, by a majority of the total number of directors then
serving; provided however, that no such termination shall be deemed to affect
any restrictions imposed by any applicable federal or state securities law,
rule, regulation or order with respect to the ownership, sale or disposition by
Optionee of any of the Shares.
13. Market Standoff Agreement. Purchaser hereby agrees that if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Purchaser shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company to become effective under the 1933 Act which include
securities to be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject to the foregoing restrictions
until the end of such 180-day period.
14. Early Disposition of Stock. Optionee understands that if he disposes
of any Shares received under this Option within two (2) years after the date of
grant (as indicated in this Agreement) or within one (1) year after such Shares
were transferred to him, he will be treated for federal income tax purposes as
having received ordinary income at the time of such disposition in an amount
generally measured by the difference between the price paid for the Shares and
the lower of the fair market value of the Shares at the date of the exercise or
the fair market value of the Shares at the date of disposition. Optionee hereby
agrees to notify the Company in writing within 30 days after the date of any
such disposition. Optionee understands that if he disposes of such Shares at any
time after the expiration of such two-year and one-year holding periods, gains
on such sale may be treated as medium-term or long-term capital gains. Optionee
also understands that the alternative minimum tax provisions of the tax code may
impose certain tax consequences upon Optionee in the year of exercise of this
Option or otherwise. Optionee is strongly encouraged to discuss the tax
consequences relating to this Option with his personal tax advisor.
15. Section 83(b) Election For Alternative Minimum Tax for Incentive Stock
Options. Optionee hereby acknowledges that Optionee has been informed that if he
or she exercises an incentive stock option as to "unvested shares," unless an
83(b) election is filed by the Optionee with the Internal Revenue Service within
30 days of the purchase of the Shares, the Optionee will be required to include
as income (for alternative minimum tax purposes only) an amount equal to the
excess, if any, of the fair market value of the Shares at the time the shares
vest over the purchase price for such Shares. For this purpose, "unvested"
shares includes shares
5
<PAGE> 18
purchased by certain persons who are subject to Section 16 of the Securities
Exchange Act of 1934, as amended, and shares as to which the Company retains a
right to repurchase unvested shares at the Optionee's cost upon the Optionee's
termination of employment with the Company. Optionee is encouraged and advised
to consult tax advisors in connection with the purchase of the Shares as to the
advisability of filing an election for alternative minimum tax purposes under
Section 83(b). OPTIONEE HEREBY ASSUMES ALL RESPONSIBILITY FOR FILING SUCH
ELECTION AND PAYING ANY TAXES RESULTING FROM SUCH ELECTION OR THE VESTING LAPSE
OF SUCH SHARES.
DATE OF GRANT: [date of agreement]
ACADEMIC SYSTEMS CORPORATION
a California corporation
By
-----------------------------------
Title
-----------------------------------
THIS SPACE INTENTIONALLY
LEFT BLANK - SIGNATURE OF
OPTIONEE ON FOLLOWING PAGE
6
<PAGE> 19
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES PURSUANT TO
SECTION 3 HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT THE WILL OF THE
COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR
ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT
NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN
ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT AT ANY
TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and certain
information related thereto and represents that he is familiar with the term and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee has reviewed the Plan and this Option in their
entirety, has had an opportunity to obtain the advice of counsel prior to
executing this Option and fully understands all provisions of the Option.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Board upon any questions arising under the Plan.
Optionee further agrees to notify the Company upon any change in the residence
address indicated below.
Dated:
--------------
-----------------------------------------
Optionee
Residence Address:
-----------------------------------------
-----------------------------------------
-----------------------------------------
7
<PAGE> 20
EXHIBIT A
ACADEMIC SYSTEMS CORPORATION
RESTRICTED STOCK PURCHASE AGREEMENT
THIS AGREEMENT is made between [name] (the "Purchaser") and Academic
Systems Corporation, a California corporation (the "Company"), as of ________,
19__.
RECITALS
(1) Pursuant to the exercise of a stock option granted to the Purchaser
under the Company's 1992 Stock Option Plan (the "Plan") and pursuant to the
Incentive Stock Option Agreement (the "Option Agreement") dated
[date_of_agreement] by and between the Company and the Purchaser, the Purchaser
has elected to purchase _______ of those shares which have become vested under
the vesting schedule set forth in Section 3(i) of the Option Agreement ("Vested
Shares") and _______ shares which have not yet vested under such schedule
("Unvested Shares"). (The Vested Shares and the Unvested Shares are sometimes
collectively referred to herein as the "Shares".)
(2) As required by the Option Agreement in the event of the Purchaser's
election to exercise the option as to Unvested Shares, this Agreement gives the
Company the right to repurchase at cost certain of the Unvested Shares in the
event of a termination of the Purchaser's employment with the Company prior to
the date upon which they would have vested under the Option Agreement.
1. Company's Option to Repurchase. If the Purchaser's employment
with the Company is terminated for any reason (a "Termination"), the Company (or
its assignee under this Agreement) shall have the right and option to purchase
from the Purchaser or the Purchaser's personal representative, as the case may
be (the "Company Option"), at the price paid by Purchaser for such shares (the
"Option Price"), up to that number of shares which would if the option had not
been so exercised, have been unvested as of the date of termination. The Option
Agreement and the Plan are hereby incorporated by reference and made a part of
this Agreement
2. Procedure for Exercise of Company Option.
(a) Upon the occurrence of a Termination, the Company may
exercise the Company Option by delivering personally or by first class mail, to
Purchaser (or his transferee or legal representative, as the case may be),
within 60 days of the Termination, a notice in writing indicating the Company's
intention to exercise the Company Option and setting forth a date for closing
(the "Closing") not later than thirty (30) days from the mailing of such notice.
The Closing shall take place at the Company's principal executive offices. At
the Closing, the holder of the certificates for the Unvested Shares being
transferred shall deliver the stock certificate or certificates evidencing the
Unvested Shares, and the Company shall deliver the purchase price therefor.
<PAGE> 21
(b) Whenever the Company shall have the right to purchase the
Unvested Shares pursuant to this Agreement, the Company may, upon written notice
to the Purchaser, assign to one or more persons the right to exercise all or
part of the Company's purchase rights. Each such assignee shall have the right
to exercise such right in its own name and for its own account. If the Company
Option is assigned by the Company and the fair market value of the shares, as
determined by the Board of Directors of the Company, exceeds the repurchase
price, and such assignee exercises the Company Option, then the assignee shall
pay to the Company the difference between the fair market value of the shares
repurchased and the aggregate repurchase price.
(c) If the Company does not elect to exercise the Company
Option conferred above by giving the requisite notice within sixty (60) days
following the Termination, the Company Option shall terminate.
3. Termination of Company Option.
(a) The Company Option provided for in Section 1 of this
Agreement shall terminate upon the first date on which there are no longer any
Unvested Shares which are the subject of the Company Option;
(b) Notwithstanding the foregoing the sixty (60) day period in
which the Company may exercise the Company Option will not be affected or
shortened by a termination of this Agreement pursuant to this Section.
4. Transferability of the Shares: Escrow.
(a) Purchaser hereby authorizes and directs the Secretary of
the Company, or such other person designated by the Company, to transfer the
Unvested Shares as to which the Company Option to purchase has been exercised
from Purchaser to the Company. Purchaser further authorizes the Company to
refuse, or to cause its transfer agent to refuse, to transfer any stock
attempted to be transferred, in violation of this Agreement.
(b) Except as required to effectuate the exercise of the
Company Option, none of the Unvested Shares which are subject to the Company
Option under Section 1 may be sold, transferred, pledged, hypothecated or
otherwise disposed of by Purchaser. The certificate or certificates evidencing
any of the shares purchased hereunder shall be endorsed with a legend
substantially as follows (together with any other legend(s) restricting the
transfer of the Unvested Shares necessary or appropriate under applicable
Federal or State securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN OPTION AGREEMENT AND A
RESTRICTED STOCK PURCHASE AGREEMENT PURSUANT TO WHICH SUCH
SHARES WERE PURCHASED, COPIES OF WHICH ARE ON FILE WITH THE
SECRETARY OF THE CORPORATION."
2
<PAGE> 22
(c) As security for the faithful performance of the terms of
this Agreement and to ensure the availability for delivery of Purchaser's Shares
upon exercise of the Company Option herein provided for, Purchaser hereby
delivers to and deposits with the Secretary of the Company, or such other person
designated by the Company ("Escrow Agent"), as Escrow Agent in this transaction
the Stock Assignment attached hereto as Exhibit A-1 duly endorsed (with date and
number of shares left blank), together with the certificate or certificates
evidencing the Shares; said documents are to be held by the Escrow Agent and
delivered by said Escrow Agent pursuant to the Joint Escrow Instructions of the
Company and Purchaser set forth in Exhibit A-2 attached hereto. By execution of
this Agreement, the Company, Purchaser and (solely to the extent specified in
this Section 4 and in Exhibit A-2) Escrow Agent agree to be bound by the terms
of Exhibit A-2 and incorporate Exhibit A-2 herein by reference. As a further
condition to the Company's obligations under this Agreement, the spouse of
Purchaser, if any, shall execute and deliver to the Company the Consent of
Spouse attached hereto as Exhibit A-3.
(d) The Company, or its designee shall not be liable for any
act it may do or omit to do with respect to holding the Unvested Shares in
escrow and while acting in good faith and in the exercise of its judgment.
(e) Transfer or sale of said Unvested Shares is subject to
restrictions on transfer imposed by any applicable State and Federal securities
laws. Any transferee shall hold such Unvested Shares subject to all the
provisions hereof and shall acknowledge the same by signing a copy of this
Agreement.
5. Ownership, Voting Rights, Duties. This Agreement shall not affect in
any way the ownership, voting rights or other rights or duties of Purchaser
except as specifically provided herein.
6. Adjustments of Unvested Shares. The Unvested Shares subject to this
Agreement shall be proportionately adjusted for any increase or decrease in the
number of issued shares of the Company, resulting from a subdivision or
consolidation of shares or the payment of a stock dividend or any other increase
or decrease in the number of said shares effected without receipt of
consideration by the Company.
7. Notices. Notices required hereunder shall be given in person or by
first class mail to the address of Purchaser shown on the records of the
Company, and to the Company at its principal executive office.
8. Survival of Terms. This Agreement shall apply to and bind Purchaser and
the Company and their respective permitted assignees and transferees, heirs,
legatees executors, administrators and legal successors.
9. Tax Consequences. Purchaser understands that if he disposes of any
Shares received under this Option within two (2) years after the date of this
Agreement or within one (1) year after such Shares were transferred to him, he
will be treated for federal income tax purposes as having received ordinary
income at the time of such disposition in an amount generally measured by the
difference between the price paid for the Shares and the lower of the
3
<PAGE> 23
fair market value of the Shares at the date of the exercise or the fair market
value of the Sham at the date of disposition. Purchaser hereby agrees to notify
the Company in writing within 30 days after the date of any such disposition
Purchaser understands that if he disposes of such Shares at any time after the
expiration of such two-year and one-year holding periods, gains on such sale may
be treated as medium-term or long-term capital gains.
Purchaser also understands, that the alternative minimum tax
provisions of the tax code may impose certain tax consequences upon Purchaser in
the year of exercise or in the year that certain restrictions imposed on the
shares lapse (i.e., the year the stock is fully vested). Such restrictions
include the Company's right to repurchase unvested shares at cost in the event
of termination of employment, and, include the potential liability of any
"insider", (as defined below) of the Company to forfeit to the Company any
profits from any purchase and sale of Common Stock of the Company within a
six-month period pursuant to Section 16(b) of the Securities Exchange Act of
1934, as amended.
If non-vested shares (i.e., shares subject to a repurchase option of
the Company) are purchased upon exercise of an incentive stock option or if
shares are purchased by an optionee who could be subject to suit under Section
16(b) of the Securities Exchange Act of 1934 in the event he disposed of such
shares, and the optionee subsequently disposes of such shares prior to the
expiration of the two-year and one-year holding periods, under proposed
regulations issued by the Internal Revenue Service the shares will be treated as
if they had been acquired by the optionee pursuant to a nonstatutory option. It
may be possible for an optionee to file a "protective" election with the
Internal Revenue Service under Section 83(b) within 30 days after the date of
exercise of an incentive stock option. However the Internal Revenue Service has
never considered the question of whether a Section 83(b) election can be filed
with respect to the exercise of an incentive stock option, and there can be no
assurance that any such "protective" election, even if properly and timely
filed, would be recognized as effective by the Internal Revenue Service.
Therefore. an optionee should consult his own tax advisor prior to exercising an
incentive stock option with respect to unvested shares, or prior to any exercise
of an incentive stock option in the event that he could be subject to Section
16(b) of the Securities Exchange Act of 1934 upon disposing of such shares,
concerning the advisability of filing a "protective" election under Section
83(b) of the Code.
A Section 83(b) election also commences the optionee's holding
period in the acquired property (for capital gain purposes) and affects the
characterization of gain or loss incurred upon disposition of such property.
Capital losses are allowed against up to $3,000 of ordinary income, and the
excess of net long-term capital loss over net short-term capital gain is allowed
in full for this purpose. In addition, the existence of capital gains or losses
will affect the limitation or the deductibility of an optionee's investment
interest.
Purchaser understands that the tax consequences of exercising an
option and disposing of shares acquired thereunder depend on Purchaser's
individual circumstances. Purchaser represents that he or she has consulted a
tax advisor and is not relying upon the Company for tax advice in this regard.
4
<PAGE> 24
10. Representations. The Purchaser has reviewed with his own tax advisors
the federal, state, local and foreign tax consequences of this investment and
the transactions contemplated by this Agreement. The Purchaser is relying solely
on such advisors and not on any statements or representations of the Company or
any of its agents. The Purchaser understands that he (and not the Company) shall
be responsible for his own tax liability that may arise as a result of this
investment or as the transactions contemplated by this Agreement.
11. Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the state of California.
Purchaser represents that he has read this Agreement and is familiar with
its terms and provisions. Purchaser hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under this Agreement.
IN WITNESS WHEREOF, this Agreement is deemed made as of the date first set
forth above.
ACADEMIC SYSTEMS CORPORATION,
A CALIFORNIA CORPORATION
By:
----------------------------------
Title:
----------------------------------
PURCHASER
-----------------------------------------
(Signature)
-----------------------------------------
(Typed or Printed Name)
For purposes only of Section 4 of this Agreement and Exhibit A-2 attached
hereto the undersigned Escrow Agent agrees to become a Party to this Agreement
and act as Escrow Agent for the Shares in accordance with the terms of such
Section 4 and such Exhibit A-2.
- ---------------------------------
Escrow Agent
5
<PAGE> 25
EXHIBIT A-1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED [name] hereby sells, assigns and transfers unto
________________ (_____) shares of the Common Stock of Academic Systems
Corporation standing in my name of the books of said corporation represented by
Certificate No. _________ herewith and does hereby irrevocably constitute and
appoint to transfer said stock on the books of the within-named corporation with
full power of substitution in the premises.
Dated: _____________,19
Signature:
-----------------------------------------
[name]
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Restricted Stock Purchase Agreement between the above assignor
and Academic Systems Corporation dated ______________,19___.
<PAGE> 26
EXHIBIT A-2
JOINT ESCROW INSTRUCTIONS
This Exhibit A-2 is an exhibit to, and is incorporated into and made a
part of, the attached Restricted Stock Purchase Agreement (the "Agreement"), by
and between Academic Systems Corporation and [name]. Capitalized terms used
herein but not defined shall have the meanings ascribed to them in the Agreement
Escrow Agent is hereby authorized and directed to hold the documents
delivered to Escrow Agent pursuant to the terms of the Agreement, in accordance
with the following instructions:
1. In the event the Company and/or any assignee of the Company (referred
to collectively for convenience herein as the "Company") exercises the Company
Option set forth in the Agreement, the Company shall give to Purchaser and
Escrow Agent a written notice specifying the number of Shares to be purchased,
the purchase price, and the time for a closing hereunder at the principal office
of the Company. Purchaser and the Company hereby irrevocably authorize and
direct Escrow Agent to close the transaction contemplated by such notice in
accordance with the terms of said notice.
2. At the closing, Escrow Agent is directed (a) to date the stock
assignments necessary for the transfer in question, (b) to fill in the number of
the Shares being transferred, and (c) to deliver same, together with the
certificate evidencing the Shares to be transferred, to the Company against the
simultaneous delivery to Escrow Agent of the purchase price (by check) for the
number of Shares being purchased pursuant to the exercise of the Company Option.
3. Purchaser irrevocably authorizes the Company to deposit with Escrow
Agent any certificates evidencing the Shares to be held by Escrow Agent
hereunder and any additions and substitutions to said Shares as defined in the
Agreement. Purchaser does hereby irrevocably constitute and appoint Escrow Agent
as his attorney-in-fact and agent for the term of this escrow to execute with
respect to such Shares all documents necessary or appropriate to make such
Shares negotiable and to complete any transaction herein contemplated, including
but not limited to the filing with the Department of Corporations of the State
of California of an Application for Consent to Transfer Securities Subject to
Legend or Escrow Condition Pursuant to Section 25151 of the California
Corporation Securities Law of 1968. Subject to the provisions of this paragraph
3, Purchaser shall exercise all rights and privileges of a shareholder of the
Company while the Shares are held by Escrow Agent
4. Ninety days after cessation of Purchaser's continuous employment by the
Company, or any parent or subsidiary of the Company, Escrow Agent will deliver
to Purchaser a certificate or certificates representing the aggregate number of
the Shares sold and issued pursuant to the Agreement and not purchased by the
Company or its assignees pursuant to exercise of the Company Option.
<PAGE> 27
5. If at the time of termination of this escrow Escrow Agent should have
in Escrow Agent's possession any documents, securities, or other property
belonging to Purchaser, Escrow Agent shall deliver all of the same to Purchaser
and shall be discharged of all further obligations hereunder.
6. Escrow Agent's duties hereunder may be altered, amended, modified or
revoked only by a writing signed by all of the parties to the Agreement
(excluding the spouse, if any, of Purchaser).
7. Escrow Agent shall be obligated only for the performance of such duties
as are specifically set forth herein and Escrow Agent may rely and shall be
protected in relying or refraining from acting on any instrument reasonably
believed by Escrow Agent to be genuine and to have been signed or presented by
the proper party or parties. Escrow Agent shall not be personally liable for any
act Escrow Agent may do or omit to do hereunder as Escrow Agent or as
attorney-in-fact for Purchaser while acting in good faith, and any act done or
omitted by Escrow Agent pursuant to the advice of Escrow Agent's own attorneys
shall be conclusive evidence of such good faith.
8. Escrow Agent shall not be liable in any respect on account of the
identity, authorities or rights of the parties executing or delivering or
purporting to execute or deliver the Agreement or any documents or papers
deposited or called for hereunder.
9. Escrow Agent shall not be liable for the outlawing of any rights under
the Statute of Limitations with respect to these Joint Escrow Instructions or
any documents deposited with Escrow Agent
10. Escrow Agent shall be entitled to employ such legal counsel and other
experts as Escrow Agent may deem necessary to advise Escrow Agent in connection
with Escrow Agent's obligations hereunder, may rely upon the advise of such
counsel, and may pay such counsel reasonable compensation therefor, for which
the Company and Purchaser jointly and severally agree to indemnify Escrow Agent
on a current basis as Escrow Agent incurs such expenses.
11. Escrow Agent's responsibilities as Escrow Agent hereunder shall
terminate if Escrow Agent shall cease to be Secretary or Assistant Secretary of
the Company or if Escrow Agent shall resign by written notice to each party. In
the event of any such termination, the Company shall appoint a successor Escrow
Agent. Upon resignation Escrow Agent shall be entitled to deliver all documents
and property held by Escrow Agent to the Secretary or any Assistant Secretary of
the Company, even if such person shall be a party to any dispute regarding this
Escrow.
12. If Escrow Agent reasonably requires other or further instruments in
connection with these Joint Escrow Instructions or obligations in respect
hereto, the parties to the Agreement shall join in furnishing such instruments.
2
<PAGE> 28
13. Any notice required or permitted hereunder shall be given in writing
and shall be deemed effectively given upon personal delivery or upon deposit in
the United States Post Office, by registered or certified mail with postage and
fees prepaid, addressed to each of the other parties thereunto entitled at the
addresses set forth below each such party's signature on the Agreement, or at
such other addresses as a party may designate by ten days' advance written
notice to each of the other parties hereto.
14. By signing the Agreement, Escrow Agent becomes a party to the
Agreement only for the purpose of Section 4 of said Agreement and these Joint
Escrow Instructions. Escrow Agent does not otherwise or for any other purpose
become a party to the Agreement.
15. This instrument shall be binding upon and inure to the benefit of the
parties hereto, and their respective successors and permitted assigns.
3
<PAGE> 29
EXHIBIT A-3
CONSENT OF SPOUSE
I, ________________________, spouse of [name], have read and approved the
foregoing Agreement. In consideration of granting of the right to my spouse to
purchase shares of Academic Systems Corporation as set forth in the Agreement, I
hereby appoint my spouse as my attorney-in fact in respect to the exercise of
any rights under the Agreement and agree to be bound by the provisions of the
Agreement insofar as I may have any rights under such Agreement or in any shares
issued pursuant thereto under the community property laws of the State of
California or similar laws relating to marital property in effect in the state
of our residence as of the date of the signing of the foregoing Agreement.
Dated: __________________, 19___ _________________________________________
<PAGE> 30
EXHIBIT A-4
INCENTIVE STOCK OPTION ELECTION UNDER SECTION 83(b)
OF THE INTERNAL REVENUE CODE OF 1986
The undersigned taxpayer ("Taxpayer") has acquired property pursuant to the
exercise of an incentive stock option within the meaning of Section 422 of the
Code. Taxpayer hereby elects, pursuant to Section 83(b) of the Code and subject
to the limitations set forth herein (1) to include in the computation of his or
her alternative minimum taxable income for the current taxable year an amount
equal to the excess of the fair market value of the property described below
(as of the time of transfer) over the amount paid for such property.
1. The name, address, Social Security number and taxable year of Taxpayer and
his or her spouse are as follows:
Name: Taxpayer: (name)
Spouse:
Address:
Social Security No.: Taxpayer:
Spouse:
Taxable Year:
2. The property with respect to which the election is made is ________________
shares of the Common Stock of Academic Systems Corporation, a California
corporation (the "Company").
3. The date on which the property was transferred is: _______________, 19__.
4. The property is subject to the restrictions checked below
[ ] the right of the Company to repurchase the property at the initial
purchase price in the event that Taxpayer ceases to perform substantial
services for the Company within a certain period of time;
[ ] restrictions imposed by Section 16(b) of the Securities Exchange Act of
1934, as amended.
5. The fair market value of the property at the time of transfer, determined
without regard to any restriction other than a restriction which by its
terms will never lapse, was $_____________.
6. The amount (if any) paid for the property was $_____________.
Taxpayer has submitted a copy of this statement to the Company and to the IRS
Service Center where Taxpayer files his or her federal income tax returns. A
copy will also be filed with Taxpayer's federal income tax return for the
taxable year to which this election relates. The transferee of the property is
the person performing the services in connection with the transfer of the
property.
This election is made to the same effect, and with the same limitations, for
purposes of any applicable state statute corresponding to Section 83(b) of the
Code.
Taxpayer understands that the foregoing election may not be revoked except with
the consent of the Commissioner.
Dated: ______________, 19__ _______________________________________
Taxpayer
The undersigned spouse of Taxpayer joins in this election.
Dated: ______________, 19__ _______________________________________
Spouse
<PAGE> 31
EXHIBIT B
NOTICE OF EXERCISE OF
INCENTIVE STOCK OPTION
Academic Systems Corporation Date of
444 Castro Street, Suite 1200 Exercise: ___________
Mountain View, CA 94041
Re: Incentive Stock Option Grant Dated [date_of_agreement]
Gentlemen:
This constitutes notice under my Incentive Stock Option Agreement that I
elect to purchase the number of shares of Academic Systems Corporation Common
Stock set forth below for the price set forth below:
Stock option dated: [date_of_agreement]
Number of shares as to which option is exercised: __________________
Total exercise price: __________________
Cash payment delivered herewith: __________________
Unless such documents are enclosed herewith, I hereby agree to execute
such additional documents evidencing such other representations and agreements
as to my investment intent with respect to these shares of Common Stock as may
be required by the Company pursuant to the provisions of the 1992 Stock Option
Plan. Please advise what additional documents may be required.
Very truly yours,
-----------------------------------------
[name]
<PAGE> 32
EXHIBIT C
INVESTMENT REPRESENTATION STATEMENT
PURCHASER: [name in caps]
SELLER: ACADEMIC SYSTEMS CORPORATION
COMPANY: ACADEMIC SYSTEMS CORPORATION
SECURITY: COMMON STOCK
AMOUNT:
DATE:
In connection with the purchase of the above-listed Securities, I, the
Purchaser, represent to the Seller and to the Company the following:
(a) I am aware of the Company's business affairs and financial condition,
and have acquired sufficient information about the Company to reach an informed
and knowledgeable decision to acquire the Securities. I am purchasing these
Securities for my own account for investment purposes only and not with a view
to, or for the resale in connection with, any "distribution" thereof for
purposes of the Securities Act of 1933, as amended (the "Securities Act").
(b) I understand that the Securities have not been registered under the
Securities Act in reliance upon a specific exemption therefrom which exemption
depends upon, among other things, the bona fide nature of my investment intent
as expressed herein. In this connection, I understand that, in the view of the
Securities and Exchange Commission (the "SEC"), the statutory basis for such
exemption may be unavailable if my representation was predicated solely upon a
present intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase or
decrease in the market price of the Securities, or for a period of one year or
any other fixed period in the future.
(c) I further understand that the Securities must be held indefinitely
unless subsequently registered under the Securities Act or unless an exemption
from registration is otherwise available. Moreover, I understand that the
Company is under no obligation to register the Securities. In addition, I
understand that the certificate evidencing the Securities will be imprinted with
a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am familiar with the provisions of Rule 701 and Rule 144, each
promulgated under the Securities Act, which, in substance, permit limited public
resale of "restricted securities" acquired, directly or indirectly, from
the issuer thereof in a non-public offering subject to the satisfaction of
certain conditions. Rule 701 provides that if the issuer qualifies under Rule
701 at the time of issuance of the Securities, such issuance will be exempt
<PAGE> 33
from registration under the Securities Act. In the event the Company later
becomes subject to the reporting requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, ninety (90) days thereafter the securities
exempt under Rule 701 may be resold, subject to the satisfaction of certain of
the conditions specified by Rule 144, including among other things: (1) the
sale being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934); and, in the case of an affiliate, (2) the
availability of certain public information about the Company, and the amount of
securities being sold during any three month period not exceeding the
limitations specified in Rule 144(e), if applicable. Notwithstanding this
paragraph (d), I acknowledge and agree to the restrictions set forth in
paragraph (e) hereof.
In the event that the Company does not qualify under Rule 701 at the time
of issuance of the Securities, then the Securities may be resold in certain
limited circumstances subject to the provisions of Rule 144, which requires
among other things: (1) the availability of certain public information about
the Company, (2) the resale occurring not less than one year after the party
has purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than two years, (3) the sale being made
through a broker in an unsolicited "broker's transaction" or in transactions
directly with a market maker (as said term is defined under the Securities
Exchange Act of 1934) and the amount of securities being sold during any three
month period not exceeding the specified limitations stated therein, if
applicable.
(e) I agree, in connection with the Company's initial underwritten
public offering of the Company's securities, (1) not to sell, make short sale
of, loan, grant any options for the purchase of, or otherwise dispose of any
shares of Common Stock of the Company held by me (other than those shares
included in the registration) without the prior written consent of the Company
or the underwriters managing such initial underwritten public offering of the
Company's securities for one hundred eighty (180) days from the effective date
of such registration, and (2) I further agree to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of
the public offering; provided however that the officers and directors of the
Company who own the stock of the Company also agree to such restrictions.
(f) I further understand that in the event all of the applicable
requirements of Rule 144 or Rule 701 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rule 144
and Rule 701 are not exclusive, the Staff of the SEC has expressed its opinion
that persons proposing to sell private placement securities other than in a
registered offering and otherwise than pursuant to Rule 144 or Rule 701 will
have a substantial burden of proof in establishing that an exemption from
registration is available for such offers or sales, and that such persons and
their respective brokers who participate in such transactions do so at their
own risk.
2
<PAGE> 34
(g) I understand that the certificate evidencing the Securities will be
imprinted with a legend which prohibits the transfer of the Securities without
the consent of the Commissioner of Corporations of California. I have read the
applicable Commissioner's Rules with respect to such restriction, a copy of
which is attached.
Signature of Purchaser:
-----------------------------------------
Date:__________________________, 19 _____
3
<PAGE> 35
STATE OF CALIFORNIA - CALIFORNIA ADMINISTRATIVE CODE
Title 10. Investment - Chapter 3. Commissioner of Corporations
260.141.11: Restriction on Transfer. (a) The issuer of any security
upon which a restriction on transfer has been imposed pursuant to Sections
260.102.6, 260.141.10 or 260.534 shall cause a copy of this section to be
delivered to each issuee or transferee of such security at the time the
certificate evidencing the security is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate
a sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant
to Section 260.141.12 of these rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in Subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of these rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the
transferor's ancestors, descendants, or spouse; or to a
transferee by a trustee or custodian for the account of the
transferee or the transferee's ancestors, descendants, or spouse;
(5) to holders of securities of the same class of the same issuer,
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to
the knowledge of the broker-dealer, nor actually present in this
state if the sale of such securities is not in violation of any
securities law of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting
syndicate or selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security
for which the Commissioner's written consent is obtained or
under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided
that no order under Section 25140 or Subdivision (a) of Section
25143 is in effect with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to
such corporation;
(12) by way of an exchange qualified under Section 25111, 25112, or
25113 of the code, provided that no order under Section 25140 or
Subdivision (a) of Section 25143 is in effect with respect to
such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled nor actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another
state;
(15) by the State Controller pursuant to the Unclaimed Property Law
or to the administrator of the unclaimed property law of another
state if, in either such case, such person (i) discloses to
potential purchasers at the sale that transfer of the securities
is restricted under this rule, (ii) delivers to each purchaser a
copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
or
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification
requirement of Section 25110 of the Code but exempt from that
qualification requirement by subdivision (f) of Section 25102;
provided that any such transfer is on the condition that any certificate
evidencing the security issued to such transferee shall contain the legend
required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OR CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
<PAGE> 1
EXHIBIT 10.3
THE LIGHTSPAN PARTNERSHIP, INC.
2000 EQUITY INCENTIVE PLAN
ORIGINALLY ADOPTED AS THE 1993 STOCK OPTION PLAN SEPTEMBER 24, 1993
ORIGINALLY APPROVED BY THE STOCKHOLDERS NOVEMBER 18, 1993
AMENDED AND RESTATED OCTOBER 28, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
ADJUSTED FOR __ FOR __ STOCK SPLIT _________, 2000
TERMINATION DATE: _______________, 2009
1. PURPOSES.
(a) AMENDMENT AND RESTATEMENT. The Plan amends and restates the The
Lightspan Partnership, Inc. 1993 Stock Option Plan adopted September 24, 1993
(the "PRIOR PLAN"). All outstanding options granted under the Prior Plan also
shall be amended.
(b) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock
Awards are the Employees, Directors and Consultants of the Company and its
Affiliates.
(c) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means
by which eligible recipients of Stock Awards may be given an opportunity to
benefit from increases in value of the Common Stock through the granting of the
following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock
Options, (iii) stock bonuses and (iv) rights to acquire restricted stock.
(d) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain
the services of the group of persons eligible to receive Stock Awards, to secure
and retain the services of new members of this group and to provide incentives
for such persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation of
the Company, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f), respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a committee of one or more members of the Board
appointed by the Board in accordance with subsection 3(c).
(e) "COMMON STOCK" means the common stock of the Company.
1.
<PAGE> 2
(f) "COMPANY" means The Lightspan Partnership, Inc., a Delaware
corporation.
(g) "CONSULTANT" means any person, including an advisor, (i) engaged by the
Company or an Affiliate to render consulting or advisory services and who is
compensated for such services or (ii) who is a member of the Board of Directors
of an Affiliate. However, the term "Consultant" shall not include either
Directors who are not compensated by the Company for their services as Directors
or Directors who are merely paid a director's fee by the Company for their
services as Directors.
(h) "CONTINUOUS SERVICE" means that the Participant's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is not
interrupted or terminated. The Participant's Continuous Service shall not be
deemed to have terminated merely because of a change in the capacity in which
the Participant renders service to the Company or an Affiliate as an Employee,
Consultant or Director or a change in the entity for which the Participant
renders such service, provided that there is no interruption or termination of
the Participant's Continuous Service. For example, a change in status from an
Employee of the Company to a Consultant of an Affiliate or a Director will not
constitute an interruption of Continuous Service. The Board or the chief
executive officer of the Company, in that party's sole discretion, may determine
whether Continuous Service shall be considered interrupted in the case of any
leave of absence approved by that party, including sick leave, military leave or
any other personal leave.
(i) "COVERED EMPLOYEE" means the chief executive officer and the four
(4) other highest compensated officers of the Company for whom total
compensation is required to be reported to stockholders under the Exchange Act,
as determined for purposes of Section 162(m) of the Code.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means (1) for purposes of Incentive Stock Option awards,
the permanent and total disability of a person within the meaning of Section
22(e)(3) of the Code, and (2) for purposes of all Stock Awards other than
Incentive Stock Option awards, the inability of a person, in the opinion of a
qualified physician acceptable to the Company, to perform the major duties of
that person's position with the Company or an Affiliate of the Company because
of the sickness or injury of the person.
(l) "EMPLOYEE" means any person employed by the Company or an Affiliate.
Mere service as a Director or payment of a director's fee by the Company or an
Affiliate shall not be sufficient to constitute "employment" by the Company or
an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock exchange or
traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair
Market Value of a
2.
<PAGE> 3
share of Common Stock shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or market (or
the exchange or market with the greatest volume of trading in the Common Stock)
on the last market trading day prior to the day of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
(o) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(p) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange or designated (or approved for designation) upon notice of
issuance as a national market security on an interdealer quotation system if
such securities exchange or interdealer quotation system has been certified in
accordance with the provisions of Section 25100(o) of the California Corporate
Securities Law of 1968.
(q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or a subsidiary, does
not receive compensation (directly or indirectly) from the Company or its parent
or a subsidiary for services rendered as a consultant or in any capacity other
than as a Director (except for an amount as to which disclosure would not be
required under Item 404(a) of Regulation S-K promulgated pursuant to the
Securities Act ("Regulation S-K")), does not possess an interest in any other
transaction as to which disclosure would be required under Item 404(a) of
Regulation S-K and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(r) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(s) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(t) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock
Option granted pursuant to the Plan.
(u) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionholder evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of the
Plan.
(v) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to
the Plan or, if applicable, such other person who holds an outstanding Option.
3.
<PAGE> 4
(w) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
Treasury Regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(x) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding Stock
Award.
(y) "PLAN" means this The Lightspan Partnership, Inc. 2000 Equity
Incentive Plan.
(z) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(aa) "SECURITIES ACT" means the Securities Act of 1933, as amended.
(bb) "STOCK AWARD" means any right granted under the Plan, including an
Option, a stock bonus and a right to acquire restricted stock.
(cc) "STOCK AWARD AGREEMENT" means a written agreement between the Company
and a holder of a Stock Award evidencing the terms and conditions of an
individual Stock Award grant. Each Stock Award Agreement shall be subject to the
terms and conditions of the Plan.
(dd) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless
and until the Board delegates administration to a Committee, as provided in
subsection 3(c).
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine from time to time which of the persons eligible
under the Plan shall be granted Stock Awards; when and how each Stock Award
shall be granted; what type or combination of types of Stock Award shall be
granted; the provisions of each Stock Award granted (which need not be
identical), including the time or times when a person shall be permitted to
receive Common Stock pursuant to a Stock Award; and the number of shares of
Common Stock with respect to which a Stock Award shall be granted to each such
person.
4.
<PAGE> 5
(ii) To construe and interpret the Plan and Stock Awards granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Stock Award Agreement,
in a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(iii) To amend the Plan or a Stock Award as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company which are not in conflict with the provisions of the Plan.
(c) DELEGATION TO COMMITTEE.
(i) GENERAL. The Board may delegate administration of the Plan to a
Committee or Committees of one (1) or more members of the Board, and the term
"Committee" shall apply to any person or persons to whom such authority has been
delegated. If administration is delegated to a Committee, the Committee shall
have, in connection with the administration of the Plan, the powers theretofore
possessed by the Board, including the power to delegate to a subcommittee any of
the administrative powers the Committee is authorized to exercise (and
references in this Plan to the Board shall thereafter be to the Committee or
subcommittee), subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(ii) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At
such time as the Common Stock is publicly traded, in the discretion of the
Board, a Committee may consist solely of two or more Outside Directors, in
accordance with Section 162(m) of the Code, and/or solely of two or more
Non-Employee Directors, in accordance with Rule 16b-3. Within the scope of such
authority, the Board or the Committee may (1) delegate to a committee of one or
more members of the Board who are not Outside Directors the authority to grant
Stock Awards to eligible persons who are either (a) not then Covered Employees
and are not expected to be Covered Employees at the time of recognition of
income resulting from such Stock Award or (b) not persons with respect to whom
the Company wishes to comply with Section 162(m) of the Code and/or) (2)
delegate to a committee of one or more members of the Board who are not
Non-Employee Directors the authority to grant Stock Awards to eligible persons
who are not then subject to Section 16 of the Exchange Act.
(d) EFFECT OF BOARD'S DECISION. All determinations, interpretations and
constructions made by the Board in good faith shall not be subject to review by
any person and shall be final, binding and conclusive on all persons.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in Common Stock, the Common Stock that may be issued
pursuant to Stock
5.
<PAGE> 6
Awards shall not exceed in the aggregate twelve million two hundred eighty
thousand five hundred forty four (12,280,544) shares of Common Stock, plus an
annual increase to be added on the day of each Annual Stockholders Meeting
beginning with the Annual Stockholders Meeting in 2001 equal to the lesser of
(1) 3% of the Company's outstanding shares on each such date (rounded to the
nearest whole share and calculated on a fully diluted basis, that is assuming
the exercise of all outstanding stock options and warrants to purchase common
stock) or (2) 20% of the Company's outstanding shares on the effective date of
the Plan. Notwithstanding the foregoing, the Board may designate a smaller
number of shares of Common Stock to be added to the share reserve as of a
particular Annual Stockholders Meeting.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the shares of Common Stock not acquired under such Stock
Award shall revert to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may
be unissued shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be
granted only to Employees. Stock Awards other than Incentive Stock Options may
be granted to Employees, Directors and Consultants.
(b) TEN PERCENT STOCKHOLDERS.
(i) A Ten Percent Stockholder shall not be granted an Incentive Stock
Option unless the exercise price of such Option is at least one hundred ten
percent (110%) of the Fair Market Value of the Common Stock at the date of grant
and the Option is not exercisable after the expiration of five (5) years from
the date of grant.
(c) SECTION 162(M) LIMITATION. Subject to the provisions of Section 11
relating to adjustments upon changes in the shares of Common Stock, no Employee
shall be eligible to be granted Options covering more than One Million
(1,000,000) shares of Common Stock during any calendar year.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. All Options shall be separately
designated Incentive Stock Options or Nonstatutory Stock Options at the time of
grant, and, if certificates are issued, a separate certificate or certificates
will be issued for shares of Common Stock purchased on exercise of each type of
Option. The provisions of separate Options need not be identical, but each
Option shall include (through incorporation of provisions hereof by reference in
the Option or otherwise) the substance of each of the following provisions:
(a) TERM. Subject to the provisions of subsection 5(b), no Incentive Stock
Option shall be exercisable after the expiration of ten (10) years from the date
it was granted.
6.
<PAGE> 7
(b) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions
of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of
each Incentive Stock Option shall be not less than one hundred percent (100%) of
the Fair Market Value of the Common Stock subject to the Option on the date the
Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may
be granted with an exercise price lower than that set forth in the preceding
sentence if such Option is granted pursuant to an assumption or substitution for
another option in a manner satisfying the provisions of Section 424(a) of the
Code.
(c) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. The exercise price of
each Nonstatutory Stock Option shall be not less than eighty-five percent (85%)
of the Fair Market Value of the Common Stock subject to the Option on the date
the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(d) CONSIDERATION. The purchase price of Common Stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised or (ii) at
the discretion of the Board at the time of the grant of the Option (or
subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the
Company of other Common Stock, (2) according to a deferred payment or other
similar arrangement with the Optionholder or (3) in any other form of legal
consideration that may be acceptable to the Board. Unless otherwise specifically
provided in the Option, the purchase price of Common Stock acquired pursuant to
an Option that is paid by delivery to the Company of other Common Stock
acquired, directly or indirectly from the Company, shall be paid only by shares
of the Common Stock of the Company that have been held for more than six (6)
months (or such longer or shorter period of time required to avoid a charge to
earnings for financial accounting purposes). At any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as defined
in the Delaware General Corporation Law, shall not be made by deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(e) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock
Option shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(f) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock
Option shall be transferable to the extent provided in the Option Agreement. If
the Nonstatutory Stock
7.
<PAGE> 8
Option does not provide for transferability, then the Nonstatutory Stock Option
shall not be transferable except by will or by the laws of descent and
distribution and shall be exercisable during the lifetime of the Optionholder
only by the Optionholder. Notwithstanding the foregoing, the Optionholder may,
by delivering written notice to the Company, in a form satisfactory to the
Company, designate a third party who, in the event of the death of the
Optionholder, shall thereafter be entitled to exercise the Option.
(g) VESTING GENERALLY. The total number of shares of Common Stock subject
to an Option may, but need not, vest and therefore become exercisable in
periodic installments that may, but need not, be equal. The Option may be
subject to such other terms and conditions on the time or times when it may be
exercised (which may be based on performance or other criteria) as the Board may
deem appropriate. The vesting provisions of individual Options may vary. The
provisions of this subsection 6(g) are subject to any Option provisions
governing the minimum number of shares of Common Stock as to which an Option may
be exercised.
(h) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent that
the Optionholder was entitled to exercise such Option as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service (or such longer or shorter period specified in the Option
Agreement), or (ii) the expiration of the term of the Option as set forth in the
Option Agreement. If, after termination, the Optionholder does not exercise his
or her Option within the time specified in the Option Agreement, the Option
shall terminate.
(i) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may
also provide that if the exercise of the Option following the termination of the
Optionholder's Continuous Service (other than upon the Optionholder's death or
Disability) would be prohibited at any time solely because the issuance of
shares of Common Stock would violate the registration requirements under the
Securities Act, then the Option shall terminate on the earlier of (i) the
expiration of the term of the Option set forth in subsection 6(a) or (ii) the
expiration of a period of three (3) months after the termination of the
Optionholder's Continuous Service during which the exercise of the Option would
not be in violation of such registration requirements.
(j) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability, the
Optionholder may exercise his or her Option (to the extent that the Optionholder
was entitled to exercise such Option as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period specified in
the Option Agreement) or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does not
exercise his or her Option within the time specified herein, the Option shall
terminate.
(k) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous
Service terminates as a result of the Optionholder's death or (ii) the
Optionholder dies within the period
8.
<PAGE> 9
(if any) specified in the Option Agreement after the termination of the
Optionholder's Continuous Service for a reason other than death, then the Option
may be exercised (to the extent the Optionholder was entitled to exercise such
Option as of the date of death) by the Optionholder's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionholder's death pursuant
to subsection 6(e) or 6(f), but only within the period ending on the earlier of
(1) the date eighteen (18) months following the date of death (or such longer or
shorter period specified in the Option Agreement) or (2) the expiration of the
term of such Option as set forth in the Option Agreement. If, after death, the
Option is not exercised within the time specified herein, the Option shall
terminate.
(l) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionholder may elect at any time before the Optionholder's
Continuous Service terminates to exercise the Option as to any part or all of
the shares of Common Stock subject to the Option prior to the full vesting of
the Option. Any unvested shares of Common Stock so purchased may be subject to a
repurchase option in favor of the Company or to any other restriction the Board
determines to be appropriate.
(m) RE-LOAD OPTIONS.
(i) Without in any way limiting the authority of the Board to make or
not to make grants of Options hereunder, the Board shall have the authority (but
not an obligation) to include as part of any Option Agreement a provision
entitling the Optionholder to a further Option (a "Re-Load Option") in the event
the Optionholder exercises the Option evidenced by the Option Agreement, in
whole or in part, by surrendering other shares of Common Stock in accordance
with this Plan and the terms and conditions of the Option Agreement. Unless
otherwise specifically provided in the Option, the Optionholder shall not
surrender shares of Common Stock acquired, directly or indirectly from the
Company, unless such shares have been held for more than six (6) months (or such
longer or shorter period of time required to avoid a charge to earnings for
financial accounting purposes).
(ii) Any such Re-Load Option shall (1) provide for a number of shares
of Common Stock equal to the number of shares of Common Stock surrendered as
part or all of the exercise price of such Option; (2) have an expiration date
which is the same as the expiration date of the Option the exercise of which
gave rise to such Re-Load Option; and (3) have an exercise price which is equal
to one hundred percent (100%) of the Fair Market Value of the Common Stock
subject to the Re-Load Option on the date of exercise of the original Option.
Notwithstanding the foregoing, a Re-Load Option shall be subject to the same
exercise price and term provisions heretofore described for Options under the
Plan.
(iii) Any such Re-Load Option may be an Incentive Stock Option or a
Nonstatutory Stock Option, as the Board may designate at the time of the grant
of the original Option; provided, however, that the designation of any Re-Load
Option as an Incentive Stock Option shall be subject to the one hundred thousand
dollar ($100,000) annual limitation on the exercisability of Incentive Stock
Options described in subsection 10(d) and in Section 422(d) of the Code. There
shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option
9.
<PAGE> 10
shall be subject to the availability of sufficient shares of Common Stock under
subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options
under subsection 5(c) and shall be subject to such other terms and conditions as
the Board may determine which are not inconsistent with the express provisions
of the Plan regarding the terms of Options.
7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.
(a) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form
and shall contain such terms and conditions as the Board shall deem appropriate.
The terms and conditions of stock bonus agreements may change from time to time,
and the terms and conditions of separate stock bonus agreements need not be
identical, but each stock bonus agreement shall include (through incorporation
of provisions hereof by reference in the agreement or otherwise) the substance
of each of the following provisions:
(i) CONSIDERATION. A stock bonus may be awarded in consideration for
past services actually rendered to the Company or an Affiliate for its benefit.
(ii) VESTING. Shares of Common Stock awarded under the stock bonus
agreement may, but need not, be subject to a share repurchase option in favor of
the Company in accordance with a vesting schedule to be determined by the Board.
(iii) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may reacquire any or
all of the shares of Common Stock held by the Participant which have not vested
as of the date of termination under the terms of the stock bonus agreement.
(iv) TRANSFERABILITY. Rights to acquire shares of Common Stock under
the stock bonus agreement shall be transferable by the Participant only upon
such terms and conditions as are set forth in the stock bonus agreement, as the
Board shall determine in its discretion, so long as Common Stock awarded under
the stock bonus agreement remains subject to the terms of the stock bonus
agreement.
(b) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement
shall be in such form and shall contain such terms and conditions as the Board
shall deem appropriate. The terms and conditions of the restricted stock
purchase agreements may change from time to time, and the terms and conditions
of separate restricted stock purchase agreements need not be identical, but each
restricted stock purchase agreement shall include (through incorporation of
provisions hereof by reference in the agreement or otherwise) the substance of
each of the following provisions:
(i) PURCHASE PRICE. The purchase price under each restricted stock
purchase agreement shall be such amount as the Board shall determine and
designate in such restricted stock purchase agreement. The purchase price shall
not be less than eighty-five percent (85%) of the Common Stock's Fair Market
Value on the date such award is made or at the time the purchase is consummated.
10.
<PAGE> 11
(ii) CONSIDERATION. The purchase price of Common Stock acquired
pursuant to the restricted stock purchase agreement shall be paid either: (i) in
cash at the time of purchase; (ii) at the discretion of the Board, according to
a deferred payment or other similar arrangement with the Participant; or (iii)
in any other form of legal consideration that may be acceptable to the Board in
its discretion; provided, however, that at any time that the Company is
incorporated in Delaware, then payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by deferred
payment.
(iii) VESTING. Shares of Common Stock acquired under the restricted
stock purchase agreement may, but need not, be subject to a share repurchase
option in favor of the Company in accordance with a vesting schedule to be
determined by the Board.
(iv) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. In the event a
Participant's Continuous Service terminates, the Company may repurchase or
otherwise reacquire any or all of the shares of Common Stock held by the
Participant which have not vested as of the date of termination under the terms
of the restricted stock purchase agreement.
(v) TRANSFERABILITY. Rights to acquire shares of Common Stock under
the restricted stock purchase agreement shall be transferable by the Participant
only upon such terms and conditions as are set forth in the restricted stock
purchase agreement, as the Board shall determine in its discretion, so long as
Common Stock awarded under the restricted stock purchase agreement remains
subject to the terms of the restricted stock purchase agreement.
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the
Company shall keep available at all times the number of shares of Common Stock
required to satisfy such Stock Awards.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each
regulatory commission or agency having jurisdiction over the Plan such authority
as may be required to grant Stock Awards and to issue and sell shares of Common
Stock upon exercise of the Stock Awards; provided, however, that this
undertaking shall not require the Company to register under the Securities Act
the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any
such Stock Award. If, after reasonable efforts, the Company is unable to obtain
from any such regulatory commission or agency the authority which counsel for
the Company deems necessary for the lawful issuance and sale of Common Stock
under the Plan, the Company shall be relieved from any liability for failure to
issue and sell Common Stock upon exercise of such Stock Awards unless and until
such authority is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of Common Stock pursuant to Stock Awards shall
constitute general funds of the Company.
11.
<PAGE> 12
10. MISCELLANEOUS.
(a) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the
power to accelerate the time at which a Stock Award may first be exercised or
the time during which a Stock Award or any part thereof will vest in accordance
with the Plan, notwithstanding the provisions in the Stock Award stating the
time at which it may first be exercised or the time during which it will vest.
(b) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder
of, or to have any of the rights of a holder with respect to, any shares of
Common Stock subject to such Stock Award unless and until such Participant has
satisfied all requirements for exercise of the Stock Award pursuant to its
terms.
(c) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any
instrument executed or Stock Award granted pursuant thereto shall confer upon
any Participant any right to continue to serve the Company or an Affiliate in
the capacity in effect at the time the Stock Award was granted or shall affect
the right of the Company or an Affiliate to terminate (i) the employment of an
Employee with or without notice and with or without cause, (ii) the service of a
Consultant pursuant to the terms of such Consultant's agreement with the Company
or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the
Company or an Affiliate, and any applicable provisions of the corporate law of
the state in which the Company or the Affiliate is incorporated, as the case may
be.
(d) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the
aggregate Fair Market Value (determined at the time of grant) of Common Stock
with respect to which Incentive Stock Options are exercisable for the first time
by any Optionholder during any calendar year (under all plans of the Company and
its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or
portions thereof which exceed such limit (according to the order in which they
were granted) shall be treated as Nonstatutory Stock Options.
(e) INVESTMENT ASSURANCES. The Company may require a Participant, as a
condition of exercising or acquiring Common Stock under any Stock Award, (i) to
give written assurances satisfactory to the Company as to the Participant's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he or
she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Stock Award; and (ii) to
give written assurances satisfactory to the Company stating that the Participant
is acquiring Common Stock subject to the Stock Award for the Participant's own
account and not with any present intention of selling or otherwise distributing
the Common Stock. The foregoing requirements, and any assurances given pursuant
to such requirements, shall be inoperative if (1) the issuance of the shares of
Common Stock upon the exercise or acquisition of Common Stock under the Stock
Award has been registered under a then currently effective registration
statement under the Securities Act or (2) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may, upon advice of counsel to the Company, place legends on stock
certificates
12.
<PAGE> 13
issued under the Plan as such counsel deems necessary or appropriate in order to
comply with applicable securities laws, including, but not limited to, legends
restricting the transfer of the Common Stock.
(f) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a
Stock Award Agreement, the Participant may satisfy any federal, state or local
tax withholding obligation relating to the exercise or acquisition of Common
Stock under a Stock Award by any of the following means (in addition to the
Company's right to withhold from any compensation paid to the Participant by the
Company) or by a combination of such means: (i) tendering a cash payment; (ii)
authorizing the Company to withhold shares of Common Stock from the shares of
Common Stock otherwise issuable to the Participant as a result of the exercise
or acquisition of Common Stock under the Stock Award, provided, however, that no
shares of Common Stock are withheld with a value exceeding the minimum amount of
tax required to be withheld by law; or (iii) delivering to the Company owned and
unencumbered shares of Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock
subject to the Plan, or subject to any Stock Award, without the receipt of
consideration by the Company (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the Plan
pursuant to subsection 4(a) and the maximum number of securities subject to
award to any person pursuant to subsection 5(c), and the outstanding Stock
Awards will be appropriately adjusted in the class(es) and number of securities
and price per share of Common Stock subject to such outstanding Stock Awards.
The Board shall make such adjustments, and its determination shall be final,
binding and conclusive. (The conversion of any convertible securities of the
Company shall not be treated as a transaction "without receipt of consideration"
by the Company.)
(b) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a
dissolution or liquidation of the Company, then all outstanding Stock Awards
shall terminate immediately prior to such event.
(c) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a sale, lease or other disposition of all or
substantially all of the assets of the Company, (ii) a merger or consolidation
in which the Company is not the surviving corporation or (iii) a reverse merger
in which the Company is the surviving corporation but the shares of Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or
otherwise, then any surviving corporation or acquiring corporation shall assume
or continue any Stock Awards outstanding under the Plan or shall substitute
similar stock awards (including an award to acquire the same consideration paid
to the stockholders in the transaction described in this subsection 11(c)) for
those outstanding under the Plan. In the event any surviving corporation or
acquiring corporation refuses to assume or continue such Stock Awards or to
substitute similar stock
13.
<PAGE> 14
awards for those outstanding under the Plan, then with respect to Stock Awards
held by Participants whose Continuous Service has not terminated prior to such
event, the vesting of such Stock Awards (and, if applicable, the time during
which such Stock Awards may be exercised) shall be accelerated in full, and such
Stock Awards shall terminate if not exercised (if applicable) at or prior to
such event. With respect to any other Stock Awards outstanding under the Plan,
such Stock Awards shall terminate if not exercised (if applicable) prior to such
event.
(d) CHANGE IN CONTROL--SECURITIES ACQUISITION. In the event of an
acquisition by any person, entity or group within the meaning of Section 13(d)
or 14(d) of the Exchange Act, or any comparable successor provisions (excluding
any employee benefit plan, or related trust, sponsored or maintained by the
Company or an Affiliate) of the beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act, or comparable successor rule) of
securities of the Company representing at least fifty percent (50%) of the
combined voting power entitled to vote in the election of Directors, then any
surviving corporation or acquiring corporation shall assume or continue any
Stock Awards outstanding under the Plan or shall substitute similar stock awards
for those outstanding under the Plan. In the event any surviving corporation or
acquiring corporation refuses to assume or continue such Stock Awards or to
substitute similar stock awards for those outstanding under the Plan, then with
respect to Stock Awards outstanding, the vesting of such Stock Awards (and, if
applicable, the time during which such Stock Awards may be exercised) shall be
accelerated in full.
12. AMENDMENT OF THE PLAN AND STOCK AWARDS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time, may
amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in Common Stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder approval
is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3
or any Nasdaq or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit
any other amendment to the Plan for stockholder approval, including, but not
limited to, amendments to the Plan intended to satisfy the requirements of
Section 162(m) of the Code and the regulations thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board
may amend the Plan in any respect the Board deems necessary or advisable to
provide eligible Employees with the maximum benefits provided or to be provided
under the provisions of the Code and the regulations promulgated thereunder
relating to Incentive Stock Options and/or to bring the Plan and/or Incentive
Stock Options granted under it into compliance therewith.
(d) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before
amendment of the Plan shall not be impaired by any amendment of the Plan unless
(i) the Company requests the consent of the Participant and (ii) the Participant
consents in writing.
14.
<PAGE> 15
(e) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to
time, may amend the terms of any one or more Stock Awards; provided, however,
that the rights under any Stock Award shall not be impaired by any such
amendment unless (i) the Company requests the consent of the Participant and
(ii) the Participant consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on the day before the tenth
(10th) anniversary of the date the Plan is adopted by the Board or approved by
the stockholders of the Company, whichever is earlier. No Stock Awards may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall
not impair rights and obligations under any Stock Award granted while the Plan
is in effect except with the written consent of the Participant.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the Listing Date, but no Stock Award
shall be exercised (or, in the case of a stock bonus, shall be granted) unless
and until the Plan has been approved by the stockholders of the Company, which
approval shall be within twelve (12) months before or after the date the Plan is
adopted by the Board.
15. CHOICE OF LAW.
The law of the State of Delaware shall govern all questions concerning the
construction, validity and interpretation of this Plan, without regard to such
state's conflict of laws rules.
15.
<PAGE> 1
EXHIBIT 10.4
THE LIGHTSPAN PARTNERSHIP, INC.
STOCK OPTION GRANT NOTICE
(2000 EQUITY INCENTIVE PLAN)
The Lightspan Partnership, Inc. (the "Company"), pursuant to its 2000 Equity
Incentive Plan (the "Plan"), hereby grants to Optionholder an option to purchase
the number of shares of the Company's Common Stock set forth below. This option
is subject to all of the terms and conditions as set forth herein and in the
Stock Option Agreement, the Plan and the Notice of Exercise, all of which are
attached hereto and incorporated herein in their entirety.
Optionholder:
-------------------------------------
Date of Grant:
-------------------------------------
Vesting Commencement Date:
-------------------------------------
Number of Shares Subject to Option:
-------------------------------------
Exercise Price (Per Share):
-------------------------------------
Total Exercise Price:
-------------------------------------
Expiration Date:
-------------------------------------
TYPE OF GRANT: [ ] Incentive Stock Option(1) [ ] Nonstatutory Stock Option
EXERCISE SCHEDULE: [ ] Same as Vesting Schedule [ ] Early Exercise Permitted
VESTING SCHEDULE: [1/4th of the shares vest one year after the Vesting
Commencement Date.
1/48th of the shares vest monthly thereafter over the
next three years.]
PAYMENT: By one or a combination of the following items
(described in the Stock Option Agreement):
By cash or check
Pursuant to a Regulation T Program if the Shares are
publicly traded
By delivery of already-owned shares if the Shares are
publicly traded
[By deferred payment]
ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges
receipt of, and understands and agrees to, this Grant Notice, the Stock Option
Agreement and the Plan. Optionholder further acknowledges that as of the Date of
Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the
entire understanding between Optionholder and the Company regarding the
acquisition of stock in the Company and supersede all prior oral and written
agreements on that subject with the exception of (i) options previously granted
and delivered to Optionholder under the Plan, and (ii) the following agreements
only:
OTHER AGREEMENTS:
-----------------------------------------------------
-----------------------------------------------------
THE LIGHTSPAN PARTNERSHIP, INC. OPTIONHOLDER:
By:
--------------------------------- ------------------------------------
Signature Signature
Title: Date:
------------------------------- ------------------------------
Date:
-------------------------------
ATTACHMENTS: Stock Option Agreement, 2000 Equity Incentive Plan and Notice of
Exercise
- --------
(1) If this is an incentive stock option, it (plus your other outstanding
incentive stock options) cannot be first exercisable for more than
$100,000 in any calendar year. Any excess over $100,000 is a nonstatutory
stock option.
<PAGE> 2
ATTACHMENT I
STOCK OPTION AGREEMENT
<PAGE> 3
THE LIGHTSPAN PARTNERSHIP, INC.
2000 EQUITY INCENTIVE PLAN
STOCK OPTION AGREEMENT
(INCENTIVE AND NONSTATUTORY STOCK OPTIONS)
Pursuant to your Stock Option Grant Notice ("Grant Notice") and this
Stock Option Agreement, The Lightspan Partnership, Inc. (the "Company") has
granted you an option under its 2000 Equity Incentive Plan (the "Plan") to
purchase the number of shares of the Company's Common Stock indicated in your
Grant Notice at the exercise price indicated in your Grant Notice. Defined terms
not explicitly defined in this Stock Option Agreement but defined in the Plan
shall have the same definitions as in the Plan.
The details of your option are as follows:
1. VESTING. Subject to the limitations contained herein, your option
will vest as provided in your Grant Notice, provided that vesting will cease
upon the termination of your Continuous Service.
2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common
Stock subject to your option and your exercise price per share referenced in
your Grant Notice may be adjusted from time to time for Capitalization
Adjustments, as provided in the Plan.
3. EXERCISE PRIOR TO VESTING ("EARLY EXERCISE"). If permitted in your
Grant Notice (i.e., the "Exercise Schedule" indicates that "Early Exercise" of
your option is permitted) and subject to the provisions of your option, you may
elect at any time that is both (i) during the period of your Continuous Service
and (ii) during the term of your option, to exercise all or part of your option,
including the nonvested portion of your option; provided, however, that:
(a) a partial exercise of your option shall be deemed to cover
first vested shares of Common Stock and then the earliest vesting installment of
unvested shares of Common Stock;
(b) any shares of Common Stock so purchased from installments
that have not vested as of the date of exercise shall be subject to the purchase
option in favor of the Company as described in the Company's form of Early
Exercise Stock Purchase Agreement;
(c) you shall enter into the Company's form of Early Exercise
Stock Purchase Agreement with a vesting schedule that will result in the same
vesting as if no early exercise had occurred; and
(d) if your option is an incentive stock option, then, as
provided in the Plan, to the extent that the aggregate Fair Market Value
(determined at the time of grant) of the shares of Common Stock with respect to
which your option plus all other incentive stock options you hold are
exercisable for the first time by you during any calendar year (under all plans
of the
1.
<PAGE> 4
Company and its Affiliates) exceeds one hundred thousand dollars ($100,000),
your option(s) or portions thereof that exceed such limit (according to the
order in which they were granted) shall be treated as nonstatutory stock
options.
4. METHOD OF PAYMENT. Payment of the exercise price is due in full upon
exercise of all or any part of your option. You may elect to make payment of the
exercise price in cash or by check or in any other manner PERMITTED BY YOUR
GRANT NOTICE, which may include one or more of the following:
(a) In the Company's sole discretion at the time your option is
exercised and provided that at the time of exercise the Common Stock is publicly
traded and quoted regularly in The Wall Street Journal, pursuant to a program
developed under Regulation T as promulgated by the Federal Reserve Board that,
prior to the issuance of Common Stock, results in either the receipt of cash (or
check) by the Company or the receipt of irrevocable instructions to pay the
aggregate exercise price to the Company from the sales proceeds.
(b) Provided that at the time of exercise the Common Stock is
publicly traded and quoted regularly in The Wall Street Journal, by delivery of
already-owned shares of Common Stock either that you have held for the period
required to avoid a charge to the Company's reported earnings (generally six
months) or that you did not acquire, directly or indirectly from the Company,
that are owned free and clear of any liens, claims, encumbrances or security
interests, and that are valued at Fair Market Value on the date of exercise.
"Delivery" for these purposes, in the sole discretion of the Company at the time
you exercise your option, shall include delivery to the Company of your
attestation of ownership of such shares of Common Stock in a form approved by
the Company. Notwithstanding the foregoing, you may not exercise your option by
tender to the Company of Common Stock to the extent such tender would violate
the provisions of any law, regulation or agreement restricting the redemption of
the Company's stock.
(c) Pursuant to the following deferred payment alternative:
(i) Not less than one hundred percent (100%) of the
aggregate exercise price, plus accrued interest, shall be due four (4) years
from date of exercise or, at the Company's election, upon termination of your
Continuous Service.
(ii) Interest shall be compounded at least annually and
shall be charged at the minimum rate of interest necessary to avoid the
treatment as interest, under any applicable provisions of the Code, of any
portion of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(iii) At any time that the Company is incorporated in
Delaware, payment of the Common Stock's "par value," as defined in the Delaware
General Corporation Law, shall be made in cash and not by deferred payment.
(iv) In order to elect the deferred payment alternative,
you must, as a part of your written notice of exercise, give notice of the
election of this payment alternative and,
2.
<PAGE> 5
in order to secure the payment of the deferred exercise price to the Company
hereunder, if the Company so requests, you must tender to the Company a
promissory note and a security agreement covering the purchased shares of Common
Stock, both in form and substance satisfactory to the Company, or such other or
additional documentation as the Company may request.
5. WHOLE SHARES. You may exercise your option only for whole shares of
Common Stock.
6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary
contained herein, you may not exercise your option unless the shares of Common
Stock issuable upon such exercise are then registered under the Securities Act
or, if such shares of Common Stock are not then so registered, the Company has
determined that such exercise and issuance would be exempt from the registration
requirements of the Securities Act. The exercise of your option must also comply
with other applicable laws and regulations governing your option, and you may
not exercise your option if the Company determines that such exercise would not
be in material compliance with such laws and regulations.
7. TERM. You may not exercise your option before the commencement of its
term or after its term expires. The term of your option commences on the Date of
Grant and expires upon the EARLIEST of the following:
(a) three (3) months after the termination of your Continuous
Service for any reason other than your Disability or death, provided that if
during any part of such three- (3-) month period your option is not exercisable
solely because of the condition set forth in the preceding paragraph relating to
"Securities Law Compliance," your option shall not expire until the earlier of
the Expiration Date or until it shall have been exercisable for an aggregate
period of three (3) months after the termination of your Continuous Service;
(b) twelve (12) months after the termination of your Continuous
Service due to your Disability;
(c) eighteen (18) months after your death if you die either
during your Continuous Service or within three (3) months after your Continuous
Service terminates;
(d) the Expiration Date indicated in your Grant Notice; or
(e) the day before the tenth (10th) anniversary of the Date of
Grant.
If your option is an incentive stock option, note that, to obtain the
federal income tax advantages associated with an "incentive stock option," the
Code requires that at all times beginning on the date of grant of your option
and ending on the day three (3) months before the date of your option's
exercise, you must be an employee of the Company or an Affiliate, except in the
event of your death or Disability. The Company has provided for extended
exercisability of your option under certain circumstances for your benefit but
cannot guarantee that your option will necessarily be treated as an "incentive
stock option" if you continue to provide services to
3.
<PAGE> 6
the Company or an Affiliate as a Consultant or Director after your employment
terminates or if you otherwise exercise your option more than three (3) months
after the date your employment terminates.
8. EXERCISE.
(a) You may exercise the vested portion of your option (and the
unvested portion of your option if your Grant Notice so permits) during its term
by delivering a Notice of Exercise (in a form designated by the Company)
together with the exercise price to the Secretary of the Company, or to such
other person as the Company may designate, during regular business hours,
together with such additional documents as the Company may then require.
(b) By exercising your option you agree that, as a condition to
any exercise of your option, the Company may require you to enter into an
arrangement providing for the payment by you to the Company of any tax
withholding obligation of the Company arising by reason of (1) the exercise of
your option, (2) the lapse of any substantial risk of forfeiture to which the
shares of Common Stock are subject at the time of exercise, or (3) the
disposition of shares of Common Stock acquired upon such exercise.
(c) If your option is an incentive stock option, by exercising
your option you agree that you will notify the Company in writing within fifteen
(15) days after the date of any disposition of any of the shares of the Common
Stock issued upon exercise of your option that occurs within two (2) years after
the date of your option grant or within one (1) year after such shares of Common
Stock are transferred upon exercise of your option.
(d) By exercising your option you agree that the Company (or a
representative of the underwriter(s)) may, in connection with an underwritten
registration of the offering of any securities of the Company under the
Securities Act, require that you not sell, dispose of, transfer, make any short
sale of, grant any option for the purchase of, or enter into any hedging or
similar transaction with the same economic effect as a sale, any shares of
Common Stock or other securities of the Company held by you, for a period of
time specified by the underwriter(s) (not to exceed one hundred eighty (180)
days) following the effective date of the registration statement of the Company
filed under the Securities Act. You further agree to execute and deliver such
other agreements as may be reasonably requested by the Company and/or the
underwriter(s) that are consistent with the foregoing or that are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to your shares of
Common Stock until the end of such period.
9. TRANSFERABILITY. Your option is not transferable, except by will or
by the laws of descent and distribution, and is exercisable during your life
only by you. Notwithstanding the foregoing, by delivering written notice to the
Company, in a form satisfactory to the Company, you may designate a third party
who, in the event of your death, shall thereafter be entitled to exercise your
option.
10. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or
service contract, and nothing in your option shall be deemed to create in any
way whatsoever any
4.
<PAGE> 7
obligation on your part to continue in the employ of the Company or an
Affiliate, or of the Company or an Affiliate to continue your employment. In
addition, nothing in your option shall obligate the Company or an Affiliate,
their respective stockholders, Boards of Directors, Officers or Employees to
continue any relationship that you might have as a Director or Consultant for
the Company or an Affiliate.
11. WITHHOLDING OBLIGATIONS.
(a) At the time you exercise your option, in whole or in part, or
at any time thereafter as requested by the Company, you hereby authorize
withholding from payroll and any other amounts payable to you, and otherwise
agree to make adequate provision for (including by means of a "cashless
exercise" pursuant to a program developed under Regulation T as promulgated by
the Federal Reserve Board to the extent permitted by the Company), any sums
required to satisfy the federal, state, local and foreign tax withholding
obligations of the Company or an Affiliate, if any, which arise in connection
with your option.
(b) Upon your request and subject to approval by the Company, in
its sole discretion, and compliance with any applicable conditions or
restrictions of law, the Company may withhold from fully vested shares of Common
Stock otherwise issuable to you upon the exercise of your option a number of
whole shares of Common Stock having a Fair Market Value, determined by the
Company as of the date of exercise, not in excess of the minimum amount of tax
required to be withheld by law. If the date of determination of any tax
withholding obligation is deferred to a date later than the date of exercise of
your option, share withholding pursuant to the preceding sentence shall not be
permitted unless you make a proper and timely election under Section 83(b) of
the Code, covering the aggregate number of shares of Common Stock acquired upon
such exercise with respect to which such determination is otherwise deferred, to
accelerate the determination of such tax withholding obligation to the date of
exercise of your option. Notwithstanding the filing of such election, shares of
Common Stock shall be withheld solely from fully vested shares of Common Stock
determined as of the date of exercise of your option that are otherwise issuable
to you upon such exercise. Any adverse consequences to you arising in connection
with such share withholding procedure shall be your sole responsibility.
(c) You may not exercise your option unless the tax withholding
obligations of the Company and/or any Affiliate are satisfied. Accordingly, you
may not be able to exercise your option when desired even though your option is
vested, and the Company shall have no obligation to issue a certificate for such
shares of Common Stock or release such shares of Common Stock from any escrow
provided for herein.
12. NOTICES. Any notices provided for in your option or the Plan shall
be given in writing and shall be deemed effectively given upon receipt or, in
the case of notices delivered by mail by the Company to you, five (5) days after
deposit in the United States mail, postage prepaid, addressed to you at the last
address you provided to the Company.
5.
<PAGE> 8
13. SPECIAL ACCELERATION PROVISIONS.
(a) TERMINATION. Notwithstanding any other provisions of the Plan
or this Stock Option Agreement to the contrary, if (i) an event described in
section 11(b) or (c) of the Plan (a "CHANGE IN CONTROL") occurs and (ii) within
one (1) month prior to the date of such Change in Control or ______ (__) months
after the date of such Change in Control your Continuous Service terminates due
to an involuntary termination (not including death or Disability) without Cause
or due to a Constructive Termination, then the vesting and exercisability of
this option shall be accelerated in full.
(b) DEFINITIONS.
(i) "CAUSE" means the occurrence of any of the following
(and only the following): (i) conviction of any felony or any crime involving
moral turpitude or dishonesty, (ii) participation in a fraud or act of
dishonesty against the Company, (iii) conduct that, based upon a good faith and
reasonable factual investigation and determination by the Board, demonstrates
your gross unfitness to serve, or (iv) intentional, material violation of any
contract with the Company or any statutory duty to the Company that is not
corrected within thirty (30) days after written notice thereof. Physical or
mental disability shall not constitute "Cause."
(ii) "CONSTRUCTIVE TERMINATION" means the occurrence of
any of the following events or conditions: (i) (A) a change in the
Optionholder's status, title, position or responsibilities (including reporting
responsibilities) which represents an adverse change from the Optionholder's
status, title, position or responsibilities as in effect at any time within
ninety (90) days preceding the date of a Change in Control or at any time
thereafter; (B) the assignment to the Optionholder of any duties or
responsibilities which are inconsistent with the Optionholder's status, title,
position or responsibilities as in effect at any time within ninety (90) days
preceding the date of a Change in Control or at any time thereafter; or (C) any
removal of the Optionholder from or failure to reappoint or reelect the
Optionholder to any of such offices or positions, except in connection with the
termination of the Optionholder's Continuous Service for Cause, as a result of
the Optionholder's Disability or death or by the Optionholder other than as a
result of Constructive Termination; (ii) a reduction in the Optionholder's
annual base compensation or following (1) written notice and (2) failure to cure
the failure within ten (10) days of receipt of the written notice, any failure
to pay the Optionholder any compensation or benefits to which the Optionholder
is entitled within five (5) days of the date due; (iii) the Company's requiring
the Optionholder to relocate to any place outside a fifty (50) mile radius of
the Optionholder's current work site, except for reasonably required travel on
the business of the Company or its Affiliates which is not materially greater
than such travel requirements prior to the Change in Control; (iv) the failure
by the Company to (A) continue in effect (without reduction in benefit level
and/or reward opportunities) any material compensation or employee benefit plan
in which the Optionholder was participating at any time within ninety (90) days
preceding the date of a Change in Control or at any time thereafter, unless such
plan is replaced with a plan that provides substantially equivalent compensation
or benefits to the Optionholder, or (B) provide the Optionholder with
compensation and benefits, in the aggregate, at least equal
6.
<PAGE> 9
(in terms of benefit levels and/or reward opportunities) to those provided for
under each other employee benefit plan, program and practice in which the
Optionholder was participating at any time within ninety (90) days preceding the
date of a Change in Control or at any time thereafter; (v) any material breach
by the Company of any provision of an agreement between the Company and the
Optionholder, whether pursuant to this Plan or otherwise, other than a breach
which is cured by the Company within fifteen (15) days following notice by the
Optionholder of such breach; or (vi) the failure of the Company to obtain an
agreement from any successors and assigns to assume and agree to perform the
obligations created under this Plan.
(c) PARACHUTE PAYMENTS. In the event that the acceleration of the
vesting and exercisability of this option provided for in Section 13 and
benefits otherwise payable to an Optionholder (i) constitute "parachute
payments" within the meaning of Section 280G of the Code, or any comparable
successor provisions, and (ii) but for this subsection would be subject to the
excise tax imposed by Section 4999 of the Code, or any comparable successor
provisions (the "Excise Tax"), then such Optionholder's benefits hereunder shall
be either
(i) provided to such Optionholder in full, or
(ii) provided to such Optionholder as to such lesser
extent which would result in no portion of such
benefits being subject to the Excise Tax,
whichever of the foregoing amounts, when taking into account applicable federal,
state, local and foreign income and employment taxes, the Excise Tax, and any
other applicable taxes, results in the receipt by such Optionholder, on an
after-tax basis, of the greatest amount of benefits, notwithstanding that all or
some portion of such benefits may be taxable under the Excise Tax. Unless the
Company and such Optionholder otherwise agree in writing, any determination
required under this subsection shall be made in writing in good faith by the
independent public accounts of the Company. In the event of a reduction of
benefits hereunder, the Optionholder shall be given the choice of which benefits
to reduce. For purposes of making the calculations required by this subsection,
the accountants may make reasonable assumptions and approximations concerning
applicable taxes and may rely on reasonable, good faith interpretations
concerning the application of the Code, and other applicable legal authority.
The Company and the Optionholder shall furnish to the accountants such
information and documents as the accountants may reasonably request in order to
make a determination under this subsection. The Company shall bear all costs the
accountants may reasonably incur in connection with any calculations
contemplated by this subsection.
If, notwithstanding any reduction described in this
subsection, the IRS determines that the Optionholder is liable for the Excise
Tax as a result of the receipt of the payment of benefits as described above,
then the Optionholder shall be obligated to pay back to the Company, within
thirty (30) days after a final IRS determination or in the event that the
Optionholder challenges the final IRS determination, a final judicial
determination, a portion of the payment equal to the "Repayment Amount." The
Repayment Amount with respect to the payment of benefits shall be the smallest
such amount, if any, as shall be required to be paid to the Company so that the
Optionholder's net after-tax proceeds with respect to any payment of
7.
<PAGE> 10
benefits (after taking into account the payment of the Excise Tax and all other
applicable taxes imposed on such payment) shall be maximized. The Repayment
Amount with respect to the payment of benefits shall be zero if a Repayment
Amount of more than zero would not result in the Optionholder's net after-tax
proceeds with respect to the payment of such benefits being maximized. If the
Excise Tax is not eliminated pursuant to this paragraph, the Optionholder shall
pay the Excise Tax.
Notwithstanding any other provision of this subsection
13(c), if (i) there is a reduction in the payment of benefits as described in
this subsection, (ii) the IRS later determines that the Optionholder is liable
for the Excise Tax, the payment of which would result in the maximization of the
Optionholder's net after-tax proceeds (calculated as if the Optionholder's
benefits had not previously been reduced), and (iii) the Optionholder pays the
Excise Tax, then the Company shall pay to the Optionholder those benefits which
were reduced pursuant to this subsection contemporaneously or as soon as
administratively possible after the Optionholder pays the Excise Tax so that the
Optionholder's net after-tax proceeds with respect to the payment of benefits is
maximized.
14. GOVERNING PLAN DOCUMENT. Your option is subject to all the
provisions of the Plan, the provisions of which are hereby made a part of your
option, and is further subject to all interpretations, amendments, rules and
regulations which may from time to time be promulgated and adopted pursuant to
the Plan. In the event of any conflict between the provisions of your option and
those of the Plan, the provisions of the Plan shall control.
8.
<PAGE> 11
AMENDMENT TO INVESTOR RIGHTS AGREEMENT
This AMENDMENT is entered into as of October 28, 1999 by and between THE
LIGHTSPAN PARTNERSHIP, INC. (the "COMPANY") and the undersigned (each an
"INVESTOR" and collectively the "INVESTORS").
RECITALS
WHEREAS, pursuant to that certain Stock Purchase Agreement by and
between the Company and CINAR Corporation dated as of October __, 1999, the
Company desires to sell shares of its Series E Preferred Stock, shares of its
Common Stock and a warrant to purchase shares of its Series E Preferred Stock
(the "WARRANT") (collectively the "SECURITIES") to CINAR Corporation (the
"SALE");
WHEREAS, it is a condition to the closing of the Sale that the Company
amend the Amended and Restated Investor Rights Agreement dated as of July 8,
1999, as amended, by and between the Company and the persons or entities listed
on Exhibit A thereto (the "IRA"), as set forth herein;
WHEREAS, Section 5.7 of the IRA provides that "Holders" of at least 50%
of the "Registrable Securities," as such terms are defined in the IRA, shall
have the ability to amend the IRA;
WHEREAS, the Investors collectively represent (i) 50% of the Holders of
Registrable Securities under the IRA and (ii) a majority of the holders of the
outstanding Shares under the Series E Agreement; and
WHEREAS, the Investors desire to alter and amend their rights as set
forth in the IRA.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Upon close of the Sale, CINAR Corporation shall be deemed to be an
"Investor" under the IRA; shares of Series E Preferred Stock held by CINAR or
its permitted assigns shall be deemed to be "Shares" under the IRA; the Warrant
shall be deemed to be a "Warrant" thereunder and the shares of Series E
Preferred Stock Issuable upon exercise of the Warrant shall be deemed to be
"Warrant Shares" thereunder.
2. Notwithstanding anything else in the IRA to the contrary, CINAR
Corporaiton shall be permitted to transfer its rights under the IRA and its
Securities to any corporation or other entity which controls, is controlled by,
or is under common control with CINAR Corporation. A corporation or other entity
will be regarded as in control of another corporation or entity if it owns or
directly or indirectly controls more than 50% of the voting securities or other
ownership interest of the other corporation or entity. Notwithstanding the
foregoing, any transfer that would otherwise by subject to section 1.15 of the
IRA shall be permitted by this section 2 of this Amendment only upon the written
consent of the underwriters.
1.
<PAGE> 12
3. This Amendment and Waiver may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signature pages may be
delivered by facsimile.
IN WITNESS WHEREOF, the parties have executed this AMENDMENT AND WAIVER
as of the date first above written.
COMPANY:
THE LIGHTSPAN PARTNERSHIP, INC.
By:
-----------------------------
Its:
-----------------------------
2.
<PAGE> 13
INVESTOR:
- --------------------------------
By:
-----------------------------
Its:
-----------------------------
[Signature Page to Amendment and Waiver]
<PAGE> 14
ATTACHMENT II
2000 EQUITY INCENTIVE PLAN
[See Tab 17]
<PAGE> 15
ATTACHMENT III
NOTICE OF EXERCISE
<PAGE> 16
NOTICE OF EXERCISE
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121 Date of Exercise: _______________
Ladies and Gentlemen:
This constitutes notice under my stock option that I elect to purchase
the number of shares for the price set forth below.
Type of option (check one): Incentive [ ] Nonstatutory [ ]
Stock option dated: _______________
Number of shares as
to which option is
exercised: _______________
Certificates to be
issued in name of: _______________
Total exercise price: $______________
Cash payment delivered
herewith: $______________
By this exercise, I agree (i) to provide such additional documents as
you may require pursuant to the terms of the 2000 Equity Incentive Plan, (ii) to
provide for the payment by me to you (in the manner designated by you) of your
withholding obligation, if any, relating to the exercise of this option, and
(iii) if this exercise relates to an incentive stock option, to notify you in
writing within fifteen (15) days after the date of any disposition of any of the
shares of Common Stock issued upon exercise of this option that occurs within
two (2) years after the date of grant of this option or within one (1) year
after such shares of Common Stock are issued upon exercise of this option.
I further agree that, if required by the Company (or a representative of
the underwriters) in connection with an underwritten registration of the
offering of any securities of the Company under the Securities Act of 1933, I
will not sell or otherwise transfer or dispose of any shares of Common Stock or
other securities of the Company during such period (not to exceed one hundred
eighty (180) days) following the effective date of the registration statement of
the Company filed under the Securities Act of 1933 as may be requested by the
Company or the representative of the underwriters. I further agree that the
Company may impose stop-transfer instructions with respect to securities subject
to the foregoing restrictions until the end of such period.
Very truly yours,
_____________________________
<PAGE> 1
EXHIBIT 10.5
THE LIGHTSPAN PARTNERSHIP, INC.
EMPLOYEE STOCK PURCHASE PLAN
ADOPTED BY THE BOARD OF DIRECTORS ON OCTOBER 28, 1999
APPROVED BY THE STOCKHOLDERS ON _________, 1999
ADJUSTED FOR _________ FOR ________ STOCK SPLIT ON ________, 1999
EFFECTIVE DATE ___________, 2000
1. PURPOSE.
(a) The purpose of this Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of The Lightspan Partnership, Inc., a
Delaware corporation (the "Company"), and its Affiliates, as defined in
subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be
given an opportunity to purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the rights to purchase stock of the Company
granted under the Plan be considered options issued under an "employee stock
purchase plan" as that term is defined in Section 423(b) of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration to a
Committee, as provided in subparagraph 2(c). Whether or not the Board has
delegated administration, the Board shall have the final power to determine all
questions of policy and expediency that may arise in the administration of the
Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
1.
<PAGE> 2
exercise of this power, may correct any defect, omission or inconsistency in the
Plan, in a manner and to the extent it shall deem necessary or expedient to make
the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company and its Affiliates and to carry out the intent that the Plan be treated
as an "employee stock purchase plan" within the meaning of Section 423 of the
Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of one (1) or more members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
(d) Any interpretation of the Plan by the Board of any decision made by
it under the Plan shall be final and binding on all persons.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate One Million (1,000,000) shares
of the Company's common stock (the "Common Stock") plus an annual increase to be
added on the day of each Annual Stockholders Meeting beginning with the Annual
Stockholders Meeting in 2001, equal to the lesser of (1) 1% of the Company's
outstanding shares on each such date (rounded to the nearest whole share and
calculated on a fully diluted basis, that is assuming the exercise of all
outstanding stock options and warrants to purchase common stock) or (2) 10% of
the Company's outstanding shares on the effective date of the Plan. If any right
granted under the Plan shall for any reason terminate without having been
exercised, the Common Stock not purchased under such right shall again become
available for the Plan. Notwithstanding the foregoing, the Board may designate a
smaller number of shares of Common Stock to be added to the share reserve as of
a particular Annual Stockholders meeting.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
(a) The Board or the Committee may from time to time grant or provide
for the grant of rights to purchase Common Stock of the Company under the Plan
to eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in such
form and shall contain such terms and conditions as the Board or the Committee
shall deem appropriate, which shall comply with the requirements of Section
423(b)(5) of the Code that all employees granted rights to purchase stock under
the Plan shall have the same rights and privileges. The terms and conditions of
an Offering shall be incorporated by reference into the Plan and treated as part
of the Plan. The provisions of separate Offerings need not be identical, but
each Offering shall include (through incorporation
2.
<PAGE> 3
of the provisions of this Plan by reference in the document comprising the
Offering or otherwise) the period during which the Offering shall be effective,
which period shall not exceed twenty-seven (27) months beginning with the
Offering Date, and the substance of the provisions contained in paragraphs 5
through 8, inclusive.
(b) If an employee has more than one (1) right outstanding under the
Plan, unless he or she otherwise indicates in agreements or notices delivered
hereunder, a right with a lower exercise price (or an earlier-granted right if
two (2) rights have identical exercise prices), will be exercised to the fullest
possible extent before a right with a higher exercise price (or a later-granted
right if two (2) rights have identical exercise prices) will be exercised.
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in subparagraph
5(b), an employee of the Company or any Affiliate shall not be eligible to be
granted rights under the Plan unless, on the Offering Date, such employee has
been in the employ of the Company or any Affiliate for such continuous period
preceding such grant as the Board or the Committee may require, but in no event
shall the required period of continuous employment be greater than two (2)
years. In addition, unless otherwise determined by the Board or the Committee
and set forth in the terms of the applicable Offering, no employee of the
Company or any Affiliate shall be eligible to be granted rights under the Plan
unless, on the Offering Date, such employee's customary employment with the
Company or such Affiliate is for at least twenty (20) hours per week and at
least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company or
designated Affiliate will, on a date or dates specified in the Offering which
coincides with the day on which such person becomes an eligible employee or
occurs thereafter, receive a right under that Offering, which right shall
thereafter be deemed to be a part of that Offering. Such right shall have the
same characteristics as any rights originally granted under that Offering, as
described herein, except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering; and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before the
end of the Offering, he or she will not receive any right under that Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns stock
possessing five percent (5%) or more of the total combined voting power or value
of all classes of stock of the Company or of any Affiliate. For purposes of this
subparagraph 5(c), the rules of Section 424(d) of the
3.
<PAGE> 4
Code shall apply in determining the stock ownership of any employee, and stock
which such employee may purchase under all outstanding rights and options shall
be treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock of
the Company or any Affiliate to accrue at a rate which exceeds twenty five
thousand dollars ($25,000) of fair market value of such stock (determined at the
time such rights are granted) for each calendar year in which such rights are
outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan; provided, however, that the
Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to the
number of shares of Common Stock of the Company purchasable with a percentage
designated by the Board or the Committee not exceeding fifteen percent (15%) of
such employee's Earnings (as defined in subparagraph 7(a)) during the period
which begins on the Offering Date (or such later date as the Board or the
Committee determines for a particular Offering) and ends on the date stated in
the Offering, which date shall be no later than the end of the Offering. The
Board or the Committee shall establish one (1) or more dates during an Offering
(the "Purchase Date(s)") on which rights granted under the Plan shall be
exercised and purchases of Common Stock carried out in accordance with such
Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition, in
connection with each Offering that contains more than one (1) Purchase Date, the
Board or the Committee may specify a maximum aggregate number of shares which
may be purchased by all eligible employees on any given Purchase Date under the
Offering. If the aggregate purchase of shares upon exercise of rights granted
under the Offering would exceed any such maximum aggregate number, the Board or
the Committee shall make a pro rata allocation of the shares available in as
nearly a uniform manner as shall be practicable and as it shall deem to be
equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair market
value of the stock on the Purchase Date.
4.
<PAGE> 5
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering an enrollment agreement to the Company within the
time specified in the Offering, in such form as the Company provides. Each such
agreement shall authorize payroll deductions of up to the maximum percentage
specified by the Board or the Committee of such employee's Earnings during the
Offering. "Earnings" is defined as an employee's regular salary or wages
(including amounts thereof elected to be deferred by the employee, that would
otherwise have been paid, under any arrangement established by the Company that
is intended to comply with Section 125, Section 401(k), Section 402(e)(3),
Section 402(h) or section 403(b) of the Code, and also including any deferrals
under a non-qualified deferred compensation plan or arrangement established by
the Company), and also, if determined by the Board or the Committee and set
forth in the terms of the Offering, may include any or all of the following: (i)
overtime pay, (ii) commissions, (iii) bonuses, incentive pay, profit sharing and
other remuneration paid directly to the employee, and/or (iv) other items of
remuneration not specifically excluded pursuant to the Plan. Earnings shall not
include the cost of employee benefits paid for by the Company or an Affiliate,
education or tuition reimbursements, imputed income arising under any group
insurance or benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options, contributions
made by the Company or an Affiliate under any employee benefit plan, and similar
items of compensation, as determined by the Board or the Committee.
Notwithstanding the foregoing, the Board or Committee may modify the definition
of "Earnings" with respect to one or more Offerings as the Board or Committee
determines appropriate. The payroll deductions made for each participant shall
be credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an eligible
employee may begin such payroll deductions, after the beginning of any Offering
only as provided for in the Offering. A participant may make additional payments
into his or her account only if specifically provided for in the Offering and
only if the participant has not had the maximum amount withheld during the
Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering. Upon
such withdrawal from the Offering by a participant, the Company shall distribute
to such participant all of his or her accumulated payroll deductions (reduced to
the extent, if any, such deductions have been used to acquire stock for the
participant) under the Offering, without interest, and such participant's
interest in that Offering shall be automatically terminated. A participant's
withdrawal from an Offering will have no effect upon such participant's
eligibility to participate in any other Offerings under the Plan but such
participant will be required to deliver a new enrollment agreement in order to
participate in subsequent Offerings under the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's employment
with the Company and any designated Affiliate, for any reason, and the Company
shall distribute to such terminated
5.
<PAGE> 6
employee all of his or her accumulated payroll deductions (reduced to the
extent, if any, such deductions have been used to acquire stock for the
terminated employee), under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant other than by will or the laws of descent and distribution, or by a
beneficiary designation as provided in paragraph 14, and during a participant's
lifetime, shall be exercisable only by such participant.
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional payments
specifically provided for in the Offering (without any increase for interest)
will be applied to the purchase of whole shares of stock of the Company, up to
the maximum number of shares permitted pursuant to the terms of the Plan and the
applicable Offering, at the purchase price specified in the Offering. No
fractional shares shall be issued upon the exercise of rights granted under the
Plan. The amount, if any, of accumulated payroll deductions remaining in each
participant's account after the purchase of shares which is less than the amount
required to purchase one share of Common Stock on the final Purchase Date of an
Offering shall be held in each such participant's account for the purchase of
shares under the next Offering under the Plan, unless such participant withdraws
from such next Offering, as provided in subparagraph 7(b), or is no longer
eligible to be granted rights under the Plan, as provided in paragraph 5, in
which case such amount shall be distributed to the participant after such final
Purchase Date, without interest. The amount, if any, of accumulated payroll
deductions remaining in any participant's account after the purchase of shares
which is equal to the amount required to purchase one or more whole shares of
Common Stock on the final Purchase Date of an Offering shall be distributed in
full to the participant after such Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and other
securities and other laws applicable to the Plan. If on a Purchase Date in any
Offering hereunder the Plan is not so registered or in such compliance, no
rights granted under the Plan or any Offering shall be exercised on such
Purchase Date, and the Purchase Date shall be delayed until the Plan is subject
to such an effective registration statement and such compliance, except that the
Purchase Date shall not be delayed more than twelve (12) months and the Purchase
Date shall in no event be more than twenty-seven (27) months from the Offering
Date. If on the Purchase Date of any Offering hereunder, as delayed to the
maximum extent permissible, the Plan is not registered and in such compliance,
no rights granted under the Plan or any Offering shall be exercised and all
payroll deductions accumulated during the Offering (reduced to the extent, if
any, such deductions have been used to acquire stock) shall be distributed to
the participants, without interest.
6.
<PAGE> 7
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of Common Stock required
to satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to issue and sell shares of stock upon exercise of
the rights granted under the Plan. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such rights unless and until
such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company (or
its transfer agent).
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or other transaction not involving the
receipt of consideration by the Company), the Plan and outstanding rights will
be appropriately adjusted in the class(es) and maximum number of shares subject
to the Plan and the class(es) and number of shares and price per share of stock
subject to outstanding rights. Such adjustments shall be made by the Board or
the Committee, the determination of which shall be final, binding and
conclusive. (The conversion of any convertible securities of the Company shall
not be treated as a "transaction not involving the receipt of consideration by
the Company.")
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a sale of all or substantially all of the assets of the Company; (3) a
merger or consolidation in which the Company is not the surviving corporation;
(4) a reverse merger in which the Company is the surviving corporation but the
shares of the Company's Common Stock outstanding immediately preceding the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash or otherwise; (5) the acquisition by any person, entity
or group within the meaning of Section 13(d) or 14(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), or any comparable successor
provisions (excluding any employee benefit plan, or related trust, sponsored or
maintained by the Company or any Affiliate of the Company) of the beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
7.
<PAGE> 8
Act, or comparable successor rule) of securities of the Company representing at
least fifty percent (50%) of the combined voting power entitled to vote in the
election of directors; or (6) the individuals who, as of the date of the
adoption of this Plan, are members of the Board (the "Incumbent Board"; (if the
election, or nomination for election by the Company's stockholders, of a new
director was approved by a vote of at least fifty percent (50%) of the members
of the Board then comprising the Incumbent Board, such new director shall upon
his or her election be considered a member of the Incumbent Board) cease for any
reason to constitute at least fifty percent (50%) of the Board; then the Board
in its sole discretion may take any action or arrange for the taking of any
action among the following: (i) any surviving or acquiring corporation may
assume outstanding rights or substitute similar rights for those under the Plan,
(ii) such rights may continue in full force and effect, or (iii) all
participants' accumulated payroll deductions may be used to purchase Common
Stock immediately prior to or within a reasonable period of time following the
transaction described above and the participants' rights under the ongoing
Offering terminated.
13. AMENDMENT OF THE PLAN OR OFFERINGS.
(a) The Board at any time, and from time to time, may amend the Plan or
the terms of one or more Offerings. However, except as provided in paragraph 12
relating to adjustments upon changes in stock, no amendment shall be effective
unless approved by the stockholders of the Company within twelve (12) months
before or after the adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan or an Offering (to the extent such modification requires stockholder
approval in order for the Plan to obtain employee stock purchase plan treatment
under Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Exchange Act, or any comparable successor rule ("Rule
16b-3"); or
(iii) Modify the Plan or an Offering in any other way if such
modification requires stockholder approval in order for the Plan to obtain
employee stock purchase plan treatment under Section 423 of the Code or to
comply with the requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan or an Offering in
any respect the Board deems necessary or advisable to provide eligible employees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under an Offering
into compliance therewith.
(b) The Board may, in its sole discretion, submit any amendment to the
Plan or an Offering for stockholder approval.
(c) Rights and obligations under any rights granted before amendment of
the Plan or Offering shall not be impaired by any amendment of the Plan, except
with the consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or
8.
<PAGE> 9
governmental regulations, or except as necessary to ensure that the Plan and/or
rights granted under an Offering comply with the requirements of Section 423 of
the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if applicable, from the participant's account
under the Plan in the event of such participant's death subsequent to the end of
an Offering but prior to delivery to the participant of such shares and cash. In
addition, a participant may file a written designation of a beneficiary who is
to receive any cash from the participant's account under the Plan in the event
of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant at
any time by written notice in the form prescribed by the Company. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living (or if an entity, is otherwise in
existence) at the time of such participant's death, the Company shall deliver
such shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to the
knowledge of the Company), the Company, in its sole discretion, may deliver such
shares and/or cash to the spouse or to any one (1) or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may determine.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at
any time. The Plan shall automatically terminate if all the shares subject to
the Plan pursuant to subparagraph 3(a) are issued. No rights may be granted
under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except as
expressly provided in the Plan or with the consent of the person to whom such
rights were granted, or except as necessary to comply with any laws or
governmental regulation, or except as necessary to ensure that the Plan and/or
rights granted under an Offering comply with the requirements of Section 423 of
the Code.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the same day on which the Company's
registration statement under the Securities Act with respect to the initial
public offering of shares of the Company's Common Stock becomes effective (the
"Effective Date"), but no rights granted under the Plan shall be exercised
unless and until the Plan had been approved by the stockholders of the Company
within twelve (12) months before or after the date the Plan is adopted by the
Board or the Committee, which date may be prior to the Effective Date.
17. CHOICE OF LAW.
9.
<PAGE> 10
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of CALIFORNIA, without
regard to such state's conflict of laws rules.
10.
<PAGE> 11
THE LIGHTSPAN PARTNERSHIP, INC.
EMPLOYEE STOCK PURCHASE PLAN OFFERING
ADOPTED BY THE BOARD OF DIRECTORS ON OCTOBER 28, 2000
1. GRANT; OFFERING DATE.
(a) The Board of Directors (the "Board") of The Lightspan Partnership,
Inc. (the "Company"), pursuant to the Company's Employee Stock Purchase Plan
(the "Plan"), hereby authorizes the grant of rights to purchase shares of the
common stock of the Company ("Common Stock") to all Eligible Employees (an
"Offering"). The first Offering shall begin on the effective date of the initial
public offering of the Company's Common Stock and end on December 31, 2001 (the
"Initial Offering"). Thereafter, an Offering shall begin on January 1, 2002 and
on each January 1 every second year thereafter, and each such offering shall end
on the day prior to the second anniversary of its Offering Date. The first day
of an Offering is that Offering's "Offering Date."
(b) Notwithstanding the foregoing: (i) if any Offering Date falls on a
day that is not a Trading Day (as defined herein), then such Offering Date shall
instead fall on the next subsequent Trading Day and (ii) if any Purchase (as
defined in Section 6, below) Date falls on a day that is not a Trading Day, then
such Purchase Date shall instead fall on the immediately preceding Trading Day.
"Trading Day" shall mean any day the exchange(s) or market(s) on which the
Common Stock is listed, whether it be any established stock exchange, The Nasdaq
National Market, The Nasdaq SmallCap Market or otherwise, is open for trading.
(c) Notwithstanding anything to the contrary, in the event that the Fair
Market Value (as defined herein) of a share of Common Stock on any Purchase Date
during an Offering is less than the Fair Market Value of a share of Common Stock
on the Offering Date of such Offering, then following the purchase of Common
Stock on such Purchase Date: (i) the Offering shall terminate and (ii) all
participants in the just-terminated Offering shall automatically be enrolled in
the Offering that shall commence on the next Trading Day following the Purchase
Date. Except as provided in paragraph 4, "Fair Market Value" shall mean the
closing sales price for the Common Stock (or the closing bid price, if no sales
were reported) as quoted on any established stock exchange or traded on the
Nasdaq National Market or the Nasdaq SmallCap Market and as reported in The Wall
Street Journal or such other source as the Board deems reliable.
(d) Prior to the commencement of any Offering, the Board (or the
Committee described in subparagraph 2(c) of the Plan, if any) may change any or
all terms of such Offering and any subsequent Offerings. The granting of rights
pursuant to each Offering hereunder shall occur on each respective Offering Date
unless, prior to such date (a) the Board (or the Committee) determines that such
Offering shall not occur, or (b) no shares remain available for issuance under
the Plan in connection with the Offering.
(e) Notwithstanding any other provisions of an Offering, if the terms of
an Offering as previously established by the Board would, as a result of a
change to applicable accounting standards, as a result of obtaining shareholder
approval during such Offering for shares of
1.
<PAGE> 12
Common Stock that would be issued under such Offering (but for the provisions of
this Section 1(e)), or otherwise, generate a charge to earnings, such Offering
shall terminate effective as of the earlier of (1) the day prior to the date
such change of accounting standards would otherwise first apply to the Offering
or (2) the day prior to the date upon which the maximum aggregate number of
shares of Common Stock available to be purchased by all Eligible Employees under
such Offering (excluding any additional shares of Common Stock made available
for issuance under the Plan by approval of the shareholders of the Company
during the Offering) exceeds the aggregate number of whole shares purchasable by
all Eligible Employees based upon the aggregate of such Employees' payroll
deductions accumulated pursuant to such Offering (the "Offering Termination
Date"), and such Offering Termination Date shall be the final Purchase Date of
such Offering. A subsequent Offering shall commence on such date and on such
terms as shall be provided by the Board of Directors of the Company.
2. ELIGIBLE EMPLOYEES.
(a) All employees of the Company and each of its Affiliates (as defined
in the Plan) incorporated in the United States, shall be granted rights to
purchase Common Stock under each Offering on the Offering Date of such Offering,
provided that each such employee otherwise meets the employment requirements of
subparagraph 5(a) of the Plan and has been continuously employed by the Company
or an Affiliate for at least one (1) month (an "Eligible Employee") and that
each Eligible Employee may only contribute to one Offering at any given point in
time. Notwithstanding the foregoing, the following employees shall not be
Eligible Employees or be granted rights under an Offering: (i) part-time or
seasonal employees whose customary employment is less than twenty (20) hours per
week or five (5) months per calendar year and (ii) 5% stockholders (including
ownership through unexercised and/or unvested stock options) described in
subparagraph 5(c) of the Plan.
(b) Notwithstanding the foregoing, each person who first becomes an
Eligible Employee during any Offering and at least six (6) months prior to the
final Purchase Date (as defined in paragraph 6 hereof) of the Offering will, on
the next January 1 or July 1 during that Offering following the date that person
first becomes an Eligible Employee, receive a right under such Offering, which
right shall thereafter be deemed to be a part of the Offering. Such right shall
have the same characteristics as any rights originally granted under the
Offering except that:
(i) the date on which such right is granted shall be the "Offering
Date" of such right for all purposes, including determination of the exercise
price of such right; and
(ii) the Offering for such right shall begin on its Offering Date
and end coincident with the end of the ongoing Offering.
3. RIGHTS.
(a) Subject to the limitations contained herein and in the Plan, on each
Offering Date each Eligible Employee shall be granted the right to purchase the
number of shares of Common Stock purchasable with up to fifteen percent (15%) of
such employee's Earnings paid during the period of such Offering beginning after
such Eligible Employee first commences participation;
2.
<PAGE> 13
provided, however, that no employee may purchase Common Stock on a particular
Purchase Date that would result in more than fifteen percent (15%) of such
employee's Earnings in the period from the Offering Date to such Purchase Date
having been applied to purchase shares under all ongoing Offerings under the
Plan and all other plans of the Company intended to qualify as "employee stock
purchase plans" under Section 423 of the Internal Revenue Code of 1986, as
amended (the "Code"). For this Offering, "Earnings" means the base salary paid
to an employee (including all amounts elected to be deferred by the employee,
that would otherwise have been paid, under any cash or deferred arrangement
established by the Company), overtime pay, commissions and bonuses, but excludes
other remuneration paid directly to the employee, profit sharing, the cost of
employee benefits paid for by the Company, education or tuition reimbursements,
imputed income arising under any Company group insurance or benefit program,
traveling expenses, business and moving expense reimbursements, income received
in connection with stock options, contributions made by the Company under any
employee benefit plan, and similar items of compensation.
(b) Notwithstanding the foregoing, the maximum number of shares of
Common Stock an Eligible Employee may purchase on any Purchase Date in an
Offering shall be such number of shares as has a Fair Market Value (determined
as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by
the number of calendar years in which the right under such Offering has been
outstanding at any time, minus (y) the Fair Market Value of any other shares of
Common Stock (determined as of the relevant Offering Date with respect to such
shares) which, for purposes of the limitation of Section 423(b)(8) of the Code,
are attributed to any of such calendar years in which the right is outstanding.
The amount in clause (y) of the previous sentence shall be determined in
accordance with regulations applicable under Section 423(b)(8) of the Code based
on (i) the number of shares previously purchased with respect to such calendar
years pursuant to such Offering or any other Offering under the Plan, or
pursuant to any other Company plans intended to qualify as "employee stock
purchase plans" under Section 423 of the Code, and (ii) the number of shares
subject to other rights outstanding on the Offering Date for such Offering
pursuant to the Plan or any other such Company plan.
(c) The maximum aggregate number of shares available to be purchased by
all Eligible Employees under an Offering shall be the number of shares remaining
available under the Plan on the Offering Date. If the aggregate purchase of
shares of Common Stock upon exercise of rights granted under the Offering would
exceed the maximum aggregate number of shares available, the Board shall make a
pro rata allocation of the shares available in a uniform and equitable manner.
4. PURCHASE PRICE.
The purchase price of the Common Stock under the Offering shall be the
lesser of: (i) eighty-five percent (85%) of the Fair Market Value of the Common
Stock on the Offering Date or (ii) or eighty-five percent (85%) of the Fair
Market Value of the Common Stock on the Purchase Date, in each case rounded up
to the nearest whole cent per share. For the Initial Offering, the "Fair Market
Value" of the Common Stock at the time when the Offering commences shall be the
price per share at which shares of Common Stock are first sold to the public in
the Company's initial public offering as specified in the final prospectus with
respect to that public offering.
3.
<PAGE> 14
5. PARTICIPATION.
(a) An Eligible Employee may elect to participate in an Offering at the
beginning of the Offering or at such later date specified in 2(b). An Eligible
Employee shall become a participant in an Offering by delivering an enrollment
form authorizing payroll deductions. Such deductions must be either a fixed
dollar amount per pay period, up to a maximum dollar amount which is less than
or equal to fifteen percent (15%) of Earnings, or in whole percentages of
Earnings, with a minimum percentage of one percent (1%) and a maximum percentage
of fifteen percent (15%). A participant may not make additional payments into
his or her account. The agreement shall be made on such enrollment form as the
Company provides, and must be delivered to the Company prior to the date
participation is to be effective, unless a later time for filing the enrollment
form is set by the Company for all Eligible Employees with respect to a given
Offering. For the Initial Offering, the time for filing an enrollment form and
commencing participation for individuals who are Eligible Employees on the
Offering Date for the Initial Offering shall be determined by the Company and
communicated to such Eligible Employees.
(b) A participant may decrease his or her participation level during the
course of a six (6) month purchase interval one (1) time, and only by delivering
notice to the Company at least ten (10) days in advance of the Purchase Date in
such form as the Company prescribes; provided that a participant may (i) reduce
his or her deductions to zero percent (0%) upon ten (10) days' prior notice, or
within such shorter period as determined by the Board and communicated to the
participants, by delivering a notice in such form as the Company provides, (ii)
may increase or decrease his or her participation level at any time to become
effective on the day following the next subsequent Purchase Date, or (iii) may
withdraw from an Offering and receive his or her accumulated payroll deductions
from the Offering (reduced to the extent, if any, such deductions have been used
to acquire Common Stock for the participant on any prior Purchase Dates) without
interest, at any time prior to the end of the Offering, excluding only each ten
(10) day period immediately preceding a Purchase Date, by delivering a
withdrawal notice to the Company in such form as the Company provides. A
participant who has withdrawn from an Offering shall not again participate in
such Offering, but may participate in subsequent Offerings under the Plan in
accordance with the terms thereof.
6. PURCHASES.
Subject to the limitations contained herein, on each Purchase Date, each
participant's accumulated payroll deductions (without any increase for interest)
shall be applied to the purchase of whole shares of Common Stock, up to the
maximum number of shares permitted under the Plan and the Offering. "Purchase
Date" shall be defined as each June 30 and December 31. The first Purchase Date
under the Initial Offering shall be June 30, 2000. Notwithstanding the
foregoing, if any Purchase Date falls on a day that is not a Trading Day, then
such Purchase Date shall instead fall on the immediately preceding Trading Day.
7. NOTICES AND AGREEMENTS.
Any notices or agreements provided for in an Offering or the Plan shall
be given in writing, in a form provided by the Company, and unless specifically
provided for in the Plan or this Offering, shall be deemed effectively given
upon receipt or, in the case of notices and
4.
<PAGE> 15
agreements delivered by the Company, five (5) days after deposit in the United
States mail, postage prepaid.
8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL.
The rights granted under an Offering are subject to the approval of the
Plan by the stockholders as required for the Plan to obtain treatment as a
tax-qualified employee stock purchase plan under Section 423 of the Code and to
comply with the requirements of an available exemption from potential liability
under Section 16(b) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") set forth in Rule 16b-3 promulgated under the Exchange Act.
9. OFFERING SUBJECT TO PLAN.
Each Offering is subject to all the provisions of the Plan, and its
provisions are hereby made a part of the Offering, and is further subject to all
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan. In the event of any conflict
between the provisions of an Offering and those of the Plan (including
interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the Plan), the provisions of the Plan
shall control.
5.
<PAGE> 1
EXHIBIT 10.7
LEASE
BETWEEN
THE TRAVELERS INSURANCE COMPANY,
a Connecticut corporation, as Landlord,
and
ACADEMIC SYSTEMS CORPORATION,
a California corporation, as Tenant
444 Castro Street
Mountain View, California
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Basic Terms ............................................. 1
2. Effect of Reference to Basic Terms ...................... 3
3. Lease of Premises ....................................... 3
4. Completion by Landlord................................... 3
5. Term .................................................... 3
6. Use of Premises ......................................... 3
7. Rent .................................................... 4
8. Security Deposit......................................... 6
9. Insurance and Indemnification ........................... 7
10. Damage by Fire or Other Casualty; Casualty Insurance .... 10
11. Condemnation ............................................ 12
12. Non-Abatement of Rent ................................... 13
13. Repairs and Maintenance ................................. 13
14. Utilities and Services .................................. 14
15. Governmental Regulations ................................ 17
16. Directory: Signs ........................................ 17
17. Alterations and Additions ............................... 17
18. Landlord's Right of Entry ............................... 18
19. Quiet Enjoyment ......................................... 18
20. Assignment and Subletting ............................... 19
21. Subordination ........................................... 20
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
22. Tenant's Certificate .................................... 21
23. Surrender ............................................... 21
24. Defaults - Remedies ..................................... 21
25. Bankruptcy or Insolvency; Assumption; Adequate Protection 24
26. Interpretation .......................................... 27
27. Definition of Landlord; Landlord's Liability ............ 28
28. Notices ................................................. 28
29. Brokerage ............................................... 28
30. Intentionally Omitted ................................... 28
31. Guarantee ............................................... 28
32. Hazardous Substances .................................... 28
33. Environmental ........................................... 30
34. Parking ................................................. 30
35. Right of First Offering ................................. 30
36. Option to Extend Term ................................... 31
</TABLE>
ii
<PAGE> 4
ATTACHMENTS
Exhibit "A" - Floor Plans
Exhibit "B" - Description of Property
Exhibit "C" - Tenant Improvement Work Agreement
Exhibit "D" - First Amendment to Lease
Exhibit "E" - Cleaning and Janitorial Services
Exhibit "F" - Rules and Regulations
Exhibit "G" - Tenant Estoppel Certificate
Schedule One-A - Building Standards for Tenant
Improvement Work
iii
<PAGE> 5
AGREEMENT OF LEASE
OFFICE BUILDING
THIS AGREEMENT OF LEASE, made as of the 1st day of July, 1996, by and between
THE TRAVELERS INSURANCE COMPANY, a Connecticut corporation (hereinafter called,
"Landlord"), and ACADEMIC SYSTEMS CORPORATION, a California corporation
(hereinafter called, "Tenant").
WITNESSETH:
1. Basic Terms.
(a) Address of Landlord:
THE TRAVELERS INSURANCE COMPANY
2121 North California Boulevard
Suite 1000
Walnut Creek, California 94596-8161
Attention: Karen L. Garrison
or such other address as may from time to time be designated by Landlord in
writing.
(b) Address of Tenant:
444 Castro Street, Suite 1200
Mountain View, California 94041
or such other address as may from time to time be designated by Tenant in
writing.
(c) Premises: Suite Nos. 1111, 1120 and 1200, consisting of a total of
approximately 14,164 rentable square feet of area in the Building as
shown on Exhibit "A" attached hereto.
(d) Building: The Building in which the Premises are located, the common
address of which is 444 Castro Street, Mountain View, California 94041.
The legal description of the parcel of land on which the Building is
situated is attached hereto as Exhibit "B."
(e) Property: The Building, the parcel of land upon which the Building
is situated and any other improvements thereon.
(f) Guarantor(s): None.
(g) Lease Term: The term of this Lease shall be for a period of 5 years,
commencing on July 1, 1996 (the "Commencement Date"), and ending on June
30,
1
<PAGE> 6
2001 (the "Expiration Date"), unless this Lease shall be sooner
terminated as set forth herein.
(h) Rent: All sums, moneys, payments, costs and expenses required to be
paid by Tenant to Landlord pursuant to this Lease.
(i) Minimum Annual Rent:
July 1, 1996 - June 30, 1997 = $331,437.60*
July 1, 1997 - June 30, 1998 = $348,434.40**
July 1, 1998 - June 30, 1999 = $356,932.80***
July 1, 1999 - June 30, 2000 = $365,431.20****
July 1, 2000 - June 30, 2001 = $373,929.60*****
(j) Monthly Rent Installment:
July 1, 1996 - June 30, 1997 = $27,619.80*
July 1, 1997 - June 30, 1998 = $29,036.20**
July 1, 1998 - June 30, 1999 = $29,744.40***
July 1, 1999 - June 30, 2000 = $30,452.60****
July 1, 2000 - June 30, 2001 = $31,160.80*****
(k) Base Annual Operating Costs or Base Year: 1996
(l) Tenant's Share of Annual Operating Costs: 8.00%
(m) Security Deposit: $25,000 (of which $15,000 shall be credited from
the security deposit paid to Landlord by Tenant pursuant to its previous
lease of the Premises).
(n) Permitted Uses: General and administrative office, software and
multimedia development, and customer support.
(o) Broker: M.H. Realty Advisors.
(p) Tenant Improvement Plans Due: August 1, 1996.
- ----------
* Based upon $1.95 per rentable square foot per month
** Based upon $2.05 per rentable square foot per month
*** Based upon $2.10 per rentable square foot per month
**** Based upon $2.15 per rentable square foot per month
***** Based upon $2.20 per rentable square foot per month
2
<PAGE> 7
2. Effect of Reference to Basic Terms. Each reference in this Lease to any of
the Basic Terms contained in Paragraph 1 shall be construed to incorporate into
such reference all of the definitions set forth in Paragraph 1.
3. Lease of Premises. Landlord, in consideration of the Rent to be paid and the
covenants and agreements to be performed by Tenant, does hereby lease unto
Tenant the Premises, as designated in Item (c) of Basic Terms, constructed in
accordance with the lease plans and specifications showing interior improvements
to be constructed by Landlord as set forth on Exhibit "C" attached hereto,
together with the non-exclusive right and easement to use the parking areas and
other common facilities in or on the Building and the Property (including
without limitation the driveways, sidewalks, loading and parking areas, lobbies,
and hallways) which may from time to time be furnished by Landlord in common
with Landlord and the tenants and occupants (their agents, employees, customers
and invitees) of the Building. Tenant agrees that Tenant's consent shall not be
required for any additions, reductions or modifications of such common area
facilities including the construction of free-standing buildings on any portions
of the common areas. Tenant acknowledges and agrees that Landlord shall have the
right to make reasonable rules and regulations governing the location and use of
all parking areas and common facilities, and Tenant shall be governed thereby.
4. Completion by Landlord. The Premises shall be completed in accordance with
the plans and specifications attached hereto or as described in the Tenant
Improvement Work Agreement attached hereto as Exhibit "C" (hereinafter called
the "Tenant Improvement Work Agreement"). If the Plans (as defined in the Tenant
Improvement Work Agreement) have not been attached upon execution hereof, Tenant
shall submit same no later than the date specified in Item (p) of Basic Terms.
The Tenant Improvement Work Agreement attached hereto as Exhibit "C" contains a
schedule of Building standard finishes and tenant allowances. Tenant will be
responsible for all costs resulting from any additional work not provided for on
Exhibit "C", including but not limited to architectural and engineering charges,
which costs shall be paid by Tenant on or before occupancy of the Premises, or
as otherwise provided on Exhibit "C".
5. Term. The Lease Term shall commence on the Commencement Date, as designated
in Item (g) of Basic Terms. Unless sooner terminated, the Lease Term shall end
without the necessity for notice from either party to the other at 12:01 a.m.
local time on the Expiration Date designated in Item (g) of Basic Terms. Tenant
shall complete and furnish to Landlord, on or before occupancy of the Premises,
the First Amendment to Lease attached hereto as Exhibit "D", which shall
acknowledge the actual Commencement Date and Expiration Date of the Lease.
6. Use of Premises. Tenant shall occupy the Premises throughout the Lease Term
and shall use the same for and only for the non-residential purpose or purposes
set forth in Item (n) of Basic Terms and for no other purposes whatsoever
without the prior written consent of Landlord. Tenant shall not use or occupy
the Premises for any unlawful purpose or in any manner that will constitute
waste, nuisance or unreasonable annoyance to Landlord or other tenants of the
Building. Tenant shall comply with all present and future laws, ordinances
(including, without limitation, all applicable zoning ordinances, environmental
3
<PAGE> 8
laws, rules, regulations, and ordinances, land use requirements and the
Americans with Disabilities Act of 1990, as subsequently amended ("ADA")),
regulations, and orders of the United States of America, the State of
California, the County of Santa Clara, the City of Mountain View, and any other
public or quasi-public authority having jurisdiction over the Premises,
concerning the use, occupancy and condition of the Premises and all machinery,
equipment and furnishings therein.
7. Rent. Tenant shall pay the following amount to Landlord at such place as
Landlord designates.
(a) Minimum Annual Rent. Tenant shall pay the Minimum Annual Rent
designated in Item (i) of Basic Terms in equal monthly installments, as
designated in Item (j) of Basic Terms, in advance, on the first day of
each calendar month during the Lease Term; provided, however, that the
Monthly Rent Installment for the first full month shall be paid upon the
signing of this Lease. In addition, Tenant shall pay Landlord without
setoff the Additional Rent as hereinafter set forth. Unless otherwise
specifically provided, all sums shall be paid to Landlord at the address
designated in Item (a) of Basic Terms or at such other address as
Landlord shall designate in writing to Tenant.
(b) Additional Rent. Tenant shall pay additional rent ("Additional
Rent") in an amount equal to Tenant's share of the increase in Annual
Operating Costs (defined below) over the Base Annual Operating Costs
designated in Item (k) of Basic Terms (if the Basic Terms set forth a
Base Year rather than Base Annual Operating Costs, the Base Annual
Operating Costs shall equal the amount of Annual Operating Costs for the
Base Year).
As used herein, the term "Annual Operating Costs" shall mean the costs
to Landlord of operating and maintaining the Property during each
calendar year of the Lease Term. Such costs shall include by way of
example rather than limitation: all real estate taxes and assessments,
general or special, ordinary or extraordinary, imposed upon the Property
(including all improvements thereto), all insurance premiums, fees,
impositions, costs for repairs, replacements, maintenance, service
contracts, management fees, governmental permits, overhead expenses,
costs of furnishing water, sewer, gas, fuel, electricity and other
utility services, janitorial service, trash removal, and the costs of
any other items attributable to operating or maintaining any or all of
the Property excluding any costs which under generally accepted
accounting principles are capital expenditures; provided, however, that
Annual Operating Costs shall also include the annual amortization (over
the anticipated useful life) of the cost of a capital improvement, plus
any interest or financing charges thereon, falling within any of the
following categories:
(i) a labor-saving or energy-saving device or improvement that
eliminates any other component of Annual Operating Costs or
which reduces any such Annual Operating Costs from the costs
that would have been incurred had such device or improvement not
been installed;
4
<PAGE> 9
(ii) an installation or improvement required by reason of any
law, ordinance or regulation, including, without limitation,
ADA; or
(iii) an installation or improvement that directly enhances
safety of tenants in the Building generally.
If Landlord shall receive an abatement of any real estate taxes or assessments
imposed upon the Property, Landlord shall credit to Annual Operating Costs an
amount equal to Tenant's share of the proceeds of such abatement, after
deducting Landlord's cost in obtaining the same. If, due to a future change in
the method of taxation, any other tax, however designated, is imposed in
substitution for or in addition to real estate taxes, then such other tax shall
be included within Annual Operating Costs. The cost of all goods, services,
labor and materials supplied or furnished by Landlord at the request of Tenant
solely for the benefit of Tenant and/or the Premises shall not be included
within Annual Operating Costs and shall be paid by Tenant promptly upon being
billed therefor.
Prior to each calendar year, Landlord shall estimate the amount of Additional
Rent due for such year, and Tenant shall pay Landlord one-twelfth (1/12) of such
estimate on the first day of each month during such year. Such estimate may be
revised by Landlord whenever it obtains information relevant to making such
estimate more accurate. After the end of each calendar year, Landlord shall
deliver to Tenant a report setting forth the actual Annual Operating Costs for
such calendar year and a statement of the amount of Additional Rent that Tenant
has paid and is payable for such year. Within thirty (30) days after receipt of
such report, Tenant shall pay to Landlord the amount of Additional Rent due for
such calendar year minus any payments of Additional Rent made by Tenant for such
year. If Tenant's estimated payments of Additional Rent exceed the amount due
Landlord for such calendar year, Landlord shall apply such excess as a credit
against Tenant's other obligations under this Lease or promptly refund such
excess to Tenant if the Lease Term has already expired, provided Tenant is not
then in default hereunder, in either case without interest to Tenant.
(c) Payment of Rent. The following provisions shall govern the payment of Rent:
(i) all Rent shall be paid to Landlord without offset or deduction and
the covenant to pay Rent shall be independent of every other covenant in
this Lease;
(ii) if during all or any portion of any year the Property is not fully
rented and occupied, Landlord may elect to make an appropriate
adjustment of Annual Operating Costs for such year to determine the
Annual Operating Costs that would have been paid or incurred by Landlord
had the Property been fully rented and occupied for the entire year and
the amount so determined shall be deemed to have been the Annual
Operating Costs for such year;
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(iii) any sum due from Tenant to Landlord that is not paid when due
shall bear interest from the date due until the date paid at the annual
rate of twelve percent (12%) per annum, but in no event higher than the
maximum rate permitted by law (the "Default Rate"); and in addition,
Tenant shall pay Landlord a late charge for any Rent payment that is
paid more than five (5) days after its due date equal to five percent
(5%) of such payment;
(iv) if changes are made to this Lease, changing the number of square
feet contained in the Premises or the Building, Landlord shall make an
appropriate adjustment to Tenant's Share of the Annual Operating Costs;
(v) in the event of the termination of this Lease prior to the
determination of any Additional Rent, Tenant's agreement to pay any such
sums and Landlord's obligation to refund any such sums (provided Tenant
is not in default hereunder) shall survive the termination of this
Lease;
(vi) no adjustment to the Rent by virtue of the operation of any Rent
adjustment provisions in this Lease shall result in the payment by
Tenant in any year of less than the Minimum Annual Rent shown on the
Basic Terms;
(vii) Landlord may at any time change the fiscal year pertaining to the
Property;
(viii) each amount owed to Landlord under this Lease for which the date
of payment is not expressly fixed shall be due on the same date as the
Rent is due hereunder; and
(ix) if Landlord fails to give Tenant an estimate of Additional Rent
prior to the beginning of any calendar year, Tenant shall continue to
pay Additional Rent at the rate for the previous calendar year until
Landlord delivers such estimate.
8. Security Deposit. At the time of signing this Lease, Tenant shall deposit
with Landlord the sum set forth in Item (m) of Basic Terms, to be retained by
Landlord as cash security for the faithful performance and observance by Tenant
of the covenants, agreements and conditions of this Lease. Notwithstanding
anything to the contrary contained in any law or statute now existing or
hereafter passed:
(i) Tenant shall not be entitled to any interest whatever on the cash
security;
(ii) Landlord shall not be obligated to hold the cash security in trust
or in a separate account; and
(iii) Landlord shall have the right to commingle the cash security with
its other funds.
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Landlord may use, apply or retain the whole or any part of the cash security to
the extent required for the payment of any Minimum Annual Rent, any Additional
Rent or any other sums payable hereunder as to which Tenant is in default or to
the extent required for the reimbursement to Landlord of any sum which Landlord
may expend or may be required to expend by reason of Tenant's default with
respect to any of the covenants, agreements or conditions of this Lease. If
Tenant shall fully and faithfully comply with all of the covenants, agreements
and conditions of this Lease, the cash security shall be returned to Tenant
after the date fixed as the expiration of the Lease Term and surrender of the
Premises to Landlord. If the Premises are sold to a bona fide purchaser,
Landlord shall have the right to transfer the aforesaid cash security to such
purchaser, by which transfer Landlord shall be released from all liability for
the return thereof, and Tenant shall look solely to the new landlord for the
return thereof.
9. Insurance and Indemnification.
(a) Insurance by Landlord. Landlord shall at all times during the Lease
Term carry a policy of insurance or shall be self-insured, covering the
Building, including the Premises, against loss or damage by fire or
other casualty (namely, the perils against which insurance is afforded
by a standard fire insurance policy and extended coverage endorsement
including, without limitation, rental interruption coverage for all
leased space in the Building); provided, however, that Landlord shall
not be responsible for, and shall not be obligated to insure against,
any loss of or damage to any personal property of Tenant, or which
Tenant may have in the Building or the Premises or any trade fixtures
installed by or paid for by Tenant on the Premises or any additional
improvements which Tenant may construct on the Premises, and Landlord
shall not be liable for any loss or damage to such property, regardless
of cause, including the negligence or wilful misconduct of Landlord and
its employees, agents, contractors, customers and invitees. If the
tenant finish improvements installed by Landlord for Tenant which are in
excess of those provided for in Exhibit "C" or any alterations or
improvements made by Tenant pursuant to Paragraph 17 hereof result in an
increase of the premiums charged during the Lease Term on the casualty
insurance carried by Landlord on the Building, then the cost of such
increase in insurance premiums shall be borne by Tenant, who shall
reimburse Landlord for the same after being separately billed therefor.
The annual cost of all such insurance maintained by Landlord shall be
considered as a part of the Annual Operating Costs of the Property.
(b) Insurance by Tenant. Tenant shall, at all times during the Lease
Term, at Tenant's cost, obtain and keep in effect the following
insurance insuring Tenant, Landlord and all mortgagees and any other
person or entity designated by Landlord as having an interest in the
Property (as their interests may appear):
(i) Insurance upon all property situated in the Premises owned
by Tenant or for which Tenant is legally liable and on fixtures
and improvements installed in the Premises by or on behalf of
Tenant. Such policy shall be for an amount of not less than 100%
of the full replacement cost with coverage against at least fire
with standard extended coverage, vandalism, malicious
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mischief, sprinkler leakage and water damage. If there is a
dispute as to the replacement cost amount, the decision of
Landlord shall be conclusive;
(ii) Business interruption insurance in an amount sufficient to
reimburse Tenant for direct or indirect loss of earnings
attributable to prevention of access to the Building or Premises
as a result of such perils;
(iii) Commercial general liability insurance including legal
liability and contractual liability insurance coverage with
respect to the Building and the Premises. The coverage is to
include activities and operations conducted by Tenant and any
other person in the Premises and Tenant any other person
performing work on behalf of Tenant and those for whom Tenant is
by law responsible in any other part of the Building. Such
insurance shall be written on a comprehensive basis with
inclusive limits of not less than $2,000,000 for each occurrence
for bodily injury and property damage or such higher limits as
Landlord, acting reasonably, may require from time to time. The
limit of said insurance shall not, however, limit the liability
of Tenant hereunder. Landlord shall be named on all liability
policies maintained by Tenant;
(iv) Worker's compensation insurance for all Tenant's employees
working in the Premises in an amount sufficient to comply with
applicable laws or regulations; and
(v) Any other form of insurance as Tenant, Landlord or its
mortgagee, may reasonably require from time to time. Such
insurance shall be in form, amount and for the risks which a
prudent Tenant would insure.
All policies of insurance maintained by Tenant shall be in a form
acceptable to Landlord; issued by an insurer acceptable to Landlord and
licensed to do business in the state in which the Property is located;
and require at least thirty (30) days written notice to Landlord of
termination or material alteration and waive, to the extent available,
any right of subrogation against Landlord. All policies shall provide
that the interests of Landlord, its mortgagee or those named insured
designated by Landlord shall not be invalidated because of any breach or
violation of any warranties, representations, declarations or conditions
contained in the policies. All policies must contain a severability of
interest clause, a cross-liability clause and shall be primary and shall
not provide for contribution of any other insurance available to
Landlord, its mortgagee, or those named insured designated by Landlord.
All policies required to be obtained by Tenant shall provide that the
interests of Landlord and any other additional insureds or loss payees
designated by Landlord shall not be invalidated due to any breach or
violation of any warranties, representations or declarations contained
in such policies or the applications therefor. If requested by Landlord,
Tenant shall, upon the Commencement Date designated in Item (g) of Basic
Terms, and thereafter within fifteen (15) days prior to the expiration
date of each such policy, promptly deliver to Landlord certified copies
or other written evidence of such policies and written evidence
satisfactory to Landlord that all premiums have been paid and all
polices are in effect. If Tenant fails to secure or maintain any
insurance
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coverage required by Landlord, or should insurance secured not be
approved by Landlord and such failure or approval not be corrected
within forty-eight (48) hours after written notice from Landlord,
Landlord may, without obligation, purchase such required insurance
coverage at Tenant's expense. Tenant shall promptly reimburse Landlord
for any monies so expended as Additional Rent.
(c) Tenant's Contractor's Insurance. Tenant shall require any contractor
of Tenant permitted to perform work in, on or about the Premises to
obtain and maintain the following insurance coverage at no expense to
Landlord:
(i) Commercial general liability insurance, including a broad
form general liability endorsement, in the amount of $1,000,000,
naming Landlord and Tenant as insured;
(ii) Worker's compensation insurance for all contractor's
employees working in the Premises in an amount sufficient to
comply with applicable laws or regulations;
(iii) Employers liability insurance in an amount not less than
$100,000; and
(iv) Any other insurance as Tenant, Landlord or its mortgagee
may reasonably require from time to time.
(d) Indemnification. Tenant, at Tenant's sole cost and expense, shall
indemnify and hold harmless Landlord from all loss, claim, demand,
damage, liability or expense, including attorneys' fees, resulting from
any injury to or death of any person or any loss of or damage to any
property caused by or resulting from any act, omission or negligence of
Tenant or any officer, employee, agent, contractor, licensee, guest,
invitee or visitor of Tenant in or about the Premises or the Building,
but the foregoing provision shall not be construed to make Tenant
responsible for loss, damage, liability or expense resulting from
injuries to third parties caused by any act, omission or negligence of
Landlord or of any officer, employee, agent, contractor, invitee or
visitor of Landlord. Landlord shall not be liable for any loss or damage
to person, property or Tenant's business sustained by Tenant, or other
persons, which may be caused by the Building or the Premises, or any
appurtenances thereto, being out of repair or by the bursting or leakage
of any water, gas, sewer or steam pipe, or by theft or by any act of
neglect of any tenant or occupant of the Building, or any other person.
(e) Waiver of Subrogation. Landlord and Tenant each agree that neither
Landlord nor Tenant (and their successors and assignees) will have any
claim against the other for any loss, damage or injury which is covered
by insurance carried by either party and for which recovery from such
insurer is made, notwithstanding the negligence of either party in
causing the loss. This release shall be valid only if the insurance
policy in question expressly permits waiver of subrogation or if the
insurer agrees in writing that such waiver of subrogation will not
affect coverage under said policy.
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Each party agrees to use its best efforts to obtain such an agreement
from its insurer if the policy does not expressly permit a waiver of
subrogation.
(f) Increase of Premiums. Tenant will not do anything or fail to do
anything which will cause the cost of Landlord's insurance to increase
or which will prevent Landlord from procuring policies (including but
not limited to public liability) from companies and in a form
satisfactory to Landlord. If any breach of this Paragraph 9(f) by Tenant
shall cause the rate of fire or other insurance to be increased, Tenant
shall pay the amount of such increase as Additional Rent promptly upon
being billed therefor.
(g) Tenant's Additional Insurance. Landlord makes no representation that
the limits of liability specified to be carried by Tenant under the
terms of this Lease are adequate to protect Tenant against Tenant's
undertaking under this Paragraph 9, and in the event Tenant believes
that any such insurance coverage called for under this Lease is
insufficient, Tenant shall provide, at its own expense, such additional
insurance as Tenant deems adequate.
10. Damage by Fire or Other Casualty; Casualty Insurance.
(a) Obligation to Repair or Rebuild. If the Premises or Building shall
be damaged or destroyed by fire or other casualty, Tenant shall promptly
notify Landlord of any damage or destruction to the Premises, and
Landlord, subject to the mortgagee's consent and to the conditions set
forth in this Paragraph 10, shall repair, rebuild or replace such damage
and restore the Premises and/or the Building, subject to subparagraph
(f) below, to substantially the same condition in which they were
immediately prior to such damage or destruction; provided, however, that
Landlord shall only be obligated to restore such damage which is covered
by the fire and other extended coverage insurance policies.
(b) Commencement and Completion of Work. The work shall be commenced
promptly and completed with due diligence, taking into account the time
required by Landlord to effect a settlement with, and procure insurance
proceeds from, the insurer, and for delays beyond Landlord's reasonable
control.
(c) Application of Proceeds. The net amount of any insurance proceeds
(excluding proceeds received pursuant to the rental interruption
coverage obtained by Landlord in accordance with Paragraph 9(a) hereof),
recovered by reason of the damage or destruction of the Building in
excess of the cost of adjusting the insurance claim and collecting the
insurance proceeds (such excess amount being hereinafter called the "net
insurance proceeds") shall be applied towards the reasonable cost of
restoration. If, in Landlord's sole opinion, the net insurance proceeds
will not be adequate to complete such restoration, Landlord shall have
the right to terminate this Lease and all the unaccrued obligations of
the parties hereto by sending a written notice of such termination to
Tenant, the notice to specify a termination date no less than ten (10)
days after its transmission; provided, however, that if the damage
relates only to the Premises and occurs prior to the last two (2) years
of the Lease Term,
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Tenant, subject to subparagraph (f) below, may require Landlord to
withdraw the notice of termination by agreeing to pay the cost of
restoration in excess of the net insurance proceeds and by giving
Landlord adequate security for such payment prior to the termination
date specified in Landlord's notice of termination. If the net insurance
proceeds are more than adequate, the amount by which the net insurance
proceeds exceed the cost of restoration-will be retained by Landlord.
(d) Tenant's Fixtures and Improvements. Landlord's obligation or
election to restore the Premises under this Paragraph 10 shall not
include the repair, restoration or replacement of the fixtures,
improvements, alterations, furniture or any other property owned,
installed, made by, or in the possession of Tenant.
(e) Abatement of Rent. Tenant will receive an abatement of its Minimum
Annual Rent and Additional Rent to the extent and during the time the
Premises are rendered untenantable due to casualty, such Rent to abate
in such proportion as the part of the Premises thus destroyed or
rendered untenantable bears to the total Premises while such repairs are
being made. If the Premises are so slightly damaged by such fire or
other casualty as not to be rendered untenantable, Landlord shall make
the repairs it deems necessary with reasonable promptness and the
payment of Rent shall not be affected thereby. Landlord shall be the
sole judge as to whether such destruction or damage has caused the
Building or the Premises to be untenantable or whether the same cannot
be rendered tenantable within the one hundred fifty (150) day period set
forth in subparagraph (f) below. Tenant shall, at its own cost and
expense, remove such of its furniture and furnishings and other
belongings from the Premises as Landlord shall require in order to
repair and restore the Premises.
(f) Landlord's Option Not to Restore. Notwithstanding the foregoing
provisions, if there is substantial destruction of the Building, or if,
in the sole judgment of Landlord, such damage cannot be repaired and the
Premises cannot be made tenantable within one hundred fifty (150) days
of such damage, Landlord shall have the option not to restore, and may
elect to terminate this Lease by sending notice as referred to in
subparagraph (c) above, without giving Tenant the right to cause the
notice of termination to be withdrawn. Landlord shall notify Tenant in
writing within forty-five (45) days after the date of such damage or
destruction of Landlord's estimate of the period of time required to
repair and restore the Premises to tenantable condition. If such period
of time exceeds one hundred and fifty (150) days, Tenant shall also have
the right to terminate this Lease by written notification to Landlord of
such termination within fifteen (15) days of delivery of Landlord's
notice to Tenant.
(g) Tenant Waiver. Unless this Lease is terminated pursuant to the
foregoing provisions, this Lease shall remain in full force and effect.
Tenant hereby expressly waives the provisions of Section 1932,
Subdivision 2, and Section 1933, Subdivision 4, of the California Civil
Code.
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11. Condemnation.
(a) Termination.
(i) If all of the Premises are covered by a condemnation; or
(ii) If any part of the Premises is covered by a condemnation
and the remainder thereof is insufficient for the reasonable
operation therein of Tenant's business; or
(iii) If any of the Property is covered by a condemnation and,
in Landlord's sole opinion, it would be impractical or the
condemnation proceeds are insufficient to restore the remainder
of the Property; then, in any such event, this Lease shall
terminate and all obligations hereunder shall cease as of the
date upon which possession is taken by the condemnor and the
Rent herein reserved shall be apportioned and paid in full by
Tenant to Landlord to that date and all Rent prepaid for periods
beyond that date shall forthwith be repaid by Landlord to
Tenant.
(b) Partial Condemnation. If there is a partial condemnation and this
Lease has not been terminated pursuant to subparagraph (a) hereof,
Landlord shall restore the Building and the improvements which are part
of the Building to a condition and size as nearly comparable as
reasonably possible to the condition and size thereof immediately prior
to the date upon which possession shall have been taken by the
condemnor. If the condemnation proceeds are more than adequate to cover
the cost of restoration and Landlord's expenses in collecting the
condemnation proceeds, any excess proceeds shall be retained by
Landlord. If there is a partial condemnation and this Lease has not been
terminated by the date upon which the condemnor shall have obtained
possession, the obligations of Landlord and Tenant under this Lease
shall be unaffected by such condemnation except that there shall be an
equitable abatement of the Minimum Annual Rent in direct proportion to
the amount of the Premises so taken.
(c) Award. In the event of a condemnation affecting Tenant, Tenant shall
have the right to make a separate claim against the condemnor for
removal and relocation costs and expenses and the taking of Tenant's
tangible property; provided and to the extent, however, that such claims
or payments do not reduce the sums otherwise payable by the condemnor to
Landlord. Except as aforesaid, Tenant hereby waives all claims against
Landlord and against the condemnor, and Tenant hereby assigns to
Landlord all claims against the condemnor including, without limitation,
all claims for leasehold damages and diminution in value of Tenant's
leasehold interest.
(d) Temporary Taking. If the condemnor should take only the right to
possession of the Premises for a fixed period of time or for the
duration of an emergency or other temporary condition, then,
notwithstanding anything hereinabove provided, this Lease shall continue
in full force and effect without any abatement of Rent, but the amounts
payable by the condemnor with respect to any period of time prior to the
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<PAGE> 17
expiration or sooner termination of this Lease shall be paid by the
condemnor to Landlord and the condemnor shall be considered a subtenant
of Tenant. Landlord shall apply the amount received from the condemnor
applicable to the Rent due hereunder net of costs to Landlord for the
collection thereof, or as much thereof as may be necessary for the
purpose, toward the amount due from Tenant as Rent for that period; and
Tenant shall pay to Landlord any deficiency between the amount thus paid
by the condemnor and the amount of the Rent, or Landlord shall credit to
future Rent due from Tenant any excess of the amount of the award over
the amount of the Rent.
(e) Waiver. Each party waives the provisions of California Code of Civil
Procedure, Section 1265.130 allowing either party to petition the
Superior Court to terminate this Lease in the event of a partial taking.
12. Non-Abatement of Rent. Except as otherwise expressly provided as to damage
by fire or by any other casualty in subparagraph (e) of Paragraph 10 and,
conditionally, as to condemnation in subparagraphs (a) and (b) of Paragraph 11,
there shall be no abatement or reduction of the Minimum Annual Rent, Additional
Rent or other sums payable hereunder for any cause whatsoever, and this Lease
shall not terminate, and Tenant shall not be entitled to surrender or abandon
the Premises.
13. Repairs and Maintenance.
(a) Tenant's Obligations. Tenant, at its sole cost and expense and
throughout the Lease Term and any renewals or extensions thereof, shall
keep and maintain the Premises in a neat, safe and orderly condition and
shall make all necessary non-structural repairs thereto. Tenant shall
not use or permit the use of any portion of the common areas for other
than their intended use. Upon the expiration of the Lease Term, Tenant
shall yield and deliver up the Premises in like condition as when taken,
reasonable use and wear thereof and repairs required to be made by
Landlord excepted. Anything hereinabove to the contrary notwithstanding,
from and after the date Tenant has taken occupancy of the Premises, any
repairs, additions or alterations to the Premises which are required by
OSHA or ADA shall be promptly made by Tenant, at its sole expense, and
any such repairs, additions and/or alternations made by Tenant shall be
subject to the provisions of this Paragraph 13 and Paragraph 17 hereof.
(b) Landlord's Obligations. Landlord, subject to subparagraph (c) below,
throughout the Lease Term and any renewals or extensions thereof, shall
make all necessary structural repairs to the Building and any necessary
repairs to the mechanical, HVAC, electrical and plumbing systems in or
servicing the Premises, excluding repairs to any such systems or
components thereof which are not of the same type and nature as those
provided by Landlord as part of the Building standard improvements;
provided, however, that Landlord shall have no responsibility to make
any repairs unless and until Landlord receives written notice of the
need for such repair. Except as otherwise provided herein, the cost of
all such repairs shall be borne by Landlord and included as part of
Annual Operating Costs. Tenant shall at
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once report in writing to Landlord any defective condition known to
Tenant which Landlord is required to repair. Failure to so report shall
make Tenant responsible for damages resulting from such defective
condition. Landlord shall not be liable for any failure to make repairs
or to perform any maintenance unless such failure shall persist for an
unreasonable time after written notice of the need for such repairs or
maintenance is received by Landlord from Tenant. Landlord shall keep
repaired and maintain all common areas of the Property and any
sidewalks, parking areas, curbs and access ways adjoining the Property
in a clean and orderly condition.
(c) Interference with Use of Premises No Release from Obligations. In
the event that Landlord shall deem it necessary, or be required by any
governmental authority, to repair, alter, remove, reconstruct or improve
any part of the Premises or the Building (unless the same result from
Tenant's act, neglect, default or mode of operation, in which event
Tenant shall make all such repairs, alterations and improvements), then
the same shall be made by Landlord with reasonable dispatch, and should
the making of such repairs, alterations or improvements cause any
interference with Tenant's use of the Premises, such interference shall
not relieve Tenant from the performance of its obligations hereunder,
nor shall such interference be deemed an actual or constructive eviction
or partial eviction or result in an abatement of Rent. Notwithstanding
the foregoing, Tenant shall, at its own cost and expense, make all
repairs and provide all maintenance in connection with any alterations,
additions or improvements made by Tenant pursuant to Paragraph 17
hereof.
14. Utilities and Services.
(a) Utilities and Services Furnished by Landlord. Provided Tenant is not
in default hereunder, Landlord agrees to furnish or cause to be
furnished to the Premises, the utilities and services described below,
subject to the conditions and in accordance with the standards set forth
in this Paragraph 14:
(i) Landlord shall provide automatic elevator facilities Monday
through Friday from 8 a.m. to 6 p.m., and on Saturdays from 9
a.m. to 1 p.m. At least one elevator shall be available for use
at all other times;
(ii) Landlord shall furnish heat or air conditioning Monday
through Friday from 7 a.m. to 6 p.m. Tenant acknowledges that
there has been installed in the Premises a separate HVAC system
("Separate HVAC") which services the Premises exclusively, and
that another Separate HVAC may subsequently be installed.
Landlord shall provide Tenant with a periodic statement
designating Tenant's utility consumption with respect to such
separate HVAC system (as shown by the meters installed to
register such consumption at the rates then charged by the
furnishing public utility), and Tenant shall pay to Landlord the
amount designated on each such statement promptly upon demand
therefor as a direct expense of Tenant. Tenant, at Tenant's sole
cost and expense, shall carry out throughout the Term of the
Lease an ongoing program of regular and preventative maintenance
of such separate HVAC system in the Premises
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pursuant to an HVAC maintenance contract to be approved by
Landlord, such program to include the periodic replacement of
HVAC filters in accordance with manufacturers' specifications
and the monitoring of HVAC settings (i.e., relative humidity and
percentage of outside air) to ensure compliance with the
specifications of the equipment manufacturers and the design of
the HVAC system. Upon reasonable advance notice from Landlord,
Tenant shall make available to Landlord Tenant's records
evidencing such maintenance efforts by Tenant;
(iii) Landlord shall furnish to the Premises, subject to
interruptions beyond Landlord's control, such electricity as is
required for the use of the office lighting and electrical
outlets in use as of the Commencement Date;
(iv) Landlord shall furnish water for drinking, cleaning and
lavatory purposes only;
(v) Landlord shall provide cleaning and janitorial services to
the Premises, as described in Exhibit "E" attached hereto and
made a part hereof; and
(vi) Landlord shall provide the following security measures for
the Building:
- A uniformed lobby guard twelve (12) hours a day,
Monday through Friday and eight (8) hours a day on
Saturday and Sunday; and
- A card access system for entry into the lobby and
parking garage 24 hours a day, 365 days a year.
(b) Special and Additional Usage. Landlord may impose a reasonable
charge for any utilities and services, including without limitation, air
conditioning, electricity, and water, provided by Landlord by reason of:
(i) any use of the Premises at any time other than the hours set
forth above;
(ii) any use beyond what Landlord agrees herein to furnish; or
(iii) special electrical, cooling and ventilating needs created
by Tenant's telephone equipment, computers, electronic data
processing equipment and other similar equipment or uses.
Landlord, at its option, may require installation of additional
metering devices, at Tenant's expense, for the purpose of
metering Tenant's utility consumption.
(c) Cooperation; Payment of Charges; Approval of Special Equipment
Usage. Tenant agrees to cooperate fully at all times with Landlord and
to abide by all regulations and requirements which Landlord may
prescribe for the use of the above utilities and services. Tenant agrees
to pay any charge imposed by Landlord pursuant
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to subparagraph (b) above and any failure to pay any excess costs as
described above shall constitute a breach of the obligation to pay Rent
under this Lease and shall entitle Landlord to the rights herein granted
for such breach. Tenant's use of electricity shall at no time exceed the
capacity of the service to the Premises or the electrical risers or
wiring installation.
(d) Failure, Stoppage or Interruption of Service: No Release from
Obligations. Landlord shall not be liable for, and Tenant shall not be
entitled to any abatement or reduction of Rent by reason of, Landlord's
failure to furnish any of the foregoing services when such failure is
caused by accident, breakage, repairs, riots, strikes, lockouts or other
labor disturbance or labor dispute of any character, governmental
regulation, moratorium or other governmental action, inability by
exercise of reasonable diligence to obtain electricity, water or fuel,
or by any other cause beyond Landlord's immediate control or for
stoppages or interruptions of any such services for the purpose of
making necessary repairs or improvements. Failure, stoppage or
interruption of any such service shall not be construed as an actual or
constructive eviction or as a partial eviction against Tenant, or
release Tenant from the prompt and punctual performance by Tenant of the
covenants contained herein. Notwithstanding anything hereinabove to the
contrary, Landlord reserves the right from time to time to make
reasonable and nondiscriminatory modifications to the above standards
for utilities and services.
(e) Limitation and Unavailability of Service. Anything hereinabove to
the contrary notwithstanding, Landlord and Tenant agree that Landlord's
obligation to furnish heat, electricity, air conditioning and/or water
to the Premises shall be subject to and limited by all laws, rules, and
regulations of any governmental authority affecting the supply,
distribution, availability, conservation or consumption of energy,
including, but not limited to, heat, electricity, gas, oil and/or water.
Landlord shall abide by all such governmental laws, rules and
regulations and, in so doing, Landlord shall not be in default in any
manner whatsoever under the terms of this Lease, and Landlord's
compliance therewith shall not affect in any manner whatsoever Tenant's
obligation to pay the full Rent set forth in this Lease.
(f) Lighting Fixtures and Lamps. Tenant shall purchase and use only such
electrical lighting fixtures and lamps as may be approved by Landlord in
writing.
(g) Load Bearing Capacity. Tenant shall not place a load upon any floor
of the Premises which exceeds the load per square foot which such floor
was designed to carry and which is allowed by law. Landlord reserves the
right to prescribe in a reasonable manner the weight and position of all
safes and heavy installations which Tenant wishes to place in the
Premises so as to properly distribute the weight thereof. Any cost of
structural analysis shall be borne by Tenant.
(h) Unreasonable Noise or Vibration. Business machines and mechanical
equipment belonging to Tenant which cause unreasonable noise or
vibration that may be transmitted to the structure of the Building or to
any leased space to such a degree as to be objectionable to Landlord or
to any tenants in the Building shall be placed
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and maintained by Tenant, at Tenant's expense, on vibration eliminators
or other devices sufficient to eliminate such unreasonable noise or
vibration.
15. Governmental Regulations. Tenant shall not violate any laws, ordinances,
notices, orders, rules, regulations or requirements, including, without
limitation, those pertaining to environmental matters and ADA, of any federal,
state or municipal government or any department, commission, board or office
thereof, or of the National Board of Fire Underwriters or any other body
exercising similar functions, relating to the Premises or to the use or manner
of use of the Property, nor shall Tenant perform any acts or carry on any
practices which may injure the Property or the Premises or be a nuisance,
disturbance or menace to any other tenants of the Building. Upon breach of this
Paragraph 15, Landlord shall have the right to terminate this Lease forthwith
and to re-enter and repossess the Premises, but Landlord's right to damages
shall survive.
16. Directory; Signs. Landlord will place Tenant's name and suite number on the
Building standard directory. Except for signs which are located wholly within
the interior of the Premises and which are not visible from the exterior of the
Premises, and except for signs on office doors with size, design, lettering and
text approved by Landlord, no signs shall be placed, erected, maintained or
painted by Tenant at any place upon the Premises or the Property.
17. Alterations and Additions. Except for interior, non-structural, cosmetic
alterations and improvements to the Premises or any part thereof, not visible
from the exterior of the Premises and requiring an expenditure by Tenant in any
single instance of an amount not to exceed One Thousand Dollars ($1,000), Tenant
shall not make any alterations, additions, changes or repairs (hereinafter
referred to as "Alterations and Additions") to the Premises without obtaining in
each instance Landlord's prior written consent. All Alterations and Additions
shall be performed by Landlord or Landlord's contractors, or shall be performed
by Landlord or Landlord's contractors, shall be performed under Landlord's
regulation. In the event Alterations and Additions are not performed by Landlord
or Landlord's contractors, Tenant shall pay to Landlord a reasonable fee, as
determined by Landlord, for its regulation of such Alterations and Additions.
All Alterations and Additions shall remain upon and be surrendered with the
Premises unless, prior to or upon the expiration or termination of this Lease,
Landlord shall give written notice to Tenant to remove the same, in which event
Tenant will remove such Alterations and Additions within ten (10) days after the
expiration or termination of this Lease, and repair and restore any damage to
the Premises caused by the installation or removal thereof. If Tenant does not
remove said Alterations and Additions within said ten (10) day period, Landlord
may remove the same and Tenant shall pay the cost of such removal to Landlord
upon demand. Tenant hereby agrees to protect, defend, indemnify and hold
harmless Landlord, its agents and employees, with regard to the Premises and the
Property, from any and all liabilities of every kind and description which may
arise out of or be connected in any way with said Alterations or Additions. Any
mechanic's lien filed against the Premises or the Property or any notice which
is received by either Landlord or Tenant for work claimed to have been furnished
to Tenant, and performed other than by Landlord or Landlord's contractors, shall
be released and discharged within ten (10) days after such filing or receipt,
whichever is applicable, at Tenant's expense. Alterations and Additions
permitted to be performed other than by Landlord or Landlord's
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contractors shall be performed in a manner so as not to annoy or disturb other
tenants or occupants of the Building, and shall be performed only during such
hours and under such conditions as shall be designated by Landlord. Upon
completion of Alterations and Additions performed other than by Landlord or
Landlord's contractors, Tenant shall furnish Landlord with contractors'
affidavits and full and final waivers of lien and receipted bills covering all
labor and materials expended and used. All Alterations and Additions shall
comply with all insurance requirements and with all applicable laws, statutes,
ordinances and regulations. All Alterations and Additions shall be constructed
in a good and workmanlike manner and only first-class material shall be used.
The performance of any Alterations and Additions to the Premises by either
Landlord or Landlord's contractors on behalf of Tenant shall not be deemed or
construed by the parties hereto, or by any third party, as creating the
relationship of principal and agent or of partnership, or of joint venture, by
and between the parties hereto, it being understood and agreed that no provision
contained in this Paragraph 17 or elsewhere in this Lease nor any acts of the
parties hereto shall be deemed to create any relationship other than the
relationship of Landlord and Tenant.
18. Landlord's Right of Entry.
(a) Right of Entry; No Release from Obligations. Tenant shall permit
Landlord and the authorized representatives of Landlord and of any
mortgagee or any prospective mortgagee to enter the Premises at all
reasonable times upon reasonable notice (except in case of emergency),
for the purpose of:
(i) inspecting the Premises; or
(ii) making any necessary repairs thereto or to the Property and
performing any work therein.
During the progress of any work on the Premises or the Property,
Landlord will attempt not to inconvenience Tenant, but shall not be
liable for inconvenience, annoyance, disturbance, loss of business or
other damage to Tenant by reason of making any repair or by bringing or
storing materials, supplies, tools and equipment in the Premises during
the performance of any work, and the obligations of Tenant under this
Lease shall not be thereby affected in any manner whatsoever.
(b) Sales; Mortgagee; Prospective Tenants. Landlord shall have the right
at all reasonable times to enter and to exhibit the Premises for the
purpose of sale or mortgage, and, during the last nine (9) months of the
Lease Term, to enter and to exhibit the Premises to any prospective
tenant.
19. Quiet Enjoyment. Tenant, upon paying the Minimum Annual Rent, Additional
Rent and other charges herein provided for, and observing and keeping all
covenants, agreements and conditions of this Lease on its part to be kept, shall
quietly have and enjoy the Premises during the Lease Term without hindrance or
molestation by anyone claiming by or through Landlord, subject, however, to the
exceptions, reservations and conditions of this Lease. Landlord hereby reserves
the right to prescribe, at its sole discretion, reasonable rules and regulations
(herein called the "Rules and Regulations") having uniform applicability to all
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similarly situated tenants of the Building and governing the use and enjoyment
of the Premises and the remainder of the Property; provided that the Rules and
Regulations shall not materially interfere with Tenant's use and enjoyment of
the Premises in accordance with the provisions of this Lease for the permitted
uses. Tenant shall adhere to the Rules and Regulations and shall cause its
agents, employees, invitees, visitors and guests to do so. A copy of the Rules
and Regulations in effect on the date hereof is attached hereto as Exhibit "F".
20. Assignment and Subletting. Tenant for itself, its successors and assigns,
expressly covenants that it shall not by operation of law or otherwise assign,
sublet, hypothecate, encumber or mortgage this Lease, or any part thereof, or
permit the Premises to be used by others without the prior written consent of
Landlord in each instance, which consent shall not be unreasonably withheld. Any
attempt by Tenant to assign, sublet, encumber or mortgage this Lease shall be
null and void. The consent by Landlord to any assignment, mortgage,
hypothecation, encumbrance, subletting or use of the Premises by others, shall
not constitute a waiver of Landlord's right to withhold its consent to any other
or further assignment, subletting, mortgage, encumbrance or use of the Premises
by others. Without the prior written consent of Landlord, this Lease and the
interest therein of any assignee of Tenant herein, shall not pass by operation
of law or otherwise, and shall not be subject to garnishment or sale under
execution in any suit or proceeding which may be brought against or by Tenant or
any assignee of Tenant. The absolute and unconditional prohibitions contained in
this Paragraph 20 and Tenant's agreement thereto are material inducements to
Landlord to enter into this Lease with Tenant and any breach thereof shall
constitute a material default hereunder permitting Landlord to exercise all
remedies provided for herein or by law or in equity on a default of Tenant. If
Tenant requests Landlord's consent to an assignment of this Lease or subletting
of all or any part of the Premises, Tenant shall submit to Landlord: (1) the
name of the proposed assignee or subtenant; (2) the terms of the proposed
assignment or subletting together with a conformed or photostatic copy of the
proposed assignment or sublease; (3) the nature of business of the proposed
assignee or subtenant's business and its proposed use of the Premises; (4) such
information as to its financial responsibility and general reputation as
Landlord may require; and (5) a summary of plans and specifications for revising
the floor layout of the Premises.
Upon the receipt of such information from Tenant, Landlord shall have the
option, to be exercised in writing within thirty (30) days after such receipt,
to cancel and terminate this Lease if the request is to assign this Lease or to
sublet all of the Premises or, if the request is to sublet a portion of the
Premises only, to cancel and terminate this Lease with respect to such portion,
in each case as of the date set forth in Landlord's notice of exercise of such
option.
If Landlord shall cancel this Lease, Tenant shall surrender possession of the
Premises, or the portion of the Premises which is the subject of the request, as
the case may be, on the date set forth in such notice in accordance with the
provisions of this Lease relating to surrender of the Premises. If this Lease
shall be canceled as to a portion of the Premises only, the Minimum Annual Rent
and all Additional Rent payable by Tenant hereunder shall be abated
proportionately according to the ratio that the number of square feet in the
portion of space surrendered (as computed by Landlord) bears to the rentable
area of the Premises.
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If Landlord shall fail to exercise its option to cancel and terminate this Lease
with respect to all or part of the Premises as above provided, Landlord shall
not thereby be deemed to have consented to the proposed assignment or
subletting.
If Landlord shall consent to a sublease or an assignment pursuant to the request
from Tenant, Tenant shall cause to be executed by its assignee or subtenant an
agreement to perform faithfully and to assume and be bound by all of the terms,
covenants, conditions, provisions and agreements of this Lease for the period
covered by the assignment or sublease and to the extent of the space sublet or
assigned. An executed counterpart of each sublease or assignment and assumption
of performance by the sublessee or assignee, in form and substance approved by
Landlord, shall be delivered to Landlord within five (5) days prior to the
commencement of occupancy set forth in such assignment or sublease; no such
assignment or sublease shall be binding on Landlord until Landlord has received
such counterpart as required herein.
If Landlord shall give its consent to any assignment of this Lease or to any
sublease, Tenant shall in consideration therefor pay to Landlord as Additional
Rent the following amounts less the actual expenses incurred by Tenant in
connection with such assignment or subletting including legal fees, brokerage
commissions and costs of making alterations, as the case may be:
(i) In the case of an assignment, an amount equal to all sums
and other considerations paid to Tenant by the assignee for or
by reason of such assignment; and
(ii) In the case of a sublease, any rents, additional charge or
other consideration payable under the sublease to Tenant by the
subtenant which is in excess of the Minimum Annual Rent and all
Additional Rent accruing during the term of the sublease in
respect of the subleased space (at the rate per square foot
payable by Tenant hereunder) pursuant to the terms hereof.
The sums payable as set forth above shall be paid to Landlord as
Additional Rent as and when paid by the assignee or subtenant to
Tenant.
In no event shall any assignment or subletting to which Landlord
may consent, release or relieve Tenant from its obligations to
fully observe or perform all of the terms, covenants and
conditions of this Lease on its part to be observed or
performed.
21. Subordination. Landlord reserves the right to subject and subordinate this
Lease at all times to the lien of any first mortgage now or hereafter placed
upon Landlord's interest in the Premises, the Building and/or the Property, and
to any second mortgage with the consent of the first mortgagee, and Tenant shall
execute and deliver any and all documents necessary to evidence such
subordination. Tenant hereby irrevocably appoints Landlord the attorney-in-fact
of Tenant to execute and deliver any such instrument or instruments for and in
the name of Tenant as may be necessary to effect such subordination; provided,
however, no default by Landlord under any such mortgage(s) shall affect Tenant's
rights hereunder so
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long as Tenant is not in default under this Lease. Tenant shall, in the event
any proceedings are brought for the foreclosure of any such mortgage(s), attorn
to the purchaser upon any such foreclosure or sale and recognize such purchaser
as Landlord under this Lease.
22. Tenant's Certificate. Tenant, at any time and from time to time and within
ten (10) days after Landlord's written request, shall execute, acknowledge and
deliver to Landlord a written instrument in recordable form certifying that this
Lease is unmodified and in full force and effect (or, if there have been
modifications, that it is in full force and effect as modified and stating the
modifications); stating that the improvements required by Paragraph 4 hereof
have been completed; certifying that Tenant has accepted possession of the
Premises; stating the date on which the Lease Term commenced and the dates to
which Minimum Annual Rent, Additional Rent and other charges have been paid in
advance, if any; stating that to the best knowledge of the signer of such
instrument Landlord is not in default of this Lease (or if there are defaults
alleged by Tenant, setting forth in detail the nature of such alleged defaults);
stating any other fact or certifying any other condition reasonably requested by
Landlord or required by any mortgagee or prospective mortgagee or purchaser of
the Property or any interest therein; and stating that it is understood that
such instrument may be relied upon by any mortgagee or prospective mortgagee or
purchaser of the Property or any interest therein or by any assignee of
Landlord's interest in this Lease or by any assignee of any mortgagee. The
foregoing instrument shall be addressed to Landlord and to any mortgagee,
prospective mortgagee, purchaser or other party specified by Landlord. Said
instrument shall be in the form of Exhibit "G" attached hereto.
23. Surrender.
(a) Condition of Premises. Subject to the terms of Paragraph 13, at the
expiration or earlier termination of the Lease Term, Tenant shall
promptly yield up, clean and neat, and in the same condition, order and
repair in which they are required to be kept throughout the Lease Term,
the Premises and all improvements, alterations and additions thereto,
and all fixtures and equipment servicing the Building, ordinary wear and
tear excepted.
(b) Holding Over. If Tenant, or any person claiming through Tenant,
shall continue to occupy the Premises after the expiration or earlier
termination of the Lease Term or any renewal thereof, such occupancy
shall be deemed to be under a month-to-month tenancy under the same
terms and conditions set forth in this Lease; except, however, that the
Monthly Rent Installment for each month during such continued occupancy
shall be one hundred fifty percent (150%) multiplied by the amount set
forth in Item (j) of Basic Terms. Anything to the contrary
notwithstanding, any holding over by Tenant without Landlord's prior
written consent shall constitute a default hereunder and shall be
subject to all the remedies set forth in Paragraph 24 hereof.
24. Defaults - Remedies.
(a) Default. The occurrence of any of the following shall constitute a
default (a "Default") by Tenant under this Lease:
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(i) Tenant fails to pay any Rent when due and such failure is
not cured within five (5) days after notice from Landlord;
(ii) Tenant fails to perform any other provision of this Lease
and such failure is not cured within thirty (30) days (or
immediately if the failure involves a hazardous condition) after
notice from Landlord;
(iii) the leasehold interest of Tenant is levied upon or
attached under process of law,
(iv) Tenant or any guarantor of this Lease dies or dissolves;
(v) Tenant abandons or vacates the Premises; or
(vi) any voluntary or involuntary proceedings are filed by or
against Tenant or any guarantor of this Lease under any
bankruptcy, insolvency or similar laws and, in the case of any
involuntary proceedings, are not dismissed within thirty (30)
days after filing.
(b) Termination. If a Default occurs, Landlord shall have the right at
any time to give a written termination notice to Tenant and, on the date
specified in such notice, Tenant's right to possession shall terminate
and this Lease shall terminate. Upon such termination, Landlord shall
have the right to recover from Tenant:
(i) The worth at the time of award of all unpaid Rent which had
been earned at the time of termination;
(ii) The worth at the time of award of the amount by which all
unpaid Rent which would have been earned after termination until
the time of award exceeds the amount of such rental loss that
Tenant proves could have been reasonably avoided;
(iii) The worth at the time of award of the amount by which all
unpaid Rent for the balance of the term of this Lease after the
time of award exceeds the amount of such rental loss that Tenant
proves could be reasonably avoided; and
(iv) All other amounts necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform
all of Tenant's obligations under this Lease or which in the
ordinary course of things would be likely to result therefrom.
The "worth at the time of award" of the amounts referred to in
clauses (i) and (ii) above shall be computed by allowing
interest at the maximum annual interest rate allowed by law for
business loans (not primarily for personal, family or household
purposes) not exempt from the usury law at the time of
termination or, if there is no such maximum annual interest
rate, at the rate of
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twelve percent (12%) per annum. The "worth at the time of award"
of the amount referred to in clause (iii) above shall be
computed by discounting such amount at the discount rate of the
Federal Reserve Bank of San Francisco at the time of award plus
one percent (1%). For the purpose of determining unpaid Rent
under clauses (i), (ii) and (iii) above, the Rent reserved in
this Lease shall be deemed to be the total Rent payable by
Tenant under this Lease.
(c) No Termination. Even though Tenant has breached this Lease, this
Lease shall continue in effect for so long as Landlord does not
terminate Tenant's right to possession, and Landlord shall have the
right to enforce all its rights and remedies under this Lease, including
the right to recover all Rent as it becomes due under this Lease. Acts
of maintenance or preservation or efforts to relet the Premises or the
appointment of a receiver upon initiative of Landlord to protect
Landlord's interest under this Lease shall not constitute a termination
of Tenant's right to possession unless written notice of termination is
given by Landlord to Tenant.
(d) Landlord's Right to Pay and Perform. All agreements and covenants to
be performed or observed by Tenant under this Lease shall be at Tenant's
sole cost and expense and without any abatement of Rent. If Tenant fails
to pay any sum of money to be paid by Tenant or to perform any other act
to be performed by Tenant under this Lease, Landlord shall have the
right, but shall not be obligated, and without waiving or releasing
Tenant from any obligations of Tenant, to make any such payment or to
perform any such other act on behalf of Tenant in accordance with this
Lease. All sums so paid by Landlord and all necessary incidental costs
shall be deemed Additional Rent hereunder and shall be payable by Tenant
to Landlord on demand, together with interest on all such sums from the
date of expenditure by Landlord on demand, together with interest on all
such sums from the date of expenditure by Landlord to the date or
repayment by Tenant at the maximum annual interest rate allowed by law
or, if there is no such maximum annual interest rate, at the rate of
twelve (12%) per annum. Landlord shall have, in addition to all other
rights and remedies of Landlord, the same rights and remedies in the
event of the nonpayment of such sums plus interest by Tenant as in the
case of default by Tenant in the payment of Rent.
(e) Personal Property. If Tenant vacates, abandons or surrenders the
Premises, or is dispossessed by process of law or otherwise, any movable
furniture, equipment, trade fixtures or personal property belonging to
Tenant and left in the Premises shall be deemed to be abandoned at the
option of Landlord, and Landlord shall have the right to sell or
otherwise dispose of such personal property in any commercially
reasonable manner.
(f) Jury Trial. Landlord and Tenant waive trial by jury in the event of
any action, proceeding or counterclaim brought by either Landlord or
Tenant against the other in connection with this Lease.
(g) Non-Waiver. No waiver by Landlord of any breach by Tenant or any of
Tenant's obligations, agreements or covenants herein shall be a waiver
of any
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subsequent breach or of any obligation, agreement or covenant, nor shall
any forbearance by Landlord to seek a remedy for any breach by Tenant be
a waiver by Landlord of any rights and remedies with respect to such or
any subsequent breach.
(h) Rights and Remedies Cumulative. No right or remedy herein conferred
upon or reserved to Landlord is intended to be exclusive of any other
right or remedy provided herein or by law, but each shall be cumulative
and in addition to every other right or remedy given herein or now or
hereafter existing at law or in equity or by statute.
(i) Rights of Mortgagee. In the event of any default by act or omission
by Landlord which would give Tenant the right to terminate this Lease or
to claim a partial or total eviction, Tenant shall not exercise any such
right until it has notified in writing the holder of any mortgage which
at the time shall be a mortgage lien on all or any portion of the
Property (if the name and address of such holder shall previously have
been furnished by written notice to Tenant) of such default, and until a
reasonable period for curing such default shall have elapsed following
the giving of such notice, during which period the holder shall have
failed to commence and continue to cure such default or to cause the
same to be remedied or cured.
25. Bankruptcy or Insolvency; Assumption; Adequate Protection. The following
shall apply in the event of the bankruptcy or insolvency of Tenant:
(a) If a petition is filed by, or an order for relief is entered against
Tenant under Chapter 7 of the Bankruptcy Code and the trustee of Tenant
elects to assume this Lease for the purpose of assigning it, the
election or assignment, or both, may be made only if all of the terms
and conditions of subparagraphs (b) and (d) below are satisfied. If the
trustee fails to elect to assume this Lease for the purpose of assigning
it within sixty (60) days after his appointment, this Lease will be
deemed to have been rejected. To be effective, an election to assume
this Lease must be in writing and addressed to Landlord and, in
Landlord's business judgment, all of the conditions hereinafter stated,
which Landlord and Tenant acknowledge to be commercially reasonable,
must have been satisfied. Landlord shall then immediately be entitled to
possession of the Premises without further obligation to Tenant or the
trustee, and this Lease will be canceled. Landlord's right to be
compensated for damages in the bankruptcy proceeding, however, shall
survive.
(b) If Tenant files a petition for reorganization under Chapters 11 or
13 of the Bankruptcy Code or a proceeding that is filed by or against
Tenant under any other Chapter of the Bankruptcy Code is converted to a
Chapter 11 or 13 proceeding and Tenant's trustee or Tenant as a
debtor-in-possession fails to assume this Lease within sixty (60) days
from the date of the filing of the petition or the conversion, the
trustee or the debtor-in-possession will be deemed to have rejected this
Lease. To be effective, an election to assume this Lease must be in
writing and addressed to Landlord and, in Landlord's business judgment,
all of the following conditions, which Landlord and Tenant acknowledge
to be commercially reasonable, must have been satisfied:
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(i) The trustee or the debtor-in-possession has cured or has
provided to Landlord adequate assurance, as defined below, that:
(1) The trustee will cure all monetary defaults under
this Lease within ten (10) days from the date of the
assumption; and
(2) The trustee will cure all non-monetary defaults
under this Lease within thirty (30) days from the date
of the assumption.
(ii) The trustee or the debtor-in-possession has compensated
Landlord, or has provided to Landlord adequate assurance, as
defined below, that within ten (10) days from the date of the
assumption Landlord will be compensated for any pecuniary loss
it incurred arising from the default of Tenant, the trustee, or
the debtor-in-possession as recited in Landlord's written
statement of pecuniary loss sent to the trustee or the
debtor-in-possession.
(iii) The trustee or the debtor-in-possession has provided
Landlord with adequate assurance of the future performance, as
defined below, of each of Tenant's obligations under the Lease;
provided, however, that:
(1) The trustee or debtor-in-possession will also
deposit with Landlord, as security for the timely
payment of Rent, an amount equal to three (3) months'
Monthly Rent Installments and other monetary charges
accruing under this Lease.
(2) If not otherwise required by the terms of this
Lease, the trustee or the debtor-in-possession will also
pay in advance, on each day that the Minimum Annual Rent
is payable, one-twelfth (1/12) of Tenant's annual
obligations this Lease for Annual Operating Costs.
(3) From and after the date of the assumption of this
Lease, the trustee or the debtor-in-possession will pay
the Minimum Annual Rent payable under this Lease in
advance in equal monthly installments on each day that
the Minimum Annual Rent is payable.
(4) The obligations imposed upon the trustee or the
debtor-in-possession will continue for Tenant after the
completion of bankruptcy proceedings.
(iv) Landlord has determined that the assumption of this Lease
will not:
(1) Breach any provision in any other lease, mortgage,
financing agreement, or other agreement by which
Landlord is bound relating to the Property; or
(2) Disrupt, in Landlord's judgment, the tenant mix of
the Building or any other attempt by Landlord to provide
a specific variety of
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tenants in the Building that, in Landlord's judgment,
would be most beneficial to all of the tenants of the
Building and would enhance the image, reputation, and
profitability of the Building.
For purposes of this Paragraph 25, "adequate assurance" means
that:
(1) Landlord will determine that the trustee or the
debtor-in-possession has, and will continue to have,
sufficient unencumbered assets after the payment of all
secured obligations and administrative expenses to
assure Landlord that the trustee or the
debtor-in-possession will have sufficient funds to
fulfill Tenant's obligations under this Lease and to
keep the Premises properly staffed with sufficient
employees to conduct a fully operational, actively
promoted business on the Premises; and
(2) An order will have been entered segregating
sufficient cash payable to Landlord and/or a valid and
perfected first lien and security interest will have
been granted in property of Tenant, trustee, or
debtor-in-possession that is acceptable for value and
kind to Landlord, to secure to Landlord the obligation
of the trustee or debtor-in-possession to cure the
monetary or nonmonetary defaults under this Lease within
the time periods set forth above.
For the purposes of this Paragraph 25, "adequate assurance of
future performance" means that Landlord has ascertained that
each of the following conditions has been satisfied:
(1) The assignee has submitted a current financial
statement, audited by a certified public accountant,
that shows a net worth and working capital in amounts
determined by Landlord to be sufficient to assure the
future performance by the assignee of Tenant's
obligations under this Lease;
(2) If requested by Landlord, the assignee will obtain
guarantees, in form and substance satisfactory to
Landlord from one or more persons who satisfy Landlord's
standards of creditworthiness;
(3) Landlord has obtained all consents or waivers from
any third party required under any lease, mortgage,
financing arrangement, or other agreement by which
Landlord is bound, to enable Landlord to permit the
assignment; and
(4) When, pursuant to the Bankruptcy Code, the trustee
or the debtor-in-possession is obligated to pay
reasonable use and occupancy charges for the use of all
or part of the Premises, the charges will not be less
than the Minimum Annual Rent and Additional Rent and
other monetary obligations of Tenant included herein as
Rent.
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(c) In the event that this Lease is assigned by a trustee appointed for
Tenant or by Tenant as debtor-in-possession under the provisions of
subparagraph (b) above and, thereafter, Tenant is either adjudicated a
bankrupt or files a subsequent petition for arrangement under Chapter 11
of the Bankruptcy Code, then Landlord may terminate, at its option, this
Lease and all Tenant's rights under it, by giving written notice of
Landlord's election to terminate.
(d) If the trustee or the debtor-in-possession has assumed the Lease,
under the terms of subparagraph (a) or (b) above, and elects to assign
Tenant's interest under this Lease or the estate created by that
interest to any other person, that interest or estate may be assigned
only if Landlord acknowledges in writing that the intended assignee has
provided adequate assurance, as defined in this Paragraph 25, of future
performance of all of the terms, covenants, and conditions of this Lease
to be performed by Tenant.
(e) Neither Tenant's interest in the Lease nor any estate of Tenant
created in the Lease will pass to any trustee, receiver, assignee for
the benefit of creditors, or any other person or entity, or otherwise by
operation of law under the laws of any state having jurisdiction of the
person or property of Tenant unless Landlord consents in writing to the
transfer. Landlord's acceptance of Rent or any other payments from any
trustee, receiver, assignee, person, or other entity will not be deemed
to have waived, or waive, the need to obtain Landlord's consent or
Landlord's right to terminate this Lease for any transfer of Tenant's
interest under this Lease without that consent.
26. Interpretation.
(a) Captions. The captions in this Lease are for convenience only and
are not a part of this Lease and do not in any way define, limit,
describe or amplify the terms and provisions of this Lease or the scope
or intent thereof.
(b) Entire Agreement. This Lease represents the entire agreement between
the parties hereto and there are no collateral or oral agreements or
understandings between Landlord and Tenant with respect to the Premises
or the Property. This Lease supersedes all prior negotiations,
agreements, informational brochures, letters, promotional information
and other statements and materials made or furnished by Landlord or its
agents. The submission of this Lease by Landlord, its attorneys or
agents, for examination or for execution by Tenant, does not constitute
a reservation of (or option for) the Premises in favor of Tenant; and
Tenant shall have no right or interest in the Premises, and Landlord
shall have no liability hereunder, unless and until this Lease is
executed and delivered by Landlord. No rights, easements or licenses are
acquired in the Property or any land adjacent to the Property by Tenant
by implication or otherwise except as expressly set forth in the
provisions of this Lease. This Lease shall not be modified in any manner
except by an instrument in writing executed by the parties. The
masculine (or neuter) pronoun, singular number, shall include the
masculine, feminine and neuter genders and the singular and plural
number.
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(c) Exhibits. Each writing or plan referred to herein as being attached
hereto as an Exhibit or otherwise designated herein as an Exhibit hereto
is hereby made a part hereof.
(d) Interest. Wherever interest is required to be paid hereunder, such
interest shall be at the rate set forth in subparagraph (c)(iv) of
Paragraph 7.
27. Definition of Landlord, Landlord's Liability. The word "Landlord" is used
herein to include the Landlord named above as well as its successors and
assigns, each of whom shall have the same rights, remedies, powers, authorities
and privileges as it would have had it originally signed this Lease as Landlord.
Any such person, whether or not named herein, shall have no liability hereunder
after it ceases to hold title to the Premises except for obligations which may
have theretofore accrued. Neither Landlord nor any principal of Landlord nor any
owner of the Property, whether disclosed or undisclosed, shall have any personal
liability with respect to any of the provisions of this Lease or the Premises,
and if Landlord is in breach or default with respect to Landlord's obligations
under this Lease or otherwise, Tenant shall look solely to the equity of
Landlord in the Property for the satisfaction of Tenant's remedies.
28. Notices. All notices, demands, requests, consents, certificates and waivers
required or permitted hereunder from either party to the other shall be in
writing and sent by United States certified mail, return receipt requested,
postage prepaid. Notices to Tenant shall be addressed to Tenant at the address
designated in Item (b) of Basic Terms or, after the Commencement Date, to the
Premises. Notices to Landlord shall be addressed to Landlord at the address
designated in Item (a) of Basic Terms, with a copy to any mortgagee or other
party designated by Landlord. Either party may at any time, in the manner set
forth for giving notices to the other, specify a different address to which
notices to it shall be sent.
29. Brokerage. Tenant represents and warrants that it has not had any dealings
with any realtors, brokers, or agents in connection with the negotiation of this
Lease other than as set forth in Item (o) of Basic Terms. Tenant shall defend,
hold harmless and indemnify Landlord from and against any claims with respect to
the negotiation or procurement of this Lease by any other realtor, broker or
agent.
30. Intentionally Omitted.
31. Guarantee. In the event a guarantee is executed in connection with this
Lease, said guarantee shall be deemed a part of this Lease.
32. Hazardous Substances. The term "Hazardous Substances, " as used in this
Lease, shall include, without limitation, flammables, explosives, radioactive
materials, asbestos, polychlorinated biphenyls (PCB's), chemicals known to cause
cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes,
toxic substances or related materials, petroleum and petroleum products, and
substances declared to be hazardous or toxic under any law or regulation now or
hereafter enacted or promulgated by any governmental authority.
(a) Environmental Prohibitions. Tenant shall not cause or permit to
occur:
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(i) Any violation of any federal, state, or local law,
ordinance, or regulation now or hereafter enacted, related to
environmental conditions on, under, or about the Premises, or
arising from Tenant's use or occupancy of the Premises,
including, but not limited to, soil and ground water conditions;
or
(ii) The use, generation, release, manufacture, refining,
production, processing, storage, or disposal of any Hazardous
Substance on, under, or about the Premises, or the
transportation to or from the Premises of any Hazardous
Substance.
(b) Environmental Compliance.
(i) Tenant shall, at Tenant's expense, comply with all laws
regulating the use, generation, storage, transportation, or
disposal of Hazardous Substances (the "Laws").
(ii) Tenant shall, at Tenant's expense, make all submissions to,
provide all information required by, and comply with all
requirements of all governmental authorities (the "Authorities")
under the Laws.
(iii) If any Authority or any third party demands that a
clean-up plan be prepared and that a clean-up be undertaken
because of any deposit, spill, discharge, or other release of
Hazardous Substances that occurs during the Term of this Lease,
at or from the Premises, or which arises at any time from
Tenant's use or occupancy of the Premises, then Tenant shall, at
Tenant's expense, prepare and submit the required plans and all
related bonds and other financial assurances; and Tenant shall
carry out all work required by such clean-up plans.
(iv) Tenant shall promptly provide all information regarding the
use, generation, storage, transportation or disposal of
Hazardous Substances that is requested by Landlord. If Tenant
fails to fulfill any duty imposed under this Paragraph 32,
within a reasonable time, Landlord may do so; and in such case,
Tenant shall cooperate with Landlord in order to prepare all
documents Landlord deems necessary or appropriate to determine
the applicability of the Laws to the Premises and Tenant's use
thereof, and for compliance therewith, and, Tenant shall execute
all documents promptly upon Landlord's request. No such action
by Landlord and no attempt made by Landlord to mitigate damages,
under any Law shall constitute a waiver of any of Tenant's
obligations under this Paragraph 32.
(v) Tenant's obligations and liabilities under this Paragraph 32
shall survive the expiration or termination of this Lease.
(c) Environmental Indemnity. Tenant shall indemnify, defend, and hold
harmless Landlord and its officers, directors and shareholders from all
fines, suits, procedures,
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claims, and actions of every kind and all costs associated therewith
(including attorneys' and consultants' fees) arising out of or in any
way connected with any deposit, spill, discharge, or other release of
Hazardous Substances that occurs during the Lease Term at or from the
Premises, or which arises at any time, from Tenant's use or occupancy of
the Premises, or from Tenant's failure to provide all information, make
all submissions, and take all actions required by all Authorities under
the Laws and all other environmental laws. Tenant's obligations and
liabilities under this Paragraph 32(c) shall survive the expiration or
termination of this Lease.
33. Environmental. Tenant acknowledges that Landlord has informed Tenant that
the Building contains asbestos or asbestos-containing materials. At Tenant's
request, Landlord shall made available to Tenant (but without warranty) at the
Building during normal hours, copies of any inspection reports, tests or similar
documents in Landlord's possession respecting the existence and the location of
asbestos in or about the Building. To the extent such reports, tests or other
documents indicate any asbestos-containing materials in or about the Building,
this Paragraph 33 and such documents shall constitute notice and disclosure as
required under California Health and Safety Code Sections 25359.7, 25915.5 and
25917, as applicable with respect to the presence of asbestos or
asbestos-containing materials disclosed on such documents. As required by
California Health and Safety Code Section 25259.7 and any other provisions of
State law, Landlord shall notify Tenant, and Tenant shall notify Landlord, if
either knows or has reasonable causes to believe that any release of hazardous
substance has come to be located on or beneath the Building.
34. Parking. Landlord shall provide Tenant with sixty (60) parking spaces at the
Property, plus one additional space for each additional 500 rentable square feet
pursuant to Tenant's exercise of Tenant's right of first offer as discussed in
Paragraph 35, on a nonexclusive basis without fee or charge to Tenant, except
for Tenant's share of Annual Operating Costs with respect to the parking area.
Nothing contained herein shall be deemed to impose any liability upon Landlord
for personal injury or theft, for damage to any motor vehicle, or for loss of
property from within any motor vehicle, which is suffered by Tenant or any of
Tenant's employees, customers, service suppliers or other invitees in connection
with their use of said automobile parking area except when caused by Landlord's
gross negligence or willful misconduct. In order to assure the proper and
efficient operation and -maintenance of the automobile parking area, Tenant
agrees to comply with all nondiscriminatory rules and regulations established by
Landlord from time to time, and shall cause each of its employees, customers,
service suppliers and invitees to comply with such rules and regulations. The
rights of Tenant and Tenant's employees, customers, service suppliers and
invitees shall at all times be subject to the rights of Landlord and other
tenants in the Building to use the same in common with Tenant and Tenant's
employees, customers, service suppliers and invitees. Landlord shall have the
right to relocate the parking area to another location on the Property. Landlord
shall have the right, in Landlord's sole discretion exercisable at any time, to
impose reasonable fees and charges for parking in the parking area, provided,
however, Tenant shall continue to have sixty (60) parking spaces at the Project
on a non-exclusive basis without fee or charge to Tenant.
35. Right of First Offering. If any space on the eleventh floor of the Building
contiguous to the Premises shall become available for reletting at any time
during the Lease Term, and
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provided (i) that Tenant shall be in possession of the Premises, (ii) that this
Lease shall be in full force and effect, and (iii) that Tenant shall not be in
default under any of the terms, provisions, covenants, or conditions of this
Lease, Tenant shall have a right of first offer to lease such space for the
remaining balance of the Lease Term upon the same terms and conditions contained
in this Lease. Promptly after learning of the availability for lease of such
space, Landlord shall give Tenant written notice of same, which notice shall set
forth the date upon which such space will be made available to Tenant. Tenant
may then exercise such right of first offer by giving written notice of its
acceptance of such offer to Landlord within ten (10) business days after the
date of Landlord's notice. Tenant's failure to respond in writing notifying
Landlord that Tenant elects to lease such space within said ten (10) day period
shall extinguish Tenant's right to exercise such right of first offer with
regard to such space and shall relieve Landlord of any liability with respect to
the same. Any expansion space shall be delivered to Tenant vacant and
unoccupied, and in an "as is" condition. Landlord shall deliver the expansion
space to Tenant on the date specified by Landlord in its offer notice, but in no
event shall Landlord have any liability for the failure to deliver the expansion
space to Tenant on such date, unless another tenant shall hold over in such
expansion space, in which event Landlord shall have no liability to Tenant for a
failure to timely deliver the expansion space pursuant to this Paragraph 35 so
long as Landlord exercises reasonable diligence thereafter in removing such
hold-over tenant, nor shall any such failure impair the validity of this Lease,
extend the Lease Term, or impair any obligations of Tenant under this Lease.
36. Option to Extend Term. Subject to the provisions set forth below, Landlord
hereby grants to Tenant one (1) option (the "Extension Option") to extend the
term of this Lease for a period of three (3) years (the "Extension Term"). The
Extension Term shall commence immediately following the Expiration Date as is
set forth in Item (g) of Basic Terms. The Extension Option shall be effective
only as to that portion of the Premises directly leased by Tenant from Landlord
at the time the Extension Option is exercised, and only if Tenant is not in
default under any of the terms or conditions of this Lease at the time the
Extension Option is exercised or at any time thereafter until the Extension Term
is commenced. The Extension Option must be exercised, if at all, by written
notice from Tenant to Landlord delivered not less than four (4) months prior to
the Expiration Date. Any such notice given by Tenant to Landlord shall be
irrevocable, except as provided for in subparagraph (a)(iv) below. The Extension
Term shall be upon the terms, covenants and conditions set forth in subparagraph
(b) below. The option to extend shall be deemed personal to Tenant and may not
be assigned, except to an assignee under an assignment made pursuant to the
provisions of this Lease. If Tenant fails to exercise the Extension Option in a
timely manner as required above, said Extension Option shall terminate.
(a) If Tenant elects to exercise the Extension Option, the resulting
Extension Term shall be upon and subject to all of the terms, covenants
and conditions of this Lease, except as otherwise set forth below:
(i) Landlord shall have no obligation to do any work of
improvement or perform any services and Tenant shall accept the
Premises in an "as-is" "where-is" condition;
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(ii) Tenant shall have no further renewal option;
(iii) The Base Year for calculating Base Annual Operating Costs
shall remain the same as that set forth in Item (k) of Basic
Terms; and
(iv) The Minimum Annual Rent applicable to the Premises shall be
adjusted to one hundred percent (100%) of the Fair Market Rental
(as hereinafter defined) as of commencement of the Extension
Term, provided, however, that the Minimum Annual Rent shall in
no event be less than $2.20 per rentable square foot per month.
For purposes hereof, "Fair Market Rental" shall mean the rental
and all other monetary payments and escalations, including,
without limitation, consumer price indexing, that Landlord could
obtain from a third party desiring to lease the Premises for
said Extension Term on a "fully-serviced" basis, taking into
account the age of the Building, the size, location and floor
levels of the Premises, the quality of construction of the
Building and the Premises, the tenant improvements, the services
provided under the terms of this Lease, the rental then being
obtained for new leases of space comparable to the Premises in
the Mountain View market, and all other factors that would be
relevant to a third party desiring to lease the Premises for
said Extension Term in determining the rental such party would
be willing to pay therefor; provided, however, no allowance for
the construction of tenant improvements shall be taken into
account in determining the Fair Market Rental or for costs which
would ordinarily be incurred in leasing to a new (nonrenewal)
tenant for brokerage commissions, advertising costs, attorneys'
fees, interruption of rentals due to a change in tenants, lost
rentals during any improvement period, or similar costs. No
later than three (3) months prior to commencement of the
Extension Term, Landlord shall notify Tenant of the Fair Market
Rental as determined by Landlord. Tenant shall have thirty (30)
days (the "Tenant's Review Period") after receipt of Landlord's
notice of the new Rent within which to accept such Rent or
reasonably to object thereto in writing. In the event that
Tenant does not object in writing to Landlord's determination of
Fair Market Rental, Tenant shall be deemed to have accepted such
determination. If Tenant objects to Landlord's determination of
such new Rent, Landlord and Tenant then shall attempt for thirty
(30) days to agree upon the Fair Market Rental, using their best
good faith efforts. If Landlord and Tenant fail to reach
agreement within thirty (30) days following the Tenant's Review
Period (the "Outside Agreement Date"), then the Fair Market
Rental shall be determined by arbitration in accordance with the
following:
(A) Landlord and Tenant each shall appoint one
arbitrator who shall be a member of the American
Institute of Real Estate Appraisers (or any successor
association or body of comparable standing) and shall
have been engaged in the appraisal of commercial real
estate in the area of the Building for a period of not
less than five (5) years immediately preceding his/her
appointment.
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(B) The two (2) arbitrators so appointed shall, within
fifteen (15) days of the date of appointment of the last
appointed arbitrator, agree upon and appoint a third
arbitrator who shall be qualified under the same
criteria set forth hereinabove for the qualification of
the initial two (2) arbitrators.
(C) The three (3) arbitrators shall, within thirty (30)
days of the appointment of the third arbitrator,
determine the Fair Market Rental, and shall notify
Landlord and Tenant thereof.
(D) The decision of a majority of the three (3)
arbitrators shall be binding on Landlord and Tenant.
(E) If either Landlord or Tenant should fail to appoint
an arbitrator within fifteen (15) days after the Outside
Agreement Date, the arbitrator who is timely appointed
shall, within thirty (30) days of his/her appointment,
determine the Fair Market Rental and notify Landlord and
Tenant thereof, and such arbitrator's decision shall be
binding upon Landlord and Tenant.
(F) If a majority of the arbitrators cannot agree as to
the Fair Market Rental, then Fair Market Rental shall be
the middle determination of Fair Market Rental of the
three (3) arbitrators and the parties shall disregard
the high and low determinations of two (2) of the three
(3) arbitrators.
(G) If the two (2) arbitrators fail to agree upon and
appoint a third arbitrator within fifteen (15) days of
the appointment of the last appointed arbitrator, such
third arbitrator shall be appointed by the then
Presiding Judge of Santa Clara County, California, and
neither Landlord nor Tenant shall raise any question to
such Judge's full power and authority to entertain the
application for and make such appointment.
(H) The cost of arbitration shall be paid Landlord and
Tenant equally. The decision of the arbitrators may be
entered in any court having jurisdiction thereof.
If either by agreement of the parties or by determination of an
appraisal the Fair Market Rental is not finally determined by the commencement
of said Extension Term, then Tenant shall continue to pay the monthly Rent in
effect immediately prior to the commencement of said Extension Term until such
time as the Fair Market Rental is finally determined by agreement of the parties
or by an appraiser. If the Fair Market Rental as finally determined for said
Extension Term exceeds the monthly amount previously paid by Tenant for the
Extension Term, Tenant shall forthwith pay the difference to Landlord for each
of the months Tenant paid the lesser amount.
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IN WITNESS WHEREOF, and in consideration of the mutual entry into this Lease and
for other good and valuable consideration, and intending to be legally bound,
each party hereto has caused this Agreement of Lease to be duly executed as of
the day and year first above written.
LANDLORD:
THE TRAVELERS INSURANCE COMPANY,
a Connecticut Corporation
By [SIGNATURE ILLEGIBLE]
---------------------------------
Its: Vice President
--------------------------------
By [SIGNATURE ILLEGIBLE]
---------------------------------
Its: Assistant Secretary
--------------------------------
TENANT:
ACADEMIC SYSTEMS CORPORATION,
a California Corporation
By [SIGNATURE ILLEGIBLE]
---------------------------------
Its: VP & CFO
--------------------------------
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(Landlord's Acknowledgment)
STATE OF CALIFORNIA
COUNTY OF CONTRA COSTA
On AUGUST 30, 1996 before me Ranetta K. Friedman personally appeared Guy R.
McComb & Steven H. Rothert, personally known to me to be the person(s) whose
name(s) are subscribed to the within instrument and acknowledged to me that they
executed the same in their authorized capacity(ies), and that by their
signature(s) on the instrument the person(s), or the entity upon behalf of which
the person(s) acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ RANETTA K. FRIEDMAN (seal) [SEAL]
---------------------------------
<PAGE> 40
(Tenant Acknowledgment)
STATE OF CALIFORNIA
COUNTY OF SANTA CLARA
On JULY 15, 1996 before me PATRICK J. PYNE personally appeared WILLIAM M.
REICHART, personally known to me (or proved to me on the basis of satisfactory
evidence) to be the person(s) whose name(s) is/are subscribed to the within
instrument and acknowledged to me that he/she/they executed the same in
his/her/their authorized capacity(ies), and that by his/her/their signatures) on
the instrument the person(s), or the entity upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal.
Signature /s/ PATRICK J. PYNE (seal)
---------------------------------
[SEAL]
<PAGE> 41
[FLOOR PLAN]
<PAGE> 42
[FLOOR PLAN]
<PAGE> 43
EXHIBIT "B"
DESCRIPTION OF PROPERTY
Those parcels of land in the City of Mountain View, County of Santa Clara, State
of California described as follows:
PARCEL 1:
All of lots 10, 11, 13, 14, 15, 16, 17 and 18, Block 1, Range 4 South, Map of
the Bailey Addition to the Town of New Mountain View, filed September 17, 1888,
Map Book D, Page 23, Santa Clara County Records.
PARCEL 2:
Portion of Block 1, Range 4 South, as shown upon that certain Map entitled, "Map
of the Bailey Addition to the Town of New Mountain View," filed September 17,
1888, Map Book D. Page 23, Santa Clara County Records, and more particularly
described as follows:
Beginning at a point on the westerly line of Castro Street distant thereon south
26 degrees west 214 feet from the point of intersection of the westerly line of
Castro Street with the southerly line of California Street; thence south 26
degrees west and along said westerly line of Castro Street 86 feet; thence at
right angles north 64 degrees west and parallel with the southerly line of
California Street 150 feet; thence at right angles north 26 degrees east and
parallel with the westerly line of Castro street 86 feet; thence at right angles
south 64 degrees east and parallel with the southerly line of California Street,
150 feet to the point of beginning
PARCEL 3:
A non-exclusive easement for ingress, egress and parking purposes over a parcel
of land described as follows:
Portion of Lot 9, Block 2, Range 4 South, Map of the Bailey Addition to the Town
of New Mountain View, filed September 17, 1888, Map Book D, page 23, Santa Clara
County Records, more particularly described as follows:
Beginning at point on the northwesterly line of Bryant Street, distant thereon
2.00 feet southwesterly from the dividing line between Lots 8 and 9, Block 2,
Range 4 South, as said Street; Lots, Block and Range are shown upon the Map
herein referred to; thence southwesterly along the said northwesterly line of
Bryant Street, 48 feet to the dividing line between Lots 9 and 12, in said Block
2, Range 4 South; thence northwesterly along the said dividing line between Lots
9 and 12, a distance of 115 feet; thence northeasterly and parallel with the
said northwesterly line of Bryant Street, 48 feet; thence southeasterly and
parallel with the said dividing line between lots 8 and 9, a distance of 115
feet to the point Of beginning.
<PAGE> 44
EXHIBIT "C"
TENANT IMPROVEMENT WORK AGREEMENT
This Tenant Improvement Work Agreement (this "Agreement") is made and entered
into as of the 1st day of July, 1996 by and between THE TRAVELERS INSURANCE
COMPANY, a Connecticut corporation (hereinafter "Landlord") and ACADEMIC SYSTEMS
CORPORATION, a California corporation (hereinafter "Tenant").
A. Landlord and Tenant have entered into a Lease ("Lease"), dated as of July 1,
1996, for Suite Nos. 1111, 1120 and 1200 located on the 11th and 12th
floors in the Building located at 444 Castro Street, Mountain View, California
94041 (hereinafter the "Premises").
B. Certain tenant improvement work is to be completed upon the Premises.
C. The purpose of this Agreement is to set forth the relative rights and
obligations of Landlord and Tenant with respect to space planning, engineering,
final working drawings, and the construction and installation of certain tenant
improvements upon the Premises.
NOW THEREFORE, for and in consideration of the agreement to lease the Premises,
pay rent, and the mutual covenants contained herein, the parties agree as
follows:
1. Plans and Specifications.
(a) Tenant shall cooperate with Landlord and Landlord's space
planner, architect and engineer with respect to preparation of space plans for
leasehold improvements to the Premises, which space plans shall include, without
limitation, the location of doors, partitions, electrical and telephone outlets,
plumbing fixtures, heavy floor loads and other special requirements, but
excluding design and furniture layouts, which services shall be obtained by
Tenant at Tenant's sole cost and expense. Tenant's space planner or architect
may prepare, at Tenant's sole expense, preliminary space plans. The final space
plans submitted to Tenant for approval, however, shall be prepared by Landlord's
space planner, engineer and/or architect. Tenant shall approve or object to
(with detailed revisions) the space plans in writing within ten (10) days after
receipt thereof.
(b) Based on the approved space plans, Landlord shall cause its
space planner, architect and engineer to prepare detailed plans and
specifications for construction of leasehold improvements (the "Plans").
Tenant's space planner or architect may, at Tenant's sole expense, select
finishes and coordinate the design with Landlord's space planner, engineer or
architect. The Plans, however, shall be prepared by Landlord's space planner,
architect and engineer. Tenant shall approve or object to (with detailed
revisions) the Plans in writing within ten (10) days after receipt thereof.
2. Cost of Leasehold Improvements.
(a) With reasonable promptness after approval of the Plans,
Landlord shall provide to Tenant a detailed breakdown of the estimated cost of
the leasehold improvements;
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<PAGE> 45
the cost of space plans and specifications and studies; space planning,
architectural and engineering fees; governmental agency plan check, permit and
other fees; sales and use taxes; Title 24 fees; ADA compliance fees; all other
costs to be incurred by Landlord in the construction of the leasehold
improvements; and a fee for Landlord's contractor for profit, overhead and
general conditions. Within ten (10) days after receipt of the breakdown of the
cost of leasehold improvements, Tenant shall either approve same in writing or
shall provide Landlord with a detailed list of revisions to the approved Plans.
(b) Wherever practical, Landlord shall obtain, through its
general contractor, a minimum of three quotes.
(c) Tenant shall bear the cost of leasehold improvements,
subject to a leasehold improvement allowance in the amount of $106,230.00 (the
"Leasehold Improvement Allowance") which shall be credited by Landlord toward
the cost of leasehold improvements, including, at Tenant's option, carpeting and
painting, space plan fees, and other tenant improvements. In the event that such
cost of leasehold improvements exceeds the Leasehold Improvement Allowance,
Tenant shall pay such excess to Landlord by cashier's check ("Improvement
Payment"), which payment shall be made within five (5) days after Landlord's
notice to Tenant that Landlord is prepared to commence construction. In the
event that such cost of leasehold improvements is less than the Leasehold
Improvement Allowance, the unused portion thereof shall belong to Landlord.
(d) In the event Tenant fails to pay to Landlord the Improvement
Payment within five (5) days after notice by Landlord to Tenant that Landlord is
prepared to commence construction, Landlord shall not be obligated to commence
work on the tenant improvements for the Premises, and such failure to pay shall
not delay the Commencement Date of the Lease or any of Tenant's obligations
thereunder including, without limitation, Tenant's obligation to pay rent. In
the event that Tenant fails to pay to Landlord, upon Substantial Completion (as
defined in Paragraph 4) of tenant improvements for the Premises, a sum equal to
the actual cost of construction of tenant improvements in excess of Leasehold
Improvement Allowance, less any portion of the Improvement Payment previously
paid by Tenant to Landlord, such failure shall constitute a default under the
Lease and Landlord shall be entitled to all rights and remedies available under
the Lease, or at law or in equity, or otherwise, which rights shall be
cumulative. All actual sums so owing to Landlord shall constitute Additional
Rent and shall bear interest at the rate provided for late payments in the
Lease. Tenant shall be liable for all costs of enforcing the rights set forth
herein, including Landlord's reasonable attorneys' fees.
(e) To the extent that the cost of leasehold improvements
increases above the Leasehold Improvement Allowance due to the requirements of
any governmental agency, subsequent to Tenant's approval, Tenant shall pay to
Landlord the amount of such increase within five (5) days after Landlord's
written notice.
(f) In the event that Tenant requests a change in the Plans
subsequent to approval of the cost of leasehold improvements, Landlord shall
advise Tenant promptly of any increase in the estimated cost of leasehold
improvements and any delay such change would be likely to cause in the
construction of the leasehold improvements. Tenant shall
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approve or disapprove such change in writing within five (5) days after written
notice. In the event that Tenant approves such change, Tenant shall accompany
its approval with payment in the amount of any increase above the Leasehold
Improvement Allowance resulting therefrom.
3. Construction of Leasehold Improvements.
(a) Upon approval by Tenant of the cost of leasehold
improvements, and upon payment of any excess, Landlord shall cause its
contractor to proceed to secure a building permit and commence construction.
(b) Landlord shall not be liable for any direct or indirect
damages as a result of any delay in construction.
4. Substantial Completion. Substantial Completion referred to in
Paragraph 2(d) shall mean Landlord has completed all the work to be performed by
Landlord in accordance with this Agreement to such state of completion as will
allow Tenant to utilize the Premises for its intended purpose, without material
interference by reason of final completion, as determined by Landlord's space
planner, engineer or architect.
5. ADA Compliance. Any payments or actions required for the Premises to
comply with ADA pertaining to the construction of Tenant's leasehold
improvements pursuant to this Agreement shall be the sole responsibility of
Tenant. Any payments or actions required for the common areas of the Building to
comply with ADA pertaining to the construction of Tenant's leasehold
improvements pursuant to this Agreement shall be the sole responsibility of
Landlord.
6. Miscellaneous.
(a) Definitions. Defined terms not otherwise defined in this
Agreement shall have the meanings ascribed to such terms in the
Lease.
(b) Heading. The headings contained in this Agreement are for
convenience only.
(c) Force Majeure. Landlord shall not be responsible for failure
to complete Building Standard or Non-Standard work due to
reasons beyond its control including, without limitation,
strikes, natural disasters, acts of God, civil commotion, riots,
war, or governmental action.
(d) Election of Law. This Agreement shall be governed by the law
of the State of California other than such law with respect to
conflicts of law.
(e) Time is of the Essence. Time is of the essence in this
Agreement, and all deadlines shall be strictly adhered to,
unless otherwise provided herein.
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(f) Entire Agreement. This Agreement sets forth the entire
agreement of Landlord and Tenant regarding Tenant Improvements.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first hereinabove set forth.
"LANDLORD"
THE TRAVELERS INSURANCE COMPANY,
a Connecticut corporation
By:
---------------------------------
Its:
---------------------------------
"TENANT"
ACADEMIC SYSTEMS CORPORATION,
a California corporation
By:
---------------------------------
Its:
---------------------------------
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EXHIBIT "D"
FIRST AMENDMENT TO LEASE
THIS AGREEMENT, made this ________ day of ________________, 1996 by and between
THE TRAVELERS INSURANCE COMPANY, a Connecticut corporation (hereinafter referred
to as "Landlord"), and ACADEMIC SYSTEMS CORPORATION, a California corporation
(hereinafter referred to as "Tenant").
WITNESSETH:
WHEREAS, Landlord and Tenant did enter into that certain Lease Agreement dated
__________ ____, 1996, for the demise of __________________________________
("Premises"), which said Premises, and any and all improvements located thereon
are more particularly described therein (hereinafter the "Lease"); and
WHEREAS, all terms defined in the Lease shall have the same meanings when
referred to herein; and,
WHEREAS, Landlord has requested that Tenant acknowledge the "Commencement Date"
of the Lease, pursuant to and in accordance with Paragraph 5 thereof, and
Landlord has further requested Tenant to acknowledge and confirm (i) its
obligations attendant upon such Commencement Date, and (ii) the "Expiration
Date" of the Lease, pursuant to and in accordance with Paragraph 5 thereof; and
WHEREAS, Tenant has agreed to acknowledge said Lease Commencement and Expiration
Dates.
NOW, THEREFORE, in consideration of the Premises and the mutual promises and
covenants herein contained, Landlord and Tenant hereby agree as follows:
1. The Commencement Date of the Lease shall be ____________________ and the
Expiration Date of the Lease shall be _________________, and such respective
dates of commencement and expiration of the Lease shall, if different from the
dates designated in Item (g) of Basic Terms of the Lease, be substituted
therefor. It is understood and agreed by Landlord and Tenant that any and all of
Tenant's covenants and obligations as by the Lease provided shall become
effective as of the said Commencement Date, including, but not limited to, the
payment of Minimum Annual Rent, Additional Rent, insurance, and any and all
other Rent as designated in Item (h) of Basic Terms of the Lease.
2. The number of square feet comprising the Premises shall be _________________
square feet, and such ___________________ square feet shall be substituted for
the approximate square footage as set forth in Item (c) of Basic Terms of the
Lease, and in each and every other Paragraph of the Lease wherein reference is
made to the approximate number of square feet comprising the Premises.
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3. All work to be performed by Landlord pursuant to Paragraph 4 of the Lease has
been substantially completed, and Tenant has accepted the performance of such
work by Landlord.
4. Except as hereby modified and amended, all other terms, provisions, covenants
and conditions of the Lease shall remain and in full force and effect.
IN WITNESS WHEREOF, Landlord and Tenant have caused this First Amendment to
lease to be executed by their duly authorized representatives on the day and
year above written.
LANDLORD:
THE TRAVELERS INSURANCE COMPANY,
a Connecticut corporation
By:
---------------------------------
Its:
--------------------------------
TENANT:
ACADEMIC SYSTEMS CORPORATION,
a California corporation
By:
---------------------------------
Its:
--------------------------------
D-2
<PAGE> 50
EXHIBIT "E"
CLEANING AND JANITORIAL SERVICES
I. MAIN LOBBIES, ELEVATOR LOBBIES, STAIRWAYS, ELEVATORS
Nightly Services (Five nights per week)
1. Gather all wastepaper and place for disposal. Replace liner bags from
customer's stock or provide and back charge.
2. Dust mop tile or hard surfaced floors.
3. Vacuum all carpet.
4. Spot clean all carpet.
5. Empty and wash all ashtrays.
6. Wash entrance door glass, spot clean partition glass.
7. Dust all horizontal surfaces. Spot wash to remove spillage.
8. Vacuum all walk-on mats.
9. Clean and polish elevator doors, tracks, cab stainless or brass. Vacuum
carpet and spot clean.
10. Damp mop tile or hard surfaced floors.
11. Spray buff tile or hard surfaced floors.
12. Spot clean all wall surfaces to remove smudges and hand prints.
13. Wash and sanitize drinking fountains.
Weekly Services (One time per week)
1. Dust mop and damp mop stairways.
2. Dust down banisters and risers in stairways.
3. Bonnett clean carpeted lobbies.
Monthly Services
1. Wash both sides of all interior and exterior glass (except for the
interior of glass in leased space).
Semi Annual Services (Two times per year)
1. Strip, thoroughly rinse, and apply two coats of sealer, and two coats of
finish to tile and hard surfaced floors.
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II. GENERAL OFFICE AREA
Nightly Services (Five nights per week)
1. Gather all wastepaper and place for disposal. Replace liner bags from
customer's stock or provide and back charge.
2. Empty and wash all ashtrays.
3. Dust mop all tile and hard surfaced floors.
4. Vacuum all carpeted traffic pattern areas.
5. Spot clean carpeted areas.
6. Dust desks, chairs, tables, file cabinets, and telephones.
7. Remove fingerprints from doors, light switches, and partition glass.
8. Wash all drinking fountains.
Weekly Services (One time per week)
1. Dust low and high horizontal and vertical surfaces.
2. Detail vacuum comers, edges, and hard to reach areas not vacuumed
nightly.
3. Dust mop, damp mop, and spray buff tile floors.
4. Vacuum all fabric office furniture, including chairs and couches.
Monthly Services (Every two months)
1. Refinish all tile floors with one (1) coat of floor finish.
2. Vacuum draperies and ceiling vents.
Quarterly Services
1. Wash both sides of all exterior glass.
Annual Services (Where applicable)
1. Strip, thoroughly rinse, and apply two (2) coats of sealer and two (2)
coats of finish to tile floors.
2. Wash ceiling lights to include lenses, bulbs, and pans.
III. RESTROOMS
Nightly Services (Five nights per week)
1. Clean and sanitize wash basins, toilets, and urinals.
2. Clean and polish dispensers, chrome fittings, mirrors, and entrance
doors.
3. Dust mop and wet mop floors using a disinfectant mopping soap.
4. Dust ledges and partitions.
5. Fill dispensers from stock. Towels, tissue, sanitary napkins, and hand
soap to be furnished by customer or provided and back charged.
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6. Report any fixture not working properly to building management.
Weekly Services (One time per week)
1. Spot wash partitions, walls, and doors.
Monthly Services (One time per month)
1. Machine scrub ceramic tile floors.
2. Dust ceiling vents.
3. Hand wash all ceramic walls.
IV. LUNCHROOM
Nightly Services (Five nights per week)
1. Empty trash receptacles and damp wipe outside of container.
2. Dust mop tile or hard surfaced floors.
3. Damp mop spills from tile or hard surfaced floors.
4. Vacuum carpet and spot clean.
5. Remove spots from walls in eating area.
6. Dust chairs and counters.
7. Wash table tops to remove spillage.
8. Empty and wash ashtrays.
Weekly Services (One time per week)
1. Dust mop, damp mop, and spray buff tile or hard surfaced floors.
Semi Monthly (Six times per year)
1. Refinish all tile or hard surfaced floors with one (1) coat of floor
finish.
Annual Services (One time per year)
1. Strip, thoroughly rinse, apply two (2) coats of sealer and two (2) coats
of floor finish to tile or hard surfaced floors.
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<PAGE> 53
EXHIBIT "F"
RULES AND REGULATIONS
This Exhibit "F" is attached to and made a part of that Agreement of Lease dated
July 1, 1996 (the "Lease"), between THE TRAVELERS INSURANCE COMPANY, a
Connecticut corporation ("Landlord"), and ACADEMIC SYSTEMS CORPORATION, a
California corporation ("Tenant"). Unless the context otherwise requires, the
terms used in this Exhibit that are defined in the Lease shall have the same
meaning as provided in the Lease.
The following rules and regulations have been formulated for the safety and
well-being of all tenants of the Building and to insure compliance with
governmental and other requirements. Strict adherence to these rules and
regulations is necessary to guarantee that each and every tenant will enjoy a
safe and undisturbed occupancy of its premises in the Building. Any continuing
violation of these rules and regulations by Tenant shall constitute a default by
Tenant under the Lease.
Landlord may, upon request of any tenant, waive the compliance by such tenant of
any of the following rules and regulations, provided that (i) no waiver shall be
effective unless signed by Landlord's authorized agent, (ii) any such waiver
shall not relieve such tenant from the obligation to comply with such rule or
regulation in the future unless otherwise agreed to by Landlord, (iii) no waiver
granted to any tenant shall relieve any other tenant from the obligation of
complying with these rules and regulations, unless such other tenant has
received a similar written waiver from Landlord, and (iv) any such waiver shall
not relieve such tenant from any liability to Landlord for any loss or damage
occasioned as a result of such tenant's failure to comply.
1. The sidewalks, entrances, passages, courts, elevators, vestibules, stairways,
corridors, roof, halls and other parts of the Building not exclusively occupied
by any tenant shall not be obstructed or encumbered by any tenant or used for
any purpose other than ingress and egress to and from each tenant's premises.
Landlord shall have the right to control and operate the public portions of the
Building, and the facilities furnished for common use of the tenants, in such
manner as Landlord deems best for the benefit of the tenants generally. No
tenant shall permit the visit to its premises of persons in such numbers or
under such conditions as to interfere with the use and enjoyment of the
entrances, corridors, elevators and other public portions or facilities of the
Building by other tenants.
2. No awnings or other projections shall be attached to the outside walls of the
Building without the prior written consent of Landlord. No drapes, blinds,
shades or screens shall be attached to or hung in, or used in connection with,
any window or door of the Premises, without the prior written consent of
Landlord. All awnings, projections, curtains, blinds, shades, screens and other
fixtures must be of a quality, type, design and color, and attached in the
manner approved by Landlord.
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<PAGE> 54
3. No showcases or other articles shall be put in front of or affixed to any
part of the exterior of the Building or any tenant's premises, nor placed in the
halls, corridors or vestibules without the prior written consent of Landlord.
4. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no debris,
rubbish, rags or other substances shall be thrown therein. All damage resulting
from any misuse of the fixtures shall be borne by the tenant who, or whose
servants, employees, agents, visitors or licensees, shall have caused the same.
5. There shall be no marking, painting, drilling into or defacement of the
Building or any part of any tenant's premises that is visible from public areas
of the Building. Tenants shall not construct, maintain, use or operate within
their respective premises any electrical device, wiring or apparatus in
connection with a loud speaker system or other sound system, except as
reasonably required as part of a communication system approved prior to the
installation thereof by Landlord. No such loud speaker or sound system shall be
constructed, maintained, used or operated outside the premises of any tenant.
6. No bicycles or vehicles and no animals, birds or pets of any kind shall be
brought into or kept in or about the Building or any tenant's premises, except
that this rule shall not prohibit the parking of bicycles or vehicles in areas
specifically designated therefor by Landlord. No cooking or heating of food
shall be done or permitted by any tenant on its premises except for food
prepared in portable microwave ovens, and coffee, tea, hot chocolate and
espresso machine-made beverages (provided that no odors are emitted). No tenant
shall cause or permit any unusual or objectionable odors to be produced upon or
permeate from its premises.
7. No space in the Building shall be used for the manufacture of goods for sale
in the ordinary course of business, or for the sale at auction of merchandise,
goods or property of any kind. Furthermore, the use of its premises by any
tenant shall not be changed without the prior approval of Landlord.
8. No tenant shall make any unseemly or disturbing noises or disturb or
interfere with the occupants of the Building or neighboring buildings or
premises or those having business with them, whether by the use of any musical
instrument, radio, talking machine, whistling, singing, or in any other way. No
tenant shall throw anything out of the doors or windows or into or down the
corridors or stairs of the Building.
9. No flammable, combustible or explosive fluid, chemical or substance shall be
brought into or kept upon the Premises.
10. No additional locks or bolts of any kind shall be placed upon any of the
doors or windows by any tenant, nor shall any changes be made in any existing
locks or the locking mechanism therein, without Landlord's approval. The doors
leading to the corridors or main halls shall be kept closed during business
hours except as they may be used for ingress or egress. Each tenant shall, upon
the termination of its tenancy, restore to Landlord all keys of stores, offices,
storage and toilet rooms either furnished to, or otherwise procured by,
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<PAGE> 55
such tenant, and in the event of the loss of any keys so furnished, such tenant
shall pay to Landlord the replacement cost thereof. Tenant's key system shall be
separate from that for the rest of the Building.
11. Landlord reserves the right to inspect all freight to be brought into the
Building and to exclude from the Building all freight which violates any of
these rules and regulations of the Lease.
12. No tenant shall pay for any employees on its premises, except those actually
working for such tenant at the tenant's premises.
13. Landlord reserves the right to exclude from the Building at all times any
person who is not known or does not properly identify himself or herself to the
Building management or watchman on duty. Landlord may, at its option, require
all persons admitted to or leaving the Building between the hours of 6:00 p.m.
and 7:00 a.m., Monday through Friday, and at any hour on Saturdays, Sundays and
legal holidays, to register. Each tenant shall be responsible for all persons
for whom it authorizes entry in the Building, and shall be liable to Landlord
for all acts or omissions of such persons.
14. The Premises shall not, at any time, be used for lodging or sleeping or for
any immoral or illegal purposes.
15. Tenant assumes full responsibility for protecting the Premises from theft,
and each tenant, before closing and leaving the Premises at any time, shall see
that all doors and windows are closed and locked, and all lights turned off.
16. Landlord's employees shall not perform any work or do anything outside of
their regular duties, unless under special instruction from the management of
the Building. The requirements of tenants will be attended to only upon
application to Landlord, and any such special requirements shall be billed to
Tenant (and paid when the next installment of rent is due) in accordance with
the schedule of charges maintained by Landlord from time to time or at such
charge as is agreed upon in advance by Landlord and Tenant.
17. Canvassing, soliciting and peddling in the Building and on the Property are
prohibited and each tenant shall cooperate to prevent the same. Peddlers,
solicitors and beggars shall be reported to the Building manager or as Landlord
otherwise requests.
18. There shall not be used in any space, or in the public halls of the
Building, either by any tenant or by jobbers or others in the delivery or
receipt of merchandise, any hand trucks, except those equipped with rubber tires
and side guards. Tenant shall be responsible to Landlord for any loss or damage
resulting from any deliveries made by or for Tenant to the Building.
19. Mats, trash or other objects shall not be placed in the public corridors of
the Building.
20. Landlord does not maintain suite finishes which are non-standard, such as
kitchens, bathrooms, wallpaper, special lights, etc. However, should the need
arise for repairs of
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items not maintained by Landlord, Landlord will arrange for the work to be done
at Tenant's expense.
21. Drapes installed by Landlord for the use of Tenant or drapes installed by
Tenant, with Landlord's approval, which are visible from the exterior of the
Building, must be cleaned by Tenant at least once a year, without notice, at the
tenant's own expense.
22. The Building directory located in the Building lobby as provided by Landlord
shall be available to Tenant solely to display its name and location in the
Building, which display shall be as directed by Landlord.
23. Tenant shall not cause any unnecessary janitorial labor or services by
reason of Tenant's carelessness or indifference in the preservation of good
order and cleanliness.
24. Tenant shall not install linoleum, tile, carpet or other floor covering so
that the same shall be affixed to the floor of the Premises in any manner except
as approved by Landlord.
25. No furniture, packages, supplies, equipment or merchandise will be received
in the Building or carried up or down in the elevators, except between such
hours and in such elevators and other such other conditions as shall be
designated by Landlord.
26. Tenant shall not waste heat or air-conditioning and shall cooperate fully
with Landlord to assure the most effective operation of the Building's heating
and air- conditioning, and shall refrain from attempting to adjust any controls
other than room thermostats installed for Tenant's use.
27. Landlord shall have sole power and discretion to control the quantity, size,
location, and design of all tenant identification signage. No such signage shall
be erected without Landlord's written consent.
28. The loading dock area is exclusively reserved for authorized traffic and
Tenant shall not use same for temporary parking.
29. No eating, drinking, sleeping, or loitering shall be permitted in the lobby
areas.
30. Landlord may from time to time alter or amend these rules and regulations,
and Tenant shall comply with the amended rules and regulations.
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EXHIBIT "G"
TENANT ESTOPPEL CERTIFICATE
TO: ____________________________________________________________________________
RE: Property Address: __________________________________________________________
Lease Date:_____________________________________________________________
Between:______________________________________________________, Landlord
and ____________________________________________________________, Tenant
Rentable Area Leased: __________________________________________________
Suite No. ______________________________________________________________
Floor:
The undersigned, Tenant under the above-referenced lease ("Lease"),
certifies to ___________________________________________________, the following:
1. The above-described Lease has not been canceled, modified, assigned,
extended or amended except as follows:
________________________________________________________________________
________________________________________________________________________
2. There is no prepaid rent, except $ _____________ and the amount of
security deposit is $ ____________.
3. We took possession of the Premises on _______________ and commenced
(or will commence) to pay Rent on __________________ in the amount of
$_________________. Rent was last paid on ____________________, 19 ____,
and has been paid through ___________________________.
4. The Lease terminates on _____________________________ and we have the
following renewal option(s)_________________________.
5. All work to be performed for us under the Lease has been performed as
required and has been accepted by us, except ___________________________
_______________________________________________________________________.
G-i
<PAGE> 58
6. The Lease is: (a) in full force and effect; (b) free from default;
and (c) we have no claims against the Landlord or offsets against Rent.
7. The undersigned has received no notice of prior sale, transfer or
assignment, hypothecation or pledge of the Lease or of the Rent secured
therein other than to you, except, _____________________________________
8. That the Premises as let are being used for the purpose as described
in the Lease.
If we are a corporation, the undersigned is a duly appointed officer of
the corporation signing this certificate and is the incumbent in the office
indicated under (his)(her) name.
In any event, the undersigned individuals) (is) (are) duly authorized to
execute this certificate.
Dated this ______ day of ___________, 19__.
TENANT:
____________________________________
____________________________________
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<PAGE> 59
SCHEDULE ONE-A
Building Standards for Tenant Improvement Work
CORRIDOR PARTITIONS:
1. Three and five-eighths inch (3-5/8") metal studs, 25 gauge, full height to
underside of structure above, at 24" O.C. five-eighths inch (5/8") type "X"
gypsum board, one (1) layer each side, full height both sides.
2. Sound insulation R-11 in stud cavity.
3. Partition finish - taped, mudded and sanded smooth to receive new finish.
TENANT SEPARATION PARTITION:
1. Five-eighths inch (5/8") type "X" gypsum board, one (1) layer each side of
two and onehalf inch (2-1/2") metal studs, 25 gauge, 24" O.C. floor to underside
of suspended acoustical ceiling.
2. Partition finish - taped, mudded and sanded to receive paint or
wall-covering.
3. 2-1/2" acoustical batt insulation in cavity and 4'-0" above ceiling grid on
either side of partition.
INTERIOR PARTITION:
1. Five-eighths inch (5/8") gypsum board, one (1) layer each side of studs, two
and one-half inch (2-1/2") metal studs, 25 gauge, 24" O.C. floor to underside of
suspended acoustical ceiling.
2. Height from floor slab to underside of suspended acoustical ceiling, verify
ceiling heights in field, (typically 8'-2").
3. Partition finish - taped, mudded and sanded to receive paint or
wall-covering.
PERIMETER BAY WALL FURR-OUT:
1. Five-eighths inch (5/8") type "X" gypsum board installed on furring channels.
2. Partition finish - taped, mudded and sanded smooth to receive finish. Tape on
"L" metal at top edge.
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COLUMN FURRING:
1. One and five-eights inch (1-5/8") metal studs (verify height/condition).
Five-eighths inch (5/8") gypsum board, one (1) layer.
2. Partition finish - taped, mudded and sanded smooth to receive finish.
CORRIDOR DOOR:
1. 3'-0" x 7'-0"x 1-3/4" solid core door, B-3 birch veneer face (20 minute).
2. 3'-0" x 7'-0" KD - metal jambs (or equal) metal door frame (20 minute).
3. 4-1/2" x 4-1/2" hanger butt hinge, satin finish, 1-1/2 pair.
4. Schlage #L-9453-03A-612 Rhodes D series cylinder, satin finish.
5. L.C.N. #4013 door closer, satin finish, one (1) each.
6. Door floor stop, satin finish, one (1) each.
7. Schlage ASA series door strike, satin finish, one (1) each.
8. Door finish B-3 building standard color.
9. Pemko # S-88D smoke seal.
ADD FOR DOUBLE CORRIDOR DOORS:
1. Glynn-Johnson Cor2 coordinator, paint to match jamb. Provide necessary block,
mount on tenant side.
2. Astragal, aluminum T-finish.
3. Glynn-Johnsom FB8 flush bolt, satin finish.
INTERIOR DOOR:
1. 3'-0" x 7'-0" x 1-3/4" solid core door, B-3 birch veneer face (20 minute).
2. 3'-0" x 7'-0" KD or equal metal door frame, paint grade.
3. 4-1/2" x 4-1/2" Hager butt hinge, satin finish, 1-1/2 pair.
One-A - 2
<PAGE> 61
4. Schlage S-series - Saturn leverset, satin finish - US 10 Passage set.
5. Quality wall stop, satin finish.
6. Schlage ASA series door strike, satin finish, one (1) each.
ACOUSTICAL CEILING:
1. Donn ceiling grid. Verify series.
2. Armstrong 704A, 2' x 2' x 3/4" ceiling tile.
3. 2' x 2' tegular type construction.
4. Ceiling heights to be verified in field.
5. Earthquake wires for lights.
6. Seismic bracing/compression posts.
*2' X 4' FLUORESCENT LIGHT FIXTURE:
1. 2' x 4' T-bar lay-in type with acrylic lens.
2. Cool white fluorescent energy saver tubes, three (3) each.
3. Installed and connected to existing junction box system.
4. Earthquake clips and wires.
*5. Coordinate with property management - on each tenant improvement.
DOWNLIGHTS:
1. Option 1: Prescolite - PBXTO-94S-277V; two (2) 13 PL- fluorescent lamps: 6"
aperture, clear alzak finish.
2. Option 2: Prescolite - PBXTO-70S-120V; 75 ER30 incandescent lamp with dimmer;
6" aperture, clear alzak finish. To be connected to sentry system ahead of
dimmer switches.
One-A-3
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WALL WASHERS:
1. Option 1: Prescolite - CFW 613-612-277V; two (2) 13 watt quad pl-fluorescent
lamps: 6" aperture, clear alzak finish.
2. Option 2: Prescolite - PBXTA-74S-120V; 75W R30 adjustable lamp; (350 degrees
x 30 degrees) on dimmer; 6" aperture, clear alzak finish. To be connected to
sentry system ahead of dimmer switches.
EXIT LIGHT:
1. Lithonia - quantum series. Verify with architect.
LOW LEVEL EXIT LIGHT (AS REQUIRED):
1. Brandhurst, Inc., Series B-100-U-20-D-GN-AF, self luminous.
LIGHT SWITCH:
1. Switches: Leviton type, #277 volt rated.
2. Switches paired in double gang box to meet Title 24 requirements as required.
3. Ivory color.
4. Switch height at 44" A.F.F., to center line of switch.
ELECTRICAL WALL OUTLET:
1. Leviton #5320, S.I. (or equal, duplex receptacle, two (2) per office.
2. Ivory color.
3. Eight (8) outlets per circuit, 120V.
4. Mounted vertically.
5. Connected to existing junction box system.
6. Outlet height at 15" A.F.F. to center line of outlet.
7. Dedicated outlets: panel and circuit number to be placed on outlet cover.
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TELEPHONE WALL OUTLET:
1. Pull wire and junction box (mud ring) only at tenant space (in wall only).
2. Cover plates and cabling by tenant's phone company. Color to match electrical
outlet plate.
3. Outlet ring height at 15" A.F.F. to center line of outlet, mounted
vertically.
4. All existing outlets and cabling to be abandoned in existing suites and to be
removed back to the source by tenant's vendor.
HEATING AND AIR CONDITIONING DISTRIBUTION:
1. Furnish and install low pressure distribution duct work.
2. Furnish and install supply air registers.
3. Furnish and install air grilles.
4. Furnish and install thermostats. All new thermostats to be Robert Shaw,
direct acting-pneumatic.
5. All thermostats to be mounted with zip-it type/easy anchor attachment.
6. Balance system in accordance with engineered plans.
FIRE SPRINKLER HEADS:
1. Distribution from piping loop.
2. Semi-recessed chrome heads with flush mounted chrome escutcheon, star model
"E".
3. Horns/strobes - verify with property management.
4. Surface mounted fire extinguisher - verify type with property management.
FLOOR COVERING:
1. CARPET - "Stratton," design series 3, over commercial grade pad (floors I &
2: 3/8" thick pad; floors 3 & above: 5/16' thick pad.). Carpet is provided from
the building standard color selection. Coordinate with property management.
One-A - 5
<PAGE> 64
2. Carpet to be coved at exterior perimeter of the building induction unit
location. No base to be installed at this location only.
3. VINYL COMPOSITE TILE (VCT) - is provided from the building standard color
selection of one-eighths inch (1/8") thick "Congoleum" choices 12" x 12".
Building Standard Colors: (1) stone white, (2) light pebble beige, (3)
antique white, (4) steele, (5) light earth taupe, (6) mushroom.
4. RUBBER BASE - "Roppe" four inch (4") rubber base provided from the building
standard color selections. Straight out base used for carpet over pad, and
covered base used for (VCT) and glue down carpet.
PAINTING:
1. WALLS - Two (2) coats. Flat interior latex paint (on new walls) - "Kelly
Moore", #0W27, bone, one (1) coat on existing walls.
2. DOOR TRIM - Two (2) coats, semi-gloss enamel paint (on new trims) - "Kelly
Moore", #Q-5-18-T, Marsh thistle. One (1) coat on existing trims.
WINDOW COVERING:
1. One inch (1") aluminum mini-blinds - "Hunter Douglas", Color: pearl, sized to
fit withimullion module.
One-A-6
<PAGE> 65
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("Amendment") is dated as of December 1,
1996, and is entered into between THE TRAVELERS INSURANCE COMPANY, a Connecticut
corporation ("Landlord'), and ACADEMIC SYSTEMS CORPORATION, a corporation
("Tenant"), with reference to the following facts:
RECITALS
A. Landlord and Tenant are parties to that certain Office Building Lease
dated as of July 1, 1996, pursuant to which Tenant leases from Landlord certain
office space (the 'Existing Premises") commonly known as Suite Nos. III 1, 1 120
and 1200, consisting of a total of approximately 14,164 rentable square feet of
area in that certain office building located at 444 Castro Street, Mountain
View, California (the "Building").
B. Tenant wishes to expand the Existing Premises to include certain
additional office space.
C. Landlord is willing to lease such additional office space to Tenant.
NOW, THEREFORE, in consideration of the continued performance by Tenant
of its obligations under the Lease, and the performance by Tenant of its
obligations under this Amendment, Landlord hereby amends the Lease and otherwise
agrees with Tenant as follows:
AGREEMENT
1. Defined Terms.
a. As hereafter used in this Amendment, (i) "Existing Premises"
shall mean the Premises currently leased by Tenant under the Lease, prior to the
effectiveness of this Amendment, and (ii) "New Premises" shall mean the office
space commonly known as Suite 1106, on the eleventh (11th) floor of the
Building, to be leased by Tenant pursuant to this Amendment, as described below.
As hereafter used in this Amendment and in the Lease and all exhibits and
addenda thereto, "Premises" shall mean the Existing Premises and the New
Premises, collectively.
b. All capitalized terms in this Amendment without definition
shall have the respective meanings assigned thereto in the Lease.
2. New Premises. Landlord hereby leases to Tenant and Tenant hereby
leases from Landlord, upon the terms and conditions set forth in this Amendment,
that certain New Premises, commonly known as Suite 1106, on the eleventh (11th)
floor of the
<PAGE> 66
Building, outlined on Exhibit "A" attached hereto, and consisting of
approximately 1387 rentable square feet.
3. Permitted Uses for New Premises: General and administrative office.
4. Lease Term for Existing Premises and New Premises. The lease term for
the New Premises shall commence on December 1, 1996 (the "New Premises
Commencement Date") and shall expire on June 30, 2001 (the "Expiration Date").
In no event shall Landlord or Tenant terminate the lease term for the Existing
Premises or the New Premises without simultaneously terminating the lease term
for the New Premises or the Existing Premises, respectively.
5. Basic Rent for Existing Premises and New Premises. All sums,
payments, costs and expenses required to be paid by Tenant to Landlord pursuant
to this Lease.
a. Minimum Annual Rent:
December 1, 1996 - June 30, 1997 $212,271.15*
July 1, 1997 - June 30, 1998 = $382,554.60**
July 1, 1998 - June 30, 1999 = $391,885.20***
July 1, 1999 - June 30, 2000 = $401,215.80****
July 1, 2000 - June 30, 2001 = $410,546.40*****
b. Monthly Rent installment:
December 1, 1996 - June 30, 1997 = $30,324.45*
July 1, 1997 - June 30, 1998 = $31,879.55**
July 1, 1998 - June 30, 1999 = $32,657.10***
July 1, 1999 - June 30, 2000 = $33,434.65****
July 1, 2000 - June 30, 2001 = $34,212.20*****
6. Percentage Share and Direct Expenses for Premises. Tenant's
percentage share for the Premises is 9%. Notwithstanding Section 6(b) of the
Lease, if, commencing on January 1, 1997, in any calendar year during the term
of the lease for the
* Based upon $1.95 per rentable square foot per month
** Based upon $2.05 per rentable square foot per month
*** Based upon $2.10 per rentable square foot per month
**** Based upon $2.15 per rentable square foot per month
***** Based upon $2.20 per rentable square foot per month
2
<PAGE> 67
Premises, the Annual Operating Costs shall exceed the Base Annual Operating
Costs for calendar year 1996 determined in the manner set forth in Section 6 of
the Lease, Tenant shall pay as Additional Rent, in addition to and at the time
provided for payment of Annual Basic Rent for the Premises, such percentage
share of such excess.
7 . Security Deposit. Section 7 of the Lease is hereby amended to
provide that the security deposit in the amount of Twenty-Five Thousand Dollars
($25,000) shall be increased by Two-Thousand Seven-Hundred Four Dollars and
Sixty-Five Cents ($2,704.65) for a total security deposit for the Premises of
Twenty-Seven Thousand Seven-Hundred Four Dollars and Sixty-Five Cents
($27,704.65) (subject to adjustment pursuant to Section 7 of the Lease), which
shall be delivered to Landlord concurrent with the delivery to Landlord of an
executed original of this Amendment (the effectiveness of this Amendment being
expressly conditioned upon the delivery of such additional amount to Landlord).
8. Tenant Improvements. Tenant acknowledges and agrees that Tenant is
fully satisfied with the quality, design and condition of the New Premises and
the tenant improvements situated therein. The New Premises shall be delivered to
Tenant in an "as is" and "all faults" condition and Landlord shall have no
obligation whatsoever to alter, remodel, improve, repair, decorate or paint the
New Premises or any part thereof either prior or during the term of this Lease.
9. Parking Rights. Section 34 of the Lease and the reference to parking
in the Basic Lease Information shall be amended to provide that, effective as of
the date of this Amendment, Tenant's parking rights for the Premises shall
consist of two (2) additional unreserved spaces at no additional cost to Tenant.
10. Environmental. Tenant acknowledges that Landlord has informed Tenant
that the Building contains asbestos or asbestos-containing materials. At
Tenant's request, Landlord shall make available to Tenant (but without warranty)
at the Building during normal hours, copies of any inspection reports, tests or
similar documents in Landlord's possession respecting the existence and the
location of asbestos in or about the Building. To the extent such reports, tests
or other documents indicate any asbestoscontaining materials in or about the
Building, this Paragraph 10 and such documents shall constitute notice and
disclosure as required under California Health and Safety Code Sections 25359.7,
25915.5 and 25917, as applicable with respect to the presence of asbestos or
asbestos-containing materials disclosed on such documents. As required by
California Health and Safety Code Section 25259.7 and any other provisions of
State law, Landlord shall notify Tenant, and Tenant shall notify Landlord, if
either knows or has reasonable causes to believe that any release of any
hazardous substances has come to be located on or beneath the Building.
11. Brokers with Respect to New Premises. Landlord and Tenant each
represent and warrant to the other that neither Landlord nor Tenant has used a
broker other than M. H. Realty Advisors in connection with this Amendment or the
lease of the New
3
<PAGE> 68
Premises. Landlord and Tenant shall each indemnify and hold harmless the other
from and against any and all losses, damages, liabilities, costs and expenses
(including, but not limited to, reasonable attorneys' fees and related costs)
resulting from any claims that may be asserted against the other by any other
real estate broker, finder, or intermediary claiming or purporting to claim
through Tenant, or Landlord, respectively.
12. Continuing Effectiveness of Lease.
a. Except as specifically modified by this Amendment, the Lease
and all of its terms, provisions, exhibits, and addenda shall remain in full
force and effect and shall establish and govern all aspects of Tenant's and
Landlord's respective rights, remedies, and obligations with respect to the
Existing Premises.
b. Except as specifically modified by this Amendment, the Lease
and all of its terms, provisions, exhibits, and addenda shall establish and
govern all aspects of Tenant's and Landlord's respective rights, remedies, and
obligations with respect to the New Premises.
13. Miscellaneous.
a. Complete Agreement. The Lease, as modified and amended by
this Amendment, together with all exhibits and addenda to the Lease, constitute
the complete agreement between the parties, and supersede any prior written or
oral agreements, writings, communications or understandings of the parties, with
respect to the subject matter hereof or thereof.
b. Counterparts. This Amendment may be executed in identical
counterpart copies, each of which shall be an original, but all of which taken
together shall constitute one and the same agreement.
C. Governing Law. THIS AMENDMENT SHALL IN ALL RESPECTS BE GOVERNED BY,
AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
CALIFORNIA.
IN WITNESS WHEREOF, this Amendment has been duly executed by Landlord
and Tenant as of the date first written above.
4
<PAGE> 69
"TENANT"
ACADEMIC SYSTEMS CORPORATION
a California Corporation
By: [SIGNATURE ILLEGIBLE]
---------------------------------
Its:
-----------------------------
"LANDLORD"
THE TRAVELERS INSURANCE COMPANY,
a Connecticut corporation
By: /s/ GUY R. MCCOMB
---------------------------------
GUY R. MCCOMB
Its: VICE PRESIDENT
-----------------------------
By /s/ LONA G. ANDREY
---------------------------------
LONA G. ANDREY
Its: ASSISTANT SECRETARY
-----------------------------
5
<PAGE> 70
STATE OF CALIFORNIA )
)ss
COUNTY OF SANTA CLARA )
On NOV 4, 1996 before me, PATRICK J. PYNE, Notary Public, personally
appeared: JOHN J. GOTTSMAS
[ ] personally known to me
[X] proved to me on the basis of satisfactory evidence
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
[SEAL] /s/ PATRICK J. PYNE
------------------------------------
Signature of Notary
My commission expires: April-5-1998
STATE OF CALIFORNIA )
)ss
COUNTY OF _______________ )
On ______________________, 1995 before me,
______________________________________ , Notary Public,
personally appeared _________________________________
[ ] personally known to me
[ ] proved to me on the basis of satisfactory evidence
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
(Seal)
------------------------------------
Signature of Notary
My commission expires:
------------------------------------
<PAGE> 71
STATE OF CALIFORNIA )
)ss
COUNTY OF ___________________ )
On _____________________ 1995 before me,
______________________________________, Notary Public,
personally appeared __________________________________
___ personally known to me
___ proved to me on the basis of satisfactory evidence
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
(SEAL)
------------------------------------
Signature of Notary
My commission expires:
--------------
STATE OF CALIFORNIA )
)ss
COUNTY OF _______________ )
On ______________________, 1995 before me,
______________________________________ , Notary Public,
personally appeared _________________________________
[ ] personally known to me
[ ] proved to me on the basis of satisfactory evidence
to be the person whose name is subscribed to the within instrument, and
acknowledged to me that he/she executed the same in his/her authorized capacity,
and that by his/her signature on the instrument the person, or the entity upon
behalf of which the person acted, executed the instrument.
WITNESS my hand and official seal.
(Seal)
------------------------------------
Signature of Notary
My commission expires:
------------------------------------
<PAGE> 72
CALIFORNIA ALL-PURPOSE ACKNOWLEDGMENT
State of California
County of Contra Costa
On 12/3/96 before me, Marimil Paikos, Notary Public
------- ----------------------------------------------------------
DATE NAME, TITLE OF OFFICER-E.G., "JANE DOE, NOTARY PUBLIC"
personally appeared GUY R. MCCOMB, LONA G. ANDREY
------------------------------------------------------------
NAME(S) OF SIGNER(S)
[X} personally known to me - OR - [ ] proved to me on the basis of satisfactory
evidence to be the person(s) whose name(s)
is/are subscribed to the within instrument
and acknowledged to me that he/she/they
executed the same in his/her/their
[SEAL] authorized capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s), or the entity
upon behalf of which the person(s) acted,
executed the instrument.
WITNESS my hand and official seal.
/s/ MARIMIL PAIKOS
------------------------------------------
SIGNATURE OF NOTARY
OPTIONAL
Though the data below is not required by law, it may prove valuable to
persons relying on the document and could prevent fraudulent reattachment of
this form.
CAPACITY CLAIMED BY SIGNER DESCRIPTION OF ATTACHED DOCUMENT
[ ] INDIVIDUAL
________________________________
[ ] CORPORATE OFFICER TITLE OR TYPE OF DOCUMENT
____________________________
TITLE(S) ________________________________
NUMBER OF PAGES
[ ] PARTNER(S) [ ] LIMITED
[ ] GENERAL
________________________________
[ ] ATTORNEY-IN-FACT DATE OF DOCUMENT
[ ] TRUSTEE(S)
________________________________
[ ] GUARDIAN/CONSERVATOR SIGNER(S) OTHER THAN NAMED ABOVE
[ ] OTHER:______________________
____________________________
____________________________
SIGNER IS REPRESENTING:
NAME OF PERSON(S) OR ENTITY(IES)
__________________________________
__________________________________
<PAGE> 73
MOUNTAIN BAY PLAZA
444 CASTRO ST.
MOUNTAIN VIEW, CA
[GRAPHIC OF TENANT FLOOR]
"EXHIBIT A"
<PAGE> 1
EXHIBIT 10.9
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -- GROSS
AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
[LOGO]
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, May
1, 1997, is made by and between McWin Corporation ("LESSOR") and The Lightspan
Partnership ("LESSEE"), (collectively the "PARTIES," or individually a "PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this Lease,
commonly known by the street address of 6108 Avenida Encinas, #D, #E, #F,
located in the City of Carlsbad, County of San Diego, State of California, with
zip code 92009, as outlined on Exhibit A attached hereto ("PREMISES"). The
"BUILDING" is that certain building containing the Premises and generally
described as (describe briefly the nature of the Building): the approximately
9,000 square foot easterly portion of the building, which is part of The Encinas
Business Park. In addition to Lessee's rights to use and occupy the Premises as
hereinafter specified, Lessee shall have non-exclusive rights to the Common
Areas (as defined in Paragraph 2.7 below) as hereinafter specified, but shall
not have any rights to the roof, exterior walls or utility raceways of the
Building or to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along with all
other buildings and improvements thereon, are herein collectively referred to as
the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: Fifteen (15) unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and -0- reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing September 1,
1997 ("COMMENCEMENT DATE") and ending August 31, 2002 ("EXPIRATION DATE"). (Also
see Paragraph 3.)
1.4 EARLY POSSESSION: See Addendum 51 ("EARLY POSSESSION DATE"). (Also see
Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $6,210.00 per month ("BASE RENT"), payable on the first day
of each month commencing September 1, 1997 (Also see Paragraph 4.)
[X] If this box is checked, this Lease provides for the Base Rent to be
adjusted per Addendum 49, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $6,210.00 as Base Rent for the period
September 1997.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: Eight & 65/100
percent (8.65%) ("LESSEE'S SHARE") as determined by [ ] prorata square footage
of the Premises as compared to the total square footage of the Building or [X]
other criteria as described in Addendum 53.
1.7 SECURITY DEPOSIT: $6,210.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: Warehouse and Assembly ("PERMITTED USE") (Also see
Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
[X] Business Real Estate Brokerage Company represents Lessor exclusively
("LESSOR'S BROKER");
[X] CB Commercial represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _____________________ represents both Lessor and Lessee ("DUAL AGENCY").
(Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by both
Parties, Lessor shall pay to said Broker(s) jointly, or in such separate shares
as they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there is no
separate written agreement between Lessor and said Broker(s), the sum of $ per
agreement) for brokerage services rendered by said Broker(s) in connection with
this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by The Lightspan Partnership ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 54, and Exhibits A through _____, all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental and/or Common Area Operating Expenses, is
an approximation which Lessor and Lessee agree is reasonable and the rental and
Lessee's Share (as defined in Paragraph 1.6(b)) based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, electrical systems, fire sprinkler system, lighting, air conditioning
and heating systems, and loading doors, if any, in the Premises, other than
those constructed by Lessee, shall be in good operating condition on the
Commencement Date. If a non-compliance with said warranty exists as of the
Commencement Date, Lessor shall, except as otherwise provided in this Lease,
promptly after receipt of written notice from Lessee setting forth with
specificity the nature and extent of such non-compliance, rectify same at
Lessor's expense. If Lessee does not give Lessor written notice of a
non-compliance with this warranty within thirty (30) days after the Commencement
Date, correction of that non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE. Lessor
warrants that any improvements (other than those constructed by Lessee or at
Lessee's direction) on or in the Premises which have been constructed or
installed by Lessor or with Lessor's consent or at Lessor's direction shall
comply with all applicable covenants or restrictions of record and applicable
building codes, regulations and ordinances in effect on the Commencement Date.
Lessor further warrants to Lessee that Lessor has no knowledge of any claim
having been made by any governmental agency that a violation or violations of
applicable building codes, regulations, or ordinances exist with regard to the
Premises as of the Commencement Date. Said warranties shall not apply to any
Alterations or Utility Installations (defined in Paragraph 7.3(a)) made or to be
made by Lessee. If the Premises do not comply with said warranties, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee given within six (6) months following the
Commencement Date and setting forth with specificity the nature and extent of
such non-compliance, take such action, at Lessor's expense, as may be reasonable
or appropriate to rectify the non-compliance. Lessor makes no warranty that the
Permitted Use in Paragraph 1.8 is permitted for the Premises under Applicable
Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Broker(s) to satisfy itself with respect to the condition of
the Premises (including, but not limited to, the electrical and fire sprinkler
systems, security, environmental aspects, seismic and earthquake requirements,
and compliance with the Americans with Disabilities Act and applicable zoning,
municipal, county, state and federal laws, ordinances and regulations, and any
covenants or restrictions of record (collectively, "APPLICABLE LAWS") and the
present and future suitability of the Premises for Lessee's intended use; (b)
that Lessee has made such investigation as it deems necessary with reference to
such matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
MULTI-TENANT -- GROSS
(C) AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1993
<PAGE> 2
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in Paragraph
1.2(b) on those portions of the Common Areas designated from time to time by
Lessor for parking. Lessee shall not use more parking spaces than said number.
Said parking spaces shall be used for parking by vehicles no larger than
full-size passenger automobiles or pick-up trucks, herein called "PERMITTED SIZE
VEHICLES." Vehicles other than Permitted Size Vehicles shall be parked and
loaded or unloaded as directed by Lessor in the Rules and Regulations (as
defined in Paragraph 40) issued by Lessor. (Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in areas
other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee, which
cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS -- DEFINITION. The term "COMMON AREAS" is defined as all
areas and facilities outside the Premises and within the exterior boundary line
of the Industrial Center and interior utility raceways within the Premises that
are provided and designated by the Lessor from time to time for the general
nonexclusive use of Lessor, Lessee and other lessees of the Industrial Center
and their respective employees, suppliers, shippers, customers, contractors and
invitees, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways and landscaped areas.
2.8 COMMON AREAS -- LESSEE'S RIGHTS. Lessor hereby grants to Lessee, for
the benefit of Lessee and its employees, suppliers, shippers, contractors,
customers and invitees, during the term of this Lease, the non-exclusive right
to use, in common with others entitled to such use, the Common Areas as they
exist from time to time, subject to any rights, powers, and privileges reserved
by Lessor under the terms hereof or under the terms of any rules and regulations
or restrictions governing the use of the Industrial Center. Under no
circumstances shall the right herein granted to use the Common Areas be deemed
to include the right to store any property, temporarily or permanently, in the
Common Areas. Any such storage shall be permitted only by the prior written
consent of Lessor or Lessor's designated agent, which consent may be revoked at
any time. In the event that any unauthorized storage shall occur then Lessor
shall have the right, without notice, in addition to such other rights and
remedies that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS -- RULES AND REGULATIONS. Lessor or such other person(s)
as Lessor may appoint shall have the exclusive control and management of the
Common Areas and shall have the right, from time to time, to establish, modify,
amend and enforce reasonable Rules and Regulations with respect thereto in
accordance with Paragraph 40. Lessee agrees to abide by and conform to all such
Rules and Regulations, and to cause its employees, suppliers, shippers,
customers, contractors and invitees to so abide and conform. Lessor shall not be
responsible to Lessee for the non-compliance with said rules and regulations by
other lessees of the Industrial Center.
2.10 COMMON AREAS -- CHANGES. Lessor shall have the right, in Lessor's sole
discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas, ingress,
egress, direction of traffic, landscaped areas, walkways and utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any portion
thereof; and
(f) To do and perform such other acts and make such other changes
in, to or with respect to the Common Areas and Industrial Center as Lessor may,
in the exercise of sound business judgment, deem to be appropriate.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in Paragraph
1.4 and if Lessee totally or partially occupies the Premises after the Early
Possession Date but prior to the Commencement Date, the obligation to pay Base
Rent shall be abated for the period of such early occupancy. All other terms of
this Lease, however, (including, but not limited to the obligations to pay
Lessee's Share of Common Area Operating Expenses and to carry the insurance
required by Paragraph 8) shall be in effect during such period. Any such early
possession shall not affect nor advance the Expiration Date of the Original
Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver possession
of the Premises to Lessee by the Early Possession Date, if one is specified in
Paragraph 1.4, or if no Early Possession Date is specified, by the Commencement
Date, Lessor shall not be subject to any liability therefor, nor shall such
failure affect the validity of this Lease, or the obligations of Lessee
hereunder, or extend the term hereof, but in such case, Lessee shall not, except
as otherwise provided herein, be obligated to pay rent or perform any other
obligation of Lessee under the terms of this Lease until Lessor delivers
possession of the Premises to Lessee. If possession of the Premises is not
delivered to Lessee within sixty (60) days after the Commencement Date, Lessee
may, at its option, by notice in writing to Lessor within ten (10) days after
the end of said sixty (60) day period, cancel this Lease, in which event the
parties shall be discharged from all obligations hereunder; provided further,
however, that if such written notice of Lessee is not received by Lessor within
said ten (10) day period, Lessee's right to cancel this Lease hereunder shall
terminate and be of no further force or effect. Except as may be otherwise
provided, and regardless of when the Original Term actually commences, if
possession is not tendered to Lessee when required by this Lease and Lessee does
not terminate this Lease, as aforesaid, the period free of the obligation to pay
Base Rent, if any, that Lessee would otherwise have enjoyed shall run from the
date of delivery of possession and continue for a period equal to the period
during which the Lessee would have otherwise enjoyed under the terms hereof, but
minus any days of delay caused by the acts, changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges, as the
same may be adjusted from time to time, to Lessor in lawful money of the United
States, without offset or deduction, on or before the day on which it is due
under the terms of this Lease. Base Rent and all other rent and charges for any
period during the term hereof which is for less than one full month shall be
prorated based upon the actual number of days of the month involved. Payment of
Base Rent and other charges shall be made to Lessor at its address stated herein
or to such other persons or at such other addresses as Lessor may from time to
time designate in writing to Lessee.
4.2 COMMON AREA OPERATING EXPENSES.
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes of
this Lease, as all costs incurred by Lessor relating to the ownership and
operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common Area
lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Any increase above the Base Real Property Taxes (as
defined in Paragraph 10.2(b)) for the Building and the Common Areas.
(vi) Any "Insurance Cost Increase" (as defined in Paragraph
8.1).
(vii) The cost of insurance carried by Lesser with respect
to the Common Areas.
(viii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(ix) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building in
the Industrial Center or to the operation, repair and maintenance thereof, shall
be allocated entirely to the Building or to such other building. However, any
Common Area Operating Expenses and Real Property Taxes that are not specifically
attributable to the Building or to any other building or to the operation,
repair and maintenance thereof, shall be equitably allocated by Lessor to all
buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services set
forth in Subparagraph 4.2(a) shall not be deemed to impose an obligation upon
Lessor to either have said improvements or facilities or to provide those
services unless the Industrial Center already has the same, Lessor already
provides the services, or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
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5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional monies with Lessor as an addition to the Security Deposit so that the
total amount of the Security Deposit shall at all times bear the same proportion
to the then current Base Rent as the initial Security Deposit bears to the
initial Base Rent set forth in Paragraph 1.5. Lessor shall not be required to
keep all or any part of the Security Deposit separate from its general accounts.
Lessor shall, at the expiration or earlier termination of the term hereof and
after Lessee has vacated the Premises, return to Lessee (or, at Lessor's option,
to the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any monies to be paid by Lessee under this Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not use or
permit the use of the Premises in a manner that is unlawful, creates waste or a
nuisance, or that disturbs owners and/or occupants of, or causes damage to the
Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay its
consent to any written request by Lessee, Lessee's assignees or subtenants, and
by prospective assignees and subtenants of Lessee, its assignees and subtenants,
for a modification of said Permitted Use, so long as the same will not impair
the structural integrity of the improvements on the Premises or in the Building
or the mechanical or electrical systems therein, does not conflict with uses by
other lessees, is not significantly more burdensome to the Premises or the
Building and the improvements thereon, and is otherwise permissible pursuant to
this Paragraph 6. If Lessor elects to withhold such consent, Lessor shall within
five (5) business days after such request give a written notification of same,
which notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or effect,
either by itself or in combination with other materials expected to be on the
Premises, is either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or monitored by any
governmental authority; or (iii) a basis for potential liability of Lessor to
any governmental agency or third party under any applicable statute or common
law theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products or by-products
thereof. Lessee shall not engage in any activity in or about the Premises which
constitutes a Reportable Use (as hereinafter defined) of Hazardous Substances
without the express prior written consent of Lessor and compliance in a timely
manner (at Lessee's sole cost and expense) with all Applicable Requirements (as
defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or
use of any above or below ground storage tank; (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that requires
a permit from, or with respect to which a report, notice, registration or
business plan is required to be filed with, any governmental authority; and
(iii) the presence in, on or about the Premises of a Hazardous Substance with
respect to which any Applicable Laws require that a notice be given to persons
entering or occupying the Premises or neighboring properties. Notwithstanding
the foregoing, Lessee may, without Lessor's prior consent, but upon notice to
Lessor and in compliance with all Applicable Requirements, use any ordinary and
customary materials reasonably required to be used by Lessee in the normal
course of the Permitted Use, so long as such use is not a Reportable Use and
does not expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In addition,
Lessor may (but without any obligation to do so) condition its consent to any
Reportable Use of any Hazardous Substance by Lessee upon Lessee's giving Lessor
such additional assurances as Lessor, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the environment
against damage, contamination or injury and/or liability therefor, including
but not limited to the installation (and, at Lessor's option, removal on or
before Lease expiration or earlier termination) of reasonably necessary
protective modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously consented
to by Lessor, Lessee shall immediately give Lessor written notice thereof,
together with a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party concerning the
presence, spill, release, discharge of, or exposure to, such Hazardous Substance
including, but not limited to all such documents as may be involved in any
Reportable Use involving the Premises. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under or about the
Premises (including, without limitation, through the plumbing or sanitary sewer
system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all damages, liabilities, judgments,
costs, claims, liens, expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee or by anyone under Lessee's control. Lessee's
obligations under this Paragraph 6.2(c) shall include, but not be limited to
the effects of any contamination or injury to person, property or the
environment created or suffered by Lessee, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Lessor in writing at the
time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's sole
cost and expense, fully, diligently and in a timely manner, comply with all
"APPLICABLE REQUIREMENTS," which term is used in this Lease to mean all laws,
rules, regulations, ordinances, directives, covenants, easements and
restrictions of record, permits, the requirements of any applicable fire
insurance underwriter or rating bureau, and the recommendations of Lessor's
engineers and/or consultants, relating in any manner to the Premises (including,
but not limited to matters pertaining to (i) industrial hygiene; (ii)
environmental conditions on, in, under or about the Premises, including soil and
groundwater conditions; and (iii) the use, generation, manufacture, production,
installation, maintenance, removal, transportation, storage, spill, or release
of any Hazardous Substance), now in effect or which may hereafter come into
effect. Lessee shall, within five (5) days after receipt of Lessor's written
request, provide Lessor with copies of all documents and information, including,
but not limited to permits, registrations, manifests, applications, reports and
certificates, evidencing Lessee's compliance with any Applicable Requirements
specified by Lessor, and shall immediately upon receipt, notify Lessor in
writing (with copies of any documents involved) of any threatened or actual
claim, notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents, employees,
contractors and designated representatives, and the holders of any mortgages,
deeds of trust or ground leases on the Premises ("LENDERS") shall have the right
to enter the Premises at any time in the case of an emergency, and otherwise at
reasonable times, for the purpose of inspecting the condition of the Premises
and for verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor with
respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any such
inspections shall be paid by the party requesting same, unless a Default or
Breach of this Lease by Lessee or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Lessee, is found to exist
or to be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In such case, Lessee shall upon request reimburse Lessor or
Lessor's Lender, as the case may be, for the costs and expenses of such
inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee shall, at
Lessee's sole cost and expense and at all times, keep the Premises and every
part thereof in good order, condition and repair (whether or not such portion of
the Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for such
repairs occurs as a result of Lessee's use, any prior use, the elements or the
age of such portion of the Premises), including, without limiting the generality
of the foregoing, all equipment or facilities specifically serving the Premises,
such as plumbing, heating, air conditioning, ventilating, electrical, lighting
facilities, boilers, fired or unfired pressure vessels, fire hose connections if
within the Premises, fixtures, interior walls, interior surfaces of exterior
walls, ceilings, floors, windows, doors, plate glass, and skylights, but
excluding any items which are the responsibility of Lessor pursuant to Paragraph
7.2 below. Lessee, in keeping the Premises in good order, condition and repair,
shall exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep the
Premises and all improvements thereon or a part thereof in good order, condition
and state of repair.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance for
and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation system
for the Premises. However, Lessor reserves the right, upon notice to Lessee, to
procure and maintain the contract for the heating, air conditioning and
ventilating systems, and if Lessor so elects, Lessee shall reimburse Lessor,
upon demand, for the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days' prior
written notice to Lessee (except in the case of an emergency, in which case no
notice shall be required), perform such obligations on Lessee's behalf, and put
the Premises in good order, condition and repair, in accordance with Paragraph
13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's Obligations), 9
(Damage or Destruction) and 14 (Condemnation), Lessor, subject to reimbursement
pursuant to Paragraph 4.2, shall keep in good order, condition and repair the
foundations, exterior walls, structural condition of interior bearing walls,
exterior roof, fire sprinkler and/or standpipe and hose (if located in the
Common Areas) or other automatic fire extinguishing system including fire alarm
and/or smoke detection
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systems and equipment, fire hydrants, parking lots, walkways, parkways,
driveways, landscaping, fences, signs and utility systems serving the Common
Areas and all parts thereof, as well as providing the services for which there
is a Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls nor
shall Lessor be obligated to maintain, repair or replace windows, doors or plate
glass of the Premises. Lessee expressly waives the benefit of any statute now or
hereafter in effect which would otherwise afford Lessee the right to make
repairs at Lessor's expense or to terminate this Lease because of Lessor's
failure to keep the Building, Industrial Center or Common Areas in good order,
condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power panels,
electrical distribution, security, fire protection systems, communications
systems, lighting fixtures, heating, ventilating and air conditioning equipment,
plumbing, and fencing in, on or about the Premises. The term "TRADE FIXTURES"
shall mean Lessee's machinery and equipment which can be removed without doing
material damage to the Premises. The term "ALTERATIONS" shall mean any
modification of the improvements on the Premises which are provided by Lessor
under the terms of this Lease, other than Utility Installations or Trade
Fixtures. "LESSEE-OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined as
Alterations and/or Utility Installations made by Lessee that are not yet owned
by Lessor pursuant to Paragraph 7.4(a). Lessee shall not make nor cause to be
made any Alterations or Utility Installations in, on, under or about the
Premises without Lessor's prior written consent. Lessee may, however, make
non-structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as they
are not visible from the outside of the Premises, do not involve puncturing,
relocating or removing the roof or any existing walls, or changing or
interfering with the fire sprinkler or fire detection systems and the cumulative
cost thereof during the term of this Lease as extended does not exceed
$2,500.00.
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with detailed plans. All consents given by
Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific consent,
shall be deemed conditioned upon: (i) Lessee's acquiring all applicable permits
required by governmental authorities; (ii) the furnishing of copies of such
permits together with a copy of the plans and specifications for the Alteration
or Utility Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a prompt
and expeditious manner. Any Alterations or Utility Installations by Lessee
during the term of this Lease shall be done in a good and workmanlike manner,
with good and sufficient materials, and be in compliance with all Applicable
Requirements. Lessee shall promptly upon completion thereof furnish Lessor with
as-built plans and specifications therefor. Lessor may (but without obligation
to do so) condition its consent to any requested Alteration or Utility
Installation that costs $2,500.00 or more upon Lessee's providing Lessor with a
lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for Lessee
at or for use on the Premises, which claims are or may be secured by any
mechanic's or materialmen's lien against the Premises or any interest therein.
Lessee shall give Lessor not less than ten (10) days' notice prior to the
commencement of any work in, on, or about the Premises, and Lessor shall have
the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense, defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall require,
Lessee shall furnish to Lessor a surety bond satisfactory to Lessor, in an
amount equal to one and one-half times the amount of such contested lien claim
or demand, indemnifying Lessor against liability for the same, as required by
law for the holding of the Premises free from the effect of such lien or claim.
In addition, Lessor may require Lessee to pay Lessor's attorneys' fees and costs
in participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal
and to cause Lessee to become the owner thereof as hereinafter provided in this
Paragraph 7.4, all Alterations and Utility Installations made to the Premises by
Lessee shall be the property of and owned by Lessee, but considered a part of
the Premises. Lessor may, at any time and at its option, elect in writing to
Lessee to be the owner of all or any specified part of the Lessee-Owned
Alterations and Utility Installations. Unless otherwise instructed per
Subparagraph 7.4(b) hereof, all Lessee-Owned Alterations and Utility
Installations shall, at the expiration or earlier termination of this Lease,
become the property of Lessor and remain upon the Premises and be surrendered
with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations be
removed by the expiration or earlier termination of this Lease, notwithstanding
that their installation may have been consented to by Lessor. Lessor may require
the removal at any time of all or any part of any Alterations or Utility
Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the end of the last day of the Lease term or any earlier termination date, clean
and free of debris and in good operating order, condition and state of repair,
ordinary wear and tear excepted. Ordinary wear and tear shall not include any
damage or deterioration that would have been prevented by good maintenance
practice or by Lessee performing all of its obligations under this Lease. Except
as otherwise agreed or specified herein, the Premises, as surrendered, shall
include the Alterations and Utility Installations. The obligation of Lessee
shall include the repair of any damage occasioned by the installation,
maintenance or removal of Lessee's Trade Fixtures, furnishings, equipment, and
Lessee-Owned Alterations and Utility Installations, as well as the removal of
any storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee, all as
may then be required by Applicable Requirements and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) As used herein, the term "INSURANCE COST INCREASE" is defined
as any increase in the actual cost of the insurance applicable to the Building
and required to be earned by Lessor pursuant to Paragraphs 8.2(b), 8.3(a) and
8.3(b). ("REQUIRED INSURANCE"), over and above the Base Premium, as hereinafter
defined, calculated on an annual basis. "Insurance Cost Increase" shall
include, but not be limited to, requirements of the holder of a mortgage or
deed of trust covering the Premises, increased valuation of the Premises,
and/or a general premium rate increase. The term "Insurance Cost Increase"
shall not, however, include any premium increases resulting from the nature of
the occupancy of any other lessee of the Building. If the parties insert a
dollar amount in Paragraph 1.9, such amount shall be considered the "BASE
PREMIUM." If a dollar amount has not been inserted in Paragraph 1.9 and if the
Building has been previously occupied during the twelve (12) month period
immediately preceding the Commencement Date, the "Base Premium" shall be the
annual premium applicable to such twelve (12) month period. If the Building was
not fully occupied during such twelve (12) month period, the "Base Premium"
shall be the lowest annual premium reasonably obtainable for the Required
Insurance as of the Commencement Date, assuming the most nominal use possible
of the Building. In no event, however, shall Lessee be responsible for any
portion of the premium cost attributable to liability insurance coverage in
excess of $1,000,000 procured under Paragraph 8.2(b).
(b) Lessee shall pay any Insurance Cost Increase to Lessor
pursuant to Paragraph 4.2. Premiums for policy periods commencing prior to, or
extending beyond the term of this Lease shall be prorated to coincide with the
corresponding Commencement Date or Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee, Lessor and any Lender(s) whose names have been provided to
Lessee in writing (as additional insureds) against claims for bodily injury,
personal injury and property damage based upon, involving or arising out of the
ownership, use, occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be on an occurrence basis providing
single limit coverage in an amount not less than $1,000,000 per occurrence with
an "Additional Insured-Managers or Lessors of Premises" endorsement and contain
the "Amendment of the Pollution Exclusion" endorsement for damage caused by
heat, smoke or fumes from a hostile fire. The policy shall not contain any
intra-insured exclusions as between insured persons or organizations, but shall
include coverage for liability assumed under this Lease as an "INSURED CONTRACT"
for the performance of Lessee's indemnity obligations under this Lease. The
limits of said insurance required by this Lease or as carried by Lessee shall
not, however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and not
contributory with any similar insurance carried by Lessor, whose insurance shall
be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be named
as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and to any Lender(s), insuring against loss or
damage to the Premises. Such insurance shall be for full replacement cost, as
the same shall exist from time to time, or the amount required by any Lender(s),
but in no event more than the commercially reasonable and available insurable
value thereof if, by reason of the unique nature or age of the improvements
involved, such latter amount is less than full replacement cost. Lessee-Owned
Alterations and Utility Installations, Trade Fixtures and Lessee's personal
property shall be insured by Lessee pursuant to Paragraph 8.4. If the coverage
is available and commercially appropriate, Lessor's policy or policies shall
insure against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender or included in the Base
Premium), including coverage for any additional costs resulting from debris
removal and reasonable amounts of coverage for the enforcement of any ordinance
or law regulating the reconstruction or replacement of any undamaged sections of
the Building required to be demolished or removed by reason of the enforcement
of any building, zoning, safety or land use laws as the result of a covered
loss, but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance clause,
waiver of subrogation, and inflation guard protection causing an increase in the
annual property insurance coverage amount by a factor of not less than the
adjusted U.S. Department of Labor Consumer Price Index for All Urban Consumers
for the city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor, with
loss payable to Lessor and any Lender(s), insuring the loss of the full rental
and other charges payable by all lessees of the Building to Lessor for one year
(including all Real Property Taxes, insurance costs, all Common Area Operating
Expenses and any scheduled rental increases). Said insurance may provide that in
the event the Lease is terminated by reason of an insured loss, the period of
indemnity for such coverage shall be extended beyond the date of the completion
of repairs or replacement of the Premises, to provide for one full year's loss
of rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any co-insurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating Expenses
shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common Areas or
other buildings in the Industrial Center if said increase is caused by Lessee's
acts, omissions, use or occupancy of the Premises.
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(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain insurance coverage on all
of Lessee's personal property, Trade Fixtures and Lessee-Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by Lessor as the Insuring Party under Paragraph 8.3(a). Such insurance
shall be full replacement cost coverage with a deductible not to exceed $1,000
per occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from Lessor,
Lessee shall provide Lessor with written evidence that such insurance is in
force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "General Policyholders Rating" of at
least B+, V, or such other rating as may be required by a Lender, as set forth
in the most current issue of "Best's Insurance Guide." Lessee shall not do or
permit to be done anything which shall invalidate the insurance policies
referred to in this Paragraph 8. Lessee shall cause to be delivered to Lessor,
within seven (7) days after the earlier of the Early Possession Date or the
Commencement Date, certified copies of, or certificates evidencing the existence
and amounts of, the insurance required under Paragraph 8.2(a) and 8.4. No such
policy shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor each hereby release and relieve the other, and waive their
entire right to recover damages (whether in contract or in tort) against the
other, for loss or damage to their property arising out of or incident to the
perils required to be insured against under Paragraph 8. The effect of such
releases and waivers of the right to recover damages shall not be limited by the
amount of insurance carried or required, or by any deductibles applicable
thereto. Lessor and Lessee agree to have their respective insurance companies
issuing property damage insurance waive any right to subrogation that such
companies may have against Lessor or Lessee, as the case may be, so long as the
insurance is not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of express
warranties, Lessee shall indemnify, protect, defend and hold harmless the
Premises, Lessor and its agents, Lessor's master or ground lessor, partners and
Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, loss of permits, attorneys' and consultants'
fees, expenses and/or liabilities arising out of, involving, or in connection
with, the occupancy of the Premises by Lessee, the conduct of Lessee's business,
any act, omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in a
timely manner of any obligation on Lessee's part to be performed under this
Lease. The foregoing shall include, but not be limited to, the defense or
pursuit of any claim or any action or proceeding involved therein, and whether
or not (in the case of claims made against Lessor) litigated and/or reduced to
judgment. In case any action or proceeding be brought against Lessor by reason
of any of the foregoing matters, Lessee upon notice from Lessor shall defend
the same at Lessee's expense by counsel reasonably satisfactory to Lessor and
Lessor shall cooperate with Lessee in such defense. Lessor need not have first
paid any such claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by or
results from fire, steam, electricity, gas, water or rain, or from the breakage,
leakage, obstruction or other defects of pipes, fire sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or from any other
cause, whether said injury or damage results from conditions arising upon the
Premises or upon other portions of the Building of which the Premises are a
part, from other sources or places, and regardless of whether the cause of such
damage or injury or the means of repairing the same is accessible or not. Lessor
shall not be liable for any damages arising from any act or neglect of any other
lessee of Lessor nor from the failure by Lessor to enforce the provisions of any
other lease in the Industrial Center. Notwithstanding Lessor's negligence or
breach of this Lease, Lessor shall under no circumstances be liable for injury
to Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the Premises, other than Lessee-Owned Alterations and Utility Installations, the
repair cost of which damage or destruction is less than fifty percent (50%) of
the then Replacement Cost (as defined in Paragraph 9.1(d)) of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility Installations,
the repair cost of which damage or destruction is fifty percent (50%) or more of
the then Replacement Cost of the Premises (excluding Lessee-Owned Alterations
and Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction. In addition, damage or destruction to the Building, other than
Lessee-Owned Alterations and Utility Installations and Trade Fixtures of any
lessees of the Building, the cost of which damage or destruction is fifty
percent (50%) or more of the then Replacement Cost (excluding Lessee-Owned
Alterations and Utility Installations and Trade Fixtures of any lessees of the
Building) of the Building shall, at the option of Lessor, be deemed to be
Premises Total Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE -- INSURED LOSS. If Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee-Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. In the event, however, that there is a
shortage of insurance proceeds and such shortage is due to the fact that, by
reason of the unique nature of the improvements in the Premises, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, Lessor shall complete them as soon as
reasonably possible and this Lease shall remain in full force and effect. If
Lessor does not receive such funds or assurance within said period, Lessor may
nevertheless elect by written notice to Lessee within ten (10) days thereafter
to make such restoration and repair as is commercially reasonable with Lessor
paying any shortage in proceeds, in which case this Lease shall remain in full
force and effect. If Lessor does not receive such funds or assurance within such
ten (10) day period, and if Lessor does not so elect to restore and repair, then
this Lease shall terminate sixty (60) days following the occurrence of the
damage or destruction. Unless otherwise agreed, Lessee shall in no event have
any right to reimbursement from Lessor for any funds contributed by Lessee to
repair any such damage or destruction. Premises Partial Damage due to flood or
earthquake shall be subject to Paragraph 9.3 rather than Paragraph 9.2,
notwithstanding that there may be some insurance coverage, but the net proceeds
of any such insurance shall be made available for the repairs if made by either
Party.
9.3 PARTIAL DAMAGE -- UNINSURED LOSS. If Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect), Lessor may at Lessor's
option, either (i) repair such damage as soon as reasonably possible at Lessor's
expense, in which event this Lease shall continue in full force and effect, or
(ii) give written notice to Lessee within thirty (30) days after receipt by
Lessor of knowledge of the occurrence of such damage of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the repair of such damage totally at Lessee's expense and without
reimbursement from Lessor. Lessee shall provide Lessor with the required funds
or satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such repairs as soon as reasonably
possible after the required funds are available. If Lessee does not give such
notice and provide the funds or assurance thereof within the times specified
above, this Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one month's Base Rent, whether or not an Insured Loss, Lessor may, at Lessor's
option, terminate this Lease effective sixty (60) days following the date of
occurrence of such damage by giving written notice to Lessee of Lessor's
election to do so within thirty (30) days after the date of occurrence of such
damage. Provided, however, if Lessee at that time has an exercisable option to
extend this Lease or to purchase the Premises, then Lessee may preserve this
Lease by (a) exercising such option, and (b) providing Lessor with any shortage
in insurance proceeds (or adequate assurance thereof) needed to make the repairs
on or before the earlier of (i) the date which is ten (10) days after Lessee's
receipt of Lessor's written notice purporting to terminate this Lease, or (ii)
the day prior to the date upon which such option expires. If Lessee duly
exercises such option during such period and provides Lessor with funds (or
adequate assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably possible
and this Lease shall continue in full force and effect. If Lessee fails to
exercise such option and provide such funds or assurance during such period,
then this Lease shall terminate as of the date set forth in the first sentence
of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or (ii) Hazardous
Substance Condition for which Lessee is not legally responsible, the Base Rent,
Common Area Operating Expenses and other charges, if any, payable by Lessee
hereunder for the period during which such damage or condition, its repair,
remediation or restoration continues, shall be abated in proportion to the
degree to which Lessee's use of the Premises is impaired, but not in excess of
proceeds from insurance required to be carried under Paragraph 8.3(b). Except
for abatement of Base Rent, Common Area Operating Expenses and other charges, if
any, as aforesaid, all other obligations of Lessee hereunder shall be performed
by Lessee, and Lessee shall have no claim against Lessor for any damage suffered
by reason of any such damage, destruction, repair, remediation or restoration.
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(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises within
ninety (90) days after such obligation shall accrue. Lessee may, at any time
prior to the commencement of such repair or restoration, give written notice to
Lessor and to any Lenders of which Lessee has actual notice of Lessee's election
to terminate this Lease on a date not less than sixty (60) days following the
giving of such notice. If Lessee gives such notice to Lessor and such Lenders
and such repair or restoration is not commenced within thirty (30) days after
receipt of such notice, this Lease shall terminate as of the date specified in
said notice. If Lessor or a Lender commences the repair or restoration of the
Premises within thirty (30) days after the receipt of such notice, this Lease
shall continue in full force and effect. "COMMENCE" as used in this Paragraph
9.6 shall mean either the unconditional authorization of the preparation of the
required plans, or the beginning of the actual work on the Premises, whichever
occurs first.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable
Requirements and this Lease shall continue in full force and effect, but subject
to Lessor's rights under Paragraph 6.2(c) and Paragraph 13). Lessor may, at
Lessor's option either (i) investigate and remediate such Hazardous Substance
Condition, if required, as soon as reasonably possible at Lessor's expense, in
which event this Lease shall continue in full force and effect, or (ii) if the
estimated cost to investigate and remediate such condition exceeds twelve (12)
times the then monthly Base Rent or $100,000, whichever is greater, give written
notice to Lessee within thirty (30) days after receipt by Lessor of knowledge of
the occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of such
notice. In the event Lessor elects to give such notice of Lessor's intention to
terminate this Lease, Lessee shall have the right within ten (10) days after the
receipt of such notice to give written notice to Lessor of Lessee's commitment
to pay for the excess costs of (a) investigation and remediation of such
Hazardous Substance Condition to the extent required by Applicable Requirements,
over (b) an amount equal to twelve (12) times the then monthly Base Rent or
$100,000, whichever is greater. Lessee shall provide Lessor with the funds
required of Lessee or satisfactory assurance thereof within thirty (30) days
following said commitment by Lessee. In such event this Lease shall continue in
full force and effect, and Lessor shall proceed to make such investigation and
remediation as soon as reasonably possible after the required funds are
available. If Lessee does not give such notice and provide the required funds or
assurance thereof within the time period specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
9.8 TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, Lessor shall return to Lessee any advance payment made by
Lessee to Lessor and so much of Lessee's Security Deposit as has not been, or is
not then required to be, used by Lessor under the terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
and the Building with respect to the termination of this Lease and hereby waive
the provisions of any present or future statute to the extent it is inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as defined
in Paragraph 10.2(a), applicable to the Industrial Center, and except as
otherwise provided in Paragraph 10.3, any increases in such amounts over the
Base Real Property Taxes shall be included in the calculation of Common Area
Operating Expenses in accordance with the provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION.
(a) As used herein, the term "REAL PROPERTY TAXES" shall include
any form of real estate tax or assessment, general, special, ordinary or
extraordinary, and any license fee, commercial rental tax, improvement bond or
bonds, levy or tax (other than inheritance, personal income or estate taxes)
imposed upon the Industrial Center by any authority having the direct or
indirect power to tax, including any city, state or federal government, or any
school, agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor in
the Industrial Center or any portion thereof, Lessor's right to rent or other
income therefrom, and/or Lessor's business of leasing the Premises. The term
"REAL PROPERTY TAXES" shall also include any tax, fee, levy, assessment or
charge, or any increase therein, imposed by reason of events occurring, or
changes in Applicable Law taking effect, during the term of this Lease,
including but not limited to a change in the ownership of the Industrial
Center or in the improvements thereon, the execution of this Lease, or any
modification, amendment or transfer thereof, and whether or not contemplated by
the Parties.
(b) As used herein, the term "BASE REAL PROPERTY TAXES" shall be
the amount of Real Property Taxes which are assessed against the Premises,
Building or Common Areas in the calendar year during which the Lease is
executed. In calculating Real Property Taxes for any calendar year, the Real
Property Taxes for any real estate tax year shall be included in the calculation
of Real Property Taxes for such calendar year based upon the number of days
which such calendar year and tax year have in common.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall not
include Real Property Taxes specified in the tax assessor's records and work
sheets as being caused by additional improvements placed upon the Industrial
Center by other lessees or by Lessor for the exclusive enjoyment of such other
lessees. Notwithstanding Paragraph 10.1 hereof, Lessee shall, however, pay to
Lessor at the time Common Area Operating Expenses are payable under Paragraph
4.2, the entirety of any increase in Real Property Taxes if assessed solely by
reason of Alterations, Trade Fixtures or Utility Installations placed upon the
Premises by Lessee or at Lessee's request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed, Real
Property Taxes allocated to the Building shall be an equitable proportion of the
Real Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in good
faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or stored within the Industrial Center. When
possible, Lessee shall cause its Lessee-Owned Alterations and Utility
Installations, Trade Fixtures, furnishings, equipment and all other personal
property to be assessed and billed separately from the real property of Lessor.
If any of Lessee's said property shall be assessed with Lessor's real property,
Lessee shall pay Lessor the taxes attributable to Lessee's property within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services supplied
to the Premises, including, but not limited to, electricity, telephone,
security, gas and cleaning of the Premises, together with any taxes thereon. If
any such utilities or services are not separately metered to the Premises or
separately billed to the Premises, Lessee shall pay to Lessor a reasonable
proportion to be determined by Lessor of all such charges jointly metered or
billed with other premises in the Building, in the manner and within the time
periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively, "assign") or
sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
twenty-five percent (25%) or more of the voting control of Lessee shall
constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of full
execution and delivery of this Lease or at the time of the most recent
assignment to which Lessor has consented, or as it exists immediately prior to
said transaction or transactions constituting such reduction, at whichever time
said Net Worth of Lessee was or is greater, shall be considered an assignment of
this Lease by Lessee to which Lessor may reasonably withhold its consent. "NET
WORTH OF LESSEE" for purposes of this Lease shall be the net worth of Lessee
(excluding any Guarantors) established under generally accepted accounting
principles consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1, or a non-curable Breach without
the necessity of any notice and grace period. If Lessor elects to treat such
unconsented to assignment or subletting as a non-curable Breach, Lessor shall
have the right to either: (i) terminate this Lease, or (ii) upon thirty (30)
days' written notice ("LESSOR'S NOTICE"), increase the monthly Base Rent for the
Premises to the greater of the then fair market rental value of the Premises, as
reasonably determined by Lessor, or one hundred ten percent (110%) of the Base
Rent then in effect. Pending determination of the new fair market rental value,
if disputed by Lessee, Lessee shall pay the amount set forth in Lessor's Notice,
with any overpayment credited against the next installment(s) of Base Rent
coming due, and any underpayment for the period retroactively to the effective
date of the adjustment being due and payable immediately upon the determination
thereof. Further, in the event of such Breach and rental adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value as reasonably
determined by Lessor (without the Lease being considered an encumbrance or any
deduction for depreciation or obsolescence, and considering the Premises at its
highest and best use and in good condition) or one hundred ten percent (110%) of
the price previously in effect, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
rental bears to the Base Rent in effect immediately prior the adjustment
specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease, (ii)
release Lessee of any obligations hereunder, nor (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval of
an assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent for performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by Lessee or
to any subsequent or successive assignment or subletting by the assignee or
sublessee. However, Lessor may consent to subsequent sublettings and assignments
of the sublease or any amendments or modifications thereto without notifying
Lessee or anyone else liable under this Lease or the sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or the sublease.
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(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
anyone else responsible for the performance of the Lessee's obligations under
this Lease, including any sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor.
(e) Each request for consent to an assignment or subletting shall
be in writing, accompanied by information relevant to Lessor's determination as
to the financial and operational responsibility and appropriateness of the
proposed assignee or sublessee, including but not limited to the intended use
and/or required modification of the Premises, if any, together with a
non-refundable deposit of $1,000 or ten percent (10%) of the monthly Base Rent
applicable to the portion of the Premises which is the subject of the proposed
assignment or sublease, whichever is greater, as reasonable consideration for
Lessor's considering and processing the request for consent. Lessee agrees to
provide Lessor with such other or additional information and/or documentation as
may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be deemed,
for the benefit of Lessor, to have assumed and agreed to conform and comply with
each and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.2(c)
shall give Lessor the right (but not the obligation) to require that the
Security Deposit be increased by an amount equal to six (6) times the then
monthly Base Rent, and Lessor may make the actual receipt by Lessor of the
Security Deposit increase a condition to Lessor's consent to such transaction.
(h) Lessor, as a condition to giving its consent to any assignment
or subletting, may require that the amount and adjustment schedule of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment schedule for property similar to the Premises as then constituted, as
determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all or
any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of the foregoing
provision or any other assignment of such sublease to Lessor, nor by reason of
the collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's obligations
to such sublessee under such Sublease. Lessee hereby irrevocably authorizes and
directs any such sublessee, upon receipt of a written notice from Lessor stating
that a Breach exists in the performance of Lessee's obligations under this
Lease, to pay to Lessor the rents and other charges due and to become due under
the sublease. Sublessee shall rely upon any such statement and request from
Lessor and shall pay such rents and other charges to Lessor without any
obligation or right to inquire as to whether such Breach exists and
notwithstanding any notice from or claim from Lessee to the contrary. Lessee
shall have no right or claim against such sublessee, or, until the Breach has
been cured, against Lessor, for any such rents and other charges so paid by said
sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior defaults
or breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall further
assign or sublet all or any part of the Premises without Lessor's prior written
consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach
by Lessee to the sublessee, who shall have the right to cure the Default of
Lessee within the grace period, if any, specified in such notice. The sublessee
shall have a right of reimbursement and offset from and against Lessee for any
such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said default. A "DEFAULT" by Lessee is
defined as a failure by Lessee to observe, comply with or perform any of the
terms, covenants, conditions or rules applicable to Lessee under this Lease. A
"BREACH" by Lessee is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is specified
herein, the failure by Lessee to cure such Default prior to the expiration of
the applicable grace period, and shall entitle Lessor to pursue the remedies set
forth in Paragraphs 13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of Common
Area Operating Expenses, or any other monetary payment required to be made by
Lessee hereunder as and when due, the failure by Lessee to provide Lessor with
reasonable evidence of insurance or surety bond required under this Lease, or
the failure of Lessee to fulfill any obligation under this Lease which endangers
or threatens life or property, where such failure continues for a period of
three (3) days following written notice thereof by or on behalf of Lessor to
Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in duly
executed original form, if applicable) of (i) compliance with Applicable
Requirements per Paragraph 6.3, (ii) the inspection, maintenance and service
contracts required under Paragraph 7.1(b), (iii) the rescission of an
unauthorized assignment or subletting per Paragraph 12.1, (iv) a Tenancy
Statement per Paragraphs 16 or 37, (v) the subordination or non-subordination of
this Lease per Paragraph 30, (vi) the guaranty of the performance of Lessee's
obligations under this Lease if required under Paragraphs 1.11 and 37, (vii) the
execution of any document requested under Paragraph 42 (easements), or (viii)
any other documentation or information which Lessor may reasonably require of
Lessee under the terms of this Lease, where any such failure continues for a
period of ten (10) days following written notice by or on behalf of Lessor to
Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof that
are to be observed, complied with or performed by Lessee, other than those
described in Subparagraphs 13.1(a), (b) or (c), above, where such Default
continues for a period of thirty (30) days after written notice thereof by or on
behalf of Lessor to Lessee; provided, however, that if the nature of Lessee's
Default is such that more than thirty (30) days are reasonably required for its
cure, then it shall not be deemed to be a Breach of this Lease by Lessee if
Lessee commences such cure within said thirty (30) day period and thereafter
diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) the making
by Lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where
possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of Lessee's
assets located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this Subparagraph 13.1(e) is contrary to any
applicable law, such provision shall be of no force or effect, and shall not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement of Lessee
or of any Guarantor, given to Lessor by Lessee or any Guarantor, was materially
false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a Guarantor, (ii) the termination of a Guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a Guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a Guarantor's refusal to honor the guaranty, or (v) a
Guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurances of security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the Guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including, but not limited to the obtaining of reasonably required
bonds, insurance policies, or governmental licenses, permits or approvals. The
costs and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its own
option, may require all future payments to be made under this Lease by Lessee to
be made only by cashier's check. In the event of a Breach of this Lease by
Lessee (as defined in Paragraph 13.1), with or without further notice or demand,
and without limiting Lessor in the exercise of any right or remedy which Lessor
may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall terminate and
Lessee shall immediately surrender possession of the Premises to Lessor. In such
event Lessor shall be entitled to recover from Lessee: (i) the worth at the time
of the award of the unpaid rent which had been earned at the time of
termination; (ii) the worth at the time of award of the amount by which the
unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of
recovering possession of the Premises, expenses of reletting, including
necessary renovation and alteration of the Premises, reasonable attorneys' fees,
and that portion of any leasing commission paid by Lessor in connection with
this Lease applicable to the unexpired term of this Lease. The worth at the time
of award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco or the Federal Reserve Bank
District in which the Premises are located at the time of award plus one percent
(1%). Efforts by Lessor to mitigate damages caused by Lessee's Default or Breach
of this Lease shall not waive Lessor's right to recover damages under this
Paragraph 13.2. If termination of this Lease is obtained through the provisional
remedy of unlawful detainer, Lessor shall have the right to recover in such
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ceeding the unpaid rent and damages as are recoverable therein, or Lessor may
reserve the right to recover all or any part thereof in a separate suit for such
rent and/or damages. If a notice and grace period required under Subparagraph
13.1(b), (c) or (d) was not previously given, a notice to pay rent or quit, or
to perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also constitute
the applicable notice for grace period purposes required by Subparagraph
13.1(b), (c) or (d). In such case, the applicable grace period under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two (2) such grace periods shall constitute both an unlawful detainer and a
Breach of this Lease entitling Lessor to the remedies provided for in this Lease
and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in effect
(in California under California Civil Code Section 1951.4) after Lessee's Breach
and recover the rent as it becomes due, provided Lessee has the right to sublet
or assign, subject only to reasonable limitations. Lessor and Lessee agree that
the limitations on assignment and subletting in this Lease are reasonable. Acts
of maintenance or preservation, efforts to relet the Premises, or the
appointment of a receiver to protect the Lessor's interest under this Lease,
shall not constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach (as defined in Paragraph 13.1) of this Lease by Lessee, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor, as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph 13.3 shall not be deemed a waiver by Lessor of the provisions of this
Paragraph 13.3 unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or deed of trust covering the Premises.
Accordingly, if any installment of rent or other sum due from Lessee shall not
be received by Lessor or Lessor's designee within ten (10) days after such
amount shall be due, then, without any requirement for notice to Lessee, Lessee
shall pay to Lessor a late charge equal to six percent (6%) of such overdue
amount. The Parties hereby agree that such late charge represents a fair and
reasonable estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event constitute a
waiver of Lessee's Default or Breach with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder. In the event that a late charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 or any other provision of this Lease to the
contrary, Base Rent shall, at Lessor's option, become due and payable quarterly
in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by any Lender(s) whose name and address shall have been furnished to Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after such
notice are reasonably required for its performance, then Lessor shall not be in
breach of this Lease if performance is commenced within such thirty (30) day
period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "condemnation"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the portion of
the Common Areas designated for Lessee's parking, is taken by condemnation,
Lessee may, at Lessee's option, to be exercised in writing within ten (10) days
after Lessor shall have given Lessee written notice of such taking (or in the
absence of such notice, within ten (10) days after the condemning authority
shall have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the Premises. No reduction of Base
Rent shall occur if the condemnation does not apply to any portion of the
Premises. Any award for the taking of all or any part of the Premises under the
power of eminent domain or any payment made under threat of the exercise of such
power shall be the property of Lessor, whether such award shall be made as
compensation for diminution of value of the leasehold or for the taking of the
fee, or as severance damages; provided, however, that Lessee shall be entitled
to any compensation, separately awarded to Lessee for Lessee's relocation
expenses and/or loss of Lessee's Trade Fixtures. In the event that this Lease is
not terminated by reason of such condemnation, Lessor shall to the extent of its
net severance damages received, over and above Lessee's share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any damage
to the Premises caused by such condemnation authority. Lessee shall be
responsible for the payment of any amount in excess of such net severance
damages required to complete such repair.
15. BROKERS' FEES
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are the
procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise agreed in
writing, Lessor agrees that: (a) if Lessee exercises any Option (as defined in
Paragraph 39.1) granted under this Lease or any Option subsequently granted, or
(b) if Lessee acquires any rights to the Premises or other premises in which
Lessor has an interest, or (c) if Lessee remains in possession of the Premises
with the consent of Lessor after the expiration of the term of this Lease after
having failed to exercise an Option, or (d) if said Brokers are the procuring
cause of any other lease or sale entered into between the Parties pertaining to
the Premises and/or any adjacent property in which Lessor has an interest, or
(e) if Base Rent is increased, whether by agreement or operation of an
escalation clause herein, then as to any of said transactions, Lessor shall pay
said Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by operation of
law, shall be deemed to have assumed Lessor's obligation under this Paragraph
15. Each Broker shall be an intended third party beneficiary of the provisions
of Paragraph 1.10 and of this Paragraph 15 to the extent of its interest in any
commission arising from this Lease and may enforce that right directly against
Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent and
warrant to the other that it has had no dealings with any person, firm, broker
or finder other than as named in Paragraph 1.10(a) in connection with the
negotiation of this Lease and/or the consummation of the transaction
contemplated hereby, and that no broker or other person, firm or entity other
than said named Broker(s) is entitled to any commission or finder's fee in
connection with said transaction. Lessee and Lessor do each hereby agree to
indemnify, protect, defend and hold the other harmless from and against
liability for compensation or charges which may be claimed by any such unnamed
broker, finder or other similar party by reason of any dealings or actions of
the indemnifying Party, including any costs, expenses, and/or attorneys' fees
reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall within ten
(10) days after written notice from the other Party (the "REQUESTING PARTY")
execute, acknowledge and deliver to the Requesting Party a statement in writing
in a form similar to the then most current "TENANCY STATEMENT" form published by
the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested by
the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or sell
the Premises or the Building, or any part thereof, Lessee and all Guarantors
shall deliver to any potential lender or purchaser designated by Lessor such
financial statements of Lessee and such Guarantors as may be reasonably required
by such lender or purchaser, including, but not limited to, Lessee's financial
statements for the past three (3) years. All such financial statements shall be
received by Lessor and such lender or purchaser in confidence and shall be used
only for the purposes herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner or
owners at the time in question of the fee title to the Premises. In the event of
a transfer of Lessor's title or interest in the Premises or in this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor at the time of such transfer or
assignment. Except as provided in Paragraph 15.3, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject to
the foregoing, the obligations and/or covenants in this Lease to be performed by
the Lessor shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor hereunder,
other than late charges, not received by Lessor within ten (10) days following
the date on which it was due, shall bear interest from the date due at the prime
rate charged by the largest state chartered bank in the state in which the
Premises are located plus four percent (4%) per annum, but not exceeding the
maximum rate allowed by law, in addition to the potential late charge provided
for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or understanding shall be effective.
Lessor and Lessee each represents and warrants to the Brokers that it has made,
and is relying solely upon, its own investigation as to the nature, quality,
character and financial responsibility of the other Party to this Lease and as
to the nature, quality and character of the Premises. Brokers have no
responsibility with respect thereto or with respect to any default or breach
hereof by either Party. Each Broker shall be an intended third party beneficiary
of the provisions of this Paragraph 22.
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23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this Lease
shall be in writing and may be delivered in person (by hand or by messenger or
courier service) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile transmission
during normal business hours, and shall be deemed sufficiently given if served
in a manner specified in this Paragraph 23. The addresses noted adjacent to a
Party's signature on this Lease shall be that Party's address for delivery or
mailing of notice purposes. Either Party may by written notice to the other
specify a different address for notice purposes, except that upon Lessee's
taking possession of the Premises, the Premises shall constitute Lessee's
address for the purpose of mailing or delivering notices to Lessee. A copy of
all notices required or permitted to be given to Lessor hereunder shall be
concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery shown on
the receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail, the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same shall
be deemed served or delivered upon telephone or facsimile confirmation of
receipt of the transmission thereof, provided a copy is also delivered via
delivery or mail. If notice is received on a Saturday or a Sunday or a legal
holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any such act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any Default or Breach by Lessee of
any provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of monies or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease. In the event that Lessee holds over in violation of this Paragraph
26 then the Base Rent payable from and after the time of the expiration or
earlier termination of this Lease shall be increased to two hundred percent
(200%) of the Base Rent applicable during the month immediately preceding such
expiration or earlier termination. Nothing contained herein shall be construed
as a consent by Lessor to any holding over by Lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the Parties,
their personal representatives, successors and assigns and be governed by the
laws of the state in which the Premises are located. Any litigation between the
Parties hereto concerning this Lease shall be initiated in the county in which
the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default pursuant
to Paragraph 13.5. If any Lender shall elect to have this Lease and/or any
Option granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3, Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device, and
that in the event of such foreclosure, such new owner shall not: (i) be liable
for any act or omission of any prior lessor or with respect to events occurring
prior to acquisition of ownership, (ii) be subject to any offsets or defenses
which Lessee might have against any prior lessor, or (iii) be bound by
prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "non-disturbance agreement") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) in any such proceeding, action, or appeal thereon, shall be
entitled to reasonable attorneys' fees. Such fees may be awarded in the same
suit or recovered in a separate suit, whether or not such action or proceeding
is pursued to decision or judgment. The term "PREVAILING PARTY" shall include,
without limitation, a Party or Broker who substantially obtains or defeats the
relief sought, as the case may be, whether by compromise, settlement, judgment,
or the abandonment by the other Party or Broker of its claim or defense. The
attorneys' fee award shall not be computed in accordance with any court fee
schedule, but shall be such as to fully reimburse all attorneys' fees reasonably
incurred. Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently commenced in
connection with such Default or resulting Breach. Broker(s) shall be intended
third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents shall
have the right to enter the Premises at any time, in the case of an emergency,
and otherwise at reasonable times for the purpose of showing the same to
prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the Building, as Lessor
may reasonably deem necessary. Lessor may at any time place on or about the
Premises or Building any ordinary "For Sale" signs and Lessor may at any time
during the last one hundred eighty (180) days of the term hereof place on or
about the Premises any ordinary "For Lease" signs. All such activities of Lessor
shall be without abatement of Rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the Premises or
the Building, except that Lessee may, with Lessor's prior written consent,
install (but not on the roof) such signs as are reasonably required to advertise
Lessee's own business so long as such signs are in a location designated by
Lessor and comply with Applicable Requirements and the signage criteria
established for the Industrial Center by Lessor. The installation of any sign on
the Premises by or for Lessee shall be subject to the provisions of Paragraph 7
(Maintenance, Repairs, Utility Installations, Trade Fixtures and Alterations).
Unless otherwise expressly agreed herein, Lessor reserves all rights to the use
of the roof of the Building, and the right to install advertising signs on the
Building, including the roof, which do not unreasonably interfere with the
conduct of Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required to an
act by or for the other Party, such consent shall not be unreasonably withheld
or delayed. Lessor's actual reasonable costs and expenses (including, but not
limited to, architects', attorneys', engineers' and other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including, but not
limited to, consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, shall be paid by Lessee to Lessor upon receipt of an
invoice and supporting documentation therefor. In addition to the deposit
described in Paragraph 12.2(e), Lessor may, as a condition to considering any
such request by Lessee, require that Lessee deposit with Lessor an amount of
money (in addition to the Security Deposit held under Paragraph 5) reasonably
calculated by Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall be
refunded to Lessee without interest. Lessor's consent to any act, assignment of
this Lease or subletting of the Premises by Lessee shall not constitute an
acknowledgment that no Default or Breach by Lessee of this Lease exists, nor
shall such consent be deemed a waiver of any then existing Default or Breach,
except as may be otherwise specifically stated in writing by Lessor at the time
of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify herein
any particular condition to Lessor's consent shall not preclude the impositions
by Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this Lease per
Paragraph 1.11, the form of the guaranty to be executed by each such Guarantor
shall be in the form most recently published by the American Industrial Real
Estate Association, and each such Guarantor shall have the same obligations as
Lessee under this Lease, including, but not limited to, the obligation to
provide the Tenancy Statement and information required in Paragraph 16.
MULTI-TENANT -- GROSS
(C) AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1993
-9-
<PAGE> 10
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a Default of
the Lessee under this Lease if any such Guarantor fails or refuses, upon
reasonable request by Lessor to give: (a) evidence of the due execution of the
guaranty called for by this Lease, including the authority of the Guarantor (and
of the party signing on Guarantor's behalf) to obligate such Guarantor on said
guaranty, and resolution of its board of directors authorizing the making of
such guaranty, together with a certificate of incumbency showing the signatures
of the persons authorized to sign on its behalf, (b) current financial
statements of Guarantor as may from time to time be requested by Lessor, (c) a
Tenancy Statement, or (d) written confirmation that the guaranty is still in
effect.
38. QUIET POSSESSION. Upon payment by Lessee of the Rent for the Premises and
the performance of all of the covenants, conditions and provisions on Lessee's
part to be observed and performed under this Lease, Lessee shall have quiet
possession of the Premises for the entire term hereof subject to all of the
provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the following
meaning: (a) the right to extend the term of this Lease or to renew this Lease
or to extend or renew any lease that Lessee has on other property of Lessor; (b)
the right of first refusal to lease the Premises or the right of first offer to
lease the Premises or the right of first refusal to lease other property of
Lessor or the right of first offer to lease other property of Lessor; (c) the
right to purchase the Premises, or the right of first refusal to purchase the
Premises, or the right of first offer to purchase the Premises, or the right to
purchase other property of Lessor, or the right of first refusal to purchase
other property of Lessor, or the right of first offer to purchase other property
of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to Lessee in
this Lease is personal to the original Lessee named in Paragraph 1.1 hereof, and
cannot be voluntarily or involuntarily assigned or exercised by any person or
entity other than said original Lessee while the original Lessee is in full and
actual possession of the Premises and without the intention of thereafter
assigning or subletting. The Options, if any, herein granted to Lessee are not
assignable, either as a part of an assignment of this Lease or separately or
apart therefrom, and no Option may be separated from this Lease in any manner,
by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple Options to
extend or renew this Lease, a later option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i) during
the period commencing with the giving of any notice of Default under Paragraph
13.1 and continuing until the noticed Default is cured, or (ii) during the
period of time any monetary obligation due Lessor from Lessee is unpaid (without
regard to whether notice thereof is given Lessee), or (iii) during the time
Lessee is in Breach of this Lease, or (iv) in the event that Lessor has given to
Lessee three (3) or more notices of separate Default under Paragraph 13.1 during
the twelve (12) month period immediately preceding the exercise of the Option,
whether or not the Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of separate Defaults under Paragraph 13.1
during any twelve (12) month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep and
observe all reasonable rules and regulations ("RULES AND REGULATIONS") which
Lessor may make from time to time for the management, safety, care, and
cleanliness of the grounds, the parking and unloading of vehicles and the
preservation of good order, as well as for the convenience of other occupants or
tenants of the Building and the Industrial Center and their invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way, utility
raceways, and dedications that Lessor deems necessary, and to cause the
recordation of parcel maps and restrictions, so long as such easements, rights
of way, utility raceways, dedications, maps and restrictions do not reasonably
interfere with the use of the Premises by Lessee. Lessee agrees to sign any
documents reasonably requested by Lessor to effectuate any such easement rights,
dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or Lessor's
agent or Lessee's agent and submission of same to Lessee or Lessor shall not be
deemed an offer to lease. This Lease is not intended to be binding until
executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The Parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional insurance company or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or Lessee.
49. RENT SCHEDULE
50. WATER AND TRASH
51. EARLY OCCUPANCY
52. OPTION TO EXTEND LEASE
53. LESSEE'S SHARE OF COMMON AREA
54. TENANT IMPROVEMENT ALLOWANCE
MULTI-TENANT -- GROSS
(C) AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1993
-10-
<PAGE> 11
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR ATTORNEY'S
REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED TO EVALUATE THE
CONDITION OF THE PROPERTY FOR THE POSSIBLE PRESENCE OF ASBESTOS,
UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO REPRESENTATION OR
RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
OR BY THE REAL ESTATE BROKERS OR THEIR CONTRACTORS, AGENTS OR EMPLOYEES AS
TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE
OR THE TRANSACTION TO WHICH IT RELATES; THE PARTIES SHALL RELY SOLELY UPON
THE ADVICE OF THEIR OWN COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF
THIS LEASE. IF THE SUBJECT PROPERTY IS IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The Parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: CARLSBAD, CA. Executed at: CARLSBAD, CA
------------------------- -------------------------
on: 7/10/97 on: 7/8/97
---------------------------------- ----------------------------------
BY LESSOR: BY LESSEE:
McWin Corporation The Lightspan Partnership
- --------------------------------------- --------------------------------------
- --------------------------------------- --------------------------------------
By: /s/ RICHARD J. MCDOWELL By: /s/ SANDRA B. KLAUSEN
---------------------------------- ----------------------------------
Name Printed: Richard J. McDowell Name Printed: Sandra B. Klausen
------------------------ ------------------------
Title: PRESIDENT Title: DIRECTOR HUMAN RES. &
------------------------------- FACILITIES
-------------------------------
By: By:
----------------------------------- -----------------------------------
Name Printed: Name Printed:
------------------------- -------------------------
Title: Title:
-------------------------------- --------------------------------
Address: 6102 Avenida Encinas Address:
Carlsbad, CA 92009 ------------------------------
Telephone: (760) 438-3458 Telephone: (619) 824-8000
--- ---------------------- --- ----------------------
Facsimile: ( ) Facsimile: (619) 824-8001
--- ---------------------- --- ----------------------
BROKER: Business Real Estate BROKER: CB Commercial
Brokerage Company
Executed at: Executed at:
-------------------------- --------------------------
on: on
----------------------------------- -----------------------------------
By: By:
----------------------------------- ----------------------------------
Name Printed: Andy J. Melzer Name Printed: John Walters
------------------------ ------------------------
Title: Title:
-------------------------------- --------------------------------
Address: 5050 Avenida Encinas, Address: 5130 Avenida Encinas
Suite 150 Carlsbad, CA 92008
Carlsbad, CA 92008 -----------------------------
-----------------------------
Telephone: (760) 431-4205 Telephone: (760) 438-8500
--- ---------------------- --- ----------------------
Facsimile: (760) 431-7656 Facsimile: (760) 438-8592
--- ---------------------- --- ----------------------
NOTE: These forms are often modified to meet changing requirements of law and
needs of the industry. Always write or call to make sure you are utilizing
the most current form: AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION, 700
South Flower Street, Suite 600, Los Angeles, CA 90017. (213)
687-8777.
MULTI-TENANT -- GROSS
(C) AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION 1993
-11-
<PAGE> 12
ADDENDUM TO LEASE DATED MAY 2, 1997 AND BETWEEN MCWIN CORPORATION AS LESSOR AND,
THE LIGHTSPAN PARTNERSHIP, AS LESSEE FOR 6108 AVENIDA ENCINAS, SUITE D/E/F,
CARLSBAD, CA 92009.
49. RENT SCHEDULE:
Year Months Rent/Month
---- ------ ----------
1 1-12 $6,210 gross
2 13-24 $6,390 gross
3 24-36 $6,570 gross
4 37-48 $6,750 gross
5 49-60 $6,930 gross
50. WATER AND TRASH:
Lessee shall pay to Lessor $60.00 month for common area, standard usage,
trash and water. Lessee shall pay for above standard water and trash usage.
51. EARLY OCCUPANCY:
Lessee is to receive early occupancy upon lease execution, rent free, for
tenant improvements and use of the warehouse for storage.
52. OPTION TO EXTEND LEASE:
Provided the Tenant is not in default under any terms and conditions under
this Lease, Tenant will have the option to extend the term of this Lease
for one (1) additional two (2)-year term. The rental rate will be at a
market rate.
53. LESSEE'S SHARE OF COMMON AREA:
Lessee shall occupy and lease from Lessor approximately 9,000 square feet,
in the eastern portion of the building, which shall represent 8.65% of the
area occupied by Lessee as compared to the total project size of 104,000
S.F.
<PAGE> 13
54. TENANT IMPROVEMENT ALLOWANCE:
Lessor shall provide an allowance of $50,000.00, which shall be used to
improve the premises per the attached improvement sketch and cost estimate
dated June 6, 1997. Lessor shall first use the allowance to construct
Lessee's improvements in the following order;
1. Construct offices, secure storage with hard ceiling, and 5' hallway in
front office area of premises, to include any required ADA.
2. Refurbish existing restrooms, to include required ADA.
3. Clean and seal warehouse floor, resecure strip lighting, and paint walls
in, warehouse.
Any remaining allowance, shall be used for construction of Lessee's tenant
specific improvements, which shall be mutually agreed to between Lessor and
Lessee as follows:
1. Additional skylights.
2. Cabinetry and equipment for lunch room.
3. Restroom shower.
4. Foil insulation on the warehouse ceiling.
AGREED AND ACCEPTED:
LESSOR LESSEE
McWin Corporation The Lightspan Partnership
By: /s/ RICHARD McDOWELL By: /s/ SANDRA B. KLAUS
------------------------------- -------------------------------
Date: 7-10-97 Date: 7-8-97
<PAGE> 14
EXHIBIT A
Site Plan
ENCINAS BUSINESS PARK
[DIAGRAM]
CARLSBAD, CALIFORNIA
<PAGE> 15
[LOGO]
HAZARDOUS MATERIALS WARNING AND DISCLAIMER
(SALE AND/OR LEASE OF PROPERTY)
Re: 6108 AVENIDA ENCINAS, SUITES D,E,F, CARLSBAD, CALIFORNIA 92009
__________________________________________________________________________
Various materials utilized in the construction of any improvements to the
Property may contain materials that have been or may in the future be
determined to be toxic, hazardous or undesirable and may need to be specially
treated, specially handled and/or removed from the Property. For example, some
electrical transformers and other electrical components can contain PCBs, and
asbestos has been used in a wide variety of building components such as
fire-proofing, air duct insulation, acoustical tiles, spray-on acoustical
materials, linoleum, floor tiles and plaster. Due to current or prior uses,
the Property or improvements may contain materials such as metals, minerals,
chemicals, hydrocarbons, biological or radioactive materials and other
substances which are considered, or in the future may be determined to be,
toxic wastes, hazardous materials or undesirable substances. Such substances
may in above- and below-ground containers on the Property or may be present on
or in soils, water, building components or other portions of the Property in
areas that may or may not be accessible or noticeable.
Current and future federal, state and local laws and regulations may require
the clean-up of such toxic, hazardous or undesirable materials at the expense
of those persons who in the past, present or future have had any interest in
the Property including, but not limited to, current, past and future owners and
users of the Property. Owners and Buyers/Lessees are advised to consult with
independent legal counsel or experts of their choice to determine their
potential liability with respect to toxic, hazardous, or undesirable materials.
Owners and Buyers/Lessees should also consult with such legal counsel or
experts to determine what provisions regarding toxic, hazardous or undesirable
materials they may wish to include in purchase and sale agreements, leases,
options and other legal documentation related to transactions they contemplate
entering into with respect to the Property.
The real estate salespersons and brokers in this transaction have no expertise
with respect to toxic wastes, hazardous materials or undesirable substances.
Proper inspections of the Property by qualified experts are an absolute
necessity to determine whether or not there are any current or potential toxic
wastes, hazardous materials or undesirable substances in or on the Property. The
real estate salespersons and brokers in this transaction have not made, nor will
they make, any representations, either express or implied, regarding the
existence or nonexistence of toxic wastes, hazardous materials, or undesirable
substances in or on the Property. Problems involving toxic wastes, hazardous
materials, or undesirable substances can be extremely costly to correct. It is
the responsibility of the Owners and Buyers/Lessees to retain qualified experts
to deal with the detection and correction of such matters.
AMERICANS WITH DISABILITIES ACT DISCLOSURE
The United States Congress has enacted the Americans With Disabilities Act (the
"ADA"), a federal law codified at 42 USC Section 12101 et seq., which became
effective January 26, 1992. Owners and lessees are subject to this law which,
among other things, is intended to make business establishments equally
accessible to persons with a variety of disabilities. Under this law,
modifications to real property improvements may be required by owners and
lessees. Owners and lessees may delegate between themselves costs and
responsibilities for meeting the requirements of the law but the fact that
responsibilities have been allocated does not reduce or negate liability to an
individual with a disability who files and wins a lawsuit. Broker strongly
recommends that owners and lessees consult design professionals, architects or
attorneys to advise them with respect to the law's applicability and to prepare,
if necessary, any language in leases or other contracts. The undersigned
acknowledge that Broker is not qualified as an expert in this matter.
OWNER BUYER/LESSEE:
By: /s/ RICHARD McDOWELL By: /s/ SANDRA B. KLAUS
---------------------------- ----------------------------
Title: President Director HR & Facilities
------------------------ ----------------------------
Date: 7-10-97 7-8-97
------------------------ ----------------------------
Page 1 of 1
<PAGE> 16
EXHIBIT B
REVISED COST ESTIMATE FOR LIGHTSPAN PER PLAN:
<TABLE>
<S> <C>
Plans, Permits, Fees: 3,000.00
Demolition 4,000.00
Framing, Drywall (1,000 sq. ft. offices, 900 sq. ft. storage room,
w/solid LID for storage, entry & hallway) 12,000.00
Floor Clean & Seal 1,000.00
Electrical (new wiring, lighting for offices - bathrooms & warehouse
redistribution & repair) 7,000.00
Acoustic Ceilings (offices & entry & climate controlled area) 1,500.00
HVAC (offices, entry & climate controlled area) 6,000.00
Insulation - Office Walls 1,100.00
Sprinkler Drops (offices, entry & climate controlled area) 2,000.00
Flooring (approx. 1,500 sq. ft. office entry & climate controlled areas
storage area (900 sq. ft.) excluded) 1,600.00
Interior Glass (sliding window at entry & 4x8 glass panel) 500.00
Painting (offices & warehouse) 3,600.00
Plumbing - bathrooms, misc. 1,000.00
ADA Compliance (interior - hardware, offices - bathroom flooring,
fixtures - exterior, ramp, if required) 4,000.00
Misc. (3% overage) 1,450.00
----------
$49,750.00
==========
</TABLE>
Exclusions:
(1) Sawcutting, foundations, structural changes, railings, stairways for
mezzanine area
(2) Skylights
(3) Cabinetry & equipment for lunch room
(4) Foil insulation
(5) Exterior glass windows
(6) Restroom shower
<PAGE> 1
EXHIBIT 10.11
[SILICON VALLEY BANK LOGO]
LOAN AND SECURITY AGREEMENT
BORROWER: THE LIGHTSPAN PARTNERSHIP, INC.
ADDRESS: 10140 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
DATE: FEBRUARY 25, 1998
THIS LOAN AND SECURITY AGREEMENT is entered into on the above date between
SILICON VALLEY BANK, COMMERCIAL FINANCE DIVISION ("Silicon"), whose address is
3003 Tasman Drive, Santa Clara, California 95054 and the borrower(s) named
above (jointly and severally, the "Borrower"), whose chief executive office is
located at the above address ("Borrower's Address"). The Schedule to this
Agreement (the "Schedule") shall for all purposes be deemed to be a part of
this Agreement, and the same is an integral part of this Agreement.
(Definitions of certain items used in this Agreement are set forth in Section 8
below.)
1. LOANS.
1.1 LOANS. Silicon will make loans to Borrower (the "Loans"), in
amounts determined by Silicon in its sole discretion, up to the amounts (the
"Credit Limit") shown on the Schedule, provided no Default or Event if Default
has occurred and is continuing.
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. Interest shall be payable monthly, on the last
day of the month. Interest may, in Silicon's discretion, be charged to
Borrower's loan account, and the same shall thereafter bear interest at the
same rate as the other Loans. Silicon may, in its discretion, charge interest
to Borrower's Deposit Accounts maintained with Silicon. Regardless of the
amount of Obligations that may be outstanding from time to time, Borrower shall
pay Silicon minimum monthly interest during the term of this Agreement in the
amount set forth on the Schedule (the "Minimum Monthly Interest").
* (OTHER THAN INTEREST NOT YET DUE AND PAYABLE)
1.3 OVERADVANCES. If at any time or for any reason the total of all
outstanding Loans and all other * Obligations exceeds the Credit Limit (an
"Overadvance"), Borrower shall immediately pay the amount of the excess to
Silicon, without notice or demand. Without limiting Borrower's obligation to
repay to Silicon on demand the amount of any Overadvance, Borrower agrees to pay
Silicon interest on the outstanding amount of any Overadvance, on demand, at a
rate equal to the interest rate which would otherwise be applicable to the
Overadvance, plus an additional 2% per annum.
* MONETARY
1.4 FEES. Borrower shall pay Silicon the fee(s) shown on the Schedule,
which are in addition to all interest and other sums payable to Silicon and are
not refundable.
1.5 LETTERS OF CREDIT. [Not Applicable]
2. SECURITY INTEREST.
2.1 SECURITY INTEREST. To secure the payment and performance of all of
the Obligations when due, Borrower hereby grants to Silicon a security interest
in all of Borrower's interest in the following, whether now owned or hereafter
acquired, and wherever located (collectively, the "Collateral"): All Inventory,
Equipment, Receivables, and General Intangibles, including, without limitations,
all of Borrower's Deposit Accounts, and all money, and all property now or at
any time in the future in Silicon's possession (including claims and credit
balances), and all proceeds (including proceeds of any insurance policies,
proceeds of proceeds and claims against third parties), all products and all
books and records related to any of the foregoing (all of the foregoing,
together with all other property in which Silicon may now or in the future be
granted a lien or security interest, is referred to herein, collectively, as
the "Collateral"). *
* NOTWITHSTANDING THE FOREGOING, THE "COLLATERAL" SHALL NOT INCLUDE THOSE
ITEMS SET FORTH ON EXHIBIT B HERETO.
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3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BORROWER.
In order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon 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:
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), and (iii) do not violate Borrower's articles or certificate
of incorporation, of Borrower's by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any material agreement or instrument which is binding upon Borrower or
its property.
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 shall give Silicon 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 Silicon 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 to a
location other than Borrower's Address or one of the locations set forth on the
Schedule.
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. Silicon 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 Silicon and the Collateral against all claims
of others. 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 Silicon, use its best
efforts to cause such third party to execute and deliver to Silicon, in form
acceptable to Silicon, such waivers and subordinations as Silicon shall
specify, so as to ensure that Silicon'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.
3.5 MAINTENANCE OF COLLATERAL. Borrower will maintain the Collateral in
good working condition, and Borrower will not use the Collateral for any
unlawful purpose. Borrower will immediately advise Silicon in writing of any
material loss or damage to the Collateral.
3.6 BOOKS AND RECORDS. Borrower has maintained and will maintain at
Borrower's Address complete and accurate books and records *, comprising an
accounting system in accordance with generally accepted accounting principles.
* IN ALL MATERIAL RESPECTS
3.7 FINANCIAL CONDITION, STATEMENTS AND REPORTS. All financial statements
now or in the future delivered to Silicon have been, and will be, prepared in
conformity with generally accepted accounting principles and now and in the
future will completely and accurately 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 Silicon 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.
* IN ALL MATERIAL RESPECTS
3.8 TAX RETURNS AND PAYMENTS; PENSION CONTRIBUTIONS. Borrower has timely
filed, and will timely file, all tax returns and reports required by foreign,
federal, state and local law, and Borrower has timely paid, and will timely
pay, all foreign, federal, state and local taxes, assessments, deposits and
contributions now or in the future owned by Borrower. Borrower may, however,
defer payment of any contested taxes, provided that Borrower (i) in good faith
contests Borrower's obligations to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (ii) notified Silicon in
writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or
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<PAGE> 3
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 its
successors 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.
3.9 COMPLIANCE WITH LAW. Borrower has complied, and will comply, in all
material respects, with all provisions of all foreign, federal, state and local
laws and regulations relating to Borrower, 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.
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 know to Borrower) which
may 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
Silicon in writing of any claim, proceeding, litigation or investigation in the
future threatened or instituted by or against Borrower involving any single
claim of $50,000 or more, or involving $100,000 or more in the aggregate.
3.11 USE OF PROCEEDS. All proceeds of all Loans shall be used solely for
lawful business purposes. Borrower is not purchasing or carrying any "margin
stock" (as defined in Regulation U of the Board of Governors of the Federal
Reserve System) and no part of the proceeds of any Loan will be used to
purchase or carry any "margin stock" or to extend credit to others for the
purpose of purchasing or carrying any "margin stock."
4. RECEIVABLES.
4.1 REPRESENTATIONS RELATING TO RECEIVABLES. Borrower represents and
warrants to Silicon as follows: Each Receivable with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
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 service in the ordinary course of Borrower's business, and (ii)
meet the Minimum Eligibility Requirements set forth in Section 8 below.
4.2 REPRESENTATIONS RELATING TO DOCUMENTS AND LEGAL COMPLIANCE. Borrower
represents and warrants to Silicon 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 fully
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.
4.3 SCHEDULES AND DOCUMENTS RELATING TO RECEIVABLES. Borrower shall
deliver to Silicon transaction reports and loan requests, schedules and
assignments of all Receivables, and schedules of collections, all on Silicon's
standard forms; provided, however, that Borrower's failure to execute and
deliver the same shall not affect or limit Silicon's security interest and
other rights in all of Borrower's Receivables, nor shall Silicon's failure to
advance or lend against a specific Receivable affect or limit Silicon's
security interest and other rights therein. Loan requests received after 2:30
PM will not be considered by Silicon until the next Business Day. Together
with each such schedule and assignment, or later if requested by Silicon,
Borrower shall furnish Silicon with copies (or, at Silicon'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 Silicon an aged accounts receivable
trial balance in such form and at such intervals as Silicon shall request. In
addition, Borrower shall deliver to Silicon 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, all of which shall
be with recourse. Borrower shall also provide Silicon with copies of all credit
memos within two days after the date issued.
4.4 COLLECTION OF RECEIVABLES. Borrower shall have the right to collect
all Receivables, unless and until a Default or an Event of Default has
occurred. Borrower shall hold all payments on, and proceeds of, Receivables in
trust for Silicon, and Borrower shall immediately deliver all such payments and
proceeds to Silicon in their original form, duly endorsed in blank, to be
applied to the Obligations in such order as Silicon shall determine. Silicon
may, in its discretion, require that all proceeds of Collateral be de-
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<PAGE> 4
posited by Borrower into a lockbox account, or such other "blocked account" as
Silicon may specify, pursuant to a blocked account agreement in such form as
Silicon may specify. Silicon or its designee may, at any time, notify Account
Debtors that the Receivables have been assigned to Silicon.
4.5 REMITTANCE OF PROCEEDS. All proceeds arising from the disposition of
any Collateral shall be delivered, in kind, by Borrower to Silicon 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 Silicon shall determine; provided that, if no Default or Event of
Default has occurred. Borrower shall not be obligated to remit to Silicon the
proceeds of the sale of worn out or obsolete equipment disposed of by Borrower
in good faith in an arm's length transaction for an aggregate purchase price of
$25,000 or less (for all such transactions in any fiscal year). Borrower agrees
that it will not commingle proceeds of Collateral with any of Borrower's other
funds or property, but will hold such proceeds separate and apart from such
other funds and property and in an express trust for Silicon. Nothing in this
Section limits the restrictions on disposition of Collateral set forth
elsewhere in this Agreement.
4.6 DISPUTES. Borrower shall notify Silicon promptly of all disputes or
claims relating to Receivables. Borrower shall not forgive (completely or
partially), compromise 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 Silicon on the regular reports provided to Silicon; (ii) no Default
or Event of Default has occurred and is continuing; and (iii) taking into
account all such discounts settlements and forgiveness, the total outstanding
Loans will not exceed the Credit Limit. Silicon may, at any time after the
occurrence of an Event of Default, settle or adjust disputes or claims directly
with the Account Debtors for amounts and upon terms which Silicon considers
advisable in its reasonable credit judgment and, in all cases, Silicon shall
credit Borrower's Loan account with only the net amounts received by Silicon in
payment of any Receivables.
4.7 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 Silicon). In the event any attempted return occurs
after the occurrence of any Event of Default, Borrower shall (i) hold the
returned Inventory in trust for Silicon, (ii) segregate all returned Inventory
from all of Borrower's other property, (iii) conspicuously label the returned
Inventory as Silicon's property, and (iv) immediately notify Silicon of the
return of any Inventory, specifying the reason for such return, the location
and condition of the returned Inventory, and on Silicon's request deliver such
returned Inventory to Silicon.
4.8 VERIFICATION. Silicon 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 Silicon or such other name as Silicon may choose.
4.9 NO LIABILITY. Silicon 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 Silicon 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 Silicon from liability for
its own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF THE BORROWER.
5.1 FINANCIAL AND OTHER COVENANTS. Borrower shall at all times comply
with the financial and other covenants set forth in the Schedule.
5.2 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 Silicon, in such form and amounts as Silicon
may reasonably require, and Borrower shall provide evidence of such insurance
to Silicon, so that Silicon is satisfied that such insurance is, at all times,
in full force and effect. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its sole discretion, except that, provided no
Default or Event of Default has occurred and is continuing, Silicon 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. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but
is not obligated to, obtain the same at Borrower's expense. Borrower shall
promptly deliver to Silicon copies of all reports made to insurance companies.
5.3 REPORTS. Borrower, at its expense, shall provide Silicon 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 Silicon shall from time to time reasonably
specify.
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<PAGE> 5
5.4 ACCESS TO COLLATERAL, BOOKS AND RECORDS. At reasonable times, and on
one Business Day's notice, Silicon, or its agents, shall have the right to
inspect the Collateral, and the right to audit and copy Borrower's books and
records *. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon 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 $500 per person per day (or such higher amount as shall represent
Silicon's then current standard charge for the same), plus reasonable out of
pocket expenses. 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 Silicon's
written consent, which may be conditioned upon such accounting firm, service
bureau or other third party agreeing to give Silicon the same rights with
respect to access to books and records and related rights as Silicon has under
this Loan Agreement. Borrower waives the benefit of any accountant-client
privilege or other evidentiary privilege precluding or limiting the disclosure,
divulgence or delivery of any of its books and records ** (except that Borrower
does not waive any attorney-client privilege).
* RELATING TO THE COLLATERAL
** TO SILICON OR OTHERWISE IN CONNECTION WITH LITIGATION INVOLVING FRAUDULENT
CONDUCT RELATING TO THE BORROWER
5.5 NEGATIVE COVENANTS. Except as may be permitted in the Schedule,
Borrower shall not, without Silicon'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 other transaction outside the ordinary course of business ***; (iv)
sell or transfer any Collateral, except for the sale of finished Inventory in
the ordinary course of Borrower's business, and except for the sale of obsolete
or unneeded Equipment in the ordinary course of business ****; (v) store any
Inventory or other Collateral with any 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); or (xiv) dissolve or elect to dissolve.
Transactions permitted by the foregoing provisions of this Section are only
permitted if no Default or Event of Default would occur as a result of such
transaction.
* , EXCEPT THAT THE BORROWER MAY MERGE OR CONSOLIDATE WITH ANOTHER
CORPORATION IF THE BORROWER IS THE SURVIVING CORPORATION IN THE MERGER AND THE
AGGREGATE VALUE OF THE ASSETS ACQUIRED IN THE MERGER DO NOT EXCEED THE LESSER OF
$3,000,000 OR 10% OF BORROWER'S TANGIBLE NET WORTH (AS DEFINED IN THE SCHEDULE)
AS OF THE END OF THE MONTH PRIOR TO THE EFFECTIVE DATE OF THE MERGER, AND THE
ASSETS OF THE CORPORATION ACQUIRED IN THE MERGER ARE NOT SUBJECT TO ANY LIENS OR
ENCUMBRANCES, EXCEPT PERMITTED LIENS, AND PROVIDED THAT OTHERWISE THE CONSENT OF
SILICON SHALL NOT BE UNREASONABLY WITHHELD
** FOR AN AGGREGATE PURCHASE PRICE NOT TO EXCEED THE LESSER OF $3,000,000 OR
10% OF BORROWER'S TANGIBLE NET WORTH (AS DEFINED IN THE SCHEDULE) AS OF THE END
OF THE MONTH PRIOR TO THE EFFECTIVE DATE OF THE ACQUISITION AND THE ASSETS SO
ACQUIRED ARE NOT SUBJECT TO ANY LIENS OR ENCUMBRANCES, EXCEPT PERMITTED LIENS,
AND PROVIDED THAT OTHERWISE THE CONSENT OF SILICON SHALL NOT UNREASONABLY
WITHHELD
*** AS CONTEMPLATED BY THE CURRENT BUSINESS PLAN OF BORROWER AS DELIVERED TO
SILICON
**** OR THE LICENSING OR SALE OF ITEMS OF INTELLECTUAL PROPERTY IN THE
ORDINARY COURSE OF THE BUSINESS OF BORROWER CONSISTENT WITH PAST PRACTICES OF
BORROWER
***** OTHER THAN AS IDENTIFIED ON SCHEDULE 5.5 HERETO AND OTHER THAN AS
BORROWER FROM TIME TO TIME NOTIFIES SILICON 30 DAYS IN ADVANCE OF THE PLACEMENT
OF ANY COLLATERAL AT ANY OTHER LOCATION, PROVIDED THAT IN NO EVENT SHALL
BORROWER LOCATE ANY COLLATERAL OUTSIDE OF CALIFORNIA WITHOUT THE EXPRESS WRITTEN
CONSENT OF SILICON
+ EXCEPT FOR LOANS TO EMPLOYEES OF BORROWER IN AN AGGREGATE AMOUNT NOT TO
EXCEED $250,000 AT ANY ONE TIME OUTSTANDING
++ EXCEPT FOR REPURCHASES OF COMMON STOCK OF BORROWER FROM EMPLOYEES OF THE
BORROWER UPON EXERCISE OF THE REPURCHASE OPTION SET FORTH IN THE STOCK OPTION
AGREEMENTS GOVERNED BY THE 1993 STOCK OPTION PLAN OF THE BORROWER AS IN EFFECT
AS OF THE DATE HEREOF
5.6 LITIGATION COOPERATION. Should any third-party suit or proceeding be
instituted by or against Silicon with respect to any Collateral or in any manner
relating to Borrower, Borrower shall, without expense to Silicon, make available
Borrower and its officers, employees and agents and Borrower's books and
records, to the extent
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that Silicon may deem them reasonably necessary in order to prosecute or defend
any such suit or proceeding.
5.7 FURTHER ASSURANCES. Borrower agrees, at its expense, on request by
Silicon, to execute all documents and take all actions, as Silicon, may deem
reasonably necessary or useful in order to perfect and maintain Silicon's
perfected security interest in the Collateral, and in order to fully consummate
the transactions contemplated by this Agreement.
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 Silicon; or (ii) by Silicon at any
time after the occurrence * without notice, effective immediately. If this
Agreement is terminated by Borrower or by Silicon under this Section 6.2,
Borrower shall pay to Silicon a termination fee in an amount equal to the
greater of (i) an amount equal to all interest due and payable during the six
months immediately preceding the effective date of termination, or (ii) an
amount equal to the Minimum Monthly Interest multiplied by the number of full
or partial months from the effective date of termination to the Maturity Date,
or (iii) an amount equal to the average monthly interest accrued during the six
months immediately preceding the effective date of termination, multiplied by
the number of full or partial months from the effective date of termination to
the Maturity Date. 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.
* AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, PROVIDED THAT AN
EVENT OF DEFAULT ARISING FROM THE BREACH OF A FINANCIAL COVENANT BY THE
BORROWER AS OF THE END OF ONE PERIOD IS NOT CURED BY THE BORROWER'S COMPLIANCE
WITH SUCH FINANCIAL COVENANT IN A SUBSEQUENT PERIOD.
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 by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an
amount equal to the face amount of all such Letters of Credit plus all
interest, fees and cost due or to become due in connection therewith, to secure
all of the Obligations relating to said Letters of Credit, pursuant to
Silicon's then standard form cash pledge agreement. Notwithstanding any
termination of this Agreement, all of Silicon'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 Silicon, Silicon 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 Silicon, nor shall any such
termination relieve Borrower of any Obligation to Silicon, 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, Silicon shall
promptly deliver to Borrower termination statements, requests for reconveyances
and such other documents as may be required to fully terminate Silicon's
security interests.
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
Silicon immediate written notice thereof: (a) Any warranty, representation,
statement, report or certificate made or, delivered to Silicon by Borrower or
any of Borrower'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; or
(c) the total Loans and other Obligations outstanding at any time shall exceed
the Credit Limit*; or (d) Borrower shall fail to comply with any of the
financial covenants set forth in the Schedule or shall fail to perform any
other 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 5 Business Days after the date 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 10
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 breaches any material contract or obligation,
which has or may reasonably be expected to have a material adverse effect on
Borrower's business or financial condition; or (i) Dissolution, termination of
existence, insolvency or business failure of Borrower, 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 under any reorganization,
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<PAGE> 7
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 against Borrower or any guarantor of
any of the Obligations 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 30 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 commencement of
proceedings by any guarantor of any of the Obligations under any bankruptcy or
insolvency law; 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 of any kind pledged by any third party 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 third party under any bankruptcy or
insolvency law; or (m) Borrower makes any payment on account of any
indebtedness or obligation which has been subordinated to the Obligation 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 his subordination agreement; or (n) there shall be a change in the
record or beneficial ownership of an aggregate of more than ** of the
outstanding shares of stock of Borrower, in one or more transactions, compared
to the ownership of outstanding shares of stock of Borrower in effect on the
date hereof, without the prior written consent of Silicon***; or (o) Borrower
shall generally not pay its debts as they become due, or Borrower 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
business or financial condition; or (q) Silicon may cease making any Loans
hereunder during any of the above cure periods, and thereafter if an Event of
Default has occurred.
* AND SUCH CONDITION SHALL CONTINUE TO EXIST FOR 3 DAYS, PROVIDED THAT IF THE
AMOUNT OF TOTAL LOANS AND OTHER OBLIGATIONS OUTSTANDING AT ANY TIME EXCEED
THE MAXIMUM DOLLAR AMOUNT COMPONENT OF THE CREDIT LIMIT (AS OPPOSED TO
EXCEEDING THE PERCENTAGE OF ELIGIBLE ACCOUNTS COMPONENT OF THE CREDIT LIMIT),
THEN SUCH 3 DAY PERIOD SHALL NOT BE APPLICABLE
** 30%
***, OTHER THAN ANY OF THE FOREGOING ARISING IN CONNECTION WITH AN EQUITY
INVESTMENT BY OR A TRANSFER AMONG EXISTING SHAREHOLDERS AS OF THE DATE
HEREOF
7.2 REMEDIES. Upon the occurrence*, and at any time thereafter, Silicon,
at its option, and without notice or demand of any kind (all of which 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 Silicon 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 Silicon deems it reasonably necessary in order to complete the enforcement of
its rights under this Agreement or any other agreement; provided, however, that
should Silicon 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) and demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon 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 Silicon at places
designated by Silicon which are reasonably convenient to Silicon and Borrower,
and to remove the Collateral to such locations as Silicon 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,
Silicon 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
Silicon 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. Silicon shall have the right to conduct such disposition on
Borrower's premises without charge, for such time or times as Silicon deems
reasonable, or on Silicon's premises, or elsewhere and the Collateral need not
be located at the place of disposition. Silicon 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
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<PAGE> 8
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
- --------------------------------------------------------------------------------
shall not relieve Borrower 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 Silicon 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 remove therefrom payments made with respect to any
item of the Collateral or proceeds thereof, and, in Silicon's sole discretion,
to grant extensions of time to pay, compromise claims and settle Receivables
and the like for less than face value; (h) Offset against any sums in any of
Borrower's general, special or other Deposit Accounts with Silicon; 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 Silicon 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. Without limiting any of Silicon's rights and remedies, from
and after the occurrence of any Event of Default, the interest rate applicable
to the Obligations shall be increased by an additional four percent per annum.
*AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, PROVIDED THAT AN EVENT
OF DEFAULT ARISING FROM THE BREACH OF A FINANCIAL COVENANT BY THE BORROWER AS
OF THE END OF ONE PERIOD IS NOT CURED BY THE BORROWER'S COMPLIANCE WITH SUCH
FINANCIAL COVENANT IN A SUBSEQUENT PERIOD.
7.3 STANDARDS FOR DETERMINING COMMERCIAL REASONABLENESS. Borrower and
Silicon 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 seven days prior to the sale, and, in the case of a public
sale, notice of the sale is published at least seven 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
Silicon, 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 sale of any of the Collateral, Silicon may (but is not
obligated to) direct any prospective purchaser to ascertain directly from
Borrower any and all information concerning the same. Silicon shall be free to
employ other methods of noticing and selling the Collateral, in its discretion,
if they are commercially reasonable.
7.4 POWER OF ATTORNEY. Upon the occurrence *, without limiting Silicon's
other rights and remedies, Borrower grants to Silicon an irrevocable power of
attorney coupled with an interest, authorizing and permitting Silicon (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
Silicon agrees to exercise the following powers in a commercially reasonable
manner: (a) Execute on behalf of Borrower any documents that Silicon may, in its
sole discretion, deem advisable in order to perfect and maintain Silicon's
security interest in the Collateral, or in order to exercise a right of Borrower
or Silicon, 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 Silicon's Collateral or
in which Silicon 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 mechanics'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 Silicon's possession; (e) Endorse all
checks and other forms of remittances received by Silicon; (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 Silicon the same rights
of access and other rights with respect thereto as Silicon has under this
Agreement; and (k) 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 attorneys' fees incurred by Silicon 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 Silicon's rights under
the foregoing power of attorney or any of Silicon's other rights under this
Agreement be deemed to indicate that Silicon is in control of the business,
management or properties of Borrower.
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<PAGE> 9
* AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, PROVIDED, THAT AN EVENT OF
DEFAULT ARISING FROM THE BREACH OF A FINANCIAL COVENANT BY THE BORROWER AS OF
THE END OF ONE PERIOD IS NOT CURED BY THE BORROWER'S COMPLIANCE WITH SUCH
FINANCIAL COVENANT IN A SUBSEQUENT PERIOD.
7.5 APPLICATION OF PROCEEDS. All proceeds realized as the result of any
sale of the Collateral shall be applied by Silicon first to the reasonable
costs, expenses, liabilities, obligations and attorneys' fees incurred by
Silicon 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 Silicon shall determine in its sole discretion.
Any surplus shall be paid to Borrower or other persons legally entitled thereto;
Borrower shall remain liable to Silicon for any deficiency. If, Silicon, in its
sole discretion, directly or indirectly enters into a deferred payment or other
credit transaction with any purchaser at any sale of Collateral, Silicon 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 Silicon of the cash
therefor.
7.6 REMEDIES CUMULATIVE. In addition to the rights and remedies set forth
in this Agreement, Silicon 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 Silicon and Borrower, and all of such rights and
remedies are cumulative and none is exclusive. Exercise or partial exercise by
Silicon of one or more of its rights or remedies shall not be deemed an
election, nor bar Silicon from subsequent exercise or partial exercise of any
other rights or remedies. The failure or delay of Silicon 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, or employee of such Person, or any parent or
subsidiary of such Person, or any Person controlling, controlled by or under
common control with such Person.
"Business Day" means a day on which Silicon 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 Inventory" [NOT APPLICABLE].
"Eligible Receivables" means Receivables arising in the ordinary course of
Borrower's business from the sale of goods or rendition of services, which
Silicon, in its sole judgment, shall deem eligible for borrowing, based on such
considerations as Silicon may from time to time deem appropriate. Without
limiting the fact that the determination of which Receivables are eligible for
borrowing is a matter of Silicon's discretion, the following (the "Minimum
Eligibility Requirements") are the minimum requirements for a Receivable to be
an Eligible Receivable: (i) the Receivable must not be outstanding for more than
90 days from its invoice date, (ii) the Receivable must not represent progress
billings, or be due under a fulfillment or requirements contract with the
Account Debtor, (iii) the Receivable must not be subject to any contingencies
(including Receivables arising from sales on consignment, guaranteed sale or
other terms pursuant to which payment by the Account Debtor may be conditional),
(iv) the Receivable must not be owing from an Account Debtor with whom the
Borrower has any dispute (whether or not relating to the particular Receivable),
(v) the Receivable must not be owing from an Affiliate of Borrower, (vi) the
Receivable must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or whose financial condition is not
acceptable to Silicon, or which, fails or goes out of a material portion of its
business, (vii) the Receivable must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance,
to Silicon's satisfaction, with the United States Assignment of Claims Act),
(viii) the Receivable must not be owing from an Account Debtor located outside
the United States or Canada (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon), (ix) the Receivable must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from
such Account Debtor or otherwise. Receivables owing from one Account Debtor will
not be deemed Eligible Receivables to the extent they exceed 25% of the total
eligible Receivables outstanding. In addition, if more than 50% of the
Receivables owing from an Account Debtor are outstanding more than 90 days from
their invoice date (without regard to unapplied credits) or are otherwise not
eligible Receivables, then all Receivables owing from that Account Debtor will
be deemed ineligible for borrowing. Silicon may, from time to time, in its
discretion, revise the Minimum Eligibility Requirements, upon written notice to
the Borrower.
*20
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<PAGE> 10
SILICON VALLEY BANK LOAN AND SECURITY AGREEMENT
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"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, 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 Silicon, 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 without limitation 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).
"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 without
limitation 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.
"Obligations" means all present and future Loans, advances, debts,
liabilities, obligations, guaranties, covenants, duties and indebtedness at any
time owing by Borrower to Silicon, 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 Silicon in
Borrower's debts owing to others), absolute or contingent, due or to become due,
including, without limitation, all interest, charges, expenses, fees, attorney's
fees, expert witness fees, audit fees, letter of credit fees, collateral
monitoring fees, closing fees, facility 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
Silicon.
"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 not yet payable; (iv) additional security
interests and liens consented to in writing by Silicon, 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*. Silicon 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 Silicon's then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
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 secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
*; (ix) ANY JUDGMENT, ATTACHMENT OR SIMILAR LIEN, IF THE JUDGMENT IT
SECURES IS FULLY COVERED BY INSURANCE AND HAS BEEN DISCHARGED OR EXECUTION
THEREOF EFFECTIVELY STAYED AND BONDED AGAINST PENDING APPEAL WITHIN 30 DAYS OF
THE ENTRY THEREOF; AND (X) EASEMENTS, RIGHTS OF WAY, SERVITUDES OR ZONING OR
BUILDING RESTRICTIONS AND OTHER MINOR ENCUMBRANCES ON REAL PROPERTY AND
IRREGULARITIES IN THE TITLE TO SUCH PROPERTY WHICH DO NOT IN THE AGGREGATE
MATERIALLY IMPAIR THE USE OR VALUE OF SUCH PROPERTY OR RISK THE LOSS OR
FORFEITURE OF TITLE THERETO
"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.
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<PAGE> 11
"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, securities, document and all other forms
of obligation in 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 indicted, shall have the meanings
provided by the Code, to the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation. In computing interest on the Obligations, all
checks, wire transfers and other items of payment received by Silicon
(including proceeds of Receivables and payment of the Obligations in full)
shall be deemed applied by silicon on account of the Obligations Business Days
after receipt by Silicon of immediately available funds and, for purposes of
the foregoing, any such funds received after 2:30 PM on any day shall be deemed
received on the next Business Day. Silicon shall not, however, be required to
credit Borrower's account for the amount of any item of payment which is
unsatisfactory to Silicon in its sole discretion, and Silicon may charge
Borrower's loan account for the amount of any item of payment which is returned
to Silicon unpaid.
9.2 Application of Payments. All payments with respect to the Obligations
may be applied, and in Silicon's sole discretion reversed and re-applied, to
the Obligations, in such order and manner as Silicon shall determine in its
sole discretion.
9.3 Charges to Accounts. Silicon may, in its discretion, require that
Borrower pay monetary Obligations in cash to Silicon or charge them to
Borrower's Loan account, in which event they will bear interest at the same
rate applicable to the Loans. Silicon may also, in its discretion, charge any
monetary Obligations to Borrower's Deposit Accounts maintained with Silicon.
9.4 Monthly Accountings. Silicon 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 Silicon), unless Borrower
notifies Silicon in writing to the contrary within thirty days after each
account is rendered, describing the nature of any alleged errors or admissions.
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 regular first-class mail, or certified mail return receipt
requested, addressed to Silicon 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. Notices to Silicon shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. 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 two
Business Days following the deposit thereof in the United States mail, with
postage prepaid.
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 Silicon 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 Silicon 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 Silicon shall not waive
or diminish any right of Silicon 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 Silicon shall be deemed to have been
waived by any act or knowledge of Silicon or its agents or employees, but only
by a specific written waiver signed by an authorized officer of Silicon 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 Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless expressly required by this Agreement.
9.9 No Liability for Ordinary Negligence. Neither Silicon, nor any of its
directors, officers, employees, agents, attorneys or any other Person
affiliated with or representing Silicon shall be liable for any claims, de-
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<PAGE> 12
mands, losses or damages, of any kind whatsoever, made, claimed, incurred or
suffered by Borrower or any other party through the ordinary negligence of
Silicon, or any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing Silicon, but nothing herein shall
relieve Silicon from liability for its own gross negligence or willful
misconduct.
9.10 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 Silicon.
9.11 TIME OF ESSENCE. Time is of the essence in the performance by
Borrower of each and every obligation under this Agreement.
9.12 ATTORNEYS FEES AND COSTS. Borrower shall reimburse Silicon for all
reasonable attorneys' fees and all filing, recording, search, title insurance,
appraisal, audit, and other reasonable costs incurred by Silicon, 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 Silicon incurs in order to do the following: prepare and negotiate this
Agreement and the documents relating to this Agreement; 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 Silicon's security interest in, the Collateral; and otherwise
represent Silicon in any litigation relating to Borrower. In satisfying
Borrower's obligation hereunder to reimburse Silicon for attorneys fees,
Borrower may, for convenience, issue checks directly to Silicon's attorneys,
Levy, Small & Lallas, but Borrower acknowledges and agrees that Levy, Small &
Lallas is representing only Silicon and not Borrower in connection with this
Agreement. If either Silicon 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 Silicon 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.
9.13 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 Silicon; provided,
however, that Borrower may not assign or transfer any of its rights under this
Agreement without the prior written consent of Silicon, and any prohibited
assignment shall be void. No consent by Silicon to any assignment shall release
Borrower from its liability for the Obligations.
9.14 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.
9.15 LIMITATION OF ACTIONS. Any claim or cause of action by Borrower
against Silicon, its directors, officers, employees, agents, accountants or
attorneys, based upon, arising from, or relating to this Loan 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 Silicon, 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 first 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 Silicon, or on any other
person authorized to accept service on behalf of Silicon, within thirty (30)
days thereafter. Borrower agrees that such one-year period is a 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 Silicon in its sole
discretion. This provision shall survive any termination of this Loan Agreement
or any other present or future agreement.
9.16 PARAGRAPH HEADINGS; CONSTRUCTION. Paragraph headings are only used in
this Agreement for convenience. Borrower and Silicon 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 Silicon or Borrower under any
rule of construction or otherwise.
9.17 GOVERNING LAW; JURISDICTION; VENUE. This Agreement and all acts and
transactions hereunder and all rights and obligations of Silicon and Borrower
shall be governed by the laws of the State of California. As a material part of
the consideration to Silicon to enter into this Agreement, Borrower (i) agrees
that all actions and proceedings relating directly or indirectly to this
Agreement shall, at Silicon's option, be litigated in courts located within
California, and that the exclusive venue therefor shall be Santa Clara County;
(ii) consents to the jurisdiction and venue of any such court and consents to
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<PAGE> 13
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.
9.18 Mutual Waiver of Jury Trial. BORROWER AND SILICON 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 SILICON AND BORROWER, OR ANY CONDUCT,
ACTS OR OMISSIONS OF SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER PERSON AFFILIATED WITH SILICON OR
BORROWER IN ALL OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT
OR OTHERWISE.
Borrower:
THE LIGHTSPAN PARTNERSHIP, INC.
By /s/ CARL ZEIER
--------------------------------
President or Vice President
By [SIGNATURE ILLEGIBLE]
--------------------------------
Secretary of Ass't Secretary
Silicon:
SILICON VALLEY BANK
By
--------------------------------
Title
-----------------------------
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<PAGE> 14
[SILICON VALLEY BANK LOGO]
AMENDMENT TO LOAN DOCUMENTS
BORROWER: THE LIGHTSPAN PARTNERSHIP, INC.
DATE: DECEMBER 31, 1997
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above ("Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated February 25, 1997 (the "Loan Agreement"), as follows, effective as of the
date hereof. (Capitalized terms used but not defined in this Amendment, shall
have the meanings set forth in the Loan Agreement.)
1. MODIFIED CREDIT LIMIT. That portion of the Schedule to Loan and
Security Agreement entitled "CREDIT LIMIT (Section 1.1)" is hereby amended to
read as follows:
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: (i)
$10,000,000 at any one time outstanding; or (ii)
(A) 70% of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above).
LETTER OF CREDIT
SUBLIMIT
(Section 1.5): $500,000
2. MODIFIED MATURITY DATE. That portion of the Schedule to Loan and
Security Agreement entitled "MATURITY DATE (section 6.1)" is hereby amended to
read as follows:
4. MATURITY DATE
(Section 6.1): FEBRUARY 25, 1999, subject to automatic
renewal as provided in Section 6.1 above,
and early termination as provided in Section
6.2 above.
3. MODIFIED NOTICE OF TERMINATION. Section 6.1 of the Loan Agreement is
hereby amended to read as follows:
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
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<PAGE> 15
SILICON VALLEY BANK AMENDMENT TO LOAN DOCUMENTS
- -------------------------------------------------------------------------------
the other, not less than thirty days prior to the next Maturity Date,
that such party elects to terminate this Agreement effective on the
next Maturity Date.
4. LETTERS OF CREDIT PROVISION. Section 1.5 of the Loan Agreement is
hereby amended to read as follows:
1.5 LETTERS OF CREDIT. At the request of Borrower, Silicon may, in its
sole discretion, issue or arrange for the issuance of letters of
credit for the account of Borrower, in each case in form and substance
satisfactory to Silicon in its sole discretion (collectively, "Letters
of Credit"). The aggregate face amount of all outstanding Letters of
Credit from time to time shall not exceed the amount shown on the
Schedule (the "Letter of Credit Sublimit"), and shall be reserved
against Loans which would otherwise be available hereunder. Borrower
shall pay all bank charges (including charges of Silicon) for the
issuance of Letters of Credit, together with such additional fee as
Silicon's letter of credit department shall charge in connection with
the issuance of the Letters of Credit. Any payment by Silicon under or
in connection with a Letter of Credit shall constitute a Loan
hereunder on the date such payment is made. Each Letter of Credit
shall have an expiry date no later than thirty days prior to the
Maturity Date. Borrower hereby agrees to indemnify, save, and hold
Silicon harmless from any loss, cost, expense, or liability, including
payments made by Silicon, expenses, and reasonable attorneys' fees
incurred by Silicon arising out of or in connection with any Letters
of Credit. Borrower agrees to be bound by the regulations and
interpretations of the issuer of any Letters of Credit guaranteed by
Silicon and opened for Borrower's account or by Silicon's
interpretations of any Letter of Credit issued by Silicon for
Borrower's account, and Borrower understands and agrees that Silicon
shall not be liable for any error, negligence, or mistake, whether of
omission or commission, in following Borrower's instructions or those
contained in the Letters of Credit or any modifications, amendments,
or supplements thereto. Borrower understands that Letters of Credit
may require Silicon to indemnify the issuing bank for certain costs or
liabilities arising out of claims by Borrower against such issuing
bank. Borrower hereby agrees to indemnify and hold Silicon harmless
with respect to any loss, cost, expense, or liability incurred by
Silicon under any Letter of Credit as a result of Silicon's
indemnification of any such issuing bank. The provisions of this Loan
Agreement, as it pertains to Letters of Credit, and any other present
or future documents or agreements between Borrower and Silicon
relating to Letters of Credit are cumulative.
5. FEE. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $50,000, which shall be in addition to all interest and all other fees
payable to Silicon and shall be non-refundable, and may be charged to Borrower's
loan account with Silicon.
6. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon that
all representations and warranties set forth in the Loan Agreement, as amended
hereby, are true and correct.
7. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and Borrower, and the
other written documents and agreements between Silicon and Borrower set forth in
full all of the representations and agreements of the parties with respect to
the subject matter hereof and
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<PAGE> 16
SILICON VALLEY BANK AMENDMENT TO LOAN DOCUMENTS
- -------------------------------------------------------------------------------
supersede all prior discussions, representations, agreements and understandings
between the parties with respect to the subject hereof. Except as herein
expressly amended, all of the terms and provisions of the Loan Agreement, and
all other documents and agreements between Silicon and Borrower shall continue
in full force and effect and the same are hereby ratified and confirmed.
BORROWER: SILICON:
THE LIGHTSPAN PARTNERSHIP, SILICON VALLEY BANK
INC.
BY /s/ [SIGNATURE ILLEGIBLE] BY /s/ [SIGNATURE ILLEGIBLE]
--------------------------------- ---------------------------------
PRESIDENT OR VICE PRESIDENT
BY /s/ [SIGNATURE ILLEGIBLE] TITLE Vice President
--------------------------------- ------------------------------
SECRETARY OR ASS'T SECRETARY
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<PAGE> 17
[SILICON VALLEY BANK LETTERHEAD]
LOAN COMMITMENT
December 30, 1997
Ms. Michelle Hays,
Vice President,
Finance and Administration
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, CA 92121-1520
Dear Michelle:
We are pleased to advise you that Silicon Valley Bank, Commercial Finance
Division ("Silicon") has approved your request for the renewal of the current
credit facilities with The Lightspan Partnership, Inc. (the "Company"), subject
to the terms and conditions set forth below. These terms may differ from our
current Loan Agreement and we have underlined the changes for your convenience.
Capitalized terms used in this Commitment, which are not defined in this
Commitment, have the meanings set forth as in the Loan and Security Agreement.
A. TERMS OF FINANCING.
The terms of the financing ("Financing") are as follows:
1. BORROWER. The "Borrower" will be The Lightspan Partnership, Inc.
2. LOANS. Silicon will make loans to the borrower, in amounts
determined by Silicon in its sole discretion, up to the lesser of $10,000,000 or
70% of the amount of the Borrower's eligible receivables, which shall exclude
all accounts aged beyond 120 days from original invoice date. Further,
ineligible accounts shall include, credit balances over 120 days, all contra
accounts, cross-agings at 50% on past due accounts, concentration accounts in
excess of 25% to total receivables, foreign accounts and all other categories of
accounts which Silicon, in its sole judgment, shall deem ineligible for
borrowing.
Note: Advance rates are predicated upon satisfactory levels of
dilution as determined on an on-going basis.
<PAGE> 18
3. LETTERS OF CREDIT. Silicon, in its sole discretion, will, upon the
request of the Borrower, from time to time during the term of the Loan
Agreement, issue letters of credit for the account of the Borrower ("Letters of
Credit"), in an aggregate amount at any one time outstanding not to exceed
$500,000, provided that, on the date a Letter of Credit is to be issued,
Borrower has available to its Loans in an amount equal to or greater than the
face amount of the Letter of Credit to be issued. Further, all such Letters of
Credit issued under this facility must mature no later than 30 days prior to
maturity date of this loan facility or will be otherwise cash secured. Fees for
the Letters of Credit shall be as charged by Silicon's International Department
or Letter of Credit Department at the time the Letters of Credit are issued. The
Loans available to the Borrower under the Loan Agreement at any time shall be
reduced by the face amount of all Letters of Credit outstanding at such time.
4. INTEREST. All Loans and all other monetary Obligations shall bear
interest at a rate equal to the "Prime Rate" in effect form time to time, plus
1.5% per annum. Interest shall be calculated on the basis of a 360-day year for
the actual number of days elapsed. "Prime Rate" means the rate announced from
time to time by Silicon as its "prime rate." The Prime Rate is a base rate upon
which other rates charged by Silicon are based, and it is not necessarily the
best rate available at Silicon. Interest shall be payable and charged as set
forth in the Loan Agreement, and is subject to increase with respect to
Overadvances and following an Event of Default, as set forth in the Loan
Agreement.
5. LOAN FEE. Concurrently with your execution of this Commitment Letter,
Borrower shall pay Silicon a loan fee (the "Loan Fee") of $50,000 (1/2% of the
Commitment Amount. This fee will not be refundable.
6. UNUSED LINE FEE. .25 of 1% per annum, payable monthly.
7. TERM. The term of the Loan Agreement shall be for a term ending
February 25, 1999. The term will automatically renew under Section 6.1 of the
Loan Agreement. An Early Termination Fee will be charged under Section 6.2 of
the Loan Agreement. This fee is not applicable if the loan is transferred to
another lending unit within Silicon Valley Bank.
8. COLLATERAL. All obligations of the Borrower are to be secured by a
first-priority perfected security interest in all corporate assets of Borrower
including but not limited to, all of Borrower's present and future accounts,
contract rights, chattel paper, instruments, general intangibles (including
without limitation copyrights, patents, patent
2
<PAGE> 19
applications, trademarks and other intellectual property), inventory,
documents, equipment, and all other personal property and fixtures of the
Borrower, subject to Permitted Liens (as defined in the Loan Agreement).
9. FINANCIAL COVENANTS. The Loan Agreement will contain the following
financing covenants.
Minimum Tangible Net Worth including subordinated debt, if any, of not
less than $1,250,000.
For purposes of calculation of Tangible Net Worth, outstanding notes or
accounts receivable due from related parties, officers, employees or
stockholders, or goodwill, if any, shall be deemed intangible and deducted from
Tangible Net Worth. Notes payable subordinated to SVB, if any, shall be
included in the calculation of Tangible Net Worth.
10. LOAN DOCUMENTS. The Borrower shall deliver to Silicon all such
documentation evidencing and securing the Loans as Silicon shall specify
(collectively, the "Loan Documents"), all in form and content satisfactory to
Silicon and its counsel, including but not limited to the Loan Agreement and/or
Amendments, and such additional corporate resolutions, certificates of good
standing, certificates of incumbency, representations, warranties, certified
copies of by-laws and articles of incorporation, and other certificates,
consents and documentation as Silicon shall specify.
B. CONDITIONS TO BE SATISFIED.
The obligation of Silicon to make the Loans is subject to the following
additional conditions to be satisfied at or prior to the signing of the Loan
Documents and the initial funding of the Loans (the "Closing"):
1. AUDIT. Silicon shall have made and completed its audit update, as
necessary, and completed its investigations with respect to the Borrower
(including credit inquiries of Borrowers customers and vendors), and the
financial condition, business, operations, and prospects of the Borrower shall
be satisfactory to Silicon at the time of Closing.
2. REPORTING. All reporting mechanisms and controls shall be
satisfactory to Silicon in its discretion.
3. UCC SEARCHES. Silicon shall receive Uniform Commercial Code searches
in all applicable jurisdictions showing financing statements with respect to
the Borrower in favor of Silicon to be of record and no other financing
statements or liens of record, except for Permitted Liens.
3
<PAGE> 20
4. NO MATERIAL ADVERSE CHANGE. No material adverse change in the
properties, financial conditions, operations, business or prospects of the
Borrower shall occur and the results of Silicon's update audit and
investigation conducted at the time of the Closing shall be satisfactory to
Silicon.
5. NO MATERIAL LITIGATION. No litigation or proceeding shall be
pending or threatened which relates to the Financing or which may materially
and adversely affect the financial condition, business, operations or prospects
of the Borrower.
6. INSURANCE. Silicon shall receive proof of fire and extended
coverage insurance on all collateral, and liability insurance, and all
insurance policies shall be in such amounts, against such risks, and in such
companies as are acceptable to Silicon. Silicon shall be named as a lender loss
payee on all said policies, in form satisfactory to Silicon.
7. REPRESENTATIONS TRUE; NO DEFAULT. All representations and
warranties of the Borrower to Silicon shall be true and correct on the date of
Closing, and on the date of Closing no default or event which, with notice or
passage of time or both, would constitute a default or event of default, shall
exist under any of the Loan Documents.
8. NO BREACH, BANKRUPTCY OR INSOLVENCY. Neither this Commitment nor
the contemplated financing arrangements will constitute a breach of any
agreement to which the Borrower is a party; no insolvency or business failure
of the Borrower shall occur, no receiver, trustee or custodian for all or any
part of the property of the Borrower shall have been appointed, the Borrower
shall not have made any assignment for the benefit of creditors, and no
proceeding by or against the Borrower shall have been commenced under any
reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction.
9. OPINION OF COUNSEL. Silicon, at its option, shall receive an
opinion covering such matters and in such form as it shall specify, from
counsel to the Borrower, which counsel shall be acceptable to Silicon.
10. FURTHER ASSURANCE. At the time of closing, the Borrower shall
execute and deliver such documents and do such other acts and things as Silicon
may specify in order to fully effect the purposes of the agreements and the
completion of the financing arrangements described in this Commitment. All
proceedings, agreements and instruments relating to the making of the Loans and
all other transactions herein contemplated shall be satisfactory to Silicon and
to its counsel. Silicon's counsel is to be satisfied with respect to the
legality, validity, binding effect and enforceability of all instruments,
agreements, and documents relating to the Loans and all transactions
contemplated hereby.
4
<PAGE> 21
C. GENERAL
1. SILICON INFORMATION. All information obtained by Silicon during the
course of its review and investigation of this transaction is the sole property
of Silicon and is not subject to review or analysis by others unless the prior
written consent of Silicon has been obtained.
2. NO ASSIGNMENT. This Commitment is not assignable by operation of law
or otherwise without Silicon's prior written consent.
3. NO RELIANCE BY THIRD PARTIES. This Commitment is not to be relied upon
by any third party.
4. NEW INFORMATION. By acceptance of this Commitment Borrower
acknowledges that as a result of further investigation and analysis by Silicon
and its counsel, information of which it is not now aware may be revealed and/or
certain other impediments to closing may come to its attention, and as a result
Silicon may require that the transaction be restructured or otherwise modified.
As the lender, Silicon is the sole judge of what is an impediment and whether
the impediment is so serious as to preclude closing.
5. INDEMNITY FOR INVESTIGATIONS. The Borrower shall cooperate with
Silicon and its personnel in all of their investigations and actions in
connection herewith and shall indemnify Silicon against any liability or loss
(including without limitation reasonable attorneys fees and costs) which may
result, either directly or indirectly, from its investigations and actions in
connection herewith, unless resulting from Silicon's own gross negligence or
willful misconduct.
6. INDEMNIFICATION AGAINST BROKERAGE. The Borrower shall indemnify
Silicon against any and all claims for brokerage commission or finders fees, and
reasonable attorneys' fees and costs in connection therewith, asserted against
Silicon in connection with the Loans and based upon any conduct or agreement of
the Borrower.
7. INTEGRATION. The terms and conditions of this Commitment are the final
written expression of the parties and all prior discussions, negotiations and
agreements are merged herein and the same may be modified only in a writing duly
executed by the parties.
8. TIME OF ESSENCE. Time is of the essence of this Commitment. All times
herein specified are in each case firm and shall not be extended without
Silicon's prior written approval.
9. MUTUAL WAIVER OF JURY TRIAL. The Borrower and Silicon each hereby wive
the right to trial by jury in any action or proceeding based upon, arising out
of, or in any way relating to, this Commitment or any other present or future
instrument or
<PAGE> 22
agreement between Silicon and the Borrower, or any conduct, acts or omissions
of Silicon or the Borrower or with any of their directors, officers, employees,
agents, attorneys or any other persons affiliated with Silicon or the Borrower,
in all of the foregoing cases, whether sounding in contract or tort or
otherwise.
10. COSTS AND EXPENSES. The Borrower shall pay for all search fees,
filing fees, audit fees and all other costs and expenses (collectively,
"Costs"), including without limitation reasonable attorney's fees incurred by
Silicon relating to the Negotiation and preparation of this Commitment and the
other Loan Documents and the disbursement of the Loans, and all other costs and
expenses incurred by Silicon in connection with the Loans, whether or not the
foregoing exceed the Deposit provided for below.
11. COMMITMENT ACCEPTANCE; DEPOSIT. This Commitment must be accepted by
delivery to Silicon no later than 5:00 p.m. on JANUARY 15, 1998 of a signed
copy of this Commitment accepting its terms. Otherwise, this Commitment shall
expire and be of no further force or effect.
12. COMMITMENT EXPIRATION. In the event the Loan transaction is not
consummated by JANUARY 31, 1998, for any reason, this Commitment shall expire
and be of no further force or effect.
We look forward to working with you on this transaction.
Sincerely yours, ACCEPTED:
The Lightspan Partnership, Inc.
/s/ MILAD I. HANNA BY: /s/ [Signature Illegible]
------------------------ ---------------------------
Milad I. Hanna TITLE: VP FINANCE
Vice President -------------------------
<PAGE> 23
[SILICON VALLEY BANK LOGO]
LIMITED WAIVER AND
AMENDMENT TO LOAN DOCUMENTS
BORROWER: THE LIGHTSPAN PARTNERSHIP, INC.
DATE: MARCH 31, 1998
THIS LIMITED WAIVER AND AMENDMENT TO LOAN DOCUMENTS is entered into
between SILICON VALLEY BANK ("Silicon") and the borrower named above
("Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated February 25, 1997, as amended from time to time (as amended, the "Loan
Agreement"), as follows, effective as of the date hereof. (Capitalized terms
used but not defined in this Amendment, shall have the meanings set forth in
the Loan Agreement.)
1. WAIVER OF DEFAULTS. Silicon and Borrower agree that the Borrower's
existing default under the Loan Agreement due to the Borrower's failure to
comply with the Tangible Net Worth Financial Covenant set forth in Section 5 of
the Schedule to Loan and Security Agreement entitled "5. FINANCIAL COVENANTS
(Section 5.1)" for the periods ending January 31, 1998 and February 28, 1998 is
hereby waived. It is understood by the parties hereto, however, that such
waiver does not constitute a waiver of any other provision or term of the Loan
Agreement or any related document, nor an agreement to waive in the future
these covenants or any other provision or term of the Loan Agreement or any
related document.
2. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
3. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and Borrower, and
the other written documents and agreements between Silicon and Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements
between Silicon
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<PAGE> 24
Silicon Valley Bank Limited Waiver and Amendment to Loan Documents
- --------------------------------------------------------------------------------
and Borrower shall continue in full force and effect and the same are hereby
ratified and confirmed.
BORROWER: SILICON:
THE LIGHTSPAN PARTNERSHIP, SILICON VALLEY BANK
INC.
BY /s/ CARL E. ZEIGER BY /s/ [SIG. ILLEGIBLE]
---------------------------- -----------------------
PRESIDENT OR VICE PRESIDENT TITLE VICE PRESIDENT
---------------------
BY [SIG. ILLEGIBLE]
----------------------------
SECRETARY OR ASS'T SECRETARY
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<PAGE> 25
SILICON VALLEY BANK
AMENDMENT TO LOAN DOCUMENTS
BORROWER: THE LIGHTSPAN PARTNERSHIP, INC.
DATE: MARCH 26, 1999
THIS AMENDMENT TO LOAN DOCUMENTS is entered into between SILICON VALLEY
BANK ("Silicon") and the borrower named above ("Borrower").
The Parties agree to amend the Loan and Security Agreement between them,
dated February 25, 1997 (the "Loan Agreement"), as follows, effective as of the
date hereof. (Capitalized terms used but not defined in this Amendment, shall
have the meanings set forth in the Loan Agreement).
1. MODIFICATION TO SECTION 6.1. Section 6.1 of the Loan Agreement is
hereby amended in its entirety to read as follows, which amendment shall be
deemed effective as of February 25, 1999:
"6.1 MATURITY DATE. This Agreement shall continue in effect until the
maturity date set forth on the Schedule (the "Maturity Date")."
2. MODIFICATION TO MATURITY DATE. Section 4 of the Schedule to Loan and
Security Agreement, entitled "MATURITY DATE (Section 6.1)", is hereby amended
in its entirety to read as follows, which amendment shall be deemed effective
as of February 25, 1999:
"4. MATURITY DATE
(Section 6.1): APRIL 25, 2000, subject to early
termination as provided in Section 6.2
above."
3. MODIFICATION TO CREDIT LINK. That portion of the Schedule to Loan and
Security Agreement entitled "CREDIT LIMIT (Section 1.1)" is hereby amended to
read as follows:
1. CREDIT LIMIT
(Section 1.1): An amount not to exceed the lesser of: (i)
$10,000,000 at any one time outstanding; or (ii)
75% of the amount of Borrower's Eligible
Receivables (as defined in Section 8 above).
LETTER OF CREDIT
SUBLIMIT
(Section 1.5): $500,000
4. MODIFICATION TO FINANCIAL COVENANTS. Borrower shall not be required
to comply with the covenants set forth under Section 5 of the Schedule to Loan
and Security Agreement, entitled "FINANCIAL COVENANTS (Section 5.1)", for the
months of February, March and
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<PAGE> 26
April 1999, but shall comply therewith for all months thereafter. Borrower
agrees that its revenue for each of February, March and April 1999 shall equal
or exceed $1,100,000, and that its revenue for the quarter ending April 30,
1999 shall equal or exceed $5,000,000. Borrower also agrees that it shall not
incur a loss (after taxes) for the quarter ending April 30, 1999 in excess of
$7,000,000.
5. FEE. Borrower shall concurrently pay to Silicon a facility fee in the
amount of $100,000, which shall be in addition to all interest and all other
fees payable to Silicon and shall be non-refundable.
6. REPRESENTATIONS TRUE. Borrower represents and warrants to Silicon
that all representations and warranties set forth in the Loan Agreement, as
amended hereby, are true and correct.
7. GENERAL PROVISIONS. This Amendment, the Loan Agreement, any prior
written amendments to the Loan Agreement signed by Silicon and Borrower, and
the other written documents and agreements between Silicon and Borrower set
forth in full all of the representations and agreements of the parties with
respect to the subject matter hereof and supersede all prior discussions,
representations, agreements and understandings between the parties with respect
to the subject hereof. Except as herein expressly amended, all of the terms and
provisions of the Loan Agreement, and all other documents and agreements
between Silicon and Borrower shall continue in full force and effect and the
same are hereby ratified and confirmed.
BORROWER: SILICON:
THE LIGHTSPAN PARTNERSHIP, INC. SILICON VALLEY BANK
BY: /s/ [SIGNATURE ILLEGIBLE] BY: /s/ MILAD HANNA
------------------------------ --------------------------------
PRESIDENT OR VICE PRESIDENT MILAD HANNA, VICE PRESIDENT
BY:
------------------------------
SECRETARY OR ASS'T SECRETARY
-2-
<PAGE> 1
EXHIBIT 10.12
MASTER LEASE AGREEMENT
Lessor: TRANSAMERICA BUSINESS CREDIT CORPORATION
RIVERWAY II
WEST OFFICE TOWER
WEST HIGGINS
ROSEMONT, ILLINOIS 60018
Lessee: THE LIGHTSPAN PARTNERSHIP, INC.
10140 CAMPUS POINT DRIVE
SAN DIEGO, CALIFORNIA 92121
The lessor pursuant to this Master Lease Agreement ("Agreement") dated as of
August 14. 1997, is Transamerica Business Credit Corporation ("Lessor"). All
equipment, together with all present and future additions, parts, accessories,
attachments, substitutions, repairs, improvements, and replacements thereof or
thereto, which are the subject of a Lease (as defined in the next sentence)
shall be referred to as "Equipment." Simultaneous with the execution and
delivery of this Agreement, the parties are entering into one or more Lease
Schedules (each, a "Schedule") which refer to and incorporate by reference this
Agreement, each of which constitutes a lease (each, a "Lease") for the Equipment
specified therein. Additional details pertaining to each Lease are specified in
the applicable Schedule. Each Schedule that the parties hereafter enter into
shall constitute a Lease. Lessor has no obligation to enter into any additional
leases with, or extend any future financing to, Lessee.
1. LEASE. Subject to and upon all of the terms and conditions of
this Agreement and each Schedule, Lessor hereby agrees to lease to Lessee and
Lessee hereby agrees to lease from Lessor the Equipment for the Term (as defined
in Paragraph 2 below) thereof. The timing and financial scope of Lessor's
obligation to enter into Leases hereunder are limited as set forth in the
Commitment Letter executed by Lessor and Lessee, dated as of August 5, 1997 and
attached hereto as Exhibit A (the "Commitment Letter").
2. TERM. Each Lease shall be effective and the term of each
Lease ("Term") shall commence on the commencement date specified in the
applicable Schedule and, unless sooner terminated (as hereinafter provided),
shall expire at the end of the term specified in such Schedule; provided,
however, that obligations due to be performed by Lessee during the Term shall
continue until they have been performed in full. Schedules will only be executed
after the delivery of the Equipment to Lessee or upon completion of deliveries
of items of such Equipment with aggregate cost of not less than $100,000.00
3. RENT. Lessee shall pay as rent to Lessor, for use of the
Equipment during the Term or Renewal Term (as defined in Paragraph 8), rental
payments equal to the sum of all rental payments including, without limitation,
security deposits, advance rents, and interim rents payable in the amounts and
on the dates specified in the applicable Schedule ("Rent"). If any Rent or other
amount payable by Lessee is not paid within five days after the day on which it
becomes payable, Lessee will pay on demand, as a late charge, an amount equal to
5% of such unpaid Rent or other amount but only to the extent permitted by
applicable law. All payments provided for herein shall be payable to Lessor at
its address specified above, or at any other place designated by Lessor.
4. LEASE NOT CANCELABLE; LESSEE'S OBLIGATIONS ABSOLUTE. No Lease
may be canceled or terminated except as expressly provided herein. Lessee's
obligation to pay all Rent due or to become due hereunder shall be absolute and
unconditional and shall not be subject to any delay, reduction, set-off,
defense, counterclaim, or recoupment for any reason whatsoever, including any
failure of the Equipment or any representations by the manufacturer or the
vendor thereof. If the Equipment is unsatisfactory for any reason, Lessee shall
make any claim solely against the manufacturer or the vendor thereof and shall,
nevertheless, pay Lessor all Rent payable hereunder.
5. SELECTION AND USE OF EQUIPMENT. Lessee agrees that it shall
be responsible for the selection and use of, and results obtained from, the
Equipment and any other associated equipment or services.
<PAGE> 2
6. WARRANTIES. LESSOR MAKES NO REPRESENTATION OR WARRANTY,
EXPRESS OR IMPLIED, AS TO ANY MATTER WHATSOEVER, INCLUDING, WITHOUT LIMITATION,
THE DESIGN OR CONDITION OF THE EQUIPMENT OR ITS MERCHANTABILITY, SUITABILITY,
QUALITY, OR FITNESS FOR A PARTICULAR PURPOSE, AND HEREBY DISCLAIMS ANY SUCH
WARRANTY. LESSEE SPECIFICALLY WAIVES ALL RIGHTS TO MAKE A CLAIM AGAINST LESSOR
FOR BREACH OF ANY WARRANTY WHATSOEVER. LESSEE LEASES THE EQUIPMENT "AS IS." IN
NO EVENT SHALL LESSOR HAVE ANY LIABILITY, NOR SHALL LESSEE HAVE ANY REMEDY
AGAINST LESSOR, FOR ANY LIABILITY, CLAIM, LOSS, DAMAGE, OR EXPENSE CAUSED
DIRECTLY OR INDIRECTLY BY THE EQUIPMENT OR ANY DEFICIENCY OR DEFECT THEREOF OR
THE OPERATION, MAINTENANCE, OR REPAIR THEREOF OR ANY CONSEQUENTIAL DAMAGES AS
THAT TERM IS USED IN SECTION 2-719(3) OF THE MODEL UNIFORM COMMERCIAL CODE, AS
AMENDED FROM TIME TO TIME ("UCC"). Lessor grants to Lessee, for the sole purpose
of prosecuting a claim, the benefits of any and all warranties made available by
the manufacturer or the vendor of the Equipment to the extent assignable.
7. DELIVERY. Lessor hereby appoints Lessee as Lessor's agent for
the sole and limited purpose of accepting delivery of the Equipment from each
vendor thereof. Lessee shall pay any and all delivery and installation charges.
Lessor shall not be liable to Lessee for any delay in, or failure of, delivery
of the Equipment.
8. RENEWAL. So long as no Event of Default or event which, with
the giving of notice, the passage of time, or both, would constitute an Event of
Default, shall have occurred and be continuing, or the Lessee shall not have
exercised its purchase option under Paragraph 9 hereof, each Lease will
automatically renew for a term specified in the applicable Schedule (the
"Renewal Term") on the terms and conditions of this Agreement or as set forth in
such Schedule; provided, however, that Obligations due to be performed by the
Lessee during the Renewal Term shall continue until they have been performed in
full.
9. PURCHASE OPTION. So long as no Event of Default or event
which, with the giving of notice, the passage of time, or both, would constitute
an Event of Default, shall have occurred and be continuing, Lessee may, upon
written notice to Lessor received at least one hundred eighty days before the
expiration of a Term, purchase all, but not less than all, the Equipment covered
by the applicable Lease on the date specified therefor in the applicable
Schedule ("Purchase Date"). The purchase price for such Equipment shall be its
fair market value as set forth in the applicable Schedule determined on an
"In-place, In-use" basis, as mutually agreed by Lessor and Lessee, or, if they
cannot agree, as determined by an independent appraiser selected by Lessor and
approved by Lessee, which approval will not be unreasonably delayed or withheld.
Lessee shall pay the cost of any such appraisal. So long as no Event of Default
or event which, with the giving of notice, the passage of time, or both, would
constitute an Event of Default shall have occurred and be continuing, Lessee
may, upon written notice to Lessor received at least one hundred eighty days
prior to the expiration of the Renewal Term, purchase all, but not less than
all, the Equipment covered by the applicable Schedule by the last date of the
Renewal Term (the "Alternative Purchase Date") at a purchase price equal to its
then fair market value on an "In-place, In-use" basis. On the Purchase Date or
the Alternative Purchase Date, as the case may be, for any Equipment, Lessee
shall pay to Lessor the purchase price, together with all sales and other taxes
applicable to the transfer of the Equipment and any other amount payable and
arising hereunder, in immediately available funds, whereupon Lessor shall
transfer to Lessee, without recourse or warranty of any kind, express or
implied, all of Lessor's right, title, and interest in and to such Equipment on
an "As Is, Where Is" basis.
10. OWNERSHIP; INSPECTION; MARKING; FINANCING STATEMENTS. Lessee
shall affix to the Equipment any labels supplied by Lessor indicating ownership
of such Equipment. The Equipment is and shall be the sole property of Lessor.
Lessee shall have no right, title, or interest therein, except as lessee under a
Lease. The Equipment is and shall at all times be and remain personal property
and shall not become a fixture. Lessee shall obtain and record such instruments
and take such steps as may be necessary to prevent any person from acquiring any
rights in the Equipment by reason of the Equipment being claimed or deemed to be
real property. Upon request by Lessor, Lessee shall obtain and deliver to Lessor
valid and effective waivers, in recordable form, by the owners, landlords, and
mortgagees of the real property upon which the Equipment is located or
certificates of Lessee that it is the owner of such real property or that such
real property is neither leased nor mortgaged. Lessee shall make the Equipment
and its maintenance records available for inspection by Lessor at reasonable
times and upon reasonable notice. Lessee shall execute and deliver to Lessor for
filing any UCC financing statements or similar documents Lessor may reasonably
request.
<PAGE> 3
11. EQUIPMENT USE. Lessee agrees that the Equipment will be
operated by competent, qualified personnel in connection with Lessee's business
for the purpose for which the Equipment was designed and in accordance with
applicable operating instructions, laws, and government regulations, and that
Lessee shall use all reasonable precautions to prevent loss or damage to the
Equipment from fire and other hazards. Lessee shall procure and maintain in
effect all orders, licenses, certificates, permits, approvals, and consents
required by federal, state, or local laws or by any governmental body, agency,
or authority in connection with the delivery, installation, use, and operation
of the Equipment.
12. MAINTENANCE. Lessee, at its sole cost and expense, shall
keep the Equipment in a suitable environment as specified by the manufacturer's
guidelines or the equivalent, shall meet all recertification requirements, and
shall maintain the Equipment in its original condition and working order,
ordinary wear and tear excepted. At the reasonable request of Lessor, Lessee
shall furnish all proof of maintenance.
13. ALTERATION; MODIFICATIONS; PARTS. Lessee may alter or modify
the Equipment only with the prior written consent of Lessor. Any alteration
shall be removed and the Equipment restored to its normal, unaltered condition
at Lessee's expense (without damaging the Equipment's originally intended
function or its value) prior to its return to Lessor. Any part installed in
connection with warranty or maintenance service or which cannot be removed in
accordance with the preceding sentence shall be the property of Lessor.
14. RETURN OF EQUIPMENT. Except for Equipment that has suffered
a Casualty Loss (as defined in Paragraph 15 below) and is not required to be
repaired pursuant to Paragraph 15 below or Equipment purchased by Lessee
pursuant to Paragraph 9 above, upon the expiration of the Renewal Term of a
Lease, or upon demand by Lessor pursuant to Paragraph 22 below, Lessee shall
contact Lessor for shipping instructions and, at Lessee's own risk, immediately
return the Equipment, freight prepaid, to a location in the continental United
States specified by Lessor. At the time of such return to Lessor, the Equipment
shall (i) be in the operating order, repair, and condition as required by or
specified in the original specifications and warranties of each manufacturer and
vendor thereof, ordinary wear and tear excepted, (ii) meet all recertification
requirements, and (iii) be capable of being promptly assembled and operated by a
third party purchaser or third party lessee without further repair, replacement,
alterations, or improvements, and in accordance and compliance with any and all
statutes, laws, ordinances, rules, and regulations of any governmental authority
or any political subdivision thereof applicable to the use and operation of the
Equipment. Except as otherwise provided under Paragraph 9 hereof, at least one
hundred eighty days before the expiration of the Renewal Term, Lessee shall give
Lessor notice of its intent to return the Equipment at the end of such Renewal
Term. During the one hundred eighty-day period prior to the end of a Term or the
Renewal Term, Lessor and its prospective purchasers or lessees shall have, upon
not less than two business days' prior notice to Lessee and during normal
business hours, or at any time and without prior notice upon the occurrence and
continuance of an Event of Default, the right of access to the premises on which
the Equipment is located to inspect the Equipment, and Lessee shall cooperate in
all other respects with Lessor's remarketing of the Equipment. The provisions of
this Paragraph 14 are of the essence of the Lease, and upon application to any
court of equity having jurisdiction in the premises, Lessor shall be entitled to
a decree against Lessee requiring specific performance of the covenants of
Lessee set forth in this Paragraph 14. If Lessee fails to return the Equipment
when required, the terms and conditions of the Lease shall continue to be
applicable and Lessee shall continue to pay Rent until the Equipment is received
by Lessor.
15. CASUALTY INSURANCE; LOSS OR DAMAGE. Lessee will maintain, at
its own expense, liability and property damage insurance relating to the
Equipment, insuring against such risks as are customarily insured against on the
type of equipment leased hereunder by businesses in which Lessee is engaged in
such amounts, in such form, and with insurers satisfactory to Lessor; provided,
however, that the amount of insurance against damage or loss shall not be less
than the greater of (a) the replacement value of the Equipment and (b) the
stipulated loss value of the Equipment specified in the applicable Schedule
("Stipulated Loss Value"). Each liability insurance policy shall provide
coverage (including, without limitation, personal injury coverage) of not less
than $1,000,000 for each occurrence, and shall name Lessor as an additional
insured; and each property damage policy shall name Lessor as sole loss payee
and all policies shall contain a clause requiring the insurer to give Lessor at
least thirty days' prior written notice of any alteration in the terms or
cancellation of the policy. Lessee shall
<PAGE> 4
furnish to Lessor a certificate of insurance, and upon request, a copy of each
insurance policy (with endorsements) or other evidence satisfactory to Lessor
that the required insurance coverage is in effect; provided, however, Lessor
shall have no duty to ascertain the existence of or to examine the insurance
policies to advise Lessee if the insurance coverage does not comply with the
requirements of this Paragraph. If Lessee fails to insure the Equipment as
required, Lessor shall have the right but not the obligation to obtain such
insurance, and the cost of the insurance shall be for the account of Lessee due
as part of the next due Rent. Lessee consents to Lessor's release, upon its
failure to obtain appropriate insurance coverage, of any and all information
necessary to obtain insurance with respect to the Equipment or Lessor's interest
therein.
Until the Equipment is returned to and received by Lessor as
provided in Paragraph 14 above, Lessee shall bear the entire risk of theft or
destruction of, or damage to, the Equipment including, without limitation, any
condemnation, seizure, or requisition of title or use ("Casualty Loss"). No
Casualty Loss shall relieve Lessee from its obligations to pay Rent except as
provided in clause (b) below. When any Casualty Loss occurs, Lessee shall
immediately notify Lessor and, at the option of Lessor, shall promptly (a) place
such Equipment in good repair and working order; or (b) pay Lessor an amount
equal to the Stipulated Loss Value of such Equipment and all other amounts
(excluding Rent) payable by Lessee hereunder, together with a late charge on
such amounts at a rate per annum equal to the rate imputed in the Rent payments
hereunder (as reasonably determined by Lessor) from the date of the Casualty
Loss through the date of payment of such amounts, whereupon Lessor shall
transfer to Lessee, without recourse or warranty (express or implied), all of
Lessor's interest, if any, in and to such Equipment on an "AS IS, WHERE IS"
basis. The proceeds of any insurance payable with respect to the Equipment shall
be applied, at the option of Lessor, either towards (i) repair of the Equipment
or (ii) payment of any of Lessee's obligations hereunder. Lessee hereby appoints
Lessor as Lessee's attorney-in-fact to make claim for, receive payment of, and
execute and endorse all documents, checks or drafts issued with respect to any
Casualty Loss under any insurance policy relating to the Equipment.
16. TAXES. Lessee shall pay when due, and indemnify and hold
Lessor harmless from, all sales, use, excise, and other taxes, charges, and fees
(including, without limitation, income, franchise, business and occupation,
gross receipts, licensing, registration, titling, personal property, stamp and
interest equalization taxes, levies, imposts, duties, charges, or withholdings
of any nature), and any fines, penalties, or interest thereon, imposed or levied
by any governmental body, agency, or tax authority upon or in connection with
the Equipment, its purchase, ownership, delivery, leasing, possession, use, or
relocation of the Equipment or otherwise in connection with the transactions
contemplated by each Lease or the Rent thereunder, excluding taxes on or
measured by the net income of Lessor. Upon request, Lessee will provide proof of
payment. Unless Lessor elects otherwise, Lessor will pay all property taxes on
the Equipment for which Lessee shall reimburse Lessor promptly upon request.
Lessee shall timely prepare and file all reports and returns which are required
to be made with respect to any obligation of Lessee under this Paragraph 16.
Lessee shall, to the extent permitted by law, cause all billings of such fees,
taxes, levies, imposts, duties, withholdings, and governmental charges to be
made to Lessor in care of Lessee. Upon request, Lessee will provide Lessor with
copies of all such billings.
17. LESSOR'S PAYMENT. If Lessee fails to perform its obligations
under Paragraph 15 or 16 above, or Paragraph 23 below, Lessor shall have the
right to substitute performance, in which case Lessee shall immediately
reimburse Lessor therefor.
18. GENERAL INDEMNITY. Each Lease is a net lease. Therefore,
Lessee shall indemnify Lessor and its successors and assigns against, and hold
Lessor and its successors and assigns harmless from, any and all claims,
actions, damages, obligations, liabilities, and all costs and expenses,
including, without limitation, legal fees incurred by Lessor or its successors
and assigns arising out of each Lease including, without limitation, the
purchase, ownership, delivery, lease, possession, maintenance, condition, use,
or return of the Equipment, or arising by operation of law, except that Lessee
shall not be liable for any claims, actions, damages, obligations, and costs and
expenses determined by a non-appealable, final order of a court of competent
jurisdiction to have occurred as a result of the gross negligence or willful
misconduct of Lessor or its successors and assigns. Lessee agrees that upon
written notice by Lessor of the assertion of any claim, action, damage,
obligation, liability, or lien, Lessee shall assume full responsibility for the
defense thereof, provided that Lessor's failure to give such notice shall not
limit or otherwise affect its rights hereunder. Any payment pursuant to this
Paragraph (except for any payment of Rent) shall be of such amount as shall be
necessary so that, after payment of any taxes required to be paid thereon by
Lessor, including taxes on or measured by the net income of Lessor, the balance
will equal the
<PAGE> 5
amount due hereunder. The provisions of this Paragraph with regard to matters
arising during a Lease shall survive the expiration or termination of such
Lease.
19. ASSIGNMENT BY LESSEE. Lessee shall not, without the prior
written consent of Lessor, (a) assign, transfer, pledge, or otherwise dispose of
any Lease or Equipment, or any interest therein; (b) sublease or lend any
Equipment or permit it to be used by anyone other than Lessee and its employees;
or (c) move any Equipment from the location specified for it in the applicable
Schedule, except that Lessee may move Equipment to another location within the
United States provided that Lessee has delivered to Lessor (A) prior written
notice thereof and (B) duly executed financing statements and other agreements
and instruments (all in form and substance satisfactory to Lessor) necessary or,
in the opinion of the Lessor, desirable to protect Lessor's interest in such
Equipment. Notwithstanding anything to the contrary in the immediately preceding
sentence, Lessee may keep any Equipment consisting of motor vehicles or rolling
stock at any location in the United States.
20. ASSIGNMENT BY LESSOR. Lessor may assign its interest or
grant a security interest in any Lease and the Equipment individually or
together, in whole or in part. If Lessee is given written notice of any such
assignment, it shall immediately make all payments of Rent and other amounts
hereunder directly to such assignee. Each such assignee shall have all of the
rights of Lessor under each Lease assigned to it. Lessee shall not assert
against any such assignee any set-off, defense, or counterclaim that Lessee may
have against Lessor or any other person.
21. DEFAULT; NO WAIVER. Lessee or any guarantor of any or all of
the obligations of Lessee hereunder (together with Lessee, the "Lease Parties")
shall be in default under each Lease upon the occurrence of any of the following
events (each, an "Event of Default"): (a) Lessee fails to pay within five days
of when due any amount required to be paid by Lessee under or in connection with
any Lease; (b) any of the Lease Parties fails to perform any other provision
under or in connection with a Lease or violates any of the covenants or
agreements of such Lease Party under or in connection with a Lease; (c) any
representation made or financial information delivered or furnished by any of
the Lease Parties under or in connection with a Lease shall prove to have been
inaccurate in any material respect when made; (d) any of the Lease Parties makes
an assignment for the benefit of creditors, whether voluntary or involuntary, or
consents to the appointment of a trustee or receiver, or if either shall be
appointed for any of the Lease Parties or for a substantial part of its property
without its consent and, in the case of any such involuntary proceeding, such
proceeding remains undismissed or unstayed for forty-five days following the
commencement thereof; (e) any petition or proceeding is filed by or against any
of the Lease Parties under any Federal or State bankruptcy or insolvency code or
similar law and, in the case of any such involuntary petition or proceeding,
such petition or proceeding remains undismissed or unstayed for forty-five days
following the filing or commencement thereof, or any of the Lease Parties takes
any action authorizing any such petition or proceeding; (f) any of the Lease
Parties fails to pay when due any indebtedness for borrowed money or under
conditional sales or installment sales contracts or similar agreements, leases,
or obligations evidenced by bonds, debentures, notes, or other similar
agreements or instruments to any creditor (including Lessor under any other
agreement) after any and all applicable cure periods therefor shall have
elapsed; (g) any judgment shall be rendered against any of the Lease Parties
which shall remain unpaid or unstayed for a period of sixty days; (h) any of the
Lease Parties shall dissolve, liquidate, wind up or cease its business, sell or
otherwise dispose of all or substantially all of its assets, or make any
material change in its lines of business; (i) any of the Lease Parties shall
amend or modify its name, unless such Lease Party delivers to Lessor, thirty
days prior to any such proposed amendment or modification, written notice of
such amendment or modification and within ten days before such amendment or
modification delivers executed financing statements (in form and substance
satisfactory to the Lessor); (j) any of the Lease Parties shall merge or
consolidate with any other entity or make any material change in its capital
structure, in each case without Lessor's prior written consent, which shall not
be unreasonably withheld; (k) any of the Lease Parties shall suffer any loss or
suspension of any material license, permit, or other right or asset necessary to
the profitable conduct of its business, fail generally to pay its debts as they
mature, or call a meeting for purposes of compromising its debts; (l) any of the
Lease Parties shall deny or disaffirm its obligations hereunder or under any of
the documents delivered in connection herewith; or (m) there is a change in more
than 35% of the ownership of any equity interests of any of the Lease Parties on
the date hereof or more than 35% of such interests become subject to any
contractual, judicial or statutory lien, charge, security interest, or
encumbrance.
<PAGE> 6
22. REMEDIES. Upon the occurrence and continuation of an Event
of Default, Lessor shall have the right, in its sole discretion, to exercise any
one or more of the following remedies: (a) terminate each Lease; (b) declare any
and all Rent and other amounts then due and any and all Rent and other amounts
to become due under each Lease (collectively, the "Lease Obligations")
immediately due and payable; (c) take possession of any or all items of
Equipment, wherever located, without demand, notice, court order, or other
process of law, and without liability for entry to Lessee's premises, for damage
to Lessee's property, or otherwise; (d) demand that Lessee immediately return
any or all Equipment to Lessor in accordance with Paragraph 14 above, and, for
each day that Lessee shall fail to return any item of Equipment, Lessor may
demand an amount equal to the Rent payable for such Equipment in accordance with
Paragraph 14 above; (e) lease, sell, or otherwise dispose of the Equipment in a
commercially reasonable manner, with or without notice and on public or private
bid; (f) recover the following amounts from the Lessee (as damages, including
reimbursement of costs and expenses, liquidated for all purposes and not as a
penalty): (i) all costs and expenses of Lessor reimbursable to it hereunder,
including, without limitation, expenses of disposition of the Equipment, legal
fees, and all other amounts specified in Paragraph 23 below; (ii) an amount
equal to the sum of (A) any accrued and unpaid Rent through the later of (1) the
date of the applicable default, (2) the date that Lessor has obtained possession
of the Equipment, or (3) such other date as Lessee has made an effective tender
of possession of the Equipment to Lessor (the "Default Date") and (B) if Lessor
resells or re-lets the Equipment, Rent at the periodic rate provided for in each
Lease for the additional period that it takes Lessor to resell or re-let all of
the Equipment; (iii) the present value of all future Rent reserved in the Leases
and contracted to be paid over the unexpired Term of the Leases discounted at
five percent compound interest; (iv) the reversionary value of the Equipment as
of the expiration of the Term of the applicable Lease as set forth on the
applicable Schedule; and (v) any indebtedness for Lessee's indemnity under
Paragraph 18 above, plus a late charge at the rate specified in Paragraph 3
above, less the amount received by Lessor, if any, upon sale or re-let of the
Equipment; and (g) exercise any other right or remedy to recover damages or
enforce the terms of the Leases. Upon the occurrence and continuance of an Event
of Default or an event which with the giving of notice or the passage of time,
or both, would result in an Event of Default, Lessor shall have the right,
whether or not Lessor has made any demand or the obligations of Lessee hereunder
have matured, to appropriate and apply to the payment of the obligations of
Lessee hereunder all security deposits and other deposits (general or special,
time or demand, provisional or final) now or hereafter held by and other
indebtedness or property now or hereafter owing by Lessor to Lessee. Lessor may
pursue any other rights or remedies available at law or in equity, including,
without limitation, rights or remedies seeking damages, specific performance,
and injunctive relief. Any failure of Lessor to require strict performance by
Lessee, or any waiver by Lessor of any provision hereunder or under any
Schedule, shall not be construed as a consent or waiver of any other breach of
the same or of any other provision. Any amendment or waiver of any provision
hereof or under any Schedule or consent to any departure by Lessee herefrom or
therefrom shall be in writing and signed by Lessor.
No right or remedy is exclusive of any other provided herein or
permitted by law or equity. All such rights and remedies shall be cumulative and
may be enforced concurrently or individually from time to time.
23. LESSOR'S EXPENSE. Lessee shall pay Lessor on demand all
costs and expenses (including legal fees and expenses) incurred in connection
with the preparation, execution and delivery of this Agreement and other
agreement and transaction contemplated hereby and all costs and expenses in
protecting and enforcing Lessor's rights and interests in each Lease and the
Equipment, including, without limitation, legal, collection, and remarketing
fees and expenses incurred by Lessor in enforcing the terms, conditions, or
provisions of each Lease or upon the occurrence and continuation of an Event of
Default.
24. LESSEE'S WAIVERS. To the extent permitted by applicable law,
Lessee hereby waives any and all rights and remedies conferred upon a lessee by
Sections 2A-508 through 2A-522 of the UCC. To the extent permitted by applicable
law, Lessee also hereby waives any rights now or hereafter conferred by statute
or otherwise which may require Lessor to sell, lease, or otherwise use any
Equipment in mitigation of Lessor's damages as set forth in Paragraph 22 above
or which may otherwise limit or modify any of Lessor's rights or remedies under
Paragraph 22. Any action by Lessee against Lessor for any default by Lessor
under any Lease shall be commenced within one year after any such cause of
action accrues.
25. NOTICES; ADMINISTRATION. Except as otherwise provided
herein, all notices, approvals, consents, correspondence, or other
communications required or desired to be given hereunder shall be given in
writing and shall be delivered by overnight courier, hand delivery, or certified
or registered mail, postage
<PAGE> 7
prepaid, if to Lessor, then to Transamerica Technology Finance Division, 76
Batterson Park Road, Farmington, Connecticut 06032, Attention: Assistant Vice
President, Lease Administration, with a copy to Lessor at Riverway II, West
Office Tower, 9399 West Higgins Road, Rosemont, Illinois 60018, Attention: Legal
Department, if to Lessee, then to The Lightspan Partnership, Inc., 10140 Campus
Point Drive, San Diego, California 92121, Attention: Michelle M. Hays, Vice
President Finance and Administration or such other address as shall be
designated by Lessee or Lessor to the other party. All such notices and
correspondence shall be effective when received.
26. REPRESENTATIONS. Lessee represents and warrants to Lessor
that (a) Lessee is duly organized, validly existing, and in good standing under
the laws of the State of its incorporation; (b) the execution, delivery, and
performance by Lessee of this Agreement are within Lessee's powers, have been
duly authorized by all necessary action, and do not and will not contravene (i)
Lessee's organizational documents or (ii) any law, regulation, rule, or
contractual restriction binding on or affecting Lessee; (c) no authorization or
approval or other action by, and no notice to or filing with, any governmental
authority or regulatory body is required for the due execution, delivery, and
performance by Lessee of this Agreement; (d) each Lease constitutes the legal,
valid, and binding obligations of Lessee enforceable against Lessee in
accordance with its terms; (e) the cost of each item of Equipment does not
exceed the fair and usual price for such type of equipment purchased in like
quantity and reflects all discounts, rebates, and allowances for the Equipment
(including, without limitation, discounts for advertising, prompt payment,
testing, or other services) given to the Lessee by the manufacturer, supplier,
or any other person; and (f) all information supplied by Lessee to Lessor in
connection herewith is correct and does not omit any material statement
necessary to insure that the information supplied is not misleading.
27. FURTHER ASSURANCES. Lessee, upon the request of Lessor, will
execute, acknowledge, record, or file, as the case may be, such further
documents and do such further acts as may be reasonably necessary, desirable, or
proper to carry out more effectively the purposes of this Agreement. Lessee
hereby appoints Lessor as its attorney-in-fact to execute on behalf of Lessee
and authorizes Lessor to file without Lessee's signature any UCC financing
statements and amendments Lessor deems advisable.
28. FINANCIAL STATEMENTS. Lessee shall deliver to Lessor: (a) as
soon as available, but not later than 120 days after the end of each fiscal year
of Lessee and its consolidated subsidiaries, the consolidated balance sheet,
income statement, and statements of cash flows and shareholders equity for
Lessee and its consolidated subsidiaries (the "Financial Statements") for such
year, reported on by independent certified public accountants without an adverse
qualification; and (b) as soon as available, but not later than 60 days after
the end of each of the first three fiscal quarters in any fiscal year of Lessee
and its consolidated subsidiaries, the Financial Statements for such fiscal
quarter, together with a certification duly executed by a responsible officer of
Lessee that such Financial Statements have been prepared in accordance with
generally accepted accounting principles and are fairly stated in all material
respects (subject to normal year-end audit adjustments). Lessee shall also
deliver to Lessor as soon as available copies of all press releases and other
similar communications issued by Lessee.
29. CONSENT TO JURISDICTION. Lessee irrevocably submits to the
jurisdiction of any Illinois state or federal court sitting in Illinois for any
action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby, and Lessee irrevocably agrees that all claims
in respect of any such action or proceeding may be heard and determined in such
Illinois state or federal court.
30. WAIVER OF JURY TRIAL. LESSEE AND LESSOR IRREVOCABLY WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
31. FINANCE LEASE. Lessee and Lessor agree that each Lease is a
"Finance Lease" as defined by Section 2A-103(g) of the UCC. Lessee acknowledges
that Lessee has reviewed and approved each written Supply Contract (as defined
by UCC 2A-103(y)) covering Equipment purchased from each "Supplier" (as defined
by UCC 2A-103(x)) thereof.
32. NO AGENCY. Lessee acknowledges and agrees that neither the
manufacturer or supplier, nor any salesman, representative, or other agent of
the manufacturer or supplier, is an agent of Lessor. No
<PAGE> 8
salesman, representative, or agent of the manufacturer or supplier is authorized
to waive or alter any term or condition of this Agreement or any Schedule and no
representation as to the Equipment or any other matter by the manufacturer or
supplier shall in any way affect Lessee's duty to pay Rent and perform its other
obligations as set forth in this Agreement or any Schedule.
33. SPECIAL TAX INDEMNIFICATION. Lessee acknowledges that
Lessor, in determining the Rent due hereunder, has assumed that certain tax
benefits as are provided to an owner of property under the Internal Revenue Code
of 1986, as amended (the "Code"), and under applicable state tax law, including,
without limitation, depreciation deductions under Section 168(b) of the Code,
and deductions under Section 163 of the Code in an amount at least equal to the
amount of interest paid or accrued by Lessor with respect to any indebtedness
incurred by Lessor in financing its purchase of the Equipment, are available to
Lessor as a result of the lease of the Equipment. In the event Lessor is unable
to obtain such tax benefits as a result of an act or omission of Lessee, is
required to include in income any amount other than the Rent, or is required to
recognize income in respect of the Rent earlier than anticipated pursuant to
this Agreement, Lessee shall pay Lessor additional rent ("Additional Rent") in a
lump sum in an amount needed to provide Lessor with the same after-tax yield and
after-tax cash flow as would have been realized by Lessor had Lessor (i) been
able to obtain such tax benefits, (ii) not been required to include any amount
in income other than the Rent, and (iii) not been required to recognize income
in respect of the Rent earlier than anticipated pursuant to this Agreement. The
Additional Rent shall be computed by Lessor, which computation shall be binding
on Lessee. The Additional Rent shall be due immediately upon written notice by
Lessor to Lessee of Lessor's inability to obtain tax benefits, the inclusion of
any amount in income other than the Rent or the recognition of income in respect
of the Rent earlier than anticipated pursuant to this Agreement. The provisions
of this Paragraph 33 shall survive the termination of this Agreement.
34. GOVERNING LAW; SEVERABILITY. EACH LEASE SHALL BE GOVERNED BY
THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING EFFECT TO THE CONFLICT OF LAW
PRINCIPLES THEREOF. IF ANY PROVISION SHALL BE HELD TO BE INVALID OR
UNENFORCEABLE, THE VALIDITY AND ENFORCEABILITY OF THE REMAINING PROVISIONS SHALL
NOT IN ANY WAY BE AFFECTED OR IMPAIRED.
LESSEE ACKNOWLEDGES THAT LESSEE HAS READ THIS AGREEMENT AND THE SCHEDULE HERETO,
UNDERSTANDS THEM, AND AGREES TO BE BOUND BY THEIR TERMS AND CONDITIONS. FURTHER,
LESSEE AND LESSOR AGREE THAT THIS AGREEMENT, THE SCHEDULES DELIVERED IN
CONNECTION HEREWITH FROM TIME TO TIME, AND THE COMMITMENT LETTER ARE THE
COMPLETE AND EXCLUSIVE STATEMENT OF THE AGREEMENT BETWEEN THE PARTIES,
SUPERSEDING ALL PROPOSALS OR PRIOR AGREEMENTS, ORAL OR WRITTEN, AND ALL OTHER
COMMUNICATIONS BETWEEN THE PARTIES RELATING TO THE SUBJECT MATTER HEREOF. SHOULD
THERE EXIST ANY INCONSISTENCY BETWEEN THE TERMS OF THE COMMITMENT LETTER AND
THIS AGREEMENT, THE TERMS OF THIS AGREEMENT SHALL PREVAIL.
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to be duly executed by their duly authorized officers as of the
date first written above.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ [Signature Illegible]
---------------------------------
Name:
Title: VP FINANCE
Federal Tax ID No.:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By:
---------------------------------
Name:
Title:
<PAGE> 10
SECRETARY'S CERTIFICATE
I, Allen Morgan hereby state that I am the duly elected, acting and
qualified Secretary of The Lightspan Partnership, Inc., a California
corporation(the "Company"), and that:
(a) Through a unanimous consent in lieu of a Board of Directors meeting
of the Company, proposed in accordance with its bylaws and the laws of said
State on the 18th day of September, 1997, signed by a quorum for the
transaction of business, the following resolutions were duly and regularly
adopted:
RESOLVED, that the form, terms and provisions of all of the documents
and instruments executed by the Company with and/or in favor of Transamerica
Business Credit Corporation(the "Agreements"),and the transactions contemplated
thereby be, and the same are, in all respects approved, and that the President,
each Vice President and each other officer of the Company (the "Authorized
Persons"), or any of them, be, and they hereby are, authorized, empowered, and
directed to execute and deliver the Agreements and any and all other agreements,
documents, instruments and certificates required or desirable in connection
therewith, if necessary or advisable, with such changes as they may deem in the
best interest of the Company, and their execution and delivery of the
Agreements, and all such other agreements, documents, instruments and
certificates, shall be deemed to be conclusive evidence that the same are in all
respects authorized and approved; and be it further
RESOLVED, that the actions of any Authorized Person heretofore taken in
furtherance of the Agreements be, and hereby are, approved, adopted and ratified
in all respects.
(i) The above resolutions: (a) are not contrary to the Articles or
Certificate of Incorporation or bylaws of the Company and (b) have not been
amended, modified, rescinded or revoked and are in full force and effect on the
date hereof.
(iii) The following persons are duly qualified and acting officers of
the Company, duly elected to the offices set forth opposite their respective
names, and the signature appearing opposite the name of each such officer is his
authentic signature:
Name Office Signature
---- ------ ---------
Carl Zeiger President & COO /s/ CARL ZEIGER
- --------------- ---------------------- -----------------
Michelle Hays VP Finance & Treasurer /s/ Michelle Hays
- --------------- ---------------------- -----------------
- --------------- ---------------------- -----------------
IN WITNESS WHEREOF, I have executed this Certificate, this ___ day of
________________, 1997.
/s/ [Signature Illegible]
------------------------------
Secretary
[CORPORATE SEAL]
-1-
<PAGE> 11
EXHIBIT A
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for One Hundred Thousand and 00/100 Dollars ($100,000.00) and other
valuable consideration to it in hand paid, receipt of which is hereby
acknowledged, does unconditionally, absolutely and irrevocably grant, sell,
assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT CORPORATION and
its assignees or successors (collectively, the "Buyer"), all of the Seller's
right, title and interest in and to the equipment described on Exhibit II hereto
(collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 30th day of August, 1997.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ MICHELLE HAYS
----------------------------
Name: Michelle Hays
Title: VP Finance
-8-
<PAGE> 12
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for One Hundred Thousand and 00/100 Dollars ($100,000.00) and other
valuable consideration to it in hand paid, receipt of which is hereby
acknowledged, does unconditionally, absolutely and irrevocably grant, sell,
assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT CORPORATION and
its assignees or successors (collectively, the "Buyer"), all of the Seller's
right, title and interest in and to the equipment described on Exhibit II hereto
(collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 30th day of August, 1997.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ MICHELLE HAYS
----------------------------
Name: Michelle Hays
Title: VP Finance
-9-
<PAGE> 13
THE LIGHTSPAN PARTNERSHIP, INC.
CONTACT INFORMATION FORM
Please provide us with the names and telephone numbers of the
individuals that we should contact when inquiring about the following:
<TABLE>
<S> <C>
1. DOCUMENTATION QUESTIONS
2. ACCOUNTS PAYABLE
3. EQUIPMENT QUESTIONS
4. INSURANCE QUESTIONS
</TABLE>
1. NAME: Kathy White PHONE:(619)824-8352
2. NAME: Lana Tice PHONE:(619)824-8328
FAX:(619)824-8001
BILLING ADDRESS: 10140 Campus Point Dr.
San Diego CA 92121
3. NAME: Kathy White PHONE:(619)824-8352
4. NAME: Kathy White PHONE: (619)824-8352
(PLEASE PRINT)
<PAGE> 14
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
DATE (MM/DD/YY)
ACORD. CERTIFICATE OF INSURANCE 08/20/97
- ------------------------------------------------------------------------------------------------------------------------------------
PRODUCER THIS CERTIFICATE IS ISSUED AS A MATTER OF INFORMATION
JOHNSON & HIGGINS ONLY AND CONFERS NO RIGHTS UPON THE CERTIFICATE
4275 EXECUTIVE SQUARE, SUITE 600 HOLDER. THIS CERTIFICATE DOES NOT AMEND, EXTEND OR
SAN DIEGO, CA 92037 ALTER THE COVERAGE AFFORDED BY THE POLICIES BELOW.
-------------------------------------------------------------------
(619) 587-1700 COMPANY
00003-00005 A ST. PAUL FIRE & MARINE INSURANCE COMPANY
- ------------------------------------------------------------------------------------------------------------------------------------
INSURED COMPANY
B
THE LIGHTSPAN PARTNERSHIP, INC ------------------------------------------------------------------
2382 FARADAY AVENUE, SUITE 30 COMPANY
CARLSBAD, CA 92008 C
-------------------------------------------------------------------
COMPANY
D
- ------------------------------------------------------------------------------------------------------------------------------------
COVERAGES
THIS IS TO CERTIFY THAT THE POLICIES OF INSURANCE LISTED BELOW HAVE BEEN ISSUED TO THE INSURED NAMED ABOVE FOR THE POLICY
PERIOD INDICATED, NOTWITHSTANDING ANY REQUIREMENT, TERM OR CONDITION OF ANY CONTRACT OR OTHER DOCUMENT WITH RESPECT TO WHICH
THIS CERTIFICATE MAY BE ISSUED OR MAY PERTAIN. THE INSURANCE AFFORDED BY THE POLICIES DESCRIBED HEREIN IS SUBJECT TO ALL THE
TERMS, EXCLUSIONS AND CONDITIONS OF SUCH POLICIES. LIMITS SHOWN MAY HAVE BEEN REDUCED BY PAID CLAIMS.
- ------------------------------------------------------------------------------------------------------------------------------------
CO
LTR TYPE OF INSURANCE POLICY NUMBER POLICY EFFECTIVE POLICY EXPIRATION LIMITS
DATE (MM/DD/YY) DATE (MM/DD/YY)
- ------------------------------------------------------------------------------------------------------------------------------------
A GENERAL LIABILITY TE 06101086 11/01/96 11/01/97 GENERAL AGGREGATE $2,000,000
---------------------------------
[X] COMMERCIAL GENERAL LIABILITY PRODUCTS-COMP/OP AGG $2,000,000
---------------------------------
[ ] [ ] CLAIMS MADE [X] OCCUR PERSONAL & ADV INJURY $1,000,000
---------------------------------
[ ] OWNER'S & CONTRACTOR'S PROT EACH OCCURRENCE $1,000,000
---------------------------------
[ ] ____________________________ FIRE DAMAGE
(Any one fire) $ 250,000
[ ] ---------------------------------
MED EXP
(Any one person) $ 10,000
- ------------------------------------------------------------------------------------------------------------------------------------
A AUTOMOBILE LIABILITY
COMBINED SINGLE LIMIT $
[ ] ANY AUTO ---------------------------------
[ ] ALL OWNED AUTOS BODILY INJURY $
[ ] SCHEDULED AUTOS (Per person)
[ ] HIRED AUTOS ---------------------------------
[ ] NON-OWNED AUTOS BODILY INJURY $
[ ] ___________________________ (Per accident)
[ ] ---------------------------------
PROPERTY DAMAGE $
- ------------------------------------------------------------------------------------------------------------------------------------
GARAGE LIABILITY AUTO ONLY - EA $
ACCIDENT
[ ] ANY AUTO ---------------------------------
[ ] ___________________________ OTHER THAN AUTO ONLY:
[ ] ---------------------------------
EACH ACCIDENT $
--------------------------------
AGGREGATE $
- ------------------------------------------------------------------------------------------------------------------------------------
EXCESS LIABILITY EACH OCCURRENCE $
---------------------------------
[ ] UMBRELLA FORM AGGREGATE $
[ ] OTHER THAN UMBRELLA FORM ---------------------------------
$
- ------------------------------------------------------------------------------------------------------------------------------------
WORKERS COMPENSATION AND [ ] STATUTORY LIMITS
EMPLOYERS' LIABILITY ---------------------------------
THE PROPRIETOR/ EACH ACCIDENT $
PARTNERS/EXECUTIVE [ ] INCL ---------------------------------
OFFICERS ARE: [ ] EXCL DISEASE - POLICY LIMIT $
---------------------------------
DISEASE - EACH $
EMPLOYEE
- ------------------------------------------------------------------------------------------------------------------------------------
A OTHER TE 06101086 11/01/96 11/01/97 $590,000 BUS.PERS.PROP
PROPERTY COVERAGE $1,765,000 BLKT.EDP.EQUIP.
SPECIAL FORM $1,000 DEDUCTIBLE
EXCL. EQ AND FLOOD REPLACEMENT COST
- ------------------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OPERATIONS/LOCATIONS/VEHICLES/SPECIAL ITEMS (LIMITS MAY HAVE BEEN REDUCED BY PAID CLAIMS AND MAY HAVE DEDUCTIBLES OR
RETENTIONS)
CERTIFICATE HOLDER IS NAMED AS ADDITIONAL INSURED (GENERAL LIABILITY) AND LOSS PAYEE (PROPERTY) AS RESPECTS EQUIPMENT LEASED TO
THE NAMED INSURED BY THE CERTIFICATE HOLDER.
- ------------------------------------------------------------------------------------------------------------------------------------
CERTIFICATE HOLDER CANCELLATION
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION SHOULD ANY OF THE ABOVE DESCRIBED POLICIES BE CANCELLED BEFORE THE
TECHNOLOGY FINANCE DIVISION ("TBCC") EXPIRATION DATE THEREOF, THE ISSUING COMPANY WILL ENDEAVOR TO MAIL
76 BATTERSON PARK ROAD 030 DAYS WRITTEN NOTICE TO THE CERTIFICATE HOLDER NAMED TO THE LEFT,
FARMINGTON, CT 06032 2571 BUT FAILURE TO MAIL SUCH NOTICE SHALL IMPOSE NO OBLIGATION OR LIABILITY
OF ANY KIND UPON THE COMPANY, ITS AGENTS OR REPRESENTATIVES.
AUTHORIZED REPRESENTATIVE
JOYCE D. MCKINNON /s/ JOYCE D. MCKINNON
- ------------------------------------------------------------------------------------------------------------------------------------
ACORD 25-S (3/93) (c)ACORD CORPORATION 1988
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
0088888000021004
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform
Commercial Code and will remain effective, with certain exceptions, for 5 years
from date of filing.
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT #
(optional)
_______________________________________________
C. RETURN COPY TO: (Name and Mailing Address)
Data File Services, Inc.
P.O. Box 275
Van Nuys, CA 91408-2750
D. OPTIONAL DESIGNATION (if applicable): LESSOR/LESSEE CONSIGNOR/CONSIGNEE
NON-UCC FILING
_____________________________________________________________________________
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b)
FILED WITH CALIFORNIA
1a. ENTITY'S NAME
THE LIGHTSPAN PARTNERSHIP, INC.
OR
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
1d. S.S. OR TAX I.D. # OPTIONAL
ADD'NL INFO RE
ENTITY DEBTOR
1e. TYPE OF ENTITY
1f. ENTITY'S STATE OR COUNTRY OF ORGANIZATION
1g. ENTITY'S ORGANIZATIONAL I.D. #, if any NONE
_______________________________________________________________________________
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name
(2a or 2b) 1070-001 1070-001
2a. ENTITY'S NAME
OR
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
2d. S.S. OR TAX I.D. # OPTIONAL
ADD'NL INFO RE
ENTITY DEBTOR
2e. TYPE OF ENTITY
2f. ENTITY'S STATE OR COUNTRY OF ORGANIZATION
2g. ENTITY'S ORGANIZATIONAL I.D. #, if any NONE
________________________________________________________________________________
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME -
insert only one secured party name (3a or 3b)
3a. ENTITY'S NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
3c. MAILING ADDRESS
9399 WEST HIGGINS ROAD, SUITE 600
CITY STATE COUNTRY POSTAL CODE
ROSEMONT IL 60018
______________________________________________________________________________
4. This FINANCING STATEMENT covers the following types or items of property:
See attached extension sheet for Collateral Statement
_______________________________________________________________________________
5. CHECK [ ] This FINANCING STATEMENT is signed by he Secured Party
BOX instead of the Debtor to perfect a security interest (a) in
collateral already subject to a security interest in another
jurisdiction when it was brought into this state, or when
(if the debtor's location was changed to this state, or (b) in
applicable) accordance with other statutory provisions (additional data
may be required)
________________________________________________________________________________
6. REQUIRED SIGNATURE(S)
THE LIGHTSPAN PARTNERSHIP, INC.
MICHELLE M. HAYS VICE PRESIDENT /s/ MICHELLE M. HAYS
_______________________________________________________________________________
7. If filed in Florida (check one)
[ ] Documentary stamp tax paid
[ ] Documentary stamp tax not applicable
_______________________________________________________________________________
8. [ ] This FINANCING STATEMENT is to be filed (for record) (or recorded) in
the REAL ESTATE RECORDS
Attach Addendum (if applicable)
_______________________________________________________________________________
9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional)
[ ] All Debtors
[ ] Debtor 1
[ ] Debtor 2
_______________________________________________________________________________
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1)
(TRANS)(REV. 12/18/95)
<PAGE> 16
SCHEDULE TO MASTER LEASE AGREEMENT
Dated as of October 22, 1997
Schedule No. 1
LESSOR NAME & MAILING ADDRESS LESSEE NAME & MAILING ADDRESS
Transamerica Business Credit Corporation The Lightspan Partnership, Inc.
Riverway II 10140 Campus Point Drive
West Office Tower San Diego, California 92121
9399 West Higgins Road
Rosemont, Illinois 60018
Equipment Location (if different than Lessee's address above):
This Schedule covers the following described equipment ("Equipment"):
See Exhibit II attached hereto and made a part hereof.
The Equipment is hereby leased pursuant to the provisions of the Master Lease
Agreement between the undersigned Lessee and Lessor dated August 14, 1997 (the
"Master Lease"), the terms of which are incorporated herein by reference
thereto, plus the following additional terms, provisions, and modifications. The
Lessor reserves the right to adjust the monthly payments in accordance with the
Commitment Letter dated August 5, 1997, if the Lessor has not received this
Schedule and an Acceptance and Delivery Certificate executed by the Lessee
within five business days from the date first set forth above.
<TABLE>
<S> <C> <C>
1. Term (Number of Months) 36 months
2. Equipment Cost $260,864.65
3. Commencement Date October 30, 1997
4. Rate Factor 3.169% of Equipment Cost
5. Total Rents $297,604.80
Total sales/use tax $ 22,972.68 $320,577.48
-----------
6. Advance Rents (first month) $ 8,266.80
Sales/use tax for advance rent $ 638.13 $8,904.93
-----------
7. Monthly rental payments $ 8,266.80
Monthly sales/use tax $ 638.13 $8,904.93
-----------
and the second such rental payment
will be due on December 1, 1997
and subsequent rental payments will
be due on the same day of each month thereafter
8. Security Deposit NONE
9. In addition to the monthly rental
payments provided for herein, Lessee shall
pay to Lessor, as interim rent, payable on
the commencement date specified above, an
amount equal to 1/30th of the monthly rental
payment (including monthly sales/use tax)
multiplied by the number of days from and
including the commencement date through the
end of the same calendar month. $593.66
</TABLE>
<PAGE> 17
Equipment Location with Tax Rates
<TABLE>
<CAPTION>
SALES TAX
EQUIPMENT SALES TAX TAX RATE PAYMENT INTERIM MONTHLY
COST LOCATION RATE AMOUNT FACTOR AMOUNT RENT TAX PAYMENT
---- -------- ---- ------ ------ ------ ---- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 395.50 LANDSDALE, PA 7.00% 27.69 3.169% 12.60 .06 .89
$ 200.00 COLUMBUS, OHIO 5.75% 11.50 3.169% 6.30 .02 .37
$ 395.50 WASHINGTON, D.C. 5.75% 22.74 3.169% 12.60 .05 .72
$ 386.50 FREDRICK, MD 5.00% 19.33 3.169% 12.30 .04 .62
$ 386.50 MARIETTA, GA 5.00% 19.33 3.169% 12.30 .04 .61
$ 386.50 PENFIELD, NY 8.00% 30.92 3.169% 12.30 .06 .98
$ 372.50 MICHIGAN CITY, IN 5.00% 18.63 3.169% 11.85 .04 .59
$ 745.00 DENVER, CO 7.30% 54.39 3.169% 23.55 .11 1.72
$ 372.50 PHOENIX, AZ 7.05% 26.26 3.169% 11.85 .06 .83
$ 413.22 VANCOUVER, WA 7.60% 31.40 3.169% 13.05 .07 .99
$ 389.98 PASSAIC, NJ 6.00% 23.40 3.169% 12.30 .00 .00
$ 360.50 NEW YORK, NY 8.25% 29.74 3.169% 11.40 .06 .94
$ 391.50 SEATTLE, WA 8.60% 33.67 3.169% 12.45 .07 1.07
$ 167.50 MAPLETON, UT 6.00% 10.05 3.169% 5.10 .02 .30
$ 255,501.45 SAN DIEGO, CA 7.75% 19,801.36 3.169% 8,096.85 41.84 627.50
$ 260,864.65 $20,136.99 8,266.80 42.54 638.13
</TABLE>
Renewal terms:
In the event the Lease does not exercise the Purchase Option described below,
the Lease shall automatically renew for a term of 12 months with Monthly Rental
equal to 1.5% of the original Equipment Cost payable monthly in advance. At the
expiration of the renewal period, the Lessee shall have the option to purchase
all (but not less than all) the Equipment for its then current Fair Market
Value, plus applicable sales and other taxes.
The Lessee shall have the option to purchase all (but not less than all) the
Equipment at the expiration of the term of the lease for the then Fair Market
Value of the Equipment, plus applicable sales and other taxes. It shall be
agreed that the Fair Market Value shall not be less than 10% of the Equipment
Cost nor more than 20% of the Equipment Cost plus applicable dales and other
taxes.
Lessee hereby irrevocably authorizes Lessor to insert in this Schedule the
Commencement Date and the due date of the first rental payment.
Except as expressly provided or modified hereby, all the terms and provisions of
the Master Lease Agreement shall remain in full force and effect.
The Purchase Date shall be October 1, 2000.
The Stipulated Loss Value of any items of Equipment shall be an amount equal to
the present value of all future Rent discounted at a rate of 6% per annum plus
the Reversionary Value.
The Reversionary Value of any item of Equipment shall be 20% of Equipment Cost.
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP,
CORPORATION INC._______________________
(Lessor) (Lessee)
By: /s/ MEG LENGSON By: /s/ [Signature Illegible]
------------------------------- ---------------------------------
Meg Lengson
Title: ASSISTANT VICE PRESIDENT Title: VP FINANCE
---------------------------- ------------------------------
<PAGE> 18
Revised on November 3 1997
CLOSING STATEMENT
LEASEPLUS NO. 1070-001
LESSEE LIGHTSPAN PARTNERSHIP, INC.
RENTAL SCHEDULE NO. 1
================================================================================
<TABLE>
<S> <C>
Interim Rent ( 2 Days) @ $275.56 $ 551.12
(10/30/97 through 10/31/97)
Rental Payments
November 1, 1997 $ 8,266.80
SUB-TOTAL $ 8,817.92
Sales/Use Tax (%) Various States (See Attached)
Advanced Rentals $ 638.13
Interim Rent $ 42.54
New Jersey Sales Tax- Due Upfront $ 23.40
SUB-TOTAL $ 704.07
Total for Rentals and Taxes ...................... $ 9,521.99
Documentation Fee $
Includes: UCC Preparation & Filing $____________
Lien Search $____________
Attorney Fee ..................................... $ 1,500.00
Credits .......................................... $ (8,926.62)
Deducted from proceeds $8,926.62
Deducted from commitment fee $1,500.00
GRAND TOTAL DUE........................ $ 595.37 *
PROCEEDS OF SALE LEASEBACK AGREEMENT $260,864.65
LESS: DUE TO TBCC $ 8,926.62
-----------
NET TO LIGHTSPAN PARTNERSHIP $251,938.03
</TABLE>
* Notes:
1. Attorney Fee in the amount of $1,500.00 and documentation fee will be
deducted from commitment fee.
2. TBCC will credit $2,217.35 towards payment due December 1, 1997 from
Commitment Fee. Balance of $6,687.58 will be billed.
3. Also, TBCC will deduct $595.37 (revised amount owed to TBCC on Schedule
No. 1 from Commitment Fee.)
Date Prepared 11-3-97
Contract Administration M. Lengson
Marketing W. Dial
<PAGE> 19
EXHIBIT II
To: X Schedule No. 1 to Master Lease Agreement
X UCC
X Sale and Leaseback Agreement
X Bill of Sale
<TABLE>
<CAPTION>
Purch. Invoice Submitted
Qty Equipment Description Vendor Date number Costs
- --- --------------------- ------ ------ ------- ---------
<S> <C> <C> <C> <C>
1 DELL POWEREDGE 4100 & ACCESSORIES Dell 02/10/97 100951888 17,096.00
35 HYUNDAI DELUXSCAN 14S COLOR MONITORS Multiple Zones Internatio 03/05/97 103124101025 6,475.00
1 S60ABC BOOKCASE, 3-OFFICE STAR CHAIRS Office Furniture Networki 03/05/97 13735 245.00
2 SONY MULTISCAN 15SX MONITORS. W/ERASING P Multiple Zones Internatio 03/05/97 105329001018 817.00
1 VIRC042R TABLETOP W/663-36 BASE-CHROME Office Furniture Networki 03/05/97 13736 150.00
1 PERFORMANTX 1400 MONITOR, HPDESKJET 400 Multiple Zones Internatio 03/06/97 106477501016 384.50
58 INTEL PENT 120MHZ SNGLCPU/FAN HEATSINK 00 Multiple Zones Internatio 03/12/97 103124101032 6,902.00
1 TOISHIBA LAPTOP AND ZENITH ACCESSORIES CompuSource 03/17/97 370 3,472.20
1 PERFORMANTZ 1400 MONITOR, 6FT CABLE Multiple Zones Internatio 03/18/97 116813501013 205.50
1 CISCO PRO ETHERSWITCH 1220, 3COM 3C250A-T Vortex Data Systems 03/20/97 962233 5,847.00
1 NOVELL INTRANETWARE UPG4.11 & ACCESSORIE Vortex Data Systems 03/20/97 962298 6,532.00
3 MASONVII MPEG CARD SN-7204093,094,095 Wired 03/21/97 960-12256 1,275.00
1 3.5'LP4.3GB SNJDB63123 7 ACCESSORIES Consan Storage Solution 03/28/97 30977 3,475.00
1 HP DESKJET 400 INKJET PRINTER Multiple Zones Internatio 03/29/97 116813501020 179.00
2 DIGI MIL 180T 100 BASET FIBER CONVERTER Crown Communications 03/31/97 3749 1,078.00
1 PHOTODELUXE & PAGEMANAGER Creative Computer 03/31/97 P18136020102 410.00
4 TOMCAT 1563 SINGLE PENTIUM 512K Multiple Zones Internatio 04/05/97 125770701015 676.00
1 INTEL PENTIUM PRO CPU AND ADEPTEC 2940 CompuSource 04/11/97 412 728.75
1 PERFORMANTZ MONITOR, HP 400, CABLE Multiple Zones Internatio 04/12/97 136040501013 375.50
1 PERFORMANTZ MONITOR, HP 400, CABLE Multiple Zones Internatio 04/12/97 136049501014 375.50
1 PERFORMANTZ MONITOR, HP 400, CABLE Multiple Zones Internatio 04/12/97 136055301011 375.50
10 8MB SIMM EDO 2X32 60NS W MODEM EXT & CABL Creative Computer 04/14/97 P19000450101 1,815.00
4 COMPAQ NETELLIGENT DUAL 10/100 CONT Vortex Data Systems 04/14/97 962436 1,368.00
1 DIM-P166V, I MB VID, MT BASE & ACCESSORIES Dell 04/14/97 108622762 2,529.00
1 4.3GB AV IBM CAPRICORN HD LA CIE Creative Computer 04/16/97 P19084620101 735.00
1 HON17720 2DWRPED,2 GLOBE 30X36 BOOKCASES Office Furniture Networki 04/17/97 13954 512.00
2 TOISHIBA LAPTOP AND TI 100 BATTERY CompuSource 04/17/97 415 535.00
</TABLE>
1
<PAGE> 20
EXHIBIT II
To: X Schedule No. 1 to Master Lease Agreement
X UCC
X Sale and Leaseback Agreement
X Bill of Sale
<TABLE>
<S> <C> <C> <C> <C> <C>
1 TP 365XD P133 8/1.35GBHD 6CD 11.3 SVGA, THNKP Multiple Zones Internatio 04/19/97 142652801014 2,993.98
13 ZENITH 13"COLOR TV W/ HEADPHONE JACK Audio Video Supply 04/22/97 40844 2,275.00
10 SVGA 14'MONITORS AND LAN ADAPTER, MEM Creative Computer 04/25/97 P19368360101 3,224.00
1 HYUNDAI DELUXSCAN 14S MEPHA703200844, PRN Multiple Zones Internatio 04/26/97 147208401014 361.50
1 HYUNDAI MONITOR MEHPA 703200851, HP PRINTE Multiple Zones Internatio 04/26/97 147192201010 361.50
1 HYUNDAI MONITOR MEPHA703200870, HP PRNTER Multiple Zones Internatio 04/26/97 147199701018 361.50
1 DIM XPS M200S,512K,MMX.MINI, TOWER BA Dell 04/30/97 110064581 3,750.00
15 REAL MAGIC MAXIMA WHITE BOX Creative Computer 05/01/97 P19390290101 2,985.00
2 INTEL PENTIUM PRO CPU CompuSource 05/02/97 448 2,342.00
1 DPT PCI SCSI RAID CONTROL CARD & CHIP & AD CompuSource 05/05/97 455 3,570.00
1 PERFORMANTZ MONITOR F16A18946 Multiple Zones Internatio 05/06/97 153214501013 369.50
2 MULTISCAN 200SX TRINITRON MONITORS & ACCE Creative Computer 05/13/97 P19952070101 3,438.00
2 CPU PM9600/233 32/4112X/512K, S/N XB7190E30XJ Apple Computer, Inc. 05/14/97 14167 3,470.00
1 HYUNDAI MONITOR MEPHA703200854,HP PRINTER Multiple Zones Internatio 05/15/97 160017001015 361.50
1 JESIN7P RAID BOX BAY CHASSIS Crown Communications 05/20/97 3845 2,354.00
2 cHEETAH 4LP 4.29GB & ACCESSORIES Multiple Zones Internatio 05/28197 168106501019 3,608.00
2 FILES AND LOCKS Corporate Express 05/28/97 11382476 565.00
15 HYUNDAI DELUXSCAN COLOR MONITORS, 8MB 2X Multiple Zones Internatio 05/28/97 168120501019 4,140.00
15 T024X48X26 OAK TABLES City Office Furniture(Tish 05/28/97 ER 5/31 1,518-25
1 COMPAQ 42U RACK19",6 - 4.3GB HOT-PLUGGABLE Vortex Data Systems 05/30/97 963117 9,578.00
25 ZENITH 13"COLOR TV W/ HEADPHONE JACK Audio Video Supply 05/30/97 41616 4,375.00
1 CAVIAR 2.1GB,16MB 4X32 72 PINS & ACCESSORIES Multiple Zones Internatio 05/31/97 170749601018 1,663.00
1 HYUNDAI 17B COLOR MONITOR MEGHA610301957 Multiple Zones Internatlo 05/31/97 170756801012 369.98
15 HON ERGO STENO, ADJ ARM SET & CABINET Corporate Express 06/11/97 11382376 2,069.50
2 SIGMA REAL MAGIC MAXIMA 10PK CDW 06/12/97 5782508 3,674.00
16 MAXIMA PRO WHITE BOX 24 BIT & REALMAGIC 2M Creative Computer 06/13/97 P20947520101 4,781.00
80 P120 CHIPS Crown Communications 06/17/97 3915 10,120.00
1 ASSEMBLE & TEST SYSTEM INTEGRATION Consan Storage Solution 06/18/97 6387254 1,135.00
99 8MB MEM MOD 2X32 60NS EDO 72-PIN Creative Computer 06/18/97 P21078810101 4,300.00
1 SURESTORE CD-WRITER. S/N SBE03716269 Byte & Floppy (Prat ER) 06/18/97 ER 6/21 449.00
</TABLE>
2
<PAGE> 21
EXHIBIT II
To: X Schedule No. 1 to Master Lease Agreement
X UCC
X Sale and Leaseback Agreement
X Bill of Sale
<TABLE>
<CAPTION>
Purch. Invoice Submitted
Qty. Equipment Description Vendor Date Number Costs
- ---- --------------------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
1 TRINTRON MONITOR & ACCESORIES Creative Computer 06/19/97 P21164670101 797.00
FURNITURE Boise Cascade 06/20/97 596014 1,568.00
1 3COM SSII SWITCH 10024PT ETH & ACCESSORIES Vortex Data Systems 06/26/97 963329 6,729.00
1 HP LASER JET SN - USBK147042 Creative Computer 06/26/97 P21396850101 3,400.00
80 P120 ACPU's W/HEAT SINK & FAN SKIP120 Crown Communications 06/27/97 3947 10,120.00
TOTAL TAXABLE EQUIPMENT 171,745.66
-----------
</TABLE>
<TABLE>
<CAPTION>
Purch. Invoice Submitted
Qty. Equipment Description Vendor Date Number Costs
- ---- --------------------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
1 8410 DIG VOICE TER W/DIS Lucent Technologies 07/01/97 31309763 2,360.00
1 HON 6314SAB TASK CHAIR Office Furniture Networki07/01/97 14358 285.00
1 DELL DIMENSIONXPS 200MHZ PENTIUM PROCESS Dell 07/02/97 116410937 2,477.00
7 RIVET LOCKS C&H Distributors 07/02/97 286076201 662.80
6 60X24X60'CARTS C&H Distributors 07/03/97 285823601 2,358.00
3 DIMENSION XPS H266MHZ MINITOWER PENTIUM 11 Dell 07/11/97 117379560 9,105.00
1 CAVIER 2.OGB EIDE Creative Computer 07/15/97 P21719640102 286.00
2 COMPAQ PROLIANT 800 6/200, SONY MONITOR & A Vortex Data Systems 07/15/97 970031 12,930.00
2 MULTISCAN 100SX & ACCESSORIES Creative Computer 07/15/97 P21719640102 1,898.00
FURNITURE Boise Cascade 07/16/97 7/15-7/31 4,077.64
1 SONY-V VIDEORECORDERS AND BATTERY The Good Guys (Tish ER 07/17/97 CE273392 249.99
1 SONY-V VIDEORECORDERS AND BATTERY The Good Guys (Tish ER 07/17/97 CE273392 249.99
1 MULTISCAN 100SX S011181941B & ACCESSORIES Creative Computer 07/21/97 P22087340101 325.00
1 MULTISCAN 100SX S011194267G & ACCESSORIES Creative Computer 07/21/97 P22112350101 465.00
1 HP DESKJET400 MY6401E016 Multiple Zones Internatio07/22/97 1859442-0101 180.50
</TABLE>
3
<PAGE> 22
EXHIBIT II
To: X Schedule No. 1 to Master Lease Agreement
X UCC
X Sale and Leaseback Agreement
X Bill of Sale
<TABLE>
<CAPTION>
Purch. Invoice Submitted
Qty. Equipment Description Vendor Date Number Costs
- ---- --------------------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
1 HP DESKJET 400 PRINTER 6'CABLE Multiple Zones Internatio 07/22/97 1859060-0101 180.50
3 ETHEREXPRESS PRO 10/100 PCI TX ENET MODE Creative Computer 07/25/97 P22265290101 1,125.00
1 PERFORMANTZ 1400 MONITOR MEVHA703200652 Multiple Zones Internatio 07/25/97 2050200-0101 156.50
7 2 MITS-T,2-RCA,3-PANAS TELEVISIONS The Good Guys (Tish ER 07/29/97 CE275551 1,559.91
1 DIMENSION XPS H266MHZ MINITOWER, PENTIUM II Dell 07/29/97 119457562 3,190.00
1 DIMENSION XPS H266MHZ MINITOWER, PENTIUM II Dell 07/29/97 119457877 3,230.00
1 DIMENSION XPS H266MHZ MINITOWER, PENTIUM II Dell 07/29/97 119459287 3,216.00
1 DIMENSION XPS H266MHZ MINITOWER, PENTIUM II Dell 07/29/97 119459659 3,136.00
1 HP DESKJET 400, CABLE, HISPEED CABLE, INTERN Multiple Zones Internatio 07/29/97 2072177-0101 1.535.50
1 PERFORMANTZ 1400 MONITOR MEVHA703200384 Multiple Zones Internatio 07/29/97 1859060-0102 169.00
1 PERFORMANTZ 1400 MONITOR MEVHA703200683 Multiple Zones Internatio 07/29/97 1859442-0102 169.00
1 DIMENSION XPS H266MHZ MINITOWER, PENTIUM II Dell 07/30/97 119489532 3.319.00
1 DIMENSION XPS H226MHZ MINITOWER, PENTIUM II Dell 07/31/97 119458628 12.468.00
1 MULTISCAN 200 SX TRINITRON S011169637J Creative Computer 07/31/97 P22472540101 615.00
2 PENTIUM PROCESSOR 200MHZ W/MMX Creative Computer 08/06/97 P22617830101 570.00
8 T02448 WORK TABLES 24X48X26" City Office Furniture(Tish08/06/97 ER 8/23 845.60
1 HP DESKJET 672C & 2 OPTIQUEST MON 2A7110084 Creative Computer 08/08/97 P22722840101 571.00
1 HP DESKJET672 & OPTIQUEST MONIT 2A71100836 Creative Computer 08/08/97 P22717180101 386.00
1 DESKTOPMASTERRVERB.2-PATCHBAYCABLES Professional Sound & Mu 08/12/97 28073 570.00
1 TYAN PENTIUM MOTHERBOARD WITH ACCESSORI Multiple Zones Internatio 08/12/97 2165898-0101 400.96
1 4X32 60 8CHIP 72 PIN 16MB TIN & 9FX MOTION CAR Creative Computer 08/13/97 P22880860101 160.00
1 HON 6314AB12T,HON 6313AB12T, VDT SLEEVE Office Furniture Networki 08/13/97 14634 564.00
1 OPTIQUEST MONITOR 2A71500915 &6 REAL MAGIC Creative Computer 08/13/97 P22880140102 1,757.00
11 OPTIQUEST V641 14IN MULT 28MM & ETHEREXPRE Creative Computer 08/13/97 P22880140101 2,945.00
1 OPTIQUEST V641 MONITOR 2A71500624 Creative Computer 08/13/97 P22879120101 185.00
</TABLE>
4
<PAGE> 23
EXHIBIT II
To: X Schedule No. 1 to Master Lease Agreement
X UCC
X Sale and Leaseback Agreement
X Bill of Sale
<TABLE>
<CAPTION>
Purch. Invoice Submitted
Qty. Equipment Description Vendor Date Number Costs
- ---- --------------------- ------ ------ ------- ---------
<S> <C> <C> <C> <C> <C>
12 120 MHZ PENTIUM PROCESSORS Crown Communications 08/14/97 4061 1,518.00
FURNITURE Boise Cascade 08/14/97 8/1-8/14 6,001.10
1 CAVIA 2.0GB EIDE WT3690274817 & 8MB MOD Creative Computer 08/20/97 P23131480101 666.00
TOTAL FOR EXEMPT EQUIPMENT 89,118.99
----------
----------
GRAND TOTAL 260,864.65
==========
</TABLE>
Lessor: Lessee:
Transamerica Business Credit The Lightspan Partnership, Inc.
Corporation
BY: /s/ MEG LENGSON BY: [SIGNATURE ILLEGIBLE]
---------------------- --------------------------
Title: Meg Lengson Title: VP FINANCE
------------------------- -----------------------
Assistant Vice President
5
<PAGE> 24
LIGHTSPAN PARTNERSHIP, INC.
1070-001
EQUIPMENT LOCATION WITH TAX RATES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
EQUIPMENT SALES TAX TAX RATE PAYMENT SALES TAX MONTHLY
COST LOCATION RATE AMOUNT FACTOR AMOUNT INTERIM RENT TAX PAYMENT
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 395.50 LANDSDALE, PA 7.00% 27.69 3.169% 12.53 0.03 0.0877
- --------------------------------------------------------------------------------------------------------------------
$ 200.00 COLUMBUS, OHIO 5.75% 11.50 3.169% 6.34 0.01 0.0364
- --------------------------------------------------------------------------------------------------------------------
$ 395.50 WASHINGTON, D.C. 5.75% 22.74 3.169% 12,53 0.24 0.0721
- --------------------------------------------------------------------------------------------------------------------
$ 386.50 FREDRICK, MD 5.00% 19.33 3.169% 12.25 0.02 0.0612
- --------------------------------------------------------------------------------------------------------------------
$ 386.50 MARIETTA, GA 5.00% 19.33 3.169% 12.25 0.02 0.0612
- --------------------------------------------------------------------------------------------------------------------
$ 386.50 PENFIELD, NY 8.00% 30.92 3.169% 12.25 0.03 0.0980
- --------------------------------------------------------------------------------------------------------------------
$ 372.50 MICHIGAN CITY, IN 5.00% 18.63 3.169% 11.80 0.02 0.0590
- --------------------------------------------------------------------------------------------------------------------
$ 745.00 DENVER, CO 7.30% 54.39 3.169% 23.61 0.06 0.1723
- --------------------------------------------------------------------------------------------------------------------
$ 372.50 PHOENIX, AZ 7.05% 26.26 3.169% 11.80 0.03 0.0832
- --------------------------------------------------------------------------------------------------------------------
$ 413.22 VANCOUVER, WA 7.60% 31.40 3.169% 13.09 0.03 0.0995
- --------------------------------------------------------------------------------------------------------------------
$ 389.98 PASAIC, NJ 6.00% 23.40 3.169% 12.36 0.00 0.0000
- --------------------------------------------------------------------------------------------------------------------
$ 360.50 NEW YORK, NY 8.25% 29.74 3.169% 11.42 0.03 0.0943
- --------------------------------------------------------------------------------------------------------------------
$ 391.50 SEATTLE, WA 8.60% 33.67 3.169% 12.41 0.04 0.1067
- --------------------------------------------------------------------------------------------------------------------
$ 167.50 MAPLETON, UT 6.00% 10.05 3.169% 5.31 0.01 0.0318
- --------------------------------------------------------------------------------------------------------------------
$255,501.45 SAN DIEGO,CA 7.75% 19,801.36 3.169% 8,096.84 20.92 62.7505
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
$260,864.65 $20,136.99 8,266.80 21.49 63.81
- --------------------------------------------------------------------------------------------------------------------
TAXES DUE UPFRONT-nj 8,330.61 MONTHLY RENTAL
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------
DAILY RATE
- ---------------------------------------------------------------------------
275.56
- ---------------------------------------------------------------------------
30-May-97 6.60% INCREASE
- ---------------------------------------------------------------------------
17-Oct-97 6.01% ONLY
- ---------------------------------------------------------------------------
NO ADJ.
- ---------------------------------------------------------------------------
</TABLE>
Page 1
<PAGE> 25
ACCEPTANCE AND DELIVERY CERTIFICATE
The Lightspan Partnership, Inc., as lessee ("Lessee") under the Master
Lease Agreement dated as of August 14, 1997 between Lessee and Transamerica
Business Credit Corporation, as Lessor, does hereby acknowledge the acceptance
and delivery of the equipment listed in Lease Schedule No. 1, such acceptance
and delivery having been made on the 30th day of October, 1997.
THE LIGHTSPAN PARTNERSHIP, INC.
By:[SIGNATURE ILLEGIBLE]
----------------------------
Name:
Title: VP FINANCE
<PAGE> 26
SALE AND LEASEBACK AGREEMENT
THIS SALE AND LEASEBACK AGREEMENT (this "Agreement"), is made as of October
22, 1997, among The Lightspan Partnership, Inc., a California corporation
("Seller"), and Transamerica Business Credit Corporation, a Delaware corporation
("Buyer").
W I T N E S S E T H:
WHEREAS, Seller is the owner of the equipment more particularly described
on Exhibit II hereto (the "Equipment");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase from
Seller the Equipment; and
WHEREAS, Buyer, as a condition to such purchase, wishes to lease to Seller
and Seller wishes to lease from Buyer the Equipment under the terms and
conditions of the Master Lease Agreement dated as of August 14, 1997 and
Schedule No. 1 thereto (collectively, as amended, supplemented or otherwise
modified from time to time, the "Lease") between Buyer, as lessor, and Seller,
as lessee.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. AMOUNT AND TERMS OF PURCHASE.
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties of the Seller herein set forth,
the Buyer agrees to purchase all of the Seller's right, title and interest in
and to all of the Equipment such that the Buyer will become the owner of all
such Equipment for all purposes whatsoever. The Seller hereby agrees that the
Buyer is under no obligation to purchase any other equipment now or in the
future and shall not assert a claim that the Buyer may have any such obligation.
(b) The price to be paid by the Buyer with respect to the purchase of
the Equipment (the "Purchase Price") is $260,864.65. The Purchase Price shall be
payable to the Seller on the Lease Commencement Date (as defined in the Lease).
(c) The Seller shall pay any and all applicable federal, state,
county or local taxes and any and all present or future taxes or other
governmental charges arising in connection with the sale of the Equipment
hereunder, including sales, use or occupation taxes due upon the purchase by the
Buyer.
(d) The purchase of the Equipment shall be evidenced by a bill of
sale, substantially in the form attached hereto as Exhibit A (the "Bill of
Sale"), duly executed by the Seller.
<PAGE> 27
2. CONDITIONS TO PURCHASE. The obligation of the Buyer to purchase the
Equipment is subject to the following conditions:
(a) The Buyer shall have received this Agreement, duly executed by
the Seller.
(b) The Buyer shall have received the Bill of Sale, duly executed by
the Seller.
(c) The Buyer shall have received the Lease, duly executed by the
Seller.
(d) The Buyer shall have received resolutions of the Board of
Directors of the Seller approving and authorizing the execution, delivery and
performance by the Seller of this Agreement, the Lease and the notices and other
documents to be delivered by the Seller hereunder and thereunder (collectively,
the "Sale and Leaseback Documents").
(e) The Buyer shall have received the certificate of title or similar
evidence of ownership with respect to each item of Equipment and Uniform
Commercial Code financing statements covering the Equipment in form and
substance satisfactory to the Buyer, duly executed by the Seller.
(f) No material adverse change has occurred with respect to the
business, prospects, properties, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller and its affiliates, taken as a
whole, since January 31, 1995.
(g) The Buyer shall have received all warranties and other
documentation received or executed by Seller in connection with the original
acquisition of the Equipment by the Seller (and by its execution hereof the
Seller hereby assigns to the Buyer all such warranties and other Documentation).
(h) The Buyer shall have received such other approvals, opinions or
documents as the Buyer may reasonably request.
3. REPRESENTATION AND WARRANTIES. To induce the Buyer to enter into this
Agreement, the Seller represents and warrants to the Buyer that:
(a) The Seller is duly authorized to execute, deliver and perform its
obligations under each of the Sale and Leaseback Documents and all corporate
action required on its part for the due execution, delivery and performance of
the transactions contemplated herein and therein has been duly and effectively
taken.
(b) The execution, delivery and performance by the Seller of each of
the Sale and Leaseback Documents and the consummation of the transactions
contemplated herein
-2-
<PAGE> 28
and therein does not and will not violate any provision of, or result in a
default under, the Seller's Articles or Certificates of Incorporation or
By-laws or any indenture or agreement to which the Seller is a party or to
which its assets are bound by any order, permit, law, statute, code, ordinance,
rule, regulation, certificate or any other requirement of any governmental
authority or regulatory body to which the Seller is subject, or result in the
creation or imposition of any mortgage, deed of trust, pledge, security
interest, lien or encumbrance of any kind upon or with respect to the Equipment
or any proceeds thereof, other than those in favor of the Buyer as contemplated
by the Sale and Leaseback Documents.
(c) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body is required for
the due execution, delivery and performance by the Seller of any of the Sale
and Leaseback Documents to which it is a party.
(d) Each Sale and Leaseback Document to which the Seller is a party
constitutes or will constitute, when delivered hereunder, the legal, valid and
binding obligation of the Seller enforceable against the Seller in accordance
with its respective terms, except as such enforceability may be (i) limited by
the effect of applicable bankruptcy, insolvency, reorganization or similar laws
affecting the enforcement of creditors' rights generally or (ii) subject to the
effect of general principles of equity (regardless of whether such
enforceability is considered in a proceeding at equity or at law).
(e) There are no actions, suits or proceedings pending, threatened
against or affecting the Seller which seek to enjoin, prohibit or restrain the
consummation of any of the transactions contemplated hereby or by the other
Sale and Leaseback Documents.
(f) Each item of Equipment is owned by the Seller free and clear of
any liens and encumbrances of any kind or description. Upon purchase of the
Equipment hereunder, the Buyer will acquire good and marketable title in and to
the Equipment.
All representations and warranties herein shall survive the execution of this
Agreement and the purchase of the Equipment.
4. INDEMNITIES. The Seller agrees to indemnify, defend, and save
harmless the Buyer and its officers, directors, employees, agents, and
attorneys, and each of them (the "Indemnified Parties"), from and against all
claims, actions, suits, and other legal proceedings, damages, costs, interest,
charges, counsel fees and other expenses and penalties (collectively, the
"Indemnified Amounts") which any of the Indemnified Parties may sustain or
incur by reason of or arising out of (i) the Seller's ownership of any
Equipment prior to the date on which such Equipment is sold to the Buyer, or
the Seller's acts or omissions prior to such date under, in connection with or
relating to such Equipment or any of the Sale and Leaseback Documents, (ii) the
operation, maintenance or use of such Equipment prior to such date, (iii) the
inaccuracy of any of the Seller's representations or warranties contained in
any of the Sale and Leaseback
-3-
<PAGE> 29
Documents, (iv) the breach of any of the Seller's covenants contained in any of
the Sale and Leaseback Documents, (v) any loss or damage to any Equipment in
excess of the deductible which is not paid by insurance or (vi) any sales, use,
excise and other taxes, charges, and fees (including, without limitation,
income, franchise, business and occupation, gross receipts, sales, use,
licensing, registration, titling, personal property, stamp and interest
equalization taxes, levies, imposts, duties, charges or withholdings of any
nature), and any fines, penalties or interest thereon, imposed or levied by any
governmental body, agency or tax authority upon or in connection with the
Equipment, its acquisition, ownership, delivery, leasing, possession, use or
relocation or otherwise in connection with the transactions contemplated by
each Sale and Leaseback Document.
5. REMEDIES. Upon the Seller's violation of or default under any
provision of this Agreement, the Buyer may (subject to the provisions of the
other Sale and Leaseback Documents) proceed to protect and enforce its rights
either by suit in equity or by action at law or both, whether for the specific
performance of any covenant or agreement contained herein or in aid of the
exercise of any power granted in any Sale and Leaseback Document; it being
intended that the remedies contained in any Sale and Leaseback Document shall
be cumulative and shall be in addition to every other remedy given under such
Sale and Leaseback Document or now or hereafter existing at law or in equity or
by statute or otherwise.
6. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement, nor consent to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Buyer, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7. NOTICES, ETC. All notices and other communications provided for
hereunder shall be in writing and sent:
if to the Seller, at its address at:
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
Attention: Vice President - Finance and Administration
Telephone No.: 619-824-8311
Telecopy No.: 619-824-8001
-4-
<PAGE> 30
if to the Buyer, at its address at:
Transamerica Business Credit Corporation
Technology Finance Division
76 Batterson Park Road
Farmington, Connecticut 06032-2571
Attention: Assistant Vice President,
Lease Administration
Telephone No.: 860-677-6466
Telecopy No.: 860-677-6766
with a copy to:
Transamerica Business Credit Corporation
9399 West Higgins Road
Rosemont, Illinois 60018
Attention: Legal Department
Telephone No.: 847-685-1106
Telecopy No.: 847-685-1143
or to such other address as shall be designated by such party in a written
notice to the other party. All such notices shall be deemed given (i) if sent
by certified or registered mail, three days after being postmarked, (ii) if
sent by overnight delivery service, when received at the above stated addresses
or when delivery is refused and (iii) if sent by facsimile transmission, when
receipt of such transmission is acknowledged.
8. NO WAIVER; REMEDIES. No failure on the part of the Buyer to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
9. BENEFIT. Without the prior written consent of the Buyer, the Seller
may not transfer, assign or delegate any of its rights, duties or obligations
hereunder.
10. BINDING EFFECT. This Agreement shall be binding upon and inure to the
benefit of the Seller and the Buyer and their respective successors and assigns.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
<PAGE> 31
12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement.
13. SEVERABILITY. If one or more of the provisions contained in this
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein, and any other application thereof, shall not in any way be affected or
impaired thereby.
14. SUBMISSION TO JURISDICTION. ALL DISPUTES ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER SOUNDING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL
COURTS LOCATED IN ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE
TAKEN; PROVIDED, HOWEVER, THAT THE BUYER SHALL HAVE THE RIGHT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE SELLER OR ITS PROPERTY IN
ANY LOCATION REASONABLY SELECTED BY THE BUYER IN GOOD FAITH TO ENABLE THE BUYER
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE BUYER. EACH PARTY AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE BUYER;
IT BEING UNDERSTOOD THAT THIS SENTENCE DOES NOT PRECLUDE THE SELLER FROM
ASSERTING COMPULSORY COUNTERCLAIMS. THE SELLER WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE BUYER HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
15. JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVE TO THE FULLEST EXTENT
PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE> 32
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the first
date written above.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ [signature illegible]
-----------------------------
Name:
Title: VP Finance
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ MEG LENGSON
-----------------------------
Name: Meg Lengson
Title: Assistant Vice President
Exhibit II- Equipment
Exhibit A- Bill of Sale
-7-
<PAGE> 33
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for Two Hundred Sixty Thousand, Eight Hundred Sixty Four and 65/100
Dollars ($260,864.65) and other valuable consideration to it in hand paid,
receipt of which is hereby acknowledged, does unconditionally, absolutely and
irrevocably grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS
CREDIT CORPORATION and its assignees or successors (collectively, the "Buyer"),
all of the Seller's right, title and interest in and to the equipment described
on Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its use
forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has good
and marketable title to the Equipment, free and clear of any liens and other
encumbrances; and (b) will warrant and defend the sale of the Equipment against
all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this Instrument to be duly
executed and delivered as of this 30th day of October, 1997.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ [signature illegible]
-----------------------------
Name:
Title: VP Finance
-9-
<PAGE> 34
SCHEDULE TO MASTER LEASE AGREEMENT
Dated as of February 18, 1998
Schedule No. 2
LESSOR NAME & MAILING ADDRESS LESSEE NAME & MAILING ADDRESS
Transamerica Business Credit Corporation The Lightspan Partnership, Inc.
Riverway II 10140 Campus Point Drive
West Office Tower San Diego, California 92121
9399 West Higgins Road
Rosemont, Illinois 60018
Equipment Location (if different than Lessee's address above):
This Schedule covers the following described equipment ("Equipment"):
See Exhibit II attached hereto and made a part hereof.
The Equipment is hereby leased pursuant to the provisions of the Master Lease
Agreement between the undersigned Lessee and Lessor dated August 14, 1997 (the
"Master Lease"), the terms of which are incorporated herein by reference
thereto, plus the following additional terms, provisions, and modifications. The
Lessor reserves the right to adjust the monthly payments in accordance with the
Commitment Letter dated August 5, 1997, if the Lessor has not received this
Schedule and an Acceptance and Delivery Certificate executed by the Lessee
within five business days from the date first set forth above.
<TABLE>
<S> <C> <C>
1. Term (Number of Months) 36 months
2. Equipment Cost $58,455.91
3. Commencement Date February 24, 1998
4. Rate Factor 3.169% of Equipment Cost
5. Total Rents $66,688.92
Total sales/use tax $ 4,121.28 $70,810.20
----------
6. Advance Rents (first month) $ 1,852.47
Sales/use tax for advance rent $ 114.48 $ 1,966.95
----------
7. Monthly rental payments $ 1,852.47
Monthly sales/use tax $ 114.48 $ 1,966.95
----------
and the second such rental payment
will be due on April 1, 1998
and subsequent rental payments will
be due on the same day of each month thereafter
8. Security Deposit NONE
9. In addition to the monthly rental
payments provided for herein, Lessee shall
pay to Lessor, as interim rent, payable on
the commencement date specified above, an
amount equal to 1/30th of the monthly rental
payment (including monthly sales/use tax)
multiplied by the number of days from and
including the commencement date through the
end of the same calendar month. $327.83
</TABLE>
<PAGE> 35
Equipment Location with Tax Rates
<TABLE>
<CAPTION>
SALES
SALES MONTHLY TOTAL TAX
EQUIPMENT TAX RATE MONTHLY TAX MONTHLY INTERM
COST LOCATION ZIP CODE COUNTY RATE FACTOR PAYMENT PAYMENT PAYMENT RENT
- ---- -------- -------- ------ ---- ------ ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX EXEMPT EQUIPMENT
$ 10,303.91 10140 CAMPUS POINT DR., SAN DIEGO, CA 92008 SAN DIEGO N/A 3.1690% 326.53 326.53
$ 331.00 887 WOODMAR DRIVE, CRYSTAL LAKE, IL 60014 MCHENRY 3.1690% 10.49 10.49
$ 198.00 1642 EAST 56TH STREET #412 CHICAGO, IL 60637 COOK 3.1690% 6.27 6.27
$ 10,832.91
TAXABLE EQUIPMENT
$ 6,553.16 6108 AVENIDA ENCINAS #D, CARLSBAD, CA 92008 SAN DIEGO 7.75% 3.1690% 207.67 16.09 223.76 2.68
$ 37,123.99 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121 SAN DIEGO 7.75% 3.1690% 1176.46 91.18 1,267.63 15.20
$ 785.00 710 AMERICA'C CUP GROVE ALPHARETTA, GA 30005 FULTON 7.00% 3.1690% 24.88 1.74 26.62 0.29
$ 331.00 11900 WHITE BLUFF ROAD SAVANNAH, GA 31419 CHATHAM 6.00% 3.1690% 10.49 0.63 11.12 0.10
$ 331.00 3059 VIRGIE COLE ROAD SOUTH BOSTON,VA 24592 SO. BOSTON 4.50% 3.1690% 10.49 0.47 10.96 0.08
$ 430.00 9586 LAGERS FIELD CIRCLE, VIENNA, VA 22181 FAIRFAX 4.50% 3.1690% 13.63 0.61 14.24 0.10
$ 175.50 315 WEST 44TH STREET INDIANAPOLIS, IN 46208 MARION 5.00% 3.1690% 5.56 0.28 5.84 0.05
$ 198.00 1144 PINCH VALLEY ROAD WESTMINISTER, MD 21158 CARROLL 5.00% 3.1690% 6.27 0.31 6.59 0.05
$ 204.00 881 MARANGO STREET ANNAPOLIS, MD 21401 ANNE ARUND 5.00% 3.1690% 6.46 0.32 6.79 0.05
$ 175.50 1435 ARDEN OAK DRIVE SAINT PAUL, MN 55112 RAMSEY 7.00% 3.1690% 5.56 0.39 5.95 0.06
$ 177.50 313 7TH STREET #3 JUNEAU, AK 99801 JUNEAU BOR 5.00% 3.1690% 5.62 0.28 5.91 0.05
$ 325.00 5793 TILTON ROAD EAST SYRACUSE, NY 13057 ONONDAGA 7.00% 3.1690% 10.30 0.72 11.02 0.12
$ 198.00 1811 COMMONS LANE CAMDEN WYOMING, DE 19934 KENT 1.92% 3.1690% 6.27 0.12 6.40 0.02
$ 198.00 810 BLAIRMOOR GROSSE POINT, MI 48236 WAYNE 6.00% 3.1690% 6.27 0.38 6.65 0.06
$ 198.00 6717 MANHATTAN PORTAGE,MI 49024 KALAMAZO 6.00% 3.1690% 6.27 0.38 6.65 0.06
$ 219.35 2304 SUMMER BREEZE DRIVE MISSION, TX 78572 HIDALGO 8.25% 3.1690% 6.95 0.57 7.52 0.10
$ 47,623.00
$ 58,455.91 $1,852.47 $114.48 $1,966.95 $19.08
</TABLE>
Renewal terms:
<PAGE> 36
CLOSING STATEMENT
LEASEPLUS NO. 1070-002
LESSEE LIGHTSPAN PARTNERSHIP, INC.
RENTAL SCHEDULE NO. 2
================================================================================
<TABLE>
<S> <C>
Interim Rent (5 Days) @ $61.75 $ 308.75
(2/24/98 through 2/28/98)
Rental Payments
March 1, 1998 $ 1,852.47
SUB-TOTAL $ 2,161.22
Sales/Use Tax (%) Various States (See Attached)
Advanced Rentals $ 114.48
Interim Rent $ 19.08
SUB-TOTAL $ 133.56
Total for Rentals and Taxes ....................... $ 2,294.78
Documentation Fee ................................. $
Includes: UCC Preparation & Filing $_____________
Lien Search $_____________
Attorney Fee ...................................... $
Credits ........................................... $(2,294.78)
Deducted from proceeds $2,294.78
Deducted from commitment fee $
GRAND TOTAL DUE ......................... $ 0.00
PROCEEDS OF SALE LEASEBACK AGREEMENT $58,455.91
LESS: DUE TO TBCC $ 2,294.78
----------
NET TO LIGHTSPAN PARTNERSHIP $56,161.13
</TABLE>
* Notes:
1. TBCC will credit $449.72 towards payment due April 1, 1998 from Commitment
Fee. Balance of $1,547.23 will be billed.
Date Prepared 2-18-98
Contract Administration D. Orlowski
Marketing W. Dial
<PAGE> 37
EXHIBIT II
THE LIGHTSPAN PARTNERSHIP, INC. 2/20/98
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS
- --------------------- ------------- -------- ------ ------ ------- ----------
<C> <C> <C> <C> <C> <C> <C>
Warehouse shelving N/A Carlsbad, CA Action Wholesale Products 08/27/97 171355 1,581.16
Warehouse shelving N/A Carlsbad, CA Action Wholesale Products 09/08/97 171641 1,737.07
Warehouse shelving N/A Carlsbad, CA Action Wholesale Products 09/26/97 172230 1,544.16
30" Oak Bookcase N/A San Diego, CA Boise Cascade 08/31/97 662621 80.00
60" Oak Bookcase N/A San Diego, CA Boise Cascade 08/31/97 698592 122.00
1-4 drawer lateral file, 1-2 N/A San Diego, CA Boise Cascade 08/31/97 752515 600.42
drawer lateral file, 1-gray N/A San Diego, CA
task chair N/A San Diego, CA
Oak Desk N/A San Diego, CA Boise Cascade 08/31/97 780626 405.00
4-60" Oak Bookcases N/A San Diego, CA Boise Cascade 09/12/97 771672 488.00
4-60" Oak Bookcases N/A San Diego, CA Boise Cascade 09/12/97 803349 488.00
2-4 drawer lateral files N/A San Diego, CA Boise Cascade 09/12/97 804068 788.00
1-4 drawer lateral file N/A San Diego, CA Boise Cascade 09/12/97 831696 496.92
1-gray task chair N/A San Diego, CA
1-gray flat-file cabinet N/A San Diego, CA C&H Distributors 09/11/97 291101401 420.50
Seagate 2.1GB Hardrive PD152018 San Diego, CA Consan 09/05/97 6880840 504.00
Seagate 2.1GB Hardrive PD066428 San Diego, CA
Emate 300 Laptop IV7181708ID Alpharetta, GA Creative Computers 09/10/97 D5126858 785.00
Caviar 2.1GB Hardrive WT3612670119 San Diego, CA Creative Computers 08/29/97 P23461510102 585.00
Caviar 2.1GB Hardrive WT3612476282 San Diego, CA
Caviar 2.1GB Hardrive Wt3612669545 San Diego, CA
100SX Trinitron Monitor S011237775I San Diego, CA Creative Computers 09/03/97 P23550870101 650.00
100SX Trinitron Monitor S011237847I San Diego, CA
HP Deskwriter 600 SUS61G1G1XB Juneau, AK Creative Computers 09/03/97 P23563180101 177.50
Aurora Vision1, 14" Monitor 7a6u1999 South Boston, VA Creative Computers 09/04/97 P23579810101 331.00
HP Deskjet 400L MY76K1C0F8 South Boston, VA
100SX Trinitron Monitor S011247864I East Syracuse, NY Creative Computers 09/04/97 P23580120101 325.00
Aurora Vision1, 14" Monitor 7A6U2102 Savannah, GA Creative Computers 09/04/97 P23580310101 331.00
HP Deskjet 400L MY76K1C0G6 Savannah, GA
2.1GB SCSI Hardrive PD401793 San Diego, CA Creative Computers 09/18/97 P24138450101 470.00
2.1GB SCSI Hardrive PD404179 San Diego, CA
1 heavy duty task chair N/A San Diego, CA Office Furniture Networking 09/11/97 14843 650.00
1-HON gray chair N/A San Diego, CA Office Furniture Networking 09/16/97 14879 285.00
Compaq Proliant 800 WB9647150371 San Diego, CA Vortex Data Systems 08/29/97 970659 4,686.00
----------
SUBTOTAL $18,530.73
==========
1 gray office chair N/A San Diego, CA Boise Cascade 10/01/97 628518 124.00
12-Stack chairs N/A San Diego, CA Boise Cascade 10/01/97 686958 816.00
HP Laserjet 5SiMX Printer SUSDK027871 San Diego, CA Creative Computers 10/01/97 P24583820102 3,395.00
HP Deskjet 400L MY73V1C095 Crystal Lake, IL Creative Computers 10/03/97 P24694180101 181.00
Aurora Vision1, 14" Monitor 7A6U4851 Crystal Lake, IL 150.00
Caviar 2.1GB Hardrive 99-004219-001 San Diego, CA Creative Computers 10/06/97 P24749190101 194.00
Dell XPG Pentium BR7MW San Diego, CA DELL 10/15/97 127484186 11,845.00
Dell XPG Pentium BR7MS San Diego, CA
Dell XPG Pentium BR7MH San Diego, CA
Dell XPG Pentium BR7MD San Diego, CA
Dell XPG Pentium BR7MB San Diego, CA
SUBTOTAL $16,705.00
==========
Warehouse Shelving N/A Carlsbad, CA Action Wholesale Products 11/05/97 173619 1,690.77
36" Oak Bookcase N/A San Diego, CA Boise Cascade 10/22/97 639651 92.22
</TABLE>
<TABLE>
<CAPTION>
CHECK VENDOR
EQUIPMENT DESCRIPTION NO. PAID # DAYS TAX EXEMPT
- --------------------- ----- ------ ------ ----------
<C> <C> <C> <C> <C>
Warehouse shelving 24121 YES 177 NO
Warehouse shelving 24121 YES 165 NO
Warehouse shelving 24286 YES 147 NO
30" Oak Bookcase 23806 YES 173 NO
60" Oak Bookcase 23806 YES 173 NO
1-4 drawer lateral file, 1-2 23806 YES 173 NO
drawer lateral file, 1-gray NO
task chair NO
Oak Desk 23806 YES 173 NO
4-60" Oak Bookcases 24134 YES 161 NO
4-60" Oak Bookcases 24134 YES 161 NO
2-4 drawer lateral files 24134 YES 161 NO
1-4 drawer lateral file 24134 YES 161 NO
1-gray task chair NO
1-gray flat-file cabinet 24287 YES 161 NO
Seagate 2.1GB Hardrive 24147 YES 168 NO
Seagate 2.1GB Hardrive NO
Emate 300 Laptop 24152 YES 163 NO
Caviar 2.1GB Hardrive 24152 YES 175 NO
Caviar 2.1GB Hardrive NO
Caviar 2.1GB Hardrive NO
100SX Trinitron Monitor 24152 YES 170 NO
100SX Trinitron Monitor NO
HP Deskwriter 600 24152 YES 170 NO
Aurora Vision1, 14" Monitor 24152 YES 169 NO
HP Deskjet 400L NO
100SX Trinitron Monitor 24152 YES 169 NO
Aurora Vision1, 14" Monitor 24152 YES 169 NO
HP Deskjet 400L NO
2.1GB SCSI Hardrive 24288 YES 155 NO
2.1GB SCSI Hardrive NO
1 heavy duty task chair 24289 YES 162 NO
1-HON gray chair 24289 YES 157 NO
Compaq Proliant 800 24266 YES 175 NO
1 gray office chair 24414 YES 142 NO
12-Stack chairs 24550 YES 142 NO
HP Laserjet 5SiMX Printer 24580 YES 142 NO
HP Deskjet 400L 24580 YES 140 YES
Aurora Vision1, 14" Monitor YES 140 YES
Caviar 2.1GB Hardrive 24580 YES 137 NO
Dell XPG Pentium 24858 YES 128 NO
Dell XPG Pentium
Dell XPG Pentium
Dell XPG Pentium
Dell XPG Pentium
Warehouse Shelving 25481 YES 107 YES
36" Oak Bookcase 24829 YES 121 NO
</TABLE>
<PAGE> 38
EXHIBIT II
The Lightspan Partnership, Inc.
<TABLE>
<CAPTION>
2/20/98
PURCH. INVOICE SUBMITTED
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS
- --------------------- ------------- -------- ------ ------ ------- -----------
<C> <C> <C> <C> <C> <C> <C>
Prganizer N/A San Diego, CA Boise Cascade 10/31/97 759996 319.00
48" Metal Bookcase N/A San Diego, CA Boise Cascade 10/31/97 518740 74.00
4 Drawer Lateral File N/A San Diego, CA Boise Cascade 11/11/97 838066 434.00
60" Oak Bookcase N/A San Diego, CA Boise Cascade 11/05/97 743522 120.00
36" Oak Bookcase N/A San Diego, CA 743522 88.00
HP Officejet 500 Printer SSG78QB80SH Vienna, VA Creative Computers 11/04/97 P25963520101 430.00
Scanjet 6100 C SG77J1407T San Diego, CA Creative Computers 11/08/97 P26056700101 720.00
Caviar 2GB Harddrive WM369427991 San Diego, CA Creative Computers 11/11/97 P26215190101
Portable Data Projector 27242521544 San Diego, CA Creative Computers 11/11/97 P26215190101 2,160.93
Intel Pent Overdrive Proc N/A San Diego, CA CDW 11/05/97 6632792 4.515.00
HP Deskjet Printer MY7731C08F St. Paul, MN Multiple Zones 11/01/97 337-8934-0101 175.50
HP Deskjet Printer MY7731C13G Indianapolis, IN Multiple Zones 11/01/97 337-9042-0101 175.50
Hawk 2XL 2.14 SCSI JBU99312 San Diego, CA Multiple Zones 11/01/97 337-9091-0101 351.00
256K Cache N/A San Diego, CA Multiple Zones 11/01/97 337-9091-0101 46.00
16 MB Ram for Powerbook N/A San Diego, CA Multiple Zones 11/01/97 337-9091-0101 111.00
----------
SUBTOTAL $11,502.92
==========
30" 2dwr file N/A San Diego, CA Boise Cascade 12/01/97 639481 388.00
60" Lateral File N/A San Diego, CA Boise Cascade 12/01/97 639481 128.00
60" Oak Bookcase N/A San Diego, CA Boise Cascade 12/01/97 832467 122.00
72" Oak Bookcase N/A San Diego, CA Corporate Express 12/11/97 11871233 94.50
42" Round Oak Table N/A San Diego, CA Corporate Express 12/11/97 11871363 134.10
29" Bookcase N/A San Diego, CA Corporate Express 12/11/97 11871413 91.00
4 Dwr File N/A San Diego, CA Corporate Express 12/11/97 11871413 440.00
3 Gray clocks w/alarms N/A San Diego, CA Corporate Express 12/23/97 11871283 420.68
HP Deskjet 672C Printer SSG79U1Q291 Chicago, IL Creative Computers 12/04/97 P27063200101 198.00
HP Deskjet 672C Printer SSG79U1P014 Camden, Wyoming Creative Computers 12/04/97 P27116540101 198.00
HP Deskjet 672C Printer SSG79U1P017 Grosse Point, MI Creative Computers 12/04/97 P27116630101 198.00
HP Deskjet 672C Printer SSG79U1Q28K Portage MI Creative Computers 12/04/97 P27116720101 198.00
HP Deskjet 672C Printer SSG79U1Q28X Westminster, MD Creative Computers 12/04/97 P27116920101 198.00
HP Deskjet 672C Printer SUS78M1V01Q Annapolis, MD Creative Computers 12/19/97 P27854020101 204.00
HP Deskjet 672C Printer SUS78M1V01M Mission, TX Creative Computers 12/19/97 P27854020001 219.35
Dell Dimension XPS 266 C8FFQ San Diego, CA Dell 12/08/97 135100253 2,541.00
Dell P5MMX200 CK249 San Diego, CA Dell 12/24/97 137819504 1,964.33
Gateway G6300XL GDAPPRO300PIA San Diego, CA Gateway 2000 12/30/97 23820668 3,980.30
TOTAL TAX EXEMPT 10,832.91 SUBTOTAL $11,717.26
TOTAL TAXABLE $47,623.00 ==========
==========
TOTAL 58,455.91 GRAND TOTAL $58,455.91
</TABLE>
<TABLE>
<CAPTION>
CHECK VENDOR
EQUIPMENT DESCRIPTION NO. PAID # DAYS TAX EXEMPT
- --------------------- ----- ------ ------ ----------
<C> <C> <C> <C> <C>
Prganizer 24829 YES 112 YES
48" Metal Bookcase 24829 YES 112 YES
4 Drawer Lateral File 25071 YES 101 YES
60" Oak Bookcase 25071 YES 107 YES
36" Oak Bookcase YES 107 YES
HP Officejet 500 Printer 25100 YES 108 NO
Scanjet 6100 C 25100 YES 104 YES
Caviar 2GB Harddrive
Portable Data Projector 25482 YES 101 YES
Intel Pent Overdrive Proc 25094 YES 107 YES
HP Deskjet Printer 25200 YES 111 NO
HP Deskjet Printer 25200 YES 111 NO
Hawk 2XL 2.14 SCSI 25200 YES 111 YES
256K Cache 25200 YES 111 YES
16 MB Ram for Powerbook 25200 YES 111 YES
30" 2dwr file 25661 YES 81 YES
60" Lateral File 25661 YES 81 YES
60" Oak Bookcase 25661 YES 81 YES
72" Oak Bookcase 25672 YES 71 YES
42" Round Oak Table 25672 YES 71 YES
29" Bookcase 25672 YES 71 YES
4 Dwr File 25672 YES 71 YES
3 Gray clocks w/alarms 26039 YES 59 YES
HP Deskjet 672C Printer 25675 YES 78 YES
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25884 YES 63 NO
HP Deskjet 672C Printer 25884 YES 63 NO
Dell Dimension XPS 266 25680 YES 74 YES
Dell P5MMX200 26054 YES 58 YES
Gateway G6300XL 26085 YES 52 YES
</TABLE>
Lessor: Lessee:
Transamerica Business Credit The Lightspan Partnership, Inc.
Corporation
By: /s/ GARY P. MAURO By: /s/ [Signature Illegible]
------------------------ ------------------------
Gary P. Mauro
Title: Vice President Title: VP Finance
------------------------ ------------------------
<PAGE> 39
SALE AND LEASEBACK AGREEMENT
THIS SALE AND LEASEBACK AGREEMENT (this "Agreement"), is made as of
February 18, 1998 , among The Lightspan Partnership, Inc., a California
corporation ("Seller"), and Transamerica Business Credit Corporation, a Delaware
corporation ("Buyer").
WITNESSETH:
WHEREAS, Seller is the owner of the equipment more particularly
described on Exhibit II hereto (the "Equipment");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the Equipment; and
WHEREAS, Buyer, as a condition to such purchase, wishes to lease to
Seller and Seller wishes to lease from Buyer the Equipment under the terms and
conditions of the Master Lease Agreement dated as of August 14, 1997 and
Schedule No. 2 thereto (collectively, as amended, supplemented or otherwise
modified from time to time, the "Lease") between Buyer, as lessor, and Seller,
as lessee.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. AMOUNT AND TERMS OF PURCHASE.
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties of the Seller herein set forth,
the Buyer agrees to purchase all of the Seller's right, title and interest in
and to all of the Equipment such that the Buyer will become the owner of all
such Equipment for all purposes whatsoever. The Seller hereby agrees that the
Buyer is under no obligation to purchase any other equipment now or in the
future and shall not assert a claim that the Buyer may have any such obligation.
(b) The price to be paid by the Buyer with respect to the
purchase of the Equipment (the "Purchase Price") is $58,455.91. The Purchase
Price shall be payable to the Seller on the Lease Commencement Date (as defined
in the Lease).
(c) The Seller shall pay any and all applicable federal, state,
county or local taxes and any and all present or future taxes or other
governmental charges arising in connection with the sale of the Equipment
hereunder, including sales, use or occupation taxes due upon the purchase by the
Buyer.
(d) The purchase of the Equipment shall be evidenced by a bill of
sale, substantially in the form attached hereto as Exhibit A (the "Bill of
Sale"), duly executed by the Seller.
<PAGE> 40
2. CONDITIONS TO PURCHASE. The Obligation of the Buyer to purchase
the Equipment is subject to the following conditions:
(a) The Buyer shall have received this Agreement, duly executed
by the Seller.
(b) The Buyer shall have received the Bill of Sale, duly executed
by the Seller.
(c) The Buyer shall have received the Lease, duly executed by the
Seller.
(d) The Buyer shall have received resolutions of the Board of
Directors of the Seller approving and authorizing the execution, delivery and
performance by the Seller of this Agreement, the Lease and the notices and other
documents to be delivered by the Seller hereunder and thereunder (collectively,
the "Sale and Leaseback Documents").
(e) The Buyer shall have received the certificate of title or
similar evidence of ownership with respect to each item of Equipment and Uniform
Commercial Code financing statements covering the Equipment in form and
substance satisfactory to the Buyer, duly executed by the Seller.
(f) No material adverse change has occurred with respect to the
business, prospects, properties, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller and its affiliates, taken as a
whole, since January 31, 1995.
(g) The Buyer shall have received all warranties and other
documentation received or executed by Seller in connection with the original
acquisition of the Equipment by the Seller (and by its execution hereof the
Seller hereby assigns to the Buyer all such warranties and other Documentation).
(h) The Buyer shall have received such other approvals, opinions
or documents as the Buyer may reasonably request.
3. REPRESENTATION AND WARRANTIES. To induce the Buyer to enter into
this Agreement, the Seller represents and warrants to the Buyer that:
(a) The Seller is duly authorized to execute, deliver and perform
its obligations under each of the Sale and Leaseback Documents and all corporate
action required on its part for the due execution, delivery and performance of
the transactions contemplated herein and therein has been duly and effectively
taken.
(b) The execution, delivery and performance by the Seller of each
of the Sale and Leaseback Documents and the consummation of the transactions
contemplated herein
<PAGE> 41
and therein does not and will not violate any provision of, or result in a
default under, the Seller's Articles or Certificates of Incorporation or By-laws
or any indenture or agreement to which the Seller is a party or to which its
assets are bound or any order, permit, law, statute, code, ordinance, rule,
regulation, certificate or any other requirement of any governmental authority
or regulatory body to which the Seller is subject, or result in the creation or
imposition of any mortgage, deed of trust, pledge, security interest, lien or
encumbrance of any kind upon or with respect to the Equipment or any proceeds
thereof, other than those in favor of the Buyer as contemplated by the Sale and
Leaseback Documents.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Seller of any of
the Sale and Leaseback Documents to which it is a party.
(d) Each Sale and Leaseback Document to which the Seller is a
party constitutes or will constitute, when delivered hereunder, the legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms, except as such enforceability may be (i)
limited by the effect of applicable bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally or (ii)
subject to the effect of general principles of equity (regardless of whether
such enforceability is considered in a proceeding at equity or at law).
(e) There are no actions, suits, or proceedings pending,
threatened against or affecting the Seller which seek to enjoin, prohibit or
restrain the consummation of any of the transactions contemplated hereby or by
the other Sale and Leaseback Documents.
(f) Each item of Equipment is owned by the Seller free and clear
of any liens and encumbrances of any kind or description. Upon purchase of the
Equipment hereunder, the Buyer will acquire good and marketable title in and to
the Equipment.
All representations and warranties herein shall survive the execution of this
Agreement and the purchase of the Equipment.
4. INDEMNITIES. The Seller agrees to indemnify, defend, and save
harmless the Buyer and its officers, directors, employees, agents, and
attorneys, and each of them (the "Indemnified Parties"), from and against all
claims, actions, suits, and other legal proceedings, damages, costs, interest,
charges, counsel fees and other expenses and penalties (collectively, the
"Indemnified Amounts") which any of the Indemnified Parties may sustain or incur
by reason of or arising out of (i) the Seller's ownership of any Equipment prior
to the date on which such Equipment is sold to the Buyer, or the Seller's acts
or omissions prior to such date under, in connection with or relating to such
Equipment or any of the Sale and Leaseback Documents, (ii) the operation,
maintenance or use of such Equipment prior to such date, (iii) the inaccuracy of
any of the Seller's representations or warranties contained in any of the Sale
and Leaseback
-3-
<PAGE> 42
Documents, (iv) the breach of any of the Seller's covenants contained in any of
the Sale and Leaseback Documents, (v) any loss or damage to any Equipment in
excess of the deductible which is not paid by insurance or (vi) any sales, use,
excise and other taxes, charges, and fees (including, without limitation,
income, franchise, business and occupation, gross receipts, sales, use,
licensing, registration, titling, personal property, stamp and interest
equalization taxes, levies, imposts, duties, charges or withholdings of any
nature), and any fines, penalties or interest thereon, imposed or levied by any
governmental body, agency or tax authority upon or in connection with the
Equipment, its acquisition, ownership, delivery, leasing, possession, use or
relocation or otherwise in connection with the transactions contemplated by each
Sale and Leaseback Document.
5. REMEDIES. Upon the Seller's violation of or default under any
provision of this Agreement, the Buyer may (subject to the provisions of the
other Sale and Leaseback Documents) proceed to protect and enforce its rights
either by suit in equity or by action at law or both, whether for the specific
performance of any covenant or agreement contained herein or in aid of the
exercise of any power granted in any Sale and Leaseback Document; it being
intended that the remedies contained in any Sale and Leaseback Document shall be
cumulative and shall be in addition to every other remedy given under such Sale
and Leaseback Document or now or hereafter existing at law or in equity or by
statute or otherwise.
6. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement, nor consent to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Buyer, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7. NOTICES, etc. All notices and other communications provided for
hereunder shall be in writing and sent:
if to the Seller, at its address at:
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
Attention: Vice President - Finance and Administration
Telephone No.: 619-824-8311
Telecopy No.: 619-824-8001
-4-
<PAGE> 43
if to the Buyer, at its address at:
Transamerica Business Credit Corporation
Technology Finance Division
76 Batterson Park Road
Farmington, Connecticut 06032-2571
Attention: Assistant Vice President,
Lease Administration
Telephone No.: 860-677-6466
Telecopy No.: 860-677-6766
with a copy to:
Transamerica Business Credit Corporation
9399 West Higgins Road
Rosemont, Illinois 60018
Attention: Legal Department
Telephone No.: 847-685-1106
Telecopy No.: 847-685-1143
or to such other address as shall be designated by such party in a written
notice to the other party. All such notices shall be deemed given (i) if sent by
certified or registered mail, three days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by facsimile transmission, when receipt of
such transmission is acknowledged.
8. NO WAIVER; REMEDIES. No failure on the part of the Buyer to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
9. BENEFIT. Without the prior written consent of the Buyer, the
Seller may not transfer, assign or delegate any of its rights, duties or
obligations hereunder.
10. BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Seller and the Buyer and their respective successors and
assigns.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
-5-
<PAGE> 44
12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement.
13. SEVERABILITY. If one or more of the provisions contained in this
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein, and any other application thereof, shall not in any way be affected or
impaired thereby.
14. SUBMISSION TO JURISDICTION. ALL DISPUTES ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER SOUNDING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL
COURTS LOCATED IN ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE
TAKEN; PROVIDED, HOWEVER, THAT THE BUYER SHALL HAVE THE RIGHT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE SELLER OR ITS PROPERTY IN
ANY LOCATION REASONABLY SELECTED BY THE BUYER IN GOOD FAITH TO ENABLE THE BUYER
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE BUYER. EACH PARTY AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE BUYER;
IT BEING UNDERSTOOD THAT THIS SENTENCE DOES NOT PRECLUDE THE SELLER FROM
ASSERTING COMPULSORY COUNTERCLAIMS. THE SELLER WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE BUYER HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
15. JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVE TO THE FULLEST
EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE> 45
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the first
date written above.
THE LIGHTSPAN PARTNERSHIP, INC.
By: [Signature Illegible]
----------------------------
Name:
Title: VP Finance
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ GARY P. MONO
----------------------------
Name: Gary P. Mono
Title: Vice President
Exhibit II- Equipment
Exhibit A- Bill of Sale
-7-
<PAGE> 46
ACCEPTANCE AND DELIVERY CERTIFICATE
The Lightspan Partnership, Inc., as lessee ("Lessee") under the Master
Lease Agreement dated as of August 14, 1997 between Lessee and Transamerica
Business Credit Corporation, as Lessor, does hereby acknowledge the acceptance
and delivery of the equipment listed in Lease Schedule No. 2, such acceptance
and delivery having been made on the 24th day of February, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ [Signature Illegible]
--------------------------------
Name:
Title: VP Finance
<PAGE> 47
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for Fifty Eight Thousand, Four Hundred Fifty Five and 91/100 Dollars
($58,455.91) and other valuable consideration to it in hand paid, receipt of
which is hereby acknowledged, does unconditionally, absolutely and irrevocably
grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT
CORPORATION and its assignees or successors (collectively, the "Buyer"), all of
the Seller's right, title and interest in and to the equipment described on
Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 24th day of February, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ MICHELLE HAYS
----------------------------
Name: Michelle Hays
Title: VP FINANCE
-9-
<PAGE> 48
<TABLE>
<S><C>
0092417000455000
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
THE LIGHTSPAN PARTNERSHIP, INC.
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-002 1070-002
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBIT I AND II ATTACHED HERETO AND MADE A PART HEREOF.
C/S 1077-002
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
MICHELLE M. HAYS VICE PRESIDENT /s/ MICHELLE M. HAYS Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 49
<TABLE>
<S><C>
0092417000455000
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
THE LIGHTSPAN PARTNERSHIP, INC.
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-002 1070-002
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBIT I AND II ATTACHED HERETO AND MADE A PART HEREOF.
C/S 1077-002
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
MICHELLE M. HAYS VICE PRESIDENT /s/ MICHELLE M. HAYS Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(2) ACKNOWLEDGMENT COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 50
<TABLE>
<S><C>
0092417000455000
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY's NAME
THE LIGHTSPAN PARTNERSHIP, INC.
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-002 1070-002
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY'S NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBIT I AND II ATTACHED HERETO AND MADE A PART HEREOF.
C/S 1077-002
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
MICHELLE M. HAYS VICE PRESIDENT /s/ MICHELLE M. HAYS Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) SEARCH REQUEST COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 51
EXHIBIT I TO UCC-1
Lessee: The Lightspan Partnership, Inc.
Lessor: Transamerica Business Credit Corporation
The property described on Exhibit II attached hereto, which is leased pursuant
to Master Lease Agreement dated August 14, 1997 between above-named Lessee and
Lessor, and Schedule No. 2 thereto collectively, the "Lease"), all replacements,
substitutions, additions, attachments, accessions, parts, fittings and
accessories thereto and therefor, whether owned or hereafter acquired, and all
proceeds (including insurance proceeds and any sublease and the rentals and
profits thereon) of and from said property. The Secured Party is a Lessor and
the Debtor is a Lessee in respect to the leased property, and the Lease is not
intended as a security agreement to create a security interest in Lessor. This
statement is not to be evidence that the Lease is a security agreement, but if
it is determined to be so for other reasons, this financing statement is filed
to perfect the Secured Party's security interest in the property.
LESSOR: LESSEE:
TRANSAMERICA BUSINESS THE LIGHTSPAN PARTNERSHIP, INC.
CREDIT CORPORATION
By: By: [Signature Illegible]
-------------------------- -----------------------------
Title: Title: VP Finance
----------------------- --------------------------
Date: Date: 2/19/98
------------------------ ---------------------------
<PAGE> 52
EXHIBIT II
THE LIGHTSPAN PARTNERSHIP, INC.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS
- --------------------- ------------- -------- ------ ------ ------- ----------
<C> <C> <C> <C> <C> <C> <C>
Warehouse shelving N/A Carlsbad, CA Action Wholesale Products 08/27/97 171355 1,581.16
Warehouse shelving N/A Carlsbad, CA Action Wholesale Products 09/08/97 171641 1,737.07
Warehouse shelving N/A Carlsbad, CA Action Wholesale Products 09/26/97 172230 1,544.16
30" Oak Bookcase N/A San Diego, CA Boise Cascade 08/31/97 662621 80.00
60" Oak Bookcase N/A San Diego, CA Boise Cascade 08/31/97 698592 122.00
1-4 drawer lateral file, 1-2 N/A San Diego, CA Boise Cascade 08/31/97 752515 600.42
drawer lateral file, 1-gray N/A San Diego, CA
task chair N/A San Diego, CA
Oak Desk N/A San Diego, CA Boise Cascade 08/31/97 780626 405.00
4-60" Oak Bookcases N/A San Diego, CA Boise Cascade 09/12/97 771672 488.00
4-60" Oak Bookcases N/A San Diego, CA Boise Cascade 09/12/97 803349 488.00
2-4 drawer lateral files N/A San Diego, CA Boise Cascade 09/12/97 804068 788.00
1-4 drawer lateral file N/A San Diego, CA Boise Cascade 09/12/97 831696 496.92
1-gray task chair N/A San Diego, CA
1-gray flat-file cabinet N/A San Diego, CA C&H Distributors 09/11/97 291101401 420.50
Seagate 2.1GB Hardrive PD152018 San Diego, CA Consan 09/05/97 6880840 504.00
Seagate 2.1GB Hardrive PD066428 San Diego, CA
Emate 300 Laptop IV7181708ID Alpharetta, GA Creative Computers 09/10/97 D5126858 785.00
Caviar 2.1GB Hardrive WT3612670119 San Diego, CA Creative Computers 08/29/97 P23461510102 585.00
Caviar 2.1GB Hardrive WT3612476282 San Diego, CA
Caviar 2.1GB Hardrive Wt3612669545 San Diego, CA
100SX Trinitron Monitor S011237775I San Diego, CA Creative Computers 09/03/97 P23550870101 650.00
100SX Trinitron Monitor S011237847I San Diego, CA
HP Deskwriter 600 SUS61G1G1XB Juneau, AK Creative Computers 09/03/97 P23563180101 177.50
Aurora Vision1, 14" Monitor 7a6u1999 South Boston, VA Creative Computers 09/04/97 P23579810101 331.00
HP Deskjet 400L MY76K1C0F8 South Boston, VA
100SX Trinitron Monitor S011247864I East Syracuse, NY Creative Computers 09/04/97 P23580120101 325.00
Aurora Vision1, 14" Monitor 7A6U2102 Savannah, GA Creative Computers 09/04/97 P23580310101 331.00
HP Deskjet 400L MY76K1C0G6 Savannah, GA
2.1GB SCSI Hardrive PD401793 San Diego, CA Creative Computers 09/18/97 P24138450101 470.00
2.1GB SCSI Hardrive PD404179 San Diego, CA
1 heavy duty task chair N/A San Diego, CA Office Furniture Networking 09/11/97 14843 650.00
1-HON gray chair N/A San Diego, CA Office Furniture Networking 09/16/97 14879 285.00
Compaq Proliant 800 WB9647150371 San Diego, CA Vortex Data Systems 08/29/97 970659 4,686.00
----------
SUBTOTAL $18,530.73
==========
1 gray office chair N/A San Diego, CA Boise Cascade 10/01/97 628518 124.00
12-Stack chairs N/A San Diego, CA Boise Cascade 10/01/97 686958 816.00
HP Laserjet 5SiMX Printer SUSDK027871 San Diego, CA Creative Computers 10/01/97 P24583820102 3,395.00
HP Deskjet 400L MY73V1C095 Crystal Lake, IL Creative Computers 10/03/97 P24694180101 181.00
Aurora Vision1, 14" Monitor 7A6U4851 Crystal Lake, IL 150.00
Caviar 2.1GB Hardrive 99-004219-001 San Diego, CA Creative Computers 10/06/97 P24749190101 194.00
Dell XPG Pentium BR7MW San Diego, CA Dell 10/15/97 127484186 11,845.00
Dell XPG Pentium BR7MS San Diego, CA
Dell XPG Pentium BR7MH San Diego, CA
Dell XPG Pentium BR7MD San Diego, CA
Dell XPG Pentium BR7MB San Diego, CA
SUBTOTAL $16,705.00
==========
Warehouse Shelving N/A Carlsbad, CA Action Wholesale Products 11/05/97 173619 1,690.77
36" Oak Bookcase N/A San Diego, CA Boise Cascade 10/22/97 639651 92.22
</TABLE>
2/20/98
<TABLE>
<CAPTION>
CHECK VENDOR
EQUIPMENT DESCRIPTION NO. PAID # DAYS TAX EXEMPT
- --------------------- ----- ------ ------ ----------
<C> <C> <C> <C> <C>
Warehouse shelving 24121 YES 177 NO
Warehouse shelving 24121 YES 165 NO
Warehouse shelving 24286 YES 147 NO
30" Oak Bookcase 23806 YES 173 NO
60" Oak Bookcase 23806 YES 173 NO
1-4 drawer lateral file, 1-2 23806 YES 173 NO
drawer lateral file, 1-gray NO
task chair NO
Oak Desk 23806 YES 173 NO
4-60" Oak Bookcases 24134 YES 161 NO
4-60" Oak Bookcases 24134 YES 161 NO
2-4 drawer lateral files 24134 YES 161 NO
1-4 drawer lateral file 24134 YES 161 NO
1-gray task chair NO
1-gray flat-file cabinet 24287 YES 161 NO
Seagate 2.1GB Hardrive 24147 YES 168 NO
Seagate 2.1GB Hardrive NO
Emate 300 Laptop 24152 YES 163 NO
Caviar 2.1GB Hardrive 24152 YES 175 NO
Caviar 2.1GB Hardrive NO
Caviar 2.1GB Hardrive NO
100SX Trinitron Monitor 24152 YES 170 NO
100SX Trinitron Monitor NO
HP Deskwriter 600 24152 YES 170 NO
Aurora Vision1, 14" Monitor 24152 YES 169 NO
HP Deskjet 400L NO
100SX Trinitron Monitor 24152 YES 169 NO
Aurora Vision1, 14" Monitor 24152 YES 169 NO
HP Deskjet 400L NO
2.1GB SCSI Hardrive 24288 YES 155 NO
2.1GB SCSI Hardrive NO
1 heavy duty task chair 24289 YES 162 NO
1-HON gray chair 24289 YES 157 NO
Compaq Proliant 800 24266 YES 175 NO
1 gray office chair 24414 YES 142 NO
12-Stack chairs 24550 YES 142 NO
HP Laserjet 5SiMX Printer 24580 YES 142 NO
HP Deskjet 400L 24580 YES 140 YES
Aurora Vision1, 14" Monitor YES 140 YES
Caviar 2.1GB Hardrive 24580 YES 137 NO
Dell XPG Pentium 24858 YES 128 NO
Dell XPG Pentium
Dell XPG Pentium
Dell XPG Pentium
Dell XPG Pentium
Warehouse Shelving 25481 YES 107 YES
36" Oak Bookcase 24829 YES 121 NO
</TABLE>
<PAGE> 53
EXHIBIT II
THE LIGHTSPAN PARTNERSHIP, INC.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS
- --------------------- ------------- -------- ------ ------ ------- -----------
<C> <C> <C> <C> <C> <C> <C>
Organizer N/A San Diego, CA Boise Cascade 10/31/97 759996 319.00
48" Metal Bookcase N/A San Diego, CA Boise Cascade 10/31/97 518740 74.00
4 Drawer Lateral File N/A San Diego, CA Boise Cascade 11/11/97 838066 434.00
60" Oak Bookcase N/A San Diego, CA Boise Cascade 11/05/97 743522 120.00
36" Oak Bookcase N/A San Diego, CA 743522 88.00
HP Officejet 500 Printer SSG78QB80SH Vienna, VA Creative Computers 11/04/97 P25963520101 430.00
Scanjet 6100 C SG77J1407T San Diego, CA Creative Computers 11/08/97 P26056700101 720.00
Caviar 2GB Harddrive WM369427991 San Diego, CA Creative Computers 11/11/97 P26215190101
Portable Data Projector 27242521544 San Diego, CA Creative Computers 11/11/97 P26215190101 2,160.93
Intel Pent Overdrive Proc N/A San Diego, CA CDW 11/05/97 6632792 4,515.00
HP Deskjet Printer MY7731C08F St. Paul, MN Multiple Zones 11/01/97 3378934-0101 175.50
HP Deskjet Printer MY7731C13G Indianapolis, IN Multiple Zones 11/01/97 3379042-0101 175.50
Hawk 2XL 2.14 SCSI JBU99312 San Diego, CA Multiple Zones 11/01/97 3379091-0101 351.00
256K Cache N/A San Diego, CA Multiple Zones 11/01/97 3379091-0101 46.00
16 MB Ram for Powerbook N/A San Diego, CA Multiple Zones 11/01/97 3379091-0101 111.00
----------
SUBTOTAL $11,502.92
==========
30" 2dwr file N/A San Diego, CA Boise Cascade 12/01/97 639481 388.00
60" Lateral File N/A San Diego, CA Boise Cascade 12/01/97 639481 128.00
60" Oak Bookcase N/A San Diego, CA Boise Cascade 12/01/97 832467 122.00
72" Oak Bookcase N/A San Diego, CA Corporate Express 12/11/97 11871233 94.50
42" Round Oak Table N/A San Diego, CA Corporate Express 12/11/97 11871363 134.10
29" Bookcase N/A San Diego, CA Corporate Express 12/11/97 11871413 91.00
4 Dwr File N/A San Diego, CA Corporate Express 12/11/97 11871413 440.00
3 Gray clocks w/alarms N/A San Diego, CA Corporate Express 12/23/97 11871283 420.68
HP Deskjet 672C Printer SSG79U1Q291 Chicago, IL Creative Computers 12/04/97 P27063200101 198.00
HP Deskjet 672C Printer SSG79U1P014 Camden, Wyoming Creative Computers 12/04/97 P27116540101 198.00
HP Deskjet 672C Printer SSG79U1P017 Grosse Point, MI Creative Computers 12/04/97 P27116630101 198.00
HP Deskjet 672C Printer SSG79U1Q28K Portage, MI Creative Computers 12/04/97 P27116720101 198.00
HP Deskjet 672C Printer SSG79U1Q28X Westminster, MD Creative Computers 12/04/97 P27116920101 198.00
HP Deskjet 672C Printer SSG79U1V01Q Annapolis, MD Creative Computers 12/19/97 P27854020101 204.00
HP Deskjet 672C Printer SSG79U1V01M Mission, TX Creative Computers 12/19/97 P27854020001 219.35
Dell Dimension XPS 266 C8FFQ San Diego, CA Dell 12/08/97 135100253 2,541.00
Dell P5MMX200 CK249 San Diego, CA Dell 12/24/97 137819504 1,964.33
Gateway G6300XL GDAPPRO300PIA San Diego, CA Gateway 2000 12/30/97 23820668 3,980.30
TOTAL TAX EXEMPT 10,832.91 SUBTOTAL $11,717.26
TOTAL TAXABLE $47,623.00 ==========
==========
TOTAL 58,455.91 GRAND TOTAL $58,455.91
</TABLE>
2/20/98
<TABLE>
<CAPTION>
CHECK VENDOR
EQUIPMENT DESCRIPTION NO. PAID # DAYS TAX EXEMPT
- --------------------- ----- ------ ------ ----------
<C> <C> <C> <C> <C>
Organizer 24829 YES 112 YES
48" Metal Bookcase 24829 YES 112 YES
4 Drawer Lateral File 25071 YES 101 YES
60" Oak Bookcase 25071 YES 107 YES
36" Oak Bookcase YES 107 YES
HP Officejet 500 Printer 25100 YES 108 NO
Scanjet 6100 C 25100 YES 104 YES
Caviar 2GB Harddrive
Portable Data Projector 25482 YES 101 YES
Intel Pent Overdrive Proc 25094 YES 107 YES
HP Deskjet Printer 25200 YES 111 NO
HP Deskjet Printer 25200 YES 111 NO
Hawk 2XL 2.14 SCSI 25200 YES 111 YES
256K Cache 25200 YES 111 YES
16 MB Ram for Powerbook 25200 YES 111 YES
30" 2dwr file 25661 YES 81 YES
60" Lateral File 25661 YES 81 YES
60" Oak Bookcase 25661 YES 81 YES
72" Oak Bookcase 25672 YES 71 YES
42" Round Oak Table 25672 YES 71 YES
29" Bookcase 25672 YES 71 YES
4 Dwr File 25672 YES 71 YES
3 Gray clocks w/alarms 26039 YES 59 YES
HP Deskjet 672C Printer 25675 YES 78 YES
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25675 YES 78 NO
HP Deskjet 672C Printer 25884 YES 63 NO
HP Deskjet 672C Printer 25884 YES 63 NO
Dell Dimension XPS 266 25680 YES 74 YES
Dell P5MMX200 26054 YES 58 YES
Gateway G6300XL 26085 YES 52 YES
</TABLE>
LESSOR: LESSEE:
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION
BY: BY: /s/ [Signature Illegible]
------------------------ ------------------------
TITLE: TITLE: VP FINANCE
---------------------- ----------------------
<PAGE> 54
[TRANSAMERICA BUSINESS CREDIT LETTERHEAD]
March 4, 1998
Ms. Michelle M. Hays
Vice President - Finance and Administration
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
Re: CUSTOMER NO. 1070-002
Dear Michelle:
We would like to thank you for choosing Transamerica Business Credit Corporation
(TBCC) Technology Finance Division for your recent refinancing. For your files,
we have enclosed copies of the various documents executed by your organization
in connection with the above referenced transactions. These documents have been
executed by Transamerica and should be retained by you in a safe place.
Invoices will be sent to you on a monthly basis, with your payments due on the
first day of each month. OUR REMITTANCE ADDRESS FOR ALL PAYMENTS IS FIRST
NATIONAL BANK OF CHICAGO, TBBC - TECHNOLOGY FINANCE DIVISION, PO BOX 70892,
CHICAGO, IL 60673-0892. THE STREET ADDRESS FOR OUR LOCK BOX IS FIRST NATIONAL
BANK OF CHICAGO, 525 WEST MONROE, 7TH FLOOR MAILROOM, CHICAGO, ILLINOIS 60661,
ATTENTION: 70892. Please indicate your customer numbers on the face of your
check.
Please be advised that you are responsible for the appropriate property tax
filing. Proof of filing and payment of property tax should be provided to TBCC
annually. All future payments should be made on or before the due date indicated
on each invoice. Payments arriving after 5 days of the due date will be subject
to a 5% late charge. All remittances should be sent to our lock box at the
above mentioned address.
We appreciate having been given the opportunity to serve you and we look forward
to do so again, in the future. Should you have any questions on your account,
please contact our Lease Administration Department at 860-677-6466 and we will
be delighted to assist you.
Very truly yours,
Transamerica Business Credit
Corporation
/s/ DAWN M. ORLOWSKI
Dawn M. Orlowski
Lease Administrator
<PAGE> 55
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for Fifty Eight Thousand, Four Hundred Fifty Five and 91/100
Dollars ($58,455.91) and other valuable consideration to it in hand paid,
receipt of which is hereby acknowledged, does unconditionally, absolutely and
irrevocably grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS
CREDIT CORPORATION and its assignees or successors (collectively, the "Buyer"),
all of the Seller's right, title and interest in and to the equipment described
on Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 24th day of February, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
By: [Signature Illegible]
----------------------------
Name:
Title: VP FINANCE
-9-
<PAGE> 56
In the event the Lease does not exercise the Purchase Option described below,
the Lease shall automatically renew for a term of 12 months with Monthly Rental
equal to 1.5% of the original equipment Cost payable monthly in advance. At the
expiration of the renewal period, the Lessee shall have the option to purchase
all (but not less than all) the Equipment for its then current Fair Market
Value, plus applicable sales and other taxes.
The Lessee shall have the option to purchase all (but not less than all) the
Equipment at the expiration of the term of the lease for the then Fair Market
Value of the Equipment, plus applicable sales and other taxes. It shall be
agreed that the Fair Market Value shall not be less than 10% of the Equipment
Cost nor more than 20% of the Equipment Cost plus applicable sales and other
taxes.
Lessee hereby irrevocably authorizes Lessor to insert in this Schedule the
Commencement Date and the due date of the first rental payment.
Except as expressly provided or modified hereby, all the terms and provisions of
the Master Lease Agreement shall remain in full force and effect.
The Purchase Date shall be March 1, 2001.
The Stipulated Loss Value of any items of Equipment shall be an amount equal to
the present value of all future Rent discounted at a rate of 6% per annum plus
the Reversionary Value.
The Reversionary Value of any item of Equipment shall be 20% of Equipment Cost.
TRANSAMERICA BUSINESS CREDIT CORPORATION THE LIGHTSPAN PARTNERSHIP INC.
(Lessor) (Lessee)
By: /s/ GARY P. MORO By: /s/ MICHELLE HAYS
-------------------------------- ----------------------------
Title: Vice President Title: VP Finance
-------------------------------- ----------------------------
<PAGE> 57
CLOSING STATEMENT
LEASEPLUS NO. 1070-003
LESSEE LIGHTSPAN PARTNERSHIP, INC.
RENTAL SCHEDULE NO. 3
================================================================================
<TABLE>
<S> <C>
Interim Rent ( 1 Day) @ $378.19 $ 378.19
(2/24/98 through 2/28/98)
Rental Payments
April 1, 1998 $ 11,345.57
SUB-TOTAL $ 11,723.76
Sales/Use Tax (%) Various States (See Attached)
Advanced Rentals $ 28.93
Interim Rent $ .96
SUB-TOTAL $ 29.89
Total for Rentals and Taxes ................. $ 11,753.65
Documentation Fee ........................... $
Includes: UCC Preparation & Filing $____________
Lien Search $____________
Credits ..................................... $(11,753.65)
Deducted from proceeds $11,753.65
Deducted from commitment fee $
GRAND TOTAL DUE......... $ 0.00
PROCEEDS OF SALE LEASEBACK Agreemnt $358,017.27
LESS: DUE TO TBCC $ 11,753.65
-----------
NET TO LIGHTSPAN PARTNERSHIP $346,263.62
</TABLE>
* Notes:
1. TBCC will credit $3,580.17 towards payment due May 1, 1998
from Commitment Fee. Balance of $7,794.33
will be invoiced.
Date Prepared 3-24-98
Contract Administration D. Orlowski
Marketing W. Dial
<PAGE> 58
SCHEDULE TO MASTER LEASE AGREEMENT
Dated as of March 23, 1998
Schedule No. 3
LESSOR NAME & MAILING ADDRESS LESSEE NAME & MAILING ADDRESS
Transamerica Business Credit Corporation The Lightspan Partnership, Inc.
Riverway II 10140 Campus Point Drive
West Office Tower San Diego, California 92121
9399 West Higgins Road
Rosemont, Illinois 60018
Equipment Location (if different than Lessee's address above):
This Schedule covers the following described equipment ("Equipment"):
See Exhibit II attached hereto and made a part hereof.
The Equipment is hereby leased pursuant to the provisions of the Master Lease
Agreement between the undersigned Lessee and Lessor dated August 14, 1997 (the
"Master Lease"), the terms of which are incorporated herein by reference
thereto, plus the following additional terms, provisions, and modifications. The
Lessor reserves the right to adjust the monthly payments in accordance with the
Commitment Letter dated August 5, 1997, if the Lessor has not received this
Schedule and an Acceptance and Delivery Certificate executed by the Lessee
within five business days from the date first set forth above.
<TABLE>
<S> <C> <C>
1. Term (Number of Months) 36 months
2. Equipment Cost $358,017.27
3. Commencement Date March 31, 1998
4. Rate Factor 3.169% of Equipment Cost
5. Total Rents $408,440.52
Total sales/use tax $ 1,041.48 $409,482.00
-----------
6. Advance Rents (first month) $ 11,345.57
Sales/use tax for advance rent $ 28.93 $ 11,374.50
-----------
7. Monthly rental payments $ 11,345.57
Monthly sales/use tax $ 28.93 $ 11,374.50
-----------
and the second such rental payment
will be due on May 1, 1998
and subsequent rental payments will
be due on the same day of each month thereafter
8. Security Deposit NONE
9. In addition to the monthly rental
payments provided for herein, Lessee shall
pay to Lessor, as interim rent, payable on
the commencement date specified above, an
amount equal to 1/30th of the monthly rental
payment (including monthly sales/use tax)
multiplied by the number of days from and
including the commencement date through the
end of the same calendar month. $ 379.15
</TABLE>
<PAGE> 59
Equipment Location with Tax Rates
<TABLE>
<CAPTION>
SALES
MONTHLY TOTAL TAX
EQUIPMENT SALES RATE MONTHLY TAX MONTHLY INTERM
COST LOCATION ZIP CODE COUNTY TAX RATE FACTOR PAYMENT PAYMENT PAYMENT RENT
- ---- -------- -------- ------ -------- ------ ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX EXEMPT EQUIPMENT
$343,959.31 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121 SAN DIEGO N/A 3.1690% 10,900.07 10900.07
$512.10 565 EAST OAKSIDE DRIVE, SONORA, CA 95370 TUOLUMNE N/A 3.1690% 16.23 16.23
$478.50 9609 SOUTH CLAIREMONT, CHICAGO, IL 60643 COOK N/A 3.1690% 15.16 15.16
$363.00 8941 MERRILL CHICAGO, IL 60617 COOK N/A 3.1690% 11.50 11.50
$399.98 2257 VALLEY ROAD OCEANSIDE, CA 92056 SAN DIEGO 3.1690% 12.68 12.68
$345,712.89
TAXABLE EQUIPMENT
$4,886.91 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121 SAN DIEGO 7.75% 3.1690% 154.87 12.00 166.87 0.40
$392.00 11809 TROOST AVENUE KANSAS CITY, MO 64131 JACKSON 6.60% 3.1690% 12.42 0.82 13.24 0.03
$373.00 10139 HICKORY RIDGE DR CLEVELAND, OH 44141 CUYAHOGA 7.00% 3.1690% 11.82 0.83 12.65 0.03
$205.00 18 MARY BETH DRIVE SUFFERN, NY 10901 ROCKLAND 7.25% 3.1690% 6.50 0.47 6.97 0.02
$205.00 518 S 3RD STREET MAYFIELD, KY 42066 GRAVES 6.00% 3.1690% 6.50 0.39 6.89 0.01
$373.00 493 RIVERVIEW DRIVE CHATHAM, MA 02633 BARNSTABLE 5.00% 3.1690% 11.82 0.59 12.41 0.02
$373.00 9007 HIGHLAND ROAD BATON ROUGE, LA 70810 EAST BATON 8.00% 3.1690% 11.82 0.95 12.77 0.03
$373.00 125 MILL CREEK ARLINGTON, TX 76010 TARRANT 7.75% 3.1690% 11.82 0.92 12.74 0.03
$373.00 9879 HARLINGTON STREET CANTONMENT, FL 32533 ESCAMBIA 7.50% 3.1690% 11.82 0.89 12.71 0.03
$363.00 5794 HEDGEROW CIRCLE BUFFALO, NY 14225 ERIE 8.00% 3.1690% 11.50 0.92 12.42 0.03
$363.00 111 HAWTHORNE WAY CHITTENANGO, NY 13037 MADISON 7.00% 3.1690% 11.50 0.81 12.31 0.03
$363.00 51010 BAYVIEW AVENUE RUSH CITY, MN 55069 CHISAGO 6.50% 3.1690% 11.50 0.75 12.25 0.02
$363.00 2303 MID HOLLOW DRIVE SAN ANTONIO, TX 78230 BEXAR 7.75% 3.1690% 11.50 0.89 12.39 0.03
$363.00 687 LAUGHLIN ROAD CLEVELAND, MS 38732 7.25% 3.1690% 11.50 0.83 12.33 0.03
$363.00 14451 W WAGONTRAIL DRIVE AURORA, CO 80015 ADAMS 8.05% 3.1690% 11.50 0.93 12.43 0.03
$203.00 5503 COURTYARD DRIVE AUSTIN, TX 78731 WILLIAMSON 8.25% 3.1690% 6.43 0.53 6.96 0.02
$363.00 1700 RIVERCREST SUGAR LAND, TX 77478 FORT BEND 8.25% 3.1690% 11.50 0.95 12.45 0.03
$365.00 7425 LITTLE OAKS DRIVE O' FALLON, MO 63366 ST. CHARLES 7.225% 3.1690% 11.57 0.84 12.41 0.03
$205.00 5800 ARLINGTON AVENUE RIVERDALE, NY 10471 BRONX 8.250% 3.1690% 6.50 0.54 7.04 0.02
</TABLE>
<PAGE> 60
<TABLE>
<CAPTION>
SALES
MONTHLY TOTAL TAX
EQUIPMENT SALES RATE MONTHLY TAX MONTHLY INTERM
COST LOCATION ZIP CODE COUNTY TAX RATE FACTOR PAYMENT PAYMENT PAYMENT RENT
- ---- -------- -------- ------ -------- ------ ------- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$205.00 604 COACH HILL COURT WEST CHESTER, PA 19380 CHESTER 7.000% 3.1690% 6.50 0.45 6.95 0.02
$389.97 1011 SAGE LEAF HOUSTON, TX 77089 HARRIS 8.250% 3.1690% 12.36 1.02 13.38 0.03
$363.00 1101 SAN ANTONIO COURT PLANO, TX 75023 COLLIN 8.250% 3.1690% 11.50 0.95 12.45 0.03
$478.50 109 THORPE'S PARISH WILLIAMSBURG, VA 23185 WILLIAMSBURG 4.500% 3.1690% 15.16 0.68 15.84 0.02
$12,304.38
$358,017.27 $11,345.57 $28.93 $11,374.50 $0.96
</TABLE>
Renewal terms:
In the event the Lease does not exercise the Purchase Option described below,
the Lease shall automatically renew for a term of 12 months with Monthly Rental
equal to 1.5% of the original Equipment Cost payable monthly in advance. At the
expiration of the renewal period, the Lessee shall have the option to purchase
all (but not less than all) the Equipment for its then current Fair Market
Value, plus applicable sales and other taxes.
The Lessee shall have the option to purchase all (but not less than all) the
Equipment at the expiration of the term of the lease for the then Fair Market
Value of the Equipment, plus applicable sales and other taxes. It shall be
agreed that the Fair Market Value shall not be less than 10% of the Equipment
Cost nor more than 20% of the Equipment Cost plus applicable dales and other
taxes.
Lessee hereby irrevocably authorizes Lessor to insert in this Schedule the
Commencement Date and the due date of the first rental payment.
Except as expressly provided or modified hereby, all the terms and provisions of
the Master Lease Agreement shall remain in full force and effect.
The Purchase Date shall be April 1, 2001.
The Stipulated Loss Value of any items of Equipment shall be an amount equal to
the present value of all future Rent discounted at a rate of 6% per annum plus
the Reversionary Value.
The Reversionary Value of any item of Equipment shall be 20% of Equipment Cost.
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION (Lessee)
(Lessor)
By: /s/ ROBERT D. POMEROY, JR. By: /s/ [Signature Illegible]
--------------------------------- -------------------------------
Robert D. Pomeroy, Jr.
Title:EXECUTIVE VICE PRESIDENT Title: VP FINANCE
------------------------------ ----------------------------
<PAGE> 61
SALE AND LEASEBACK AGREEMENT
THIS SALE AND LEASEBACK AGREEMENT (this "Agreement"). is made as of
March 24, 1998, among The Lightspan Partnership, Inc., a California corporation
("Seller"), and Transamerica Business Credit Corporation, a Delaware corporation
("Buyer").
WITNESSETH:
WHEREAS, Seller is the owner of the equipment more particularly
described on Exhibit II hereto (the "Equipment");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the Equipment; and
WHEREAS, Buyer, as a condition to such purchase, wishes to lease to
Seller and Seller wishes to lease from Buyer the Equipment under the terms and
conditions of the Master Lease Agreement dated as of August 14, 1997 and
Schedule No. 3 thereto (collectively, as amended, supplemented or otherwise
modified from time to time, the "Lease") between Buyer, as lessor, and Seller,
as lessee.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. AMOUNT AND TERMS OF PURCHASE.
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties of the Seller herein set forth,
the Buyer agrees to purchase all of the Seller's right, title and interest in
and to all of the Equipment such that the Buyer will become the owner of all
such Equipment for all purposes whatsoever. The Seller hereby agrees that the
Buyer is under no obligation to purchase any other equipment now or in the
future and shall not assert a claim that the Buyer may have any such obligation.
(b) The price to be paid by the Buyer with respect to the
purchase of the Equipment (the "Purchase Price") is $358,017.27. The Purchase
Price shall be payable to the Seller on the Lease Commencement Date (as defined
in the Lease).
(c) The Seller shall pay any and all applicable federal, state,
county or local taxes and any and all present or future taxes or other
governmental charges arising in connection with the sale of the Equipment
hereunder. including sales, use or occupation taxes due upon the purchase by the
Buyer.
(d) The purchase of the Equipment shall be evidenced by a bill of
sale, substantially in the form attached hereto as Exhibit A (the "Bill of
Sale"), duly executed by the Seller.
<PAGE> 62
2. CONDITIONS TO PURCHASE. The obigation of the Buyer to purchase
the Equipment is subject to the following conditions:
(a) The Buyer shall have received this Agreement, duly executed
by the Seller.
(b) The Buyer shall have received the Bill of Sale, duly executed
by the Seller.
(c) The Buyer shall have received the Lease, duly executed by the
Seller.
(d) The Buyer shall have received resolutions of the Board of
Directors of the Seller approving and authorizing the execution, delivery and
performance by the Seller of this Agreement, the Lease and the notices and other
documents to be delivered by the Seller hereunder and thereunder (collectively,
the "Sale and Leaseback Documents").
(e) The Buyer shall have received the certificate of title or
similar evidence of ownership with respect to each item of Equipment and Uniform
Commercial Code financing statements covering the Equipment in form and
substance satisfactory to the Buyer, duly executed by the Seller.
(f) No material adverse change has occurred with respect to the
business, prospects, properties, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller and its affiliates, taken as a
whole, since January 31, 1995.
(g) The Buyer shall have received all warranties and other
documentation received or executed by Seller in connection with the original
acquisition of the Equipment by the Seller (and by its execution hereof the
Seller hereby assigns to the Buyer all such warranties and other Documentation).
(h) The Buyer shall have received such other approvals, opinions
or documents as the Buyer may reasonably request.
3. REPRESENTATION AND WARRANTIES. To induce the Buyer to enter into
this Agreement, the Seller represents and warrants to the Buyer that:
(a) The Seller is duly authorized to execute, deliver and perform
its obligations under each of the Sale and Leaseback Documents and all corporate
action required on its part for the due execution, delivery and performance of
the transactions contemplated herein and therein has been duly and effectively
taken.
(b) The execution, delivery and performance by the Seller of each
of the Sale and Leaseback Documents and the consummation of the transactions
contemplated herein
-2-
<PAGE> 63
and therein does not and will not violate any provision of, or result in a
default under, the Seller's Articles or Certificates of Incorporation or By-laws
or any indenture or agreement to which the Seller is a party or to which its
assets are bound or any order, permit, law, statute, code, ordinance, rule,
regulation, certificate or any other requirement of any governmental authority
or regulatory body to which the Seller is subject, or result in the creation or
imposition of any mortgage, deed of trust, pledge, security interest, lien or
encumbrance of any kind upon or with respect to the Equipment or any proceeds
thereof, other than those in favor of the Buyer as contemplated by the Sale and
Leaseback Documents.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution. delivery and performance by the Seller of any of
the Sale and Leaseback Documents to which it is a party.
(d) Each Sale and Leaseback Document to which the Seller is a
party constitutes or will constitute, when delivered hereunder, the legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms, except as such enforceability may be (i)
limited by the effect of applicable bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally or (ii)
subject to the effect of general principles of equity (regardless of whether
such enforceability is considered in a proceeding at equity or at law).
(e) There are no actions, suits, or proceedings pending,
threatened against or affecting the Seller which seek to enjoin, prohibit or
restrain the consummation of any of the transactions contemplated hereby or by
the other Sale and Leaseback Documents.
(f) Each item of Equipment is owned by the Seller free and clear
of any liens and encumbrances of any kind or description. Upon purchase of the
Equipment hereunder, the Buyer will acquire good and marketable title in and to
the Equipment.
All representations and warranties herein shall survive the execution of this
Agreement and the purchase of the Equipment.
4. INDEMNITIES. The Seller agrees to indemnify, defend, and save
harmless the Buyer and its officers, directors, employees, agents, and
attorneys, and each of them (the "Indemnified Parties"), from and against all
claims, actions, suits, and other legal proceedings, damages, costs, interest,
charges, counsel fees and other expenses and penalties (collectively, the
"Indemnified Amounts") which any of the Indemnified Parties may sustain or incur
by reason of or arising out of (i) the Seller's ownership of any Equipment prior
to the date on which such Equipment is sold to the Buyer, or the Seller's acts
or omissions prior to such date under, in connection with or relating to such
Equipment or any of the Sale and Leaseback Documents, (ii) the operation,
maintenance or use of such Equipment prior to such date, (iii) the inaccuracy of
any of the Seller's representations or warranties contained in any of the Sale
and Leaseback
-3-
<PAGE> 64
Documents, (iv) the breach of any of the Seller's covenants contained in any of
the Sale and Leaseback Documents, (v) any loss or damage to Equipment in excess
of the deductible which is not paid by insurance or (vi) any sales, use, excise
and other taxes, charges, and fees (including, without limitation, income,
franchise, business and occupation, gross receipts, sales, use, licensing,
registration, titling, personal property, stamp and interest equalization taxes,
levies, imposts, duties, charges or withholdings of any nature), and any fines,
penalties or interest thereon, imposed or levied by any governmental body,
agency or tax authority upon or in connection with the Equipment, its
acquisition, ownership, delivery, leasing, possession, use or relocation or
otherwise in connection with the transactions contemplated by each Sale and
Leaseback Document.
5. REMEDIES. Upon the Seller's violation of or default under any
provision of this Agreement, the Buyer may (subject to the provisions of the
other Sale and Leaseback Documents) proceed to protect and enforce its rights
either by suit in equity or by action at law or both, whether for the specific
performance of any covenant or agreement contained herein or in aid of the
exercise of any power granted in any Sale and Leaseback Document; it being
intended that the remedies contained in any Sale and Leaseback Document shall be
cumulative and shall be in addition to every other remedy given under such Sale
and Leaseback Document or now or hereafter existing at law or in equity or by
statute or otherwise.
6. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement, nor consent to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Buyer, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7. NOTICES, ETC. All notices and other communications provided for
hereunder shall be in writing and sent:
if to the Seller, at its address at:
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
Attention: Vice President - Finance and Administration
Telephone No.: 619-824-8311
Telecopy No.: 619-824-8001
-4-
<PAGE> 65
if to the Buyer, at its address at:
Transamerica Business Credit Corporation
Technology Finance Division
76 Batterson Park Road
Farmington, Connecticut 06032-2571
Attention: Assistant Vice President,
Lease Administration
Telephone No.: 860-677-6466
Telecopy No.: 860-677-6766
with a copy to:
Transamerica Business Credit Corporation
9399 West Higgins Road
Rosemont, Illinois 60018
Attention: Legal Department
Telephone No.: 847-685-1106
Telecopy No.: 847-685-1143
or to such other address as shall be designated by such party in a written
notice to the other party. All such notices shall be deemed given (i) if sent by
certified or registered mail, three days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by facsimile transmission, when receipt of
such transmission is acknowledged.
8. No WAIVER; REMEDIES. No failure on the part of the Buyer to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
9. BENEFIT. Without the prior written consent of the Buyer, the
Seller may not transfer, assign or delegate any of its rights, duties or
obligations hereunder.
10. BINDING Effect. This Agreement shall be binding upon and inure
to the benefit of the Seller and the Buyer and their respective successors and
assigns.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
-5-
<PAGE> 66
12. EXECUTION IN Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement.
13. SEVERABILITY. If one or more of the provisions contained in this
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein, and any other application thereof, shall not in any way be affected or
impaired thereby.
14. SUBMISSION TO JURISDICTION. ALL DISPUTES ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER SOUNDING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL
COURTS LOCATED IN ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE
TAKEN; PROVIDED, HOWEVER, THAT THE BUYER SHALL HAVE THE RIGHT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE SELLER OR ITS PROPERTY IN
ANY LOCATION REASONABLY SELECTED BY THE BUYER IN GOOD FAITH TO ENABLE THE BUYER
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE BUYER. EACH PARTY AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE BUYER;
IT BEING UNDERSTOOD THAT THIS SENTENCE DOES NOT PRECLUDE THE SELLER FROM
ASSERTING COMPULSORY COUNTERCLAIMS. THE SELLER WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE BUYER HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
15. JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVE TO THE FULLEST
EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE> 67
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the first
date written above.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ MICHELLE HAYS
---------------------------
Name: Michelle Hays
Title: VP Finance
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ ROBERT D. POMEROY, JR.
---------------------------
Name: Robert D. Pomeroy, Jr.
Title: Executive Vice President
Exhibit II- Equipment
Exhibit A- Bill of Sale
-7-
<PAGE> 68
EXHIBIT A
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for Three Hundred Fifty Eight Thousand, Seventeen and 27/100 Dollars
($358,017.27) and other valuable consideration to it in hand paid, receipt of
which is hereby acknowledged. does unconditionally, absolutely and irrevocably
grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT
CORPORATION and its assignees or successors (collectively, the "Buyer"), all of
the Seller's right, title and interest in and to the equipment described on
Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 31st day of March, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
By:
----------------------------
Name:
Title:
-8-
<PAGE> 69
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for Three Hundred Fifty Eight Thousand, Seventeen and 27/100 Dollars
($358,017.27) and other valuable consideration to it in hand paid, receipt of
which is hereby acknowledged, does unconditionally, absolutely and irrevocably
grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT
CORPORATION and its assignees or successors (collectively, the "Buyer"), all of
the Seller's right, title and interest in and to the equipment described on
Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 31st day of March, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
BY: /s/ MICHELLE HAYS
----------------------------
Name: Michelle Hays
Title: VP Finance
-9-
<PAGE> 70
EXHIBIT II
THE LIGHTSPAN PARTNERSHIP
To:
X Schedule to Master Lease Agreement
X UCC
X Sale and Lease back Agreement
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK TAX
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO. EXEMPT
- ----------------------- ------------- -------- ------------------ -------- ------------ --------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
31-JAN-98
4 Drawer File N/A San Diego, CA Corporate Express 01/05/98 11308524 474.10 26039 YES
2 2 drawer lateral files N/A San Diego, CA Corporate Express 01/06/98 11126654 463.33 26039 YES
4.55gb SCSI & Data Silo HK043331 San Diego, CA Creative Computers 01/13/98 P28765430101 742.09 26328 YES
14" Monitor Oceanside, CA Creative Computers 01/27/98 P29382720101 186.63 26613 YES
HP Deskjet 672C Printer SSG7AF1P0V2 Oceanside, CA Creative Computers 01/27/98 P29382720102 213.35 26613 YES
Intel Overdrive 180MHZ N/A San Diego, CA Creative Computers 01/27/98 P29383290101 222.81 26613 YES
k-200 Vast Player 359708001013 San Diego, CA Professional Sound 01/12/98 30755 2,246.59 26468 YES
& Music --------
Dell XPS 266 CYNV0 San Diego, CA Dell 01/27/98 142559582 2,797.24 26619 YES
Sony Notebook Computer 28980330 San Diego, CA Computer City 12/18/97 749968 4,886.91 25980 NO
HP Deskjet 672C Printer SSG7AE1Q0JH Kansas City, MO Creative Computers 01/06/98 P28476570101 26044 NO
14" Monitor J70513284 Kansas City, MO Creative Computers 01/06/98 P28476570101 392.00 26044 NO
HP Deskjet 672C Printer SSG7AF1P0TW Cleveland, OH Creative Computers 01/27/98 P29381860101 205.00 26613 NO
HP Deskjet 672C Printer SSG7AF1P0SQ Suffern, NY Creative Computers 01/27/98 P29382060101 205.00 26613 NO
HP Deskjet 672C Printer SSG7AF1P0TF Mayfield, KY Creative Computers 01/27/98 P29382200101 205.00 26613 NO
HP Deskjet 672C Printer SSG7AF1P0T1 Chatham, MA Creative Computers 01/27/98 P29382280102 198.00 26613 NO
14" Monitor Baton Rouge, LA Creative Computers 01/27/98 P29382960101 175.00 26613 NO
HP Deskjet 672C Printer SUS78M1V03D Baton Rouge, LA Creative Computers 01/27/98 P29382960102 198.00 26613 NO
14" Monitor Arlington, TX Creative Computers 01/27/98 P29383110101 175.00 26613 NO
HP Deskjet 672C Printer SSG7AF1P0SH Arlington, TX Creative Computers 01/27/98 P29383110102 198.00 26613 NO
HP Deskjet 672C Printer SUS78M1V030 Cantonment, FL Creative Computers 01/27/98 P29383180102 198.00 26613 NO
14" Monitor Cantonment, FL Creative Computers 01/27/98 P29383180101 175.00 26613 NO
14" Monitor Chatham, MA Creative Computers 01/27/98 P29382280101 175.00 26613 NO
14" Monitor Cleveland, OH Creative Computers 01/27/98 P29391160101 168.00 26613 NO
SUBTOTAL $14,900.05
==========
FEB-98
Warehouse Shelving N/A San Diego, CA Action Wholesale 02/19/98 176620 1,690.77 27083 YES
left and right return N/A San Diego, CA Office Furniture 02/11/98 15896 312.48 26975 YES
Networking
Metal corner shelves N/A San Diego, CA Office Furniture 02/11/98 15894 183.18 26975 YES
Networking
3 Drawer Latera File N/A San Diego, CA Office Depot 02/26/98 212029 335.00 27086 YES
Eltron Printer 47080715 San Diego, CA Allenwest, Inc. 02/11/98 31180 975.62 26827 YES
CCD Scanner K000051 San Diego, CA Allenwest, Inc. 02/11/98 31180 YES
HP Deskjet 672C Printer SSG7BN1P2C8 Chicago, IL Creative Computers 02/04/98 P29730730102 198.00 26875 YES
HP Deskjet 672C Printer 30PABA San Diego, CA Creative Computers 02/04/98 P29730900102 213.35 26875 YES
14" Monitor San Diego, CA Creative Computers 02/05/98 P29730900101 176.63 26875 YES
14" Monitor Chicago, IL Creative Computers 02/05/98 P29730730101 165.00 26875 YES
Caviar Hardrive and Zip WT3510929556 San Diego, CA Creative Computers 02/04/98 P29731030101 618.26 26875 YES
Inspirion M200ST CFNWL San Diego, CA Dell 02/17/98 144950367 2,704.55 27085 YES
--------
HP Deskjet 672C Printer SSG7BN1P2TH Chittenango, NY Creative Computers 02/12/98 P30087940102 198.00 26875 NO
HP Deskjet 672C Printer SSG7BN1P2B3 Buffalo, NY Creative Computers 02/04/98 P29730960102 198.00 26875 NO
14" Monitor Buffalo, NY Creative Computers 02/05/98 P29730960101 165.00 26875 NO
</TABLE>
Page 1
<PAGE> 71
EXHIBIT II
THE LIGHTSPAN PARTNERSHIP
To:
X Schedule to Master Lease Agreement
X UCC
X Sale and Lease back Agreement
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK TAX
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO. EXEMPT
- ----------------------- ------------- -------- ------------------ -------- ------------ --------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
HP Deskjet 672C Printer 30PABA Rush City, MN Creative Computers 02/12/98 P30088030102 198.00 26875 NO
HP Deskjet 672C Printer SSG7BN1P2F8 San Antonio, TX Creative Computers 02/12/98 P30088100102 198.00 26875 NO
HP Deskjet 672C Printer SSG7BN1P207 Cleveland, MS Creative Computers 02/12/98 P30086950102 198.00 26875 NO
14" Monitor San Antonio, TX Creative Computers 02/14/98 P30088100101 165.00 27084 NO
14" Monitor Chittenango, NY Creative Computers 02/14/98 P30087940101 165.00 27084 NO
14" Monitor Rush City, MN Creative Computers 02/14/98 P30088030101 165.00 27084 NO
14" Monitor Cleveland, MS Creative Computers 02/14/98 P30086950101 165.00 27084 NO
HP Deskjet 672C Printer SSG7BN1P2T1 Aurora, CO Creative Computers 02/18/98 P30317910102 198.00 27084 NO
HP Deskjet 672C Printer SSG7BN1P2V4 Austin, TX Creative Computers 02/18/98 P30318120101 203.00 27084 NO
HP Deskjet 672C Printer 30PABA Sugar Land, TX Creative Computers 02/18/98 P30318270102 198.00 27084 NO
14" Monitor Aurora, CO Creative Computers 02/19/98 P30317910101 165.00 27084 NO
HP Deskjet 672C Printer SSG7BN1P2P1 O'Fallon, MO Creative Computers 02/20/98 P30402440102 198.00 27084 NO
14" Monitor Sugar Land, TX Creative Computers 02/20/98 P30318270101 165.00 27084 NO
14" Monitor O'Fallon, MO Creative Computers 02/21/98 P30402440101 167.00 27084 NO
HP Deskjet 672C Printer SCN7BD111J1 Riverdale, NY Creative Computers 02/27/98 P30708830101 205.00 27084 NO
HP Deskjet 672C Printer SCN7BD111JB Westchester, PA Creative Computers 02/27/98 P30709050101 205.00 27084 NO
HP Deskjet 672C Printer SCN7BD111JF Houston, TX Creative Computers 02/27/98 P3071010001 389.97 27084 NO
14" Monitor Houston, TX Creative Computers 02/27/98 P3071010001 27084 NO
HP Deskjet 672C Printer SCN7BD111HV PlaNO, TX Creative Computers 02/27/98 P30711660101 363.00 27084 NO
14" Monitor PlaNO, TX Creative Computers 02/27/98 27084 NO
SUBTOTAL $11,844.81
==========
1070-003.XLS Page 2
</TABLE>
<PAGE> 72
EXHIBIT II
THE LIGHTSPAN PARTNERSHIP
To:
X Schedule to Master Lease Agreement
X UCC
X Sale and Lease back Agreement
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR
- -------------------- ------------- -------- ------
N/A San Diego, CA Action Wholesale
N/A San Diego, CA Office Depot
SUS82A1W02S Chicago, IL Creative Computers
6A74390349 Chicago, IL Creative Computers
SUS82A1W01Z Sonora, CA Creative Computers
6A74390319 Sonora, CA Creative Computers
To Follow San Diego, CA Compaq
D805BRZ40369 San Diego, CA Optimal Computer
D805BRZ40369 San Diego, CA Optimal Computer
LAP52949 San Diego, CA Optimal Computer
LAP77725 San Diego, CA Optimal Computer
LAP49629 San Diego, CA Optimal Computer
LAP86643 San Diego, CA Optimal Computer
SUS82A1W02Q Williamsburg, VA Creative Computers
6A74292463 Williamsburg, VA Creative Computers
TOTAL TAX EXEMPT 345,712.89
TAXABLE 12,304.38
------------------------
358,017.27
</TABLE>
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
DATE NUMBER COSTS NO. TAX EXEMPT
- ----- ------- --------- ----- ----------
<S> <C> <C> <C> <C>
03/04/98 17704 1,690.77 27083 YES
03/09/98 23973211 420.00 27086 YES
03/11/98 p31125160101 478.50 27084 YES
03/11/98 p31125160101 27084 YES
03/11/98 P31125610101 512.10 27084 YES
03/11/98 P31125610101 27084 YES
03/18/98 309,889.00 27080/88 YES
03/02/98 66665 1,544.06 26979 YES
03/03/98 66858 16,259.48 27087 YES
03/03/98 66858 27087 YES
03/03/98 66858 27087 YES
03/03/98 66858 27087 YES
03/03/98 66858 27087 YES
-----------
03/11/98 P31125450101 478.50 27084 NO
03/11/98 P31125450101 27084 NO
SUBTOTAL $331,272.41
===========
GRAND TOTAL $358,017.27
</TABLE>
LESSEE:
LESSOR:
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION
BY /s/ [SIGNATURE ILLEGIBLE]
BY: /s/ ROBERT D. POMEROY, JR. --------------------------
----------------------------
Robert D. Pomeroy, JR. TITLE: Vice President Finance
----------------------
Title: Executive Vice President
------------------------
<PAGE> 73
EXHIBIT II
THE LIGHTSPAN PARTNERSHIP
To:
X Schedule to Master Lease Agreement
X UCC
X Sale and Lease back Agreement
SERIAL NUMBERS FOR:
<TABLE>
<S> <C> <C> <C> <C>
130 Presario 1681 V752BVQ22014 V811BVQ20121 V811BVQ20182 V811BVQ20077
Vendor: Compaq V752BVQ26328 V811BVQ20122 V811BVQ20183 V811BVQ20078
Equipment Location: San Diego V752BVQ26373 V811BVQ20125 V811BVQ20189 V811BVQ20080
V752BVQ26419 V811BVQ20127 V811BVQ20191 V811BVQ20083
Equipment Cost: 309,889.00 V752BVQ26433 V811BVQ20131 V811BVQ20197 V811BVQ20084
V752BVQ26434 V811BVQ20134 V811BVQ20198 V811BVQ20087
V752BVQ26506 V811BVQ20135 V811BVQ20215 V811BVQ20089
V753BVQ2A859 V811BVQ20136 V811BVQ20217 V811BVQ20091
V753BVQ2A860 V811BVQ20137 V811BVQ20748 V811BVQ20093
V802BVQ20349 V811BVQ20138 V811BVQ20752 V811BVQ20094
V811BVQ20002 V811BVQ20139 V811BVQ20759 V811BVQ20095
V811BVQ20003 V811BVQ20140 V811BVQ20760 V811BVQ20097
V811BVQ20007 V811BVQ20141 V811BVQ20762 V811BVQ20098
V811BVQ20008 V811BVQ20142 V811BVQ20763 V811BVQ20100
V811BVQ20009 V811BVQ20146 V811BVQ20764 V811BVQ20101
V811BVQ20010 V811BVQ20148 V811BVQ20766 V811BVQ20102
V811BVQ20012 V811BVQ20149 V811BVQ20767 V811BVQ20103
V811BVQ20014 V811BVQ20153 V811BVQ20768 V811BVQ20106
V811BVQ20015 V811BVQ20161 V811BVQ20769 V811BVQ20107
V811BVQ20016 V811BVQ20163 V811BVQ20771 V811BVQ20108
V811BVQ20017 V811BVQ20164 V811BVQ20772 V811BVQ20110
V811BVQ20028 V811BVQ20165 V811BVQ20778 V811BVQ20112
V811BVQ20033 V811BVQ20167 V811BVQ20781 V811BVQ20113
V811BVQ20035 V811BVQ20168 V811BVQ20783 V811BVQ20114
V811BVQ20038 V811BVQ20170 V811BVQ20786 V811BVQ20115
V811BVQ20054 V811BVQ20171 V811BVQ20792 V811BVQ20116
V811BVQ20056 V811BVQ20173 V811BVQ20793 V811BVQ20117
V811BVQ20057 V811BVQ20174 V811BVQ20795 V811BVQ20119
V811BVQ20065 V811BVQ20177 V811BVQ20796
V811BVQ20066 V811BVQ20178 V811BVQ20797
V811BVQ20070 V811BVQ20179 V811BVQ20798
V811BVQ20072 V811BVQ20800
V811BVQ20076 V811BVQ20803
V811BVQ20804
V811BVQ20805
V811BVQ20806
V811BVQ20809
V811BVQ20814
</TABLE>
<PAGE> 74
ACCEPTANCE AND DELIVERY CERTIFICATE
The Lightspan Partnership, Inc., as lessee ("Lessee") under the Master
Lease Agreement dated as of August 14, 1997 between Lessee and Transamerica
Business Credit Corporation, as Lessor, does hereby acknowledge the acceptance
and deliver of the equipment listed in Lease Schedule No. 3, such acceptance
and delivery having been made on the 31st day of March, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ [SIGNATURE ILLEGIBLE]
------------------------------
Name:
Title:
<PAGE> 75
<TABLE>
<S><C>
0092417000553000
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
THE LIGHTSPAN PARTNERSHIP, INC.
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-003 1070-003
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBITS I AND II ATTACHED HERETO AND MADE A PART HEREOF.
FILE WITH THE SECRETARY OF STATE CALIFORNIA
CUSTOMER NO. 1070-003
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ [SIGNATURE ILLEGIBLE] Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 76
EXHIBIT 1 TO UCC-1
Lessee: The Lightspan Partnership, Inc.
Lessor: Transamerica Business Credit Corporation
? property described on Exhibit II attached hereto, which is leased pursuant to
Master Lease Agreement dated August 14, 1997 between above-named Lessee and
Lessor, and Schedule No. 3 thereto collectively, the "Lease"), all replacements,
substitutions, additions, attachments, accessions, parts, fittings and
accessories thereto and therefor, whether owned or hereafter acquired, and all
proceeds (including insurance proceeds and ? sublease and the rentals and
profits thereon) of and from said property. The Secured Party is a Lessor and
the Debtor is a Lessee in respect to the leased property, and the Lease is not
intended as a security agreement to create a security interest in Lessor. This
agreement is not to be evidence that the Lease is a security agreement, but if
it is determined to be so for other reasons, this financing statement is filed
to perfect the Secured Party's security interest in the property.
LESSOR: LESSEE:
TRANSAMERCIA BUSINESS THE LIGHTSPAN PARTNERSHIP, INC.
CREDIT CORPORATION
By: By: /s/ [Signature Illegible]
--------------------- -----------------------------
Title: Title: Vice President Finance
--------------------- -----------------------------
Date: Date: March 25, 1998
--------------------- -----------------------------
<PAGE> 77
CLOSING STATEMENT
LEASEPLUS NO. 1170-004
LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.
SCHEDULE NO.: 4
================================================================================
<TABLE>
<S> <C>
Interim Payment (19 Days) @ $299.01 $5,681.19
Advance Payments
First (November 1, 1998) $8,970.33
SUB-TOTAL $8,970.33
Sales/Use Tax
Advance Rental $222.19
Interim Rent $140.72
SUB-TOTAL $362.91
TOTAL FOR PAYMENTS AND TAXES $15,014.43
Credits ($15,014.43)
Deducted from proceeds $15,014.43
Deducted from commitment fee $
GRAND TOTAL DUE $0.00
- -------------------------------------------------------------------------------
PROCEEDS OF SALE AND LEASEBACK, SCHEDULE 4 $283,064.85
LESS: DUE TO TBCC $15,014.43
NET PROCEEDS TO LIGHTSPAN PARTNERSHIP, INC. $268,050.42
- -------------------------------------------------------------------------------
COMMITMENT FEE RECEIVED $20,000.00
LESS: EXPENSES TO DATE $2,212.25
LESS: PRO-RATED MONTHLY PAYMENT FOR SCHEDULE 1 $2,812.72
LESS: PRO-RATED MONTHLY PAYMENT FOR SCHEDULE 2 $449.83
LESS: PRO-RATED MONTHLY PAYMENT FOR SCHEDULE 3 $3,580.17
LESS: PRO-RATED MONTHLY PAYMENT FOR SCHEDULE 4 $2,830.65
- -------------------------------------------------------------------------------
BALANCE OF COMMITMENT FEE $ 8,205.38
</TABLE>
Date Prepared October 7, 1998
Lease Administrator D. Orlowski
Marketing W. Dial
<PAGE> 78
PAY PROCEEDS LETTER
October 13, 1998
Transamerica Business Credit Corporation
Riverway II
West Office Tower
9399 West Higgins Road
Rosemont, IL 60018
Ladies and Gentlemen:
Reference is made to the Master Lease Agreement dated August 14, 1997 and
Schedule No. 4 dated October 13, 1998 and executed by the undersigned as Lessee
and Transamerica Business Credit Corporation ("Lessor").
The undersigned authorizes and directs Lessor to disburse the proceeds of
the lease as follows:
<TABLE>
<CAPTION>
PAYEE PARTICULARS AMOUNT
- ----- ----------- ------
<S> <C> <C>
1. Account Name: The Lightspan Partnership, Inc. $268,050.42
Bank Name: Silicon Valley Bank
Bank Address: 5414 Oberlin Drive, Suite 230
San Diego, CA 92121
Account Number: 3300036337
ABA Number: 121-140-399
Attention: Marissa Randall
Telephone No.: 800-215-6060
2. Transamerica Business Credit Corporation $ 15,014.43
-----------
TOTAL $283,064.85
</TABLE>
The Lightspan Partnership, Inc.
By: /s/ CARL ZEIGER
--------------------------
Name: Carl Zeiger
Title: President
<PAGE> 79
SCHEDULE TO MASTER LEASE AGREEMENT
Dated as of October 13, 1998
Schedule No. 4
LESSOR NAME & MAILING ADDRESS LESSEE NAME & MAILING ADDRESS
Transamerica Business Credit Corporation The Lightspan Partnership, Inc.
Riverway II 10140 Campus Point Drive
West Office Tower San Diego, California 92121
9399 West Higgins Road
Rosemont, Illinois 60018
Equipment Location (if different than Lessee's address above):
This Schedule covers the following described equipment ("Equipment"):
See Exhibit II attached hereto and made a part hereof.
The Equipment is hereby leased pursuant to the provisions of the Master Lease
Agreement between the undersigned Lessee and Lessor dated August 14, 1997 (the
"Master Lease"), the terms of which are incorporated herein by reference
thereto, plus the following additional terms, provisions, and modifications. The
Lessor reserves the right to adjust the monthly payments in accordance with the
Commitment Letter dated August 5, 1997, if the Lessor has not received this
Schedule and an Acceptance and Delivery Certificate executed by the Lessee
within five business days from the date first set forth above.
<TABLE>
<S> <C> <C>
1. Term (Number of Months) 36 months
2. Equipment Cost $283,064.85
3. Commencement Date October 13, 1998
4. Rate Factor 3.169% of Equipment Cost
5. Total Rents $322,931.88
Total sales/use tax $ 7,998.84 $330,930.72
-----------
6. Advance Rents (first month) $ 8,970.33
Sales/use tax for advance rent $ 222.19 $ 9,192.52
-----------
7. Monthly rental payments $ 8,970.33
Monthly sales/use tax $ 222.19 $ 9,192.52
-----------
and the second such rental payment
will be due on December 1, 1998
and subsequent rental payments will
be due on the same day of each month thereafter
8. Security Deposit NONE
9. In addition to the monthly rental
payments provided for herein, Lessee shall
pay to Lessor, as interim rent, payable on
the commencement date specified above, an
amount equal to 1/30th of the monthly rental
payment (including monthly sales/use tax)
multiplied by the number of days from and
including the commencement date through the
end of the same calendar month. $ 5,821.91
</TABLE>
<PAGE> 80
Equipment Location with Tax Rates:
<TABLE>
<CAPTION>
EQUIPMENT EQUIPMENT RATE MONTHLY TAX MONTHLY TOTAL INTERIM SALES TAX
COST LOCATION FACTOR PAYMENT RATE SALES TAX PAYMENT RENT INTERIM RENT
---- -------- ------ ------- ---- --------- ------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$198.00 255 Brentwood 3.169 $6.27 5.000% $0.31 $6.59 $3.97 $0.20
Soldotna, AK 99669
$198.00 2138 Hillsinger Road 3.169 $6.27 7.000% $0.44 $6.71 $3.97 $0.28
Augusta, GA 30904
$198.00 4642 Green Willow Road 3.169 $6.27 7.750% $0.49 $6.76 $3.97 $0.31
San Antonio, TX 78249
$198.00 8903 Fiarway Hill Dr. 3.169 $6.27 8.250% $0.52 $6.79 $3.97 $0.33
Austin, TX 78780
$198.00 6804 Mount Cedar 3.169 $6.27 8.250% $0.52 $6.79 $3.97 $0.33
Dallas, TX 75236
$205.00 8871 Blake View Road 3.169 $6.50 4.500% $0.29 $6.79 $4.11 $0.19
Hayes, VA 23072
$198.00 1245 NE 114th Street 3.169 $6.27 0.000% $0.00 $6.27 $3.97 $0.00
Portland, OR 97220
$198.00 500 Tripoli Street #214 3.169 $6.27 7.000% $0.44 $6.71 $3.97 $0.28
Pittsburgh, PA 15212
$198.00 10560 NW Third Place 3.169 $6.27 6.000% $0.38 $6.65 $3.97 $0.24
Pompano Beach, FL 33071
$198.00 3292 Springbrook 3.169 $6.27 6.000% $0.38 $6.65 $3.97 $0.24
Kalamazoo, MI 49004
$205.00 3219 Fairgrove Terrace 3.169 $6.50 6.000% $0.39 $6.89 $4.11 $0.25
Rochester, MI 48309
$198.00 204 Brenhaven Blvd. 3.169 $6.27 7.000% $0.44 $6.71 $3.97 $0.28
Brandon, MS
$150.00 5794 Hedgegrow Circle, Apt. F 3.169 $4.75 7.000% $0.33 $5.09 $3.01 $0.21
Farmington, NY 14425
$2,540.00 TOTAL FOR OTHER LOCATIONS
$88,464.04 TOTAL FOR TAXABLE EQUIPMENT 3.169 $2,803.43 7.750% $217.27 $3,020.69 $1,775.50 $137.60
SAN DIEGO, CA
$192,060.81 TOTAL FOR EXEMPT EQUIPMENT 3.169 $6,086.41 0.000% $0.00 $6,086.41 $3,854.72 0
SAN DIEGO, CA
$283,064.85 GRAND TOTAL $8,970.33 $222.19 $9,192.52 $5,681.19 $140.72
</TABLE>
<PAGE> 81
Renewal terms:
In the event the Lease does not exercise the Purchase Option described below,
the Lease shall automatically renew for a term of 12 months with Monthly Rental
equal to 1.5% of the original Equipment Cost payable monthly in advance. At the
expiration of the renewal period, the Lessee shall have the option to purchase
all (but not less than all) the Equipment for its then current Fair Market
Value, plus applicable sales and other taxes.
The Lessee shall have the option to purchase all (but not less than all) the
Equipment at the expiration of the term of the lease for the then Fair Market
Value of the Equipment, plus applicable sales and other taxes. It shall be
agreed that the Fair Market Value shall not be less than 10% of the Equipment
Cost nor more than 20% of the Equipment Cost plus applicable dales and other
taxes.
Lessee hereby irrevocably authorizes Lessor to insert in this Schedule the
Commencement Date and the due date of the first rental payment.
Except as expressly provided or modified hereby, all the terms and provisions of
the Master Lease Agreement shall remain in full force and effect.
The Purchase Date shall be November 1, 2001.
The Stipulated Loss Value of any items of Equipment shall be an amount equal to
the present value of all future Rent discounted at a rate of 6% per annum plus
the Reversionary Value.
The Reversionary Value of any item of Equipment shall be 20% of Equipment Cost.
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION /s/ CARL ZEIGLER
-------------------------------
(Lessor) (Lessee)
By: /s/ GARY P. MORO By: CARL ZEIGLER
----------------------------
Gary P. Moro
Title: VICE PRESIDENT Title: PRESIDENT
<PAGE> 82
ACCEPTANCE AND DELIVERY CERTIFICATE
The Lightspan Partnership, Inc., as lessee ("Lessee") under the Master
Lease Agreement dated as of August 14, 1997 between Lessee and Transamerica
Business Credit Corporation, as Lessor, does hereby acknowledge the acceptance
and delivery of the equipment listed in Lease Schedule No. 4, such acceptance
and delivery having been made on the 13th day of October, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ CARL ZEIGER
----------------------------
Name: Carl Zeiger
Title: President
<PAGE> 83
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
- --------------------- ------------- -------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
HP Deskjet Printer SSG84Q1N0FR Soldotna, AK Creative Computers 07/22/98 P36065770101 198.00 29804
HP Deskjet Printer SCN83R120WD Augusta, GA Creative Computers 07/21/98 P36032990101 198.00 29804
HP Deskjet Printer SCN848130gz San Antonio, TX Creative Computers 07/30/98 P36321380101 198.00
HP Deskjet Printer SSG82R1P07G Austin TX Creative Computers 04/30/98 P33032160101 198.00 28362
HP Deskjet Printer SCN7BE1128T Plano, TX Creative Computers 03/26/98 P31707260101
HP Deskjet Printer SCN83R120WV Dallas, TX Creative Computers 07/21/98 P36033200101 198.00 29804
HP Deskjet Printer 30PABA Brandon, MS Creative Computers 07/29/98 P36321630101 198.00 30058
14" Monitor Farmington, NY Creative Computers 03/02/98 P30761200101 150.00 27284
HP Deskjet Printer SSG8191NOCK Hays, VA Creative Computers 03/25/98 P31653520101 205.00 27583
HP Deskjet Printer 1PC5886A Kalamazoo, MI Creative Computers 07/29/98 P36321520101 198.00 30058
HP Deskjet Printer SSG8191P0HQ Rochester Hills, MI Creative Computers 03/23/98 P31587770101 205.00
HP Deskjet Printer SCN82N111PD Pittsburgh, PA Creative Computers 07/02/98 P35339680101 198.00 29462
HP Deskjet Printer 30PABA Pompano, FL Creative Computers 07/29/98 P36321270101 198.00 30058
HP Deskjet Printer 88698189504 Portland, OR Creative Computers 07/02/98 P35339950101 198.00 29462
TOTAL 2,540.00
Warehouse Shelving N/A San Diego, CA Action Wholesale 03/13/98 177385 1,650.90 27553
Warehouse Shelving N/A San Diego, CA Action Wholesale 03/25/98 177678 1,775.85
4 Drawer Lateral File N/A San Diego, CA Office Depot 03/16/98 24062296 452.55 27639
2 Drawer Lateral File N/A San Diego, CA Office Depot 03/16/98 24062300 290.93 27639
4 Drawer Lateral File N/A San Diego, CA Office Depot 03/18/98 24097598 452.55
60" Bookcase(4) N/A San Diego, CA OFFICE Depot 03/18/98 216054 607.71 27639
San Diego, CA Office Depot 03/25/98 216055 151.93
4 Drawer Lateral File(2) N/A San Diego, CA Office Depot 03/30/98 24244523 905.10 27639
HP Deskjet Printer SSG8191N0CP San Diego, CA Creative Computers 03/24/98 P31653660101 213.88
</TABLE>
Page 1
<PAGE> 84
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
- --------------------- ------------- -------- ------ ------ -------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Warehouse Shelving N/A San Diego, CA Action Wholesale 04/02/98 178010 981.60 27708
Warehouse Shelving N/A San Diego, CA Action Wholesale 04/29/98 178878 1,281.61 28295
4 Drawer Lateral File N/A San Diego, CA Office Depot 04/01/98 24287931 452.55 27875
4 Drawer Lateral File N/A San Diego, CA Office Depot 04/20/98 24542234 452.55 28465
4 Drawer Lateral File N/A San Diego, CA Office Depot 04/20/98 24542252 452.55 28465
Percon Top Gun P3009318 San Diego, CA Allenwest, Inc 04/09/98 31514 1,610.86 27995
Snapshot Scanner(2) SJ080356 San Diego, CA Allenwest, Inc 04/16/98 31555 1,185.25 28299
SH835972
Presario 4230ES SX813BQQ2C600 San Diego, CA Compaq 04/29/98 20-29355-11 5,330.40 28354
Presario Monitor 806BD26GU374 San Diego. CA Compaq 04/29/98 20-29355-11
Presario 2240 SX806BTTDW587 San Diego, CA Compaq 04/29/98 20-29355-11
Presario 4860 SA813BQM2D800 San Diego, CA Compaq 04/29/98 20-29355-11
17" Trinitron Monitors (5) See Invoice San Diego, CA Creative Computers 04/02/98 P32026770101 4,714.07 28044
17" Trinitron Monitor S014159007C San Diego, CA Creative Computers 04/06/98 P32109930101 564.61 28044
Intel Overdrives/Hard drives See Invoice San Diego, CA Creative Computers 04/08/98 P32223980102 6,227.95 28044
15" Trinitron Monitors (4) See Invoice San Diego, CA Creative Computers 04/10/98 P32303900101 1,228.35 28044
17" Visionmaster Monitors(g) See Invoice San Diego, CA Creative Computers 04/10/98 P32223980103 5,275.44 28044
17" Trinitron Monitors (2) See Invoice San Diego, CA Creative Computers 04/20/98 P32635160101 1,861.92 28362
Dell XPS233 DZ6Z7 San Diego, CA Dell 04/10/98 154045108 2,138.84 28050
Dell XPS333 DZ0DL San Diego, CA Dell 04/10/98 154044895 2,750.87 28050
Dell XPS266 DZ3MF San Diego, CA Dell 04/10/98 154045017 2,421.15 28050
Dell XPS333 E61S6 San Diego, CA Dell 04/23/98 155787765 7,852.79 28370
Dell XPS333 E61S8 San Diego, CA Dell 04/23/98 155787765
Dell XPS333 E61S9 San Diego, CA Dell 04/23/98 155787765
GatewayG6-233 9622351 San Diego, CA Gateway 2000 04/07/98 30027085 2,144.11 28079
GatewayG6-233 9622350 San Diego, CA Gateway 2000 04/07/98 30026310 2,255.81 28079
</TABLE>
Page 2
<PAGE> 85
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
- --------------------- ------------- -------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
HP 6000 External GB00441607 San Diego, CA Hewlett Packard 04/09/98 AW15903 1,045.18 27812
HP 6000 External GB00174893 San Diego, CA Hewlett Packard 04/09/98 AW15903
Compaq Smart2 PO468AA91GIORN San Diego, CA Optimal Computer 04/07/98 67565 2,483.74 27882
Millennia 1195820-001 San Diego, CA Tish ER 4/18 (Micron) 04/10/98 840449 4,261.52 27960
ClientProVXE 1195822-001 San Diego, CA Tish ER 4/18 (Micron) 04/10/98 840449
Warehouse Shelving N/A San Diego, CA Action Wholesale 05/08/98 179181 312.15 28577
60" Oak Bookcase N/A San Diego, CA Office Depot 05/01/98 220974 151.93 28465
4 Drawer Lateral File N/A Son Diego, CA Office Depot 04/28/98 44919043 452.55 28465
4 Drawer Lateral File N/A San Diego, CA Office Depot 04/28/98 44918953 452.55 28465
4 Drawer Lateral File N/A San Diego, CA Office Depot 05/04/98 45023118 452.55 28729
2 Chairs N/A San Diego, CA Office Depot 05/04/98 45272397 82.97 28729
Gray Chair N/A San Diego, CA Office Depot 05/18/98 223448 150.85 28729
Visionmaster Monitor 4948570010158 San Diego, CA Creative Computers 05/12/98 P33453880101 1,172.32 28632
Visionmaster Monitor 01015t7004820 San Diego. CA Creative Computers
24GB Internal Dat Drive N/A San Diego, CA Creative Computers 05/21/98 P33732920101 1,026.85 29024
Intel Overdrive Chips (10) N/A San Diego, CA Crown Communications 05/04/98 4801 2,040.00 28634
17" Visionmaster Monitor (9) San Diego, CA Crown Communications 05/04/98 4801 4,851.00 28634
Dell Dimension XPS 300Mhz E9L3G San Diego, CA Dell 05/01/98 157628710 2,670.05 28370
60" Oak Bookcase N/A San Diego, CA Office Depot 6/9/98 227533 151.93 29351
17" Trinitron Monitor S0140570305 San Diego, CA
Cheetah 9.1 GB Hardrive LH136771 San Diego, CA Creative Computer 2/14/98 P30127380101 790.89 29024
Vision Master Monitor (6) 01015T007936 San Diego, CA Creative Computer 6/4/98 P34289530101 942.82 29024
01015T008176 San Diego, CA Creative Computer 6/10/98 P34465220102 3,516.96 29298
01015T006806 San Diego, CA
01015T008169 San Diego, CA
01015T008166 San Diego, CA
</TABLE>
Page 3
<PAGE> 86
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
- --------------------- ------------- -------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
01015T007978 San Diego, CA
24 GB Internal Drive GB00411274 San Diego, CA Creative Computer 6/24/98 P34996570101 1,012.85
Dell Dimension XPS 400 Mhz EMYTC San Diego, CA Dell 5/27/98 161370440 2,757.70 29030
TOTAL TAXABLE EQUIPMENT - CA 88,464.04
Benches(8) N/A Carlsbad, CA Action Wholesale 08/05198 181906 449.84 30007
Shelves N/A Carlsbad, CA Action Wholesale 08/17/98 182227 319.68 30286
Wire Carts N/A Carlsbad, CA Action Wholesale 08/28/98 719.85
4 Dwr Lateral File N/A San Diego, CA Office Depot 07/06/98 48724585 452.55 29587
4 Dwr Lateral File (2) N/A San Diego, CA Office Depot 07/06/98 48260565 905.10 29587
4 Dwr Lateral File (2) N/A San Diego, CA Office Depot 07/21/98 47247860 905.10 29911
Printer 7P000470 San Diego, CA Allenwest, Inc. 07/01/98 31823 1,113.06 28579
Presario 1681 233X Laptop V817BVQ20514 San Diego, CA Compaq 07/06/98 4100017787 23,705.00 29454
V817BVQ25163
V817BVQ25164
V817BVQ25170
V817BVQ25176
V817BVQ25178
V817BVQ25183
V817BVQ25184
V817BVQ25185
9.10 10GB SCSI Drive GB00411274 San Diego, CA Creative Computers 07/01/98 P35067020102 3,539.59 29462
Powermac G3 SXB8253P9CY5 San Diego, CA Creative Computers 07/01/98 P35067020102 7,418.59 29462
SXB826005CY5
SXB826027CY5
</TABLE>
Page 4
<PAGE> 87
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
- --------------------- ------------- -------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
125MB Memory kit N/A San Diego, CA Creative Computers 07/01/98 P35251830101 1,583.93 29462
Proliant 3000R D826BX620045 San Diego, CA Creative Computers 07/03/98 P35316790101 5,167.69 29462
Proliant 1600 N/A San Diego, CA Creative Computers 07/10/98 P35623950103 964.37 29804
Sidewall Rack kit N/A San Diego, CA Creative Computers 07/10/98 P35534680101 211.19 29804
Proliant 3000/5500 N/A San Diego, CA Creative Computers 07/15/98 P35067020104 1,066.73 29804
Proliant Memory N/A San Diego, CA Creative Computers 07/15/98 P35067020103 1,293.00 29804
42U Rack N/A San Diego, CA Creative Computers 07/16/98 P35317260101 1,72400 29804
24GB Internal Dat Drive GB00468445 San Diego, CA Creative Computers 07/16/98 P35804600101 1,012.85 29804
Proliant 1600R 123123 San Diego, CA Creative Computers 07/17/98 P35635670101 3,291.77 29804
Smart UPS 2200 N/A San Diego, CA Creative Computers 07/20/98 P3597260101 1,217.58 29804
Proliant Fan Kit 4948382046604 San Diego, CA Creative Computers 07/22/98 P36073190102 357.73 29804
Switchbox 8 N/A San Diego, CA Creative Computers 07/23/98 P36073190101 1,422.30 29804
128MB Memory N/A San Diego, CA Creative Computers 07/27/98 P35623950101 5,918.71 30058
9.1GB SCSI Drive 68OD9E6FGA San Diego, CA Creative Computers
9.1GB SCSI Drive 68ODAZ90GA San Diego, CA Creative Computers
9.1GB SCSI Drive 68OD9EL8GA San Diego, CA Creative Computers
Proliant 1200 Tower N/A San Diego, CA Creative Computers 07/29/98 P36073190104 468.72 30058
Proliant Fan Kit N/A San Diego, CA Creative Computers 07/29/98 P36073190103 191.80 30058
Canon Fax 9000 UFK35585 San Diego, CA Ikon Office Solutions 07/30/98 73072A 2,688.36 29521
Yamaha CD Recorder (2) ZJ085384 San Diego, CA Computibility Tish (ER 6/27)07/01/98 Tish ER 6127 958.00 29258
WebTV (3) 1800220457 San Diego, CA Good Guys Tish (ER7/17) 07/20/98 Tish ER7/17 538.72 29663
7063930
8CCB037936
Dynamics Software N/A San Diego, CA ABS/New Ledger 07/13/98 60013 103,736.00
17" Visionmaster Monitor 01019j5122809 San Diego, CA Creative Computers 08/13/98 P36895830102 522.00
Dell XPS R400 Pentium FVF41 San Diego, CA Dell 08/11/98 175039569 3,102.00
</TABLE>
Page 5
<PAGE> 88
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
- --------------------- ------------- -------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Intergraph GL2 Workstation H29735 San Diego, CA XS International 08/28/98 15894 15,095.00
Intergraph GL2 Workstation H29715 San Diego, CA XS International
Intergraph GL2 Workstation H29749 San Diego, CA XS International
21" Monitor G8D00177 San Diego, CA XS International
TOTAL EXEMPT EQUIPMENT - CA 192,060.81
TOTAL EQUIPMENT COST 283,064.85
</TABLE>
TRANSAMERICA BUSINESS CREDIT LIGHTSPAN PARTNERSHIP, INC.
CORPORATION
By: /s/ GARY P. MONO By: /s/ CARL ZEIGER
------------------------- ------------------------
Title: Gary P. Mono Title: Carl Zeiger
-------------------- ------------------
Vice President President
Page 6
<PAGE> 89
SALE AND LEASEBACK AGREEMENT
THIS SALE AND LEASEBACK AGREEMENT (this "Agreement"), is made as of
October 13, 1998, among The Lightspan Partnership, Inc., a California
corporation ("Seller"), and Transamerica Business Credit Corporation, a Delaware
corporation ("Buyer").
WITNESSETH:
WHEREAS, Seller is the owner of the equipment more particularly
described on Exhibit II hereto (the "Equipment");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the Equipment; and
WHEREAS, Buyer, as a condition to such purchase, wishes to lease to
Seller and Seller wishes to lease from Buyer the Equipment under the terms and
conditions of the Master Lease Agreement dated as of August 14, 1997 and
Schedule No. 4 thereto (collectively, as amended, supplemented or otherwise
modified from time to time, the "Lease") between Buyer, as lessor, and Seller,
as lessee.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. AMOUNT AND TERMS OF PURCHASE.
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties of the Seller herein set forth,
the Buyer agrees to purchase all of the Seller's right, title and interest in
and to all of the Equipment such that the Buyer will become the owner of all
such Equipment for all purposes whatsoever. The Seller hereby agrees that the
Buyer is under no obligation to purchase any other equipment now or in the
future and shall not assert a claim that the Buyer may have any such obligation.
(b) The price to be paid by the Buyer with respect to the
purchase of the Equipment (the "Purchase Price") is $283,064.85. The Purchase
Price shall be payable to the Seller on the Lease Commencement Date (as defined
in the Lease).
(c) The Seller shall pay any and all applicable federal, state,
county or local taxes and any and all present or future taxes or other
governmental charges arising in connection with the sale of the Equipment
hereunder, including sales, use or occupation taxes due upon the purchase by the
Buyer.
(d) The purchase of the Equipment shall be evidenced by a bill of
sale, substantially in the form attached hereto as Exhibit A (the "Bill of
Sale"), duly executed by the Seller.
<PAGE> 90
2. CONDITIONS TO PURCHASE. The obligation of the Buyer to purchase the
Equipment is subject to the following conditions:
(a) The Buyer shall have received this Agreement, duly executed
by the Seller.
(b) The Buyer shall have received the Bill of Sale, duly executed
by the Seller.
(c) The Buyer shall have received the Lease, duly executed by the
Seller.
(d) The Buyer shall have received resolutions of the Board of
Directors of the Seller approving and authorizing the execution, delivery and
performance by the Seller of this Agreement, the Lease and the notices and other
documents to be delivered by the Seller hereunder and thereunder (collectively,
the "Sale and Leaseback Documents").
(e) The Buyer shall have received the certificate of title or
similar evidence of ownership with respect to each item of Equipment and Uniform
Commercial Code financing statements covering the Equipment in form and
substance satisfactory to the Buyer, duly executed by the Seller.
(f) No material adverse change has occurred with respect to the
business prospects, properties, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller and its affiliates, taken as a
whole, since January 31, 1995.
(g) The Buyer shall have received all warranties and other
documentation received or executed by Seller in connection with the original
acquisition of the Equipment by the Seller (and by its execution hereof the
Seller hereby assigns to the Buyer all such warranties and other Documentation).
(h) The Buyer shall have received such other approvals, opinions
or documents as the Buyer may reasonably request.
3. REPRESENTATION AND WARRANTIES. To induce the Buyer to enter into this
Agreement, the Seller represents and warrants to the Buyer that:
(a) The Seller is duly authorized to execute, deliver and perform
its obligations under each of the Sale and Leaseback Documents and all corporate
action required on its part for the due execution, delivery and performance of
the transactions contemplated herein and therein has been duly and effectively
taken.
(b) The execution, delivery and performance by the Seller of each
of the Sale and Leaseback Documents and the consummation of the transactions
contemplated herein and therein does not and will not violate any provision of,
or result in a default under, the Seller's
-2-
<PAGE> 91
Articles or Certificates of Incorporation or By-laws or any indenture or
agreement to which the Seller is a party or to which its assets are bound or any
order, permit, law, statute, code, ordinance, rule, regulation, certificate or
any other requirement of any governmental authority or regulatory body to which
the Seller is subject, or result in the creation or imposition of any mortgage,
deed of trust, pledge, security interest, lien or encumbrance of any kind upon
or with respect to the Equipment or any proceeds thereof, other than those in
favor of the Buyer as contemplated by the Sale and Leaseback Documents.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Seller of any of
the Sale and Leaseback Documents to which it is a party.
(d) Each Sale and Leaseback Document to which the Seller is a
party constitutes or will constitute, when delivered hereunder, the legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms, except as such enforceability may be (i)
limited by the effect of applicable bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally or (ii)
subject to the effect of general principles of equity (regardless of whether
such enforceability is considered in a proceeding at equity or at law).
(e) There are no actions, suits, or proceedings pending,
threatened against or affecting the Seller which seek to enjoin, prohibit or
restrain the consummation of any of the transactions contemplated hereby or by
the other Sale and Leaseback Documents.
(f) Each item of Equipment is owned by the Seller free and clear
of any liens and encumbrances of any kind or description. Upon purchase of the
Equipment hereunder, the Buyer will acquire good and marketable title in and to
the Equipment.
All representations and warranties herein shall survive the execution of this
Agreement and the purchase of the Equipment.
4. INDEMNITIES. The Seller agrees to indemnify, defend, and save
harmless the Buyer and its officers, directors, employees, agents, and
attorneys, and each of them (the "Indemnified Parties"), from and against all
claims, actions, suits, and other legal proceedings, damages, costs, interest,
charges, counsel fees and other expenses and penalties (collectively, the
"Indemnified Amounts") which any of the Indemnified Parties may sustain or incur
by reason of or arising out of (i) the Seller's ownership of any Equipment prior
to the date on which such Equipment is sold to the Buyer, or the Seller's acts
or omissions prior to such date under, in connection with or relating to such
Equipment or any of the Sale and Leaseback Documents, (ii) the operation,
maintenance or use of such Equipment prior to such date, (iii) the inaccuracy of
any of the Seller's representations or warranties contained in any of the Sale
and Leaseback Documents, (iv) the breach of any of the Seller's covenants
contained in any of the Sale and Leaseback Documents, (v) any loss or damage to
any Equipment in excess of the deductible
-3-
<PAGE> 92
which is not paid by insurance or (vi) any sales, use, excise and other taxes,
charges, and fees (including, without limitation, income, franchise, business
and occupation, gross receipts, sales, use, licensing, registration, titling,
personal property, stamp and interest equalization taxes, levies, imposts,
duties, charges or withholdings of any nature), and any fines, penalties or
interest thereon, imposed or levied by any governmental body, agency or tax
authority upon or in connection with the Equipment, its acquisition, ownership,
delivery, leasing, possession, use or relocation or otherwise in connection with
the transactions contemplated by each Sale and Leaseback Document.
5. REMEDIES. Upon the Seller's violation of or default under any
provision of this Agreement, the Buyer may (subject to the provisions of the
other Sale and Leaseback Documents) proceed to protect and enforce its nights
either by suit in equity or by action at law or both, whether for the specific
performance of any covenant or agreement contained herein or in aid of the
exercise of any power granted in any Sale and Leaseback Document; it being
intended that the remedies contained in any Sale and Leaseback Document shall be
cumulative and shall be in addition to every other remedy given under such Sale
and Leaseback Document or now or hereafter existing at law or in equity or by
statute or otherwise.
6. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement, nor consent to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Buyer, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7. NOTICES, ETC. All notices and other communications provided for
hereunder shall be in writing and sent:
if to the Seller, at its address at:
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
Attention: Vice President - Finance and Administration
Telephone No.: 619-824-8311
Telecopy No.: 619-824-8001
-4-
<PAGE> 93
if to the Buyer, at its address at:
Transamerica Business Credit Corporation
Technology Finance Division
76 Batterson Park Road
Farmington, Connecticut 06032-2571
Attention: Assistant Vice President,
Lease Administration
Telephone No.: 860-677-6466
Telecopy No.: 860-677-6766
with a copy to:
Transamerica Business Credit Corporation
9399 West Higgins Road
Rosemont, Illinois 60018
Attention: Legal Department
Telephone No.: 847-685-1106
Telecopy No.: 847-685-1143
or to such other address as shall be designated by such party in a written
notice to the other party. All such notices shall be deemed given (i) if sent by
certified or registered mail, three days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by facsimile transmission, when receipt of
such transmission is acknowledged.
8. NO WAIVER; REMEDIES. No failure on the part of the Buyer to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
9. BENEFIT. Without the prior written consent of the Buyer, the Seller
may not transfer, assign or delegate any of its rights, duties or obligations
hereunder.
10. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Seller and the Buyer and their respective successors and
assigns.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
-5-
<PAGE> 94
12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement.
13. SEVERABILITY. If one or more of the provisions contained in this
Agreement shall be invalid, illegal, or unenforceable in any respect the
validity, legality, and enforceability of the remaining provisions contained
herein, and any other application thereof, shall not in any way be affected or
impaired thereby.
14. SUBMISSION TO JURISDICTION. ALL DISPUTES ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER SOUNDING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL
COURTS LOCATED IN ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE
TAKEN; PROVIDED, HOWEVER, THAT THE BUYER SHALL HAVE THE RIGHT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE SELLER OR ITS PROPERTY IN
ANY LOCATION REASONABLY SELECTED BY THE BUYER IN GOOD FAITH TO ENABLE THE BUYER
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE BUYER. EACH PARTY AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE BUYER;
IT BEING UNDERSTOOD THAT THIS SENTENCE DOES NOT PRECLUDE THE SELLER FROM
ASSERTING COMPULSORY COUNTERCLAIMS. THE SELLER WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE BUYER HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
15. JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVE TO THE FULLEST
EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE> 95
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the first
date written above.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ CARL ZEIGER
-------------------------------
Name: Carl Zeiger
Title President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ GARY P. MORO
--------------------------------
Name: Gary P. Moro
Title: Vice President
Exhibit II- Equipment
Exhibit A- Bill of Sale
-7-
<PAGE> 96
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for Two Hundred Eight Three Thousand, Sixty Four and 85/100 Dollars
($283,064.85) and other valuable consideration to it in hand paid, receipt of
which is hereby acknowledged, does unconditionally, absolutely and irrevocably
grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT
CORPORATION and its assignees or successors (collectively, the "Buyer"), all of
the Seller's right, title and interest in and to the equipment described on
Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 13th day of October, 1998.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ CARL ZEIGER
-------------------------------
Name: Carl Zeiger
Title: President
-8-
<PAGE> 97
<TABLE>
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
--------------------- ------------- -------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
HP Deskjet Printer SSG84Q1N0FR Soldotna, AK Creative Computers 07/22/98 P36065770101 198.00 29804
HP Deskjet Printer SCN83R120WD Augusta, GA Creative Computers 07/21/98 P36032990101 198.00 29804
HP Deskjet Printer SCN848130gz San Antonio, TX Creative Computers 07/30/98 P36321380101 198.00
HP Deskjet Printer SSG82R1P07G Austin, TX Creative Computers 04/30/98 P33032160101 198.00 28362
HP Deskjet Printer SCN7BE1128T Plano, TX Creative Computers 03/26/98 P31707260101
HP Deskjet Printer SCN83R120WV Dallas, TX Creative Computers 07/21/98 P36033200101 198.00 29804
HP Deskjet Printer 30PABA Brandon, MS Creative Computers 07/29/98 P36321630101 198.00 30058
14" Monitor Farmington, NY Creative Computers 03/02/98 P30761200101 150.00 27284
HP Deskjet Printer SSG8191NOCK Hays, VA Creative Computers 03/25/98 P31653520101 205.00 27583
HP Deskjet Printer 1PC5886A Kalamazoo, MI Creative Computers 07/29/98 P36321520101 198.00 30058
HP Deskjet Printer SSG8191P0HQ Rochester Hills, MI Creative Computers 03/23/98 P31587770101 205.00
HP Deskjet Printer SCN82N111PD Pittsburg, PA Creative Computers 07/02/98 P35339680101 198.00 29462
HP Deskjet Printer 30PABA Pompano, FL Creative Computers 07/29/98 P36321270101 198.00 30058
HP Deskjet Printer 88698189504 Portland, OR Creative Computers 07/02/98 P35339950101 198.00 29462
TOTAL 2,540.00
Warehouse Shelving N/A San Diego, CA Action Wholesale 03/13/98 177385 1,650.90 27553
Warehouse Shelving N/A San Diego, CA Action Wholesale 03/25/98 177678 1,775.85
4 Drawer Lateral File N/A San Diego, CA Office Depot 03/16/98 24062296 452.55 27639
2 Drawer Lateral File N/A San Diego, CA Office Depot 03/16/98 24062300 290.93 27639
4 Drawer Lateral File N/A San Diego, CA Office Depot 03/18/98 24097598 452.55
60" Bookcase(4) N/A San Diego, CA Office Depot 03/18/98 216054 607.71 27639
San Diego, CA Office Depot 03/25/98 216055 151.93
4 Drawer Lateral File(2) N/A San Diego, CA Office Depot 03/30/98 24244523 905.10 27639
HP Deskjet Printer SSG8191N0CP San Diego, CA Creative Computers 03/24/98 P31653660101 213.88
Page 1
</TABLE>
<PAGE> 98
EXHIBIT II
To: X Schedule NO. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
- --------------------- ------------- -------- ------ ---- ------ --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
01015T007978 San Diego, CA
24 GB Internal DRIVE GB00411274 San Diego, CA Creative Computer 6/24/98 P34996570101 1,012.85
Dell Dimension XPS 400 MhZ EMYTC San Diego, CA Dell 5/27/98 161370440 2,757.70 29030
TOTAL TAXABLE EQUIPMENT - CA 88,464.04
Benches(8) N/A Carlsbad, CA Action Wholesale 08/05/98 181906 449.84 30007
Shelves N/A Carlsbad, CA Action Wholesale 08/17/98 182227 319.68 30286
Wire Carts N/A Carlsbad, CA Action Wholesale 08/28/98 719.85
4 Dwr Lateral File N/A San Diego, CA Office Depot 07/06/98 48724585 452.55 29587
4 Dwr Lateral File (2) N/A San Diego, CA Office Depot 07/06/98 48260565 905.10 29587
4 Dwr Lateral File (2) N/A San Diego, CA Office Depot 07/21/98 47247860 905.10 29911
Printer 7P000470 San Diego, CA Allenwest, Inc. 07/01/98 31823 1,113.06 28579
Presario 1681 233X Laptop V817BVQ20514 San Diego, CA Compaq 07/06/98 4100017787 23,705.00 29454
V817BVQ25163
V817BVQ25164
V817BVQ25170
V817BVQ25176
V817BVQ25178
V817BVQ25183
V817BVQ25184
V817BVQ25185
9.10 10 GB SCSI Drive GB00411274 San Diego, CA Creative Computers 07/01/98 P35067020102 3,539.59 29462
Powermac G3 SXB8253P9CY5 San Diego, CA Creative Computers 07/01/98 P35067020102 7,418.59 29462
SXB826005CY5
SXB826027CY5
</TABLE>
Page 4
<PAGE> 99
<TABLE>
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO.
--------------------- ------------- -------- ------ ------ ------- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
125MB Memory kit N/A San Diego, CA Creative Computers 07/01/98 P35251830101 1,583.93 29462
Proliant 3000R D826BX620045 San Diego, CA Creative Computers 07/03/98 P35316790101 5,167.69 29462
Proliant 1600 N/A San Diego, CA Creative Computers 07/10/98 P35623950103 964.37 29804
Sidewall Rack kit N/A San Diego, CA Creative Computers 07/10/98 P35534680101 211.19 29804
Proliant 3000/5500 N/A San Diego, CA Creative Computers 07/15/98 P35067020104 1,066.73 29804
Proliant Memory N/A San Diego, CA Creative Computers 07/15/98 P35067020103 1,293.00 29804
42U Rack N/A San Diego, CA Creative Computers 07/16/98 P35317260101 1,724.00 29804
24GB Internal Dat Drive GB00468445 San Diego, CA Creative Computers 07/16/98 P35804600101 1,012.85 29804
Proliant 1600R 123123 San Diego, CA Creative Computers 07/17/98 P35635670101 3,291.77 29804
Smart UPS 2200 N/A San Diego, CA Creative Computers 07/20/98 P3597260101 1,217.58 29804
Proliant Fan Kit 4948382046604 San Diego, CA Creative Computers 07/22/98 P36073190102 357.73 29804
Switchbox 8 N/A San Diego, CA Creative Computers 07/23/98 P36073190101 1,422.30 29804
128MB Memory N/A San Diego, CA Creative Computers 07/27/98 P35623950101 5,918.71 30058
9.1GB SCSI Drive 68OD9E6FGA San Diego, CA Creative Computers
9.1GB SCSI Drive 68ODAZ90GA San Diego, CA Creative Computers
9.1GB SCSI Drive 68OD9EL8GA San Diego, CA Creative Computers
Proliant 1200 Tower N/A San Diego, CA Creative Computers 07/29/98 P36073190104 469.72 30058
Proliant Fan Kit N/A San Diego, CA Creative Computers 07/29/98 P36073190103 191.80 30058
Canon Fax 9000 UFK35585 San Diego, CA Ikon Office 07/30/98 73072A 2,688.36 29521
Solutions
Yamaha CD Recorder(2) ZJ085384 San Diego, CA Computibility Tish 07/01/98 Tish ER 6/27 958.00 29258
(ER 6/27)
WebTV(3) 1800220457 San Diego, CA Good Guys Tish 07/20/98 Tish ER 7/17 538.72 29663
7063930 (ER 7/17)
8CCB037936
Dynamics Software N/A San Diego, CA ABS/New Ledger 07/13/98 60013 103,736.00
17" Visionmaster Monitor 01019j5122809 San Diego, CA Creative Computers 08/13/98 P3689530102 522.00
Dell XPS R400 Pentium FVF41 San Diego, CA Dell 08/11/98 175039569 3,102.00
Page 5
</TABLE>
<PAGE> 100
EXHIBIT II
To: X Schedule No. 4 to Master Lease Agreement X Sale and Leaseback Agreement
X UCC X Bill of Sale
Dated October 13, 1998
Between
Transamerica Business Credit Corporation
and
LightSpan Partnership, Inc.
<TABLE>
<CAPTION>
PURCH. INVOICE SUBMITTED CHECK
EQUIPMENT DESCRIPTION SERIAL NUMBER LOCATION VENDOR DATE NUMBER COSTS NO
- --------------------- ------------- -------- ------ ---- ------ ----- --
<S> <C> <C> <C> <C> <C> <C> <C>
Intergraph GL2 Workstation H29735 San Diego, CA XS International 08/28/98 15894 15,095.00
Intergraph GL2 Workstation H29715 San Diego, CA XS International
Intergraph GL2 Workstation H29749 San Diego, CA XS International
21" Monitor G8D00177 San Diego, CA XS International
TOTAL EXEMPT EQUIPMENT - CA 192,060.81
TOTAL EQUIPMENT COST 283,064.85
</TABLE>
TRANSAMERICA BUSINESS CREDIT LIGHTSPAN PARTNERSHIP, INC.
CORPORATION
By: /s/ GARY P. MORO By: /s/ CARL ZEIGER
------------------------------- -------------------------------
Title: Vice President Title: President
---------------------------- ----------------------------
Page 6
<PAGE> 101
<TABLE>
<S><C>
0092417001110000
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
THE LIGHTSPAN PARTNERSHIP, INC.
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b) 1070-004 1070-004
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY'S NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBITS I AND II ATTACHED HERETO AND MADE A PART HEREOF.
FILE WITH THE SECRETARY OF STATE CALIFORNIA
CUSTOMER NO. 1070-004
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ KATHRYN M. WHITE Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 102
Marelle and Christian Chereau
<TABLE>
<CAPTION>
TEXAS GEORGIA
DATE EL PASO DALLAS-M DALLAS-C SAN ANTONIO ATLANTA
- ------ ------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Budget $5,000.00 $5,000.00 $5,000.00 $8,000.00 $6,000.00
7-Feb
14-Feb 900.00
7-Mar 1,200.00 800.00 800.00
14-Mar 800.00
28-Mar*
11-Apr* 100.00
18-Apr*
9-May 2,400.00
23-May* 450.00
6-Jun*
20-Jun 1,200.00 1,600.00
27-Jun* 400.00
11-Jul 400.00 600.00
18-Jul 100.00
1-Aug* 150.00 700.00
8-Aug 1,000.00 1,000.00 1,200.00
22-Aug 500.00
5-Sep*
12-Sep* 2,100.00
19-Sep* 1,600.00 900.00
------ -------- --------- --------- --------- ---------
Totals 3,850.00 3,400.00 2,700.00 5,650.00 5,300.00
Variance 1,150.00 1,600.00 2,300.00 2,350.00 700.00
</TABLE>
<TABLE>
<CAPTION>
FLORIDA
CLAYTON CHATHAM OKALOOSA EXPENSES TOTALS
- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C>
$6,000.00 $7,000.00 $4,000.00 $46,000.00
600.00 $600.00
$900.00
508.21 $3,308.21
800.00 600.00 1,600.00 957.32 $4,757.32
250.00 $250.00
100.00 $200.00
350.00 $350.00
797.83 $3,197.83
$450.00
350.00 $350.00
871.72 $3,671.72
400.00 $800.00
1,000.00 $2,000.00
$100.00
$850.00
719.63 $3,919.63
700.00 61.14 $1,261.14
100.00 $100.00
397.92 $2,497.92
266.13 $2,766.13
- --------- --------- --------- --------- ----------
1,600.00 3,400.00 1,850.00 4,579.90 $32,329.90
4,400.00 3,600.00 2,150.00 -4,579.90 $13,670.10
</TABLE>
*= Unpaid- just received 9/2/398
<PAGE> 103
CLOSING STATEMENT
LEASEPLUS NO. 1070-005
LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.
SCHEDULE NO.: 5
<TABLE>
<S> <C>
Interim Payment (8 Days) @ $91.71 $733.68
March 24, 1999 - March 31, 1999
ADVANCE PAYMENT(S)
First (April 1, 1999) $2,751.31
Last N/A
SUB-TOTAL $3,484.99
SALES/USE TAX
First $127.43
Interim Pmt. $33.66
SUB-TOTAL $161.09
TOTAL FOR PAYMENTS $3,646.08
Documentation Fee*
Attorney Fee*
Other Fees
Credits
Deducted from proceeds $3,646.08
Deducted from Application fee $0.00
GRAND TOTAL DUE AT CLOSING $0.00
PROCEEDS OF LEASE SCHEDULE NO. 5 DATED MARCH 24, 1999 $86,819.54
LESS: DUE TO TBCC $3,646.08
LESS: DUE TO VENDORS $0.00
NET PROCEEDS TO THE LIGHTSPAN PARTNERSHIP, INC. $83,173.46
APPLICATION FEE RECEIVED. $20,000.00
APPLICATION FEE TO BE APPLIED TO EXPENSES AND RENT. $20,000.00
LESS: EXPENSES INCURRED TO DATE. ($2,385.25)
LESS: PRO-RATED AMOUNT APPLIED TO PRIOR SCHEDULE(S). ($9,673.37)
LESS: PRO-RATED AMOUNT APPLIED TO SCHEDULE 5 (2ND MO. RENT). ($868.20)
BALANCE OF APPLICATION FEE. $7,073.18
</TABLE>
Date Prepared March 18, 1999
Lease Administration C. Bodnar
Marketing W. Dial
<PAGE> 104
SCHEDULE TO MASTER LEASE AGREEMENT
Dated as of March 24, 1999
Schedule No. 5
LESSOR NAME & MAILING ADDRESS LESSEE NAME & MAILING ADDRESS
Transamerica Business Credit Corporation The Lightspan Partnership, Inc.
Riverway II 10140 Campus Point Drive
West Office Tower San Diego, California 92121
9399 West Higgins Road
Rosemont, Illinois 60018
Equipment Location (if different than Lessee's address above):
See Exhibit II attached hereto and made a part hereof.
This Schedule covers the following described equipment ("Equipment"):
See Exhibit II attached hereto and made a part hereof.
The Equipment is hereby leased pursuant to the provisions of the Master Lease
Agreement between the undersigned Lessee and Lessor dated August 14, 1997 (the
"Master Lease"), the terms of which are incorporated herein by reference
thereto, plus the following additional terms, provisions, and modifications. The
Lessor reserves the right to adjust the monthly payments in accordance with the
Commitment Letter dated August 5, 1997, if the Lessor has not received this
Schedule and an Acceptance and Delivery Certificate executed by the Lessee
within five business days from the date first set forth above.
<TABLE>
<S> <C> <C>
1. Term (Number of Months) 36 months
2. Equipment Cost $86,819.54
3. Commencement Date March 24, 1999
4. Rate Factor 3.169% of Equipment Cost
5. Total Rents $ 99,047.16
Total sales/use tax $ 4,575.60 $103,622.76
-------------
6. Advance Rents (first month) $ 2,751.31
Sales/use tax for advance rent $ 127.10 $ 2,878.41
--------------
7. Monthly rental payments $ 2,751.31
Monthly sales/use tax $ 127.10 $ 2,878.41
--------------
and the second such rental payment
will be due on May 1, 1999
and subsequent rental payments will
be due on the same day of each month thereafter
8. Security Deposit NONE
9. In addition to the monthly rental
payments provided for herein, Lessee shall
pay to Lessor, as interim rent, payable on
the commencement date specified above, an
amount equal to 1/30th of the monthly rental
payment (including monthly sales/use tax)
multiplied by the number of days from and
including the commencement date through the
end of the same calendar month. $ 767.57
</TABLE>
<PAGE> 105
Equipment Location with Tax Rates:
<TABLE>
<CAPTION>
RATE MONTHLY MONTHLY TOTAL INTERIM SALES TAX
EQUIPMENT LOCATION FACTOR PAYMENT TAX RATE SALES TAX PAYMENT RENT INTERIM RENT
------------------ ------ ------- -------- --------- ------- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
220 N. 22nd Pl, APT 2026, Mesa, AZ 3.169 $5.74 7.200% $0.41 $6.15 $1.53 $0.11
1606 E. 550 Rd., Lawrence, KS 3.169 $5.29 6.900% $0.37 $5.66 $1.41 $0.10
204 Brenhaven Blvd, Brandon, MS 3.169 $5.55 7.000% $0.39 $5.93 $1.48 $0.10
5101 Butternut Rd., Durhan, NC 3.169 $4.94 6.000% $0.30 $5.24 $1.32 $0.08
31-24 99th St., Flushing, NY 3.169 $5.20 8.250% $0.43 $5.62 $1.39 $0.11
4421 Carrington CT, Harrisburg, PA 3.169 $5.74 6.000% $0.34 $6.08 $1.53 $0.09
3001 Blue Bird, McCallen, TX 3.169 $5.74 8.250% $0.47 $6.21 $1.53 $0.13
128 William Richmond, Williamsburg, VA 3.169 $5.74 4.500% $0.26 $5.99 $1.53 $0.07
1077 Norwich Ave., Virginia Beach, VA 3.169 $6.40 4.500% $0.29 $6.69 $1.71 $0.08
2282 S. Highland Dr., Camino Island, WA 3.169 $5.29 8.000% $0.42 $5.71 $1.41 $0.11
Other exempt equipment 3.169 $11.47 0.000% $0.00 $11.47 $3.06 $0.00
TOTAL FOR TAXABLE CA EQUIPMENT 3.169 $1,592.60 7.750% $123.43 $1,716.02 $424.69 $32.91
TOTAL FOR EXEMPT CA EQUIPMENT 3.169 $1,091.63 0.000% $0.00 $1,091.63 $291.10 $0.00
GRAND TOTAL $2,751.31 $127.10 $2,878.41 $733.68 $33.89
</TABLE>
<PAGE> 106
Renewal terms:
In the event the Lease does not exercise the Purchase Option described below,
the Lease shall automatically renew for a term of 12 months with Monthly Rental
equal to 1.5% of the original Equipment Cost payable monthly in advance. At the
expiration of the renewal period, the Lessee shall have the option to purchase
all (but not less than all) the Equipment for its then current Fair Market
Value, plus applicable sales and other taxes.
The Lessee shall have the option to purchase all (but not less than all) the
Equipment at the expiration of the term of the lease for the then Fair Market
Value of the Equipment, plus applicable sales and other taxes. It shall be
agreed that the Fair Market Value shall not be less than 10% of the Equipment
Cost nor more than 20% of the Equipment Cost plus applicable dales and other
taxes.
Lessee hereby irrevocably authorizes Lessor to insert in this Schedule the
Commencement Date and the due date of the first rental payment.
Except as expressly provided or modified hereby, all the terms and provisions of
the Master Lease Agreement shall remain in full force and effect.
The Purchase Date shall be April 1, 2002.
The Stipulated Loss Value of any items of Equipment shall be an amount equal to
the present value of all future Rent discounted at a rate of 6% per annum plus
the Reversionary Value.
The Reversionary Value of any item of Equipment shall be 20% of Equipment Cost.
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION (Lessee)
(Lessor)
By: /s/ GARY P. MORO By: /s/ KATHRYN M. WHITE
------------------------------ ----------------------------
Gary P. Moro Kathryn M. White
Title: VICE PRESIDENT Title: ASSISTANT CORPORATE SECRETARY
--------------------------- -------------------------
<PAGE> 107
Page 2 of 3
TO: BIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Deskjet 697C Printer SCN88K1217W " Creative Computers 11/25/98 P41147790101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 PC Adapter Cards N/A " Creative Computers 11/25/98 P41147790101 135.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 6' SCSI N/A " Creative Computers 11/25/98 P41147790101 150.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HGB6R " Dell 11/25/98 196010086 2,269.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HFRP6 " Dell 11/25/98 196010029 2,286.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 12/01/98 58790039 110.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 1 Drawer File N/A " Office Depot 12/02/98 58575094 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
HLCOI; HLCOQ; HLCO3;
HLCOW; HLCOE; HLCOZ;
8 Dell Dimension XPS R450 HLCOG; HLCOL " Dell 12/07/98 196987671 18,072.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Cyrix MII system listed on invoice " Fry's Electronics 08/28/98 1305685 809.70
- ------------------------------------------------------------------------------------------------------------------------------------
1 ??? Test system listed on invoice " Fry's Electronics 08/28/98 1305685 712.92
- ------------------------------------------------------------------------------------------------------------------------------------
1 1 Drawer File N/A " Office Depot 09/03/98 52487425 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
BPODPMT66x200SL2RAM;
13 13 Overdrive processors 12312312313 " Creative Computers 10/06/98 P39109890101 2,470.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 2.6.4GB EIDE N/A " Creative Computers 10/06/98 P39109890102 570.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML47 " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML4B " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
220 N. 22nd Pl, APT
1 HP Deskjet 697C Printer SMX8C21104M 2026, Mesa, AZ Creative Computers 12/21/98 P42398340101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
236 N. Governor's Ave.
1 HP Deskjet 695C Printer SMX8BC120MM Dover, DE Creative Computers 01/26/99 P43953020101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
5011 Wood Iron Dr.
1 HP Deskjet 697C SCN88S1K3YJ Duluth, GA Creative Computers 11/16/98 P40663120101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1606 E. 550 Rd. Buy.Com (Phil Tish
1 HP Deskjet 710C SG8731W1S2 Lawrence, KS ExpenseR) 02/05/99 652347 166.95
- ------------------------------------------------------------------------------------------------------------------------------------
204 Brenhaven Blvd.
1 HP Deskjet 695C SUS8BA1V015 Brandon, MS Creative Computers 01/29/99 P44076720101 175.00
- ------------------------------------------------------------------------------------------------------------------------------------
5101 Butternut Rd.,
1 HP Deskjet 627C SUS88H1S1TK Durhan, NC Creative Computers 10/16/98 P39532240101 156.00
- ------------------------------------------------------------------------------------------------------------------------------------
31-24 99th St. Buy.Com (Phil Tish
1 HP Deskjet 710C SG8763W09S Flushing, NY ExpenseR) 02/16/99 708874 163.95
- ------------------------------------------------------------------------------------------------------------------------------------
4421 Carrington CT,
1 HP Deskjet 697C Printer SMX8BL111YK Harrisburg, PA Creative Computers 12/15/98 P41990550101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
3001 Blue Bird,
1 HP Deskjet 697C Printer SMX8BC120JY McCallen, TX Creative Computers 12/16/98 P42140590101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 108
[TRANSAMERICA LETTERHEAD]
March 31, 1999
Ms. Kathy White
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
RE: CUSTOMER NO. 1070-005
Dear Kathy:
We would like to thank you for choosing Transamerica Business Credit Corporation
(TBCC) - Technology Finance Division for your recent financing. For your files,
we have enclosed copies of the various documents executed by your organization
in connection with the above referenced transactions. These documents have been
executed by Transamerica and should be retained by you in a safe place.
Invoices will be sent to you on a monthly basis as a courtesy on our part, with
your payments due on the first day of each month. THERE ARE 35 EQUAL PAYMENTS OF
S2,878.41 REMAINING COMMENCING MAY 1, 1999, PLUS A PURCHASE 0PTION DUE ON APRIL
1, 2002. OUR REMITTANCE ADDRESS FOR ALL PAYMENTS IS FIRST NATIONAL BANK OF
CHICAGO, TBBC - TECHNOLOGY FINANCE DIVISION, PO BOX 70892, CHICAGO, IL
60673-0892. THE STREET ADDRESS FOR OUR LOCK BOX IS FIRST NATIONAL BANK OF
CHICAGO, 525 WEST MONROE, 7TH FLOOR MAILROOM, CHICAGO, ILLINOIS 60661,
ATTENTION: 70892. Please indicate your customer numbers on the face of your
check.
Please be advised that at this time that Transamerica elects to file the
appropriate property tax filing on your behalf for equipment located in the
state of California. Please be advised that you are responsible for the
appropriate property tax filing for all other jurisdictions. Proof of filing and
payment of property tax should be provided to TBCC annually. Upon receipt the
annual filing costs, you will be invoiced appropriately. All future payments
should be made on or before the due date indicated on each invoice. Payments
arriving after 5 days of the due date will be subject to a 5% late charge. All
remittances should be sent to the above-mentioned address.
We appreciate having been given the opportunity to serve you and we look forward
to do so again, in the future. Should you have any questions on your account,
please contact our Lease Administration Department at 860-677-6466 and we will
be delighted to assist you.
Very truly yours,
Transamerica Business Credit
Corporation
/s/ Chris Bodnar
Chris Bodnar
Transamerica Technology Finance
Enc.
<PAGE> 109
Page 1 of 3
<TABLE>
<S> <C>
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation (as Lessor);
UCC(s) and The Lightspan Partnership Inc. (as Lessee)
Dated March 24, 1999
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EXEMPT COMPUTER EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Proliant 5500; Smart 10140 Campus Pt. Dr.,
1 Array 3200 Controller 4948382075154 San Diego, CA Creative Computers 12/29/98 P42510380102 3,895.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Proliant 3000/5500 123123123/ " Creative Computers 12/29/98 P42510380101 781.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 9.1GB SCSI N/A " Creative Computers 12/29/98 P42510380101 2,775.00
- ------------------------------------------------------------------------------------------------------------------------------------
Proliant 5500r PII400
1 Xeon D851CCT20383 " Creative Computers 12/30/98 P42510380103 7,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Task Chair N/A " Office Depot 01/06/99 60517194 289.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Compaq Memory Kit N/A " Delec 01/06/99 158270601998087 4,390.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 U4MTQ " Dell 01/12/99 207040916 2,414.00
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Discount
1 SONY VAIO 505FX SO134206315 " Warehouse 01/20/99 9849249 2,162.17
- ------------------------------------------------------------------------------------------------------------------------------------
1 Compaq Presario Notebook V811BVQ21910 " Compusource 01/20/99 3042 1,799.00
- ------------------------------------------------------------------------------------------------------------------------------------
2 4 Drawer file (2) N/A " Boise Cascade 01/26/99 81307 807.00
- ------------------------------------------------------------------------------------------------------------------------------------
D808BRZ31019;
2 Proliant 3000 Pentium II D810BRZ30546 " uBid. 02/24/99 U03460970101 2,534.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Deskjet 712C SMY8C8120S0 " Creative Computer 02/25/99 P45386320101 202.00
- ------------------------------------------------------------------------------------------------------------------------------------
D808BRZ31885;
2 Proliant 3000 Pentium II D810BRZ30232 " uBid. 02/25/99 U03514560101 2,934.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Laserjet 8000N UFDD003209 " Compusource 02/26/99 3265 2,465.00
- ------------------------------------------------------------------------------------------------------------------------------------
SUB TOTAL: 34,447.17
TAXABLE COMPUTER EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
6108 Avenida Encinas,
1 20" Pedestal Fan N/A Carlsbad, CA Pak West 09/22/98 237720 235.00
- ------------------------------------------------------------------------------------------------------------------------------------
5 5 black stools N/A " Action Wholesale 10/12/98 183914 288.90
- ------------------------------------------------------------------------------------------------------------------------------------
XB81610RAZ3; 10140 Campus Pt. Dr.,
2 CD Zip Drive XB81618RAZ3 San Diego, CA Apple Computer 04/20/98 305501 4,130.00
- ------------------------------------------------------------------------------------------------------------------------------------
5 Telephones,(5) N/A " CMS Communications 10/16/98 9823971 2,100.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Stylus Color Printer AEY0034971 " Creative Computers 11/13/98 P40663920102 1,410.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Hon 2 Drawer File N/A " Office Depot 11/16/98 57901390 155.00
- ------------------------------------------------------------------------------------------------------------------------------------
2 Task Chair(2) N/A " Office Depot 11/16/98 57901390 300.00
- ------------------------------------------------------------------------------------------------------------------------------------
0106310011070;
0106310011076;
0106310011081;
0106310011074;
0106310011077;
0106310017964;
0106310011075;
0106310011078;
9 Iyama Visionmaster Pro 0106310017967 " CDW 11/25/98 9387077 8,253.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 110
Page 2 of 3
<TABLE>
<S> <C>
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation (as Lessor);
UCC(s) and The Lightspan Partnership Inc. (as Lessee)
Dated March 24, 1999
</TABLE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Deskjet 697C Printer SCN88K1217W " Creative Computers 11/25/98 P41147790101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 PC Adapter Cards N/A " Creative Computers 11/25/98 P41147790101 135.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 6' SCSI N/A " Creative Computers 11/25/98 P41147790101 150.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HGB6R " Dell 11/25/98 196010086 2,269.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HFRP6 " Dell 11/25/98 196010029 2,286.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 12/01/98 58790039 110.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Dwr File N/A " Office Depot 12/02/98 58575094 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
HLCOI; HLCOQ; HLCO3;
HLCOW; HLCOE; HLCOZ;
8 Dell Dimension XPS R450 HLCOG; HLCOL " Dell 12/07/98 196987671 18,072.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Cyrix MII system listed on invoice " Fry's Electronics 08/28/98 1305685 809.70
- ------------------------------------------------------------------------------------------------------------------------------------
1 K6-2 Test system listed on invoice " Fry's Electronics 08/28/98 1305685 712.92
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 09/03/98 52487425 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
BPODPMT66X200SL2RAM;
13 13 Overdrive processors 12312312313 " Creative Computers 10/06/98 P39109890101 2,470.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 2.6.4GB EIDE N/A " Creative Computers 10/06/98 P39109890102 570.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML47 " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML4B " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
220 N. 22nd Pl, APT
1 HP Deskjet 697C Printer SMX8C21104M 2026, Mesa, AZ Creative Computers 12/21/98 P42398340101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
236 N. Governor's Ave.,
1 HP Deskjet 695C Printer SMX8BC120MM Dover, DE Creative Computers 01/26/99 P43953020101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
5011 Wood Iron Dr.,
1 HP Deskjet 697C SCN88S1K3YJ Duluth, GA Creative Computers 11/16/98 P40663120101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1606 E. 550 Rd., Buy.Com (Phil Tish
1 HP Deskjet 710C SG8731W1S2 Lawrence, KS ExpenseR) 02/05/99 652347 166.95
- ------------------------------------------------------------------------------------------------------------------------------------
204 Brenhaven Blvd,
1 HP Deskjet 695C SUS8BA1V015 Brandon, MS Creative Computers 01/29/99 P44076720101 175.00
- ------------------------------------------------------------------------------------------------------------------------------------
5101 Butternut Rd.,
1 HP Deskjet 627C SUS88H1S1TK Durhan, NC Creative Computers 10/16/98 P39532240101 156.00
- ------------------------------------------------------------------------------------------------------------------------------------
31-24 99th St., Buy.Com (Phil Tish
1 HP Deskjet 710C SG8763W09S Flushing, NY ExpenseR) 02/16/99 708874 163.95
- ------------------------------------------------------------------------------------------------------------------------------------
4421 Carrington CT,
1 HP Deskjet 697C Printer SMX8BL110YK Harrisburg, PA Creative Computers 12/15/98 P41990550101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
3001 Blue Bird,
1 HP Deskjet 697C Printer SMX8BC120JY McCallen, TX Creative Computers 12/16/98 P42140590101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 111
Page 3 of 3
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and Lightspan Partnership
Inc. (as Lessee)
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------- ------------------
128 William Richmond,
1 HP Deskjet 697C SCN88S1K3Y1 Williamsburg, VA Creative Computers 11/16/98 P40757900101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1077 Norwich Ave.,
1 HP Deskjet 712C SMY8C8120RW Virginia Beach, VA Creative Computers 02/23/99 P45318140101 202.00
- ------------------------------------------------------------------------------------------------------------------------------------
2282 S. Highland Dr., Buy.Com (Phil Tish
1 HP Deskjet 710C SG8761W0PS Camino Island, WA ExpenseR) 02/05/99 652319 166.95
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 52,372.37
EXEMPT EQUIPMENT: 34,447.17
TAXABLE EQUIPMENT: 52,372.37
GRAND TOTAL EXHIBIT II: 86,819.54
===========================================================
</TABLE>
LESSOR: LESSEE:
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION
BY: /s/ GARY P. MORO BY: /s/ KATHRYN M. WHITE
--------------------------------- --------------------------------
Gary P. Moro Kathryn M. White
TITLE: Vice President TITLE: Assistant Corporate Secretary
------------------------------ --------------------------------
<PAGE> 112
SALE AND LEASEBACK AGREEMENT
THIS SALE AND LEASEBACK AGREEMENT (this "Agreement"), is made as of
March 24, 1999, among The Lightspan Partnership, Inc., a California corporation
("Seller"), and Transamerica Business Credit Corporation, a Delaware corporation
("Buyer").
WITNESSETH:
WHEREAS, Seller is the owner of the equipment more particularly
described on Exhibit II hereto (the "Equipment");
WHEREAS, Seller desires to sell to Buyer and Buyer desires to purchase
from Seller the Equipment; and
WHEREAS, Buyer, as a condition to such purchase, wishes to lease to
Seller and Seller wishes to lease from Buyer the Equipment under the terms and
conditions of the Master Lease Agreement dated as of August 14, 1997 and
Schedule No.5 thereto (collectively, as amended, supplemented or otherwise
modified from time to time, the "Lease") between Buyer, as lessor, and Seller,
as lessee.
NOW, THEREFORE, in consideration of the premises herein contained and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. AMOUNT AND TERMS OF PURCHASE.
(a) Subject to the terms and conditions of this Agreement, and in
reliance upon the representations and warranties of the Seller herein set forth,
the Buyer agrees to purchase all of the Seller's right, title and interest in
and to all of the Equipment such that the Buyer will become the owner of all
such Equipment for all purposes whatsoever. The Seller hereby agrees that the
Buyer is under no obligation to purchase any other equipment now or in the
future and shall not assert a claim that the Buyer may have any such obligation.
(b) The price to be paid by the Buyer with respect to the
purchase of the Equipment (the "Purchase Price") is $86,819.54. The Purchase
Price shall be payable to the Seller on the Lease Commencement Date (as defined
in the Lease).
(c) The Seller shall pay any and all applicable federal, state,
county or local taxes and any and all present or future taxes or other
governmental charges arising in connection with the sale of the Equipment
hereunder, including sales, use or occupation taxes due upon the purchase by the
Buyer.
(d) The purchase of the Equipment shall be evidenced by a bill of
sale, substantially in the form attached hereto as Exhibit A (the "Bill of
Sale"), duly executed by the Seller.
<PAGE> 113
2. CONDITIONS TO PURCHASE. The obligation of the Buyer to purchase the
Equipment is subject to the following conditions:
(a) The Buyer shall have received this Agreement, duly executed
by the Seller.
(b) The Buyer shall have received the Bill of Sale, duly executed
by the Seller.
(c) The Buyer shall have received the Lease, duly executed by the
Seller.
(d) The Buyer shall have received resolutions of the Board of
Directors of the Seller approving and authorizing the execution, delivery and
performance by the Seller of this Agreement, the Lease and the notices and other
documents to be delivered by the Seller hereunder and thereunder (collectively,
the "Sale and Leaseback Documents").
(e) The Buyer shall have received the certificate of title or
similar evidence of ownership with respect to each item of Equipment and Uniform
Commercial Code financing statements covering the Equipment in form and
substance satisfactory to the Buyer, duly executed by the Seller.
(f) No material adverse change has occurred with respect to the
business, prospects, properties, results of operations, assets, liabilities or
condition (financial or otherwise) of the Seller and its affiliates, taken as a
whole, since January 31, 1995.
(g) The Buyer shall have received all warranties and other
documentation received or executed by Seller in connection with the original
acquisition of the Equipment by the Seller (and by its execution hereof the
Seller hereby assigns to the Buyer all such warranties and other Documentation).
(h) The Buyer shall have received such other approvals, opinions
or documents as the Buyer may reasonably request.
3. REPRESENTATION AND WARRANTIES. To induce the Buyer to enter into this
Agreement, the Seller represents and warrants to the Buyer that:
(a) The Seller is duly authorized to execute, deliver and perform
its obligations under each of the Sale and Leaseback Documents and all corporate
action required on its part for the due execution, delivery and performance of
the transactions contemplated herein and therein has been duly and effectively
taken.
(b) The execution, delivery and performance by the Seller of each
of the Sale and Leaseback Documents and the consummation of the transactions
contemplated herein and therein does not and will not violate any provision of,
or result in a default under, the Seller's
-2-
<PAGE> 114
Articles or Certificates of Incorporation or By-laws or any indenture or
agreement to which the Seller is a party or to which its assets are bound or any
order, permit, law, statute, code, ordinance, rule, regulation, certificate or
any other requirement of any governmental authority or regulatory body to which
the Seller is subject, or result in the creation or imposition of any mortgage,
deed of trust, pledge, security interest, lien or encumbrance of any kind upon
or with respect to the Equipment or any proceeds thereof, other than those in
favor of the Buyer as contemplated by the Sale and Leaseback Documents.
(c) No authorization or approval or other action by, and no
notice to or filing with, any governmental authority or regulatory body is
required for the due execution, delivery and performance by the Seller of any of
the Sale and Leaseback Documents to which it is a party.
(d) Each Sale and Leaseback Document to which the Seller is a
party constitutes or will constitute, when delivered hereunder, the legal, valid
and binding obligation of the Seller enforceable against the Seller in
accordance with its respective terms, except as such enforceability may be (i)
limited by the effect of applicable bankruptcy, insolvency, reorganization or
similar laws affecting the enforcement of creditors' rights generally or (ii)
subject to the effect of general principles of equity (regardless of whether
such enforceability is considered in a proceeding at equity or at law).
(e) There are no actions, suits, or proceedings pending,
threatened against or affecting the Seller which seek to enjoin, prohibit or
restrain the consummation of any of the transactions contemplated hereby or by
the other Sale and Leaseback Documents.
(f) Each item of Equipment is owned by the Seller free and clear
of any liens and encumbrances of any kind or description. Upon purchase of the
Equipment hereunder, the Buyer will acquire good and marketable title in and to
the Equipment.
All representations and warranties herein shall survive the execution of this
Agreement and the purchase of the Equipment.
4. INDEMNITIES. The Seller agrees to indemnify, defend, and save
harmless the Buyer and its officers, directors, employees, agents, and
attorneys, and each of them (the "Indemnified Parties"), from and against all
claims, actions, suits, and other legal proceedings, damages, costs, interest,
charges, counsel fees and other expenses and penalties (collectively, the
"Indemnified Amounts") which any of the Indemnified Parties may sustain or incur
by reason of or arising out of (i) the Seller's ownership of any Equipment prior
to the date on which such Equipment is sold to the Buyer, or the Seller's acts
or omissions prior to such date under, in connection with or relating to such
Equipment or any of the Sale and Leaseback Documents, (ii) the operation,
maintenance or use of such Equipment prior to such date, (iii) the inaccuracy of
any of the Seller's representations or warranties contained in any of the Sale
and Leaseback Documents, (iv) the breach of any of the Seller's covenants
contained in any of the Sale and Leaseback Documents, (v) any loss or damage to
any Equipment in excess of the deductible
-3-
<PAGE> 115
which is not paid by insurance or (vi) any sales, use, excise and other taxes,
charges, and fees (including, without limitation, income, franchise, business
and occupation, gross receipts, sales, use, licensing, registration, titling,
personal property, stamp and interest equalization taxes, levies, imposts,
duties, charges or withholdings of any nature), and any fines, penalties or
interest thereon, imposed or levied by any governmental body, agency or tax
authority upon or in connection with the Equipment, its acquisition, ownership,
delivery, leasing, possession, use or relocation or otherwise in connection with
the transactions contemplated by each Sale and Leaseback Document.
5. REMEDIES. Upon the Seller's violation of or default under any
provision of this Agreement, the Buyer may (subject to the provisions of the
other Sale and Leaseback Documents) proceed to protect and enforce its rights
either by suit in equity or by action at law or both, whether for the specific
performance of any covenant or agreement contained herein or in aid of the
exercise of any power granted in any Sale and Leaseback Document; it being
intended that the remedies contained in any Sale and Leaseback Document shall be
cumulative and shall be in addition to every other remedy given under such Sale
and Leaseback Document or now or hereafter existing at law or in equity or by
statute or otherwise.
6. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement, nor consent to any departure therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Buyer, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
7. NOTICES, ETC. All notices and other communications provided for
hereunder shall be in writing and sent:
if to the Seller, at its address at:
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
Attention: Vice President - Finance and Administration
Telephone No.: 619-824-8311
Telecopy No.: 619-824-8001
-4-
<PAGE> 116
if to the Buyer, at its address at:
Transamerica Business Credit Corporation
Technology Finance Division
76 Batterson Park Road
Farmington, Connecticut 06032-2571
Attention: Assistant Vice President,
Lease Administration
Telephone No.: 860-677-6466
Telecopy No.: 860-677-6766
with a copy to:
Transamerica Business Credit Corporation
9399 West Higgins Road
Rosemont, Illinois 60018
Attention: Legal Department
Telephone No.: 847-685-1106
Telecopy No.: 847-685-1143
or to such other address as shall be designated by such party in a written
notice to the other party. All such notices shall be deemed given (i) if sent by
certified or registered mail, three days after being postmarked, (ii) if sent by
overnight delivery service, when received at the above stated addresses or when
delivery is refused and (iii) if sent by facsimile transmission, when receipt of
such transmission is acknowledged.
8. NO WAIVER; REMEDIES. No failure on the part of the Buyer to exercise,
and no delay in exercising, any right hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
9. BENEFIT. Without the prior written consent of the Buyer, the Seller
may not transfer, assign or delegate any of its rights, duties or obligations
hereunder.
10. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Seller and the Buyer and their respective successors and
assigns.
11. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ILLINOIS WITHOUT GIVING
EFFECT TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
-5-
<PAGE> 117
12. EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall constitute an original and all of
which taken together shall constitute one and the same agreement.
13. SEVERABILITY. If one or more of the provisions contained in this
Agreement shall be invalid, illegal, or unenforceable in any respect, the
validity, legality, and enforceability of the remaining provisions contained
herein, and any other application thereof, shall not in any way be affected or
impaired thereby.
14. SUBMISSION TO JURISDICTION. ALL DISPUTES ARISING UNDER OR IN
CONNECTION WITH THIS AGREEMENT BETWEEN THE PARTIES HERETO, WHETHER SOUNDING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, SHALL BE RESOLVED ONLY BY STATE AND FEDERAL
COURTS LOCATED IN ILLINOIS, AND THE COURTS TO WHICH AN APPEAL THEREFROM MAY BE
TAKEN; PROVIDED, HOWEVER, THAT THE BUYER SHALL HAVE THE RIGHT, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, TO PROCEED AGAINST THE SELLER OR ITS PROPERTY IN
ANY LOCATION REASONABLY SELECTED BY THE BUYER IN GOOD FAITH TO ENABLE THE BUYER
TO REALIZE ON SUCH PROPERTY, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN
FAVOR OF THE BUYER. EACH PARTY AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE
COUNTERCLAIMS, SETOFFS OR CROSS-CLAIMS IN ANY PROCEEDING BROUGHT BY THE BUYER;
IT BEING UNDERSTOOD THAT THIS SENTENCE DOES NOT PRECLUDE THE SELLER FROM
ASSERTING COMPULSORY COUNTERCLAIMS. THE SELLER WAIVES ANY OBJECTION THAT IT MAY
HAVE TO THE LOCATION OF THE COURT IN WHICH THE BUYER HAS COMMENCED A PROCEEDING,
INCLUDING, WITHOUT LIMITATION, ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON
FORUM NON CONVENIENS.
15. JURY TRIAL. THE PARTIES HERETO EACH HEREBY WAIVE TO THE FULLEST
EXTENT PERMITTED BY LAW ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT.
-6-
<PAGE> 118
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers hereunto duly authorized, as of the first
date written above.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ KATHRYN M. WHITE
-------------------------------
Name: Kathryn M. White
Title: Assistant Corporate Secretary
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ GARY P. MORO
-------------------------------
Name: Gary P. Moro
Title: Vice President
Exhibit II- Equipment
Exhibit A- Bill of Sale
-7-
<PAGE> 119
BILL OF SALE
KNOW ALL PERSONS BY THESE PRESENTS THE LIGHTSPAN PARTNERSHIP, INC. (the
"Seller"), for Eighty-Six Thousand, Eight Hundred Nineteen and 54/1 00 Dollars
($86,819.54) and other valuable consideration to it in hand paid, receipt of
which is hereby acknowledged, does unconditionally, absolutely and irrevocably
grant, sell, assign, transfer and convey unto TRANSAMERICA BUSINESS CREDIT
CORPORATION and its assignees or successors (collectively, the "Buyer"), all of
the Seller's right, title and interest in and to the equipment described on
Exhibit II hereto (collectively, the "Equipment").
TO HAVE AND TO HOLD said Equipment unto the said Buyer, to and for its
use forever.
AND, the Seller hereby warrants, covenants and agrees that it (a) has
good and marketable title to the Equipment, free and clear of any liens and
other encumbrances; and (b) will warrant and defend the sale of the Equipment
against any and all persons claiming against such title.
IN WITNESS WHEREOF the Seller has caused this instrument to be duly
executed and delivered as of this 24th day of March, 1999.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ KATHRYN M. WHITE
-------------------------------
Name: Kathryn M. White
Title: Assistant Corporate Secretary
-8-
<PAGE> 120
Page 1 of 3
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and
The Lightspan Partnership, Inc. (as Lessee)
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EXEMPT COMPUTER EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Proliant 5500; Smart 10140 Campus Pt. Dr.,
1 Array 3200 Controller 4948382075154 San Diego, CA Creative Computers 12/29/98 P42510380102 3,895.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Proliant 3000/5500 123123123/ " Creative Computers 12/29/98 P42510380101 781.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 9.1GB SCSI N/A " Creative Computers 12/29/98 P42510380101 2,775.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Proliant 5500r PII400
1 Xeon D851CCT20383 " Creative Computers 12/30/98 P42510380103 7,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Task Chair N/A " Office Depot 01/06/99 60517194 289.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Compaq Memory Kit N/A " Delec 01/06/99 158270601998087 4,390.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 U4MTQ " Dell 01/12/99 207040916 2,414.00
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Discount
1 SONY VAIO 505FX SO134206315 " Warehouse 01/20/99 9849249 2,162.17
- ------------------------------------------------------------------------------------------------------------------------------------
1 Compaq Presario Notebook V811BVQ21910 " Compusource 01/21/99 3042 1,799.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File (2) N/A " Boise Cascade 01/26/99 81307 807.00
- ------------------------------------------------------------------------------------------------------------------------------------
D808BRZ31019;
2 Proliant 3000 Pentium II D810BRZ30546 " uBid. 02/24/99 U03460970101 2,534.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Deskjet 712C SMY8C8120S0 " Creative Computer 02/25/99 P45386320101 202.00
- ------------------------------------------------------------------------------------------------------------------------------------
D808BRZ31885;
2 Proliant 3000 Pentium II D810BRZ30232 " uBid. 02/25/99 U03514560101 2,934.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Laserjet 8000N UFDD003209 " Compusource 02/26/99 3265 2,465.00
- ------------------------------------------------------------------------------------------------------------------------------------
SUB TOTAL: 34,447.17
TAXABLE COMPUTER EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
6108 Avenida Encinas,
1 20" Pedestal Fan N/A Carlsbad, CA PakWest 09/22/98 237720 235.00
- ------------------------------------------------------------------------------------------------------------------------------------
5 5 black stools N/A " Action Wholesale 10/12/98 183914 288.90
- ------------------------------------------------------------------------------------------------------------------------------------
XB81610RAZ3; 10140 Campus. Pt. Dr.,
2 CD Zip Drive XB81618RAZ3 San Diego, CA Apple Computer 04/20/98 305501 4,130.00
- ------------------------------------------------------------------------------------------------------------------------------------
5 Telephones,(5) N/A " CMS Communications 10/16/98 9823971 2,100.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Stylus Color Printer AEY0034971 " Creative Computers 11/13/98 P40663920102 1,410.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Hon 2 Drawer File N/A " Office Depot 11/16/98 57901390 155.00
- ------------------------------------------------------------------------------------------------------------------------------------
2 Task Chair(2) N/A " Office Depot 11/16/98 57901390 300.00
- ------------------------------------------------------------------------------------------------------------------------------------
0106310011070;
0106310011076;
0106310011081;
0106310011074;
0106310011077;
0106310017964;
0106310011075;
0106310011078;
9 Iyama Visionmaster Pro 0106310017967 " CDW 11/25/98 9387077 8,253.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 121
Page 2 of 3
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and
The Lightspan Partnership, Inc. (as Lessee)
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Deskjet 697C Printer SCN88K1217W " Creative Computers 11/25/98 P41147790101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 PC Adapter Cards N/A " Creative Computers 11/25/98 P41147790101 135.00
- ------------------------------------------------------------------------------------------------------------------------------------
6 6' SCSI N/A " Creative Computers 11/25/98 P41147790101 150.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HGB6R " Dell 11/25/98 196010086 2,269.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HFRP6 " Dell 11/25/98 196010029 2,286.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 12/01/98 587900039 110.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 12/02/98 58575094 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
HLCO1; HLCOQ; HLCO3;
HLCOW; HLCOE; HLCOZ;
8 Dell Dimension XPS R450 HLCOG; HLCOL " Dell 12/07/98 196987671 18,072.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Cyrix MII system listed on invoice " Fry's Electronics 08/28/98 1305685 809.70
- ------------------------------------------------------------------------------------------------------------------------------------
1 K6-2 Test system listed on invoice " Fry's Electronics 08/28/98 1305685 712.92
- ------------------------------------------------------------------------------------------------------------------------------------
1 1 Drawer File N/A " Office Depot 09/03/98 52487425 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
BPODPMT66X200SL2RAM;
13 13 Overdrive processors 12312312313 " Creative Computers 10/06/98 P39109890101 2,470.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 2 6.4GB EIDE N/A " Creative Computers 10/06/98 P39109890102 570.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML47 " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML4B " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
220 N. 22nd Pl, APT
1 HP Deskjet 697C Printer SMX8C21104M 2026, Mesa, AZ Creative Computers 12/21/98 P42398340101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
236 N. Governor's Ave.
1 HP Deskjet 695C Printer SMX8BC120MM Dover, DE Creative Computers 01/26/99 P43953020101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
5011 Wood Iron Dr.
1 HP Deskjet 697C SCN88S1K3YJ Duluth, GA Creative Computers 11/16/98 P40663120101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1606 E. 550 Rd. Buy.Com (Phil Tish
1 HP Deskjet 710C SG8731W1S2 Lawrence, KS ExpenseR) 02/05/99 652347 166.95
- ------------------------------------------------------------------------------------------------------------------------------------
204 Brenhaven Blvd.
1 HP Deskjet 695C SUS8BA1V0J5 Brandon, MS Creative Computers 01/29/99 P44076720101 175.00
- ------------------------------------------------------------------------------------------------------------------------------------
5101 Butternut Rd.,
1 HP Deskjet 627C SUS88H1S1TK Durhan, NC Creative Computers 10/16/98 P39532240101 156.00
- ------------------------------------------------------------------------------------------------------------------------------------
31-24 99th St. Buy.Com (Phil Tish
1 HP Deskjet 710C SG8763W09S Flushing, NY ExpenseR) 02/16/99 708874 163.95
- ------------------------------------------------------------------------------------------------------------------------------------
4421 Carrington CT,
1 HP Deskjet 697C Printer SMX8BL110YK Harrisburg, PA Creative Computers 12/15/98 P41990550101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
3001 Blue Bird,
1 HP Deskjet 697C Printer SMX8BC120JY McCallen, TX Creative Computers 12/16/98 P42140590101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 122
Page 3 of 3
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and
The Lightspan Partnership, Inc. (as Lessee)
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
128 William Richmond,
1 HP Deskjet 697C SCN88S1K3Y1 Williamsburg, VA Creative Computers 11/16/98 P40757900101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1077 Norwich Ave.,
1 HP Deskjet 712C SMY8C8120RW Virginia Beach, VA Creative Computers 02/23/99 P45318140101 202.00
- ------------------------------------------------------------------------------------------------------------------------------------
2282 S. Highland Dr., Buy.Com (Phil Tish
1 HP Deskjet 710C SG8761W0PS Camino Island, WA ExpenseR) 02/05/99 652319 166.95
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 52,372.37
EXEMPT EQUIPMENT: 34,447.17
TAXABLE EQUIPMENT: 52,372.37
GRAND TOTAL EXHIBIT II: 86,819.54
===========================================================
</TABLE>
LESSOR: LESSEE:
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION
BY: /s/ GARY P. MORO BY: /s/ KATHRYN M. WHITE
--------------------------------- --------------------------------
Gary P. Moro Kathryn M. White
TITLE: Vice President TITLE: Assistant Corporate Secretary
------------------------------ --------------------------------
<PAGE> 123
ACCEPTANCE AND DELIVERY CERTIFICATE
The Lightspan Partnership, Inc., as lessee ("Lessee") under the Master
Lease Agreement dated as of August 14, 1997 between Lessee and Transamerica
Business Credit Corporation, as Lessor, does hereby acknowledge the acceptance
and delivery of the equipment listed in Lease Schedule No. 5 such acceptance and
delivery having been made on the 24th of March, 1999.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ KATHRYN M. WHITE
-------------------------------
Name: Kathryn M. White
Title: Assistant Corporate Secretary
<PAGE> 124
PAY PROCEEDS LETTER
March 18, 1999
Transamerica Business Credit Corporation
Riverway II
West Office Tower
9399 West Higgins Road
Rosemont, IL 60018
Ladies and Gentlemen:
Reference is made to the Master Lease Agreement dated August 14, 1997
and Schedule No. 5 dated March 24, 1999 and executed by the undersigned as
Lessee and Transamerica Business Credit Corporation ("Lessor").
The undersigned authorizes and directs Lessor to disburse the proceeds
of the lease as follows:
<TABLE>
<CAPTION>
PAYEE PARTICULARS AMOUNT
<S> <C> <C>
1. Account Name: The Lightspan Partnership, Inc. $83,173.46
Bank Name: Silicon Valley Bank
Bank Address: 5414 Oberlin Drive, Suite 230
San Diego, CA 92121
Account Number: 3300036337
ABA Number: 121-140-399
Attention: Marissa Randall
Telephone No.: 800-215-6060
2. Transamerica Business Credit Corporation 3,646.08
----------
TOTAL $86,819.54
==========
</TABLE>
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ KATHRYN M. WHITE
-------------------------------
Name: Kathryn M. White
Title: Assistant Corporate Secretary
<PAGE> 125
<TABLE>
<S><C>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
Phone 800-331-3282 Fax 818-909-4717
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275 0000000001708000
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
THE LIGHTSPAN PARTNERSHIP, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b)
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBITS I AND II ATTACHED HERETO AND MADE A PART HEREOF.
FILE WITH THE SECRETARY OF STATE CALIFORNIA
CUSTOMER NO. 1070-005
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ KATHRYN M. WHITE Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) FILING OFFICER COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 126
<TABLE>
<S><C>
THIS SPACE FOR USE OF FILING OFFICER
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
Phone 800-331-3282 Fax 818-909-4717
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275 0000000001708000
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
THE LIGHTSPAN PARTNERSHIP, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b)
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBITS I AND II ATTACHED HERETO AND MADE A PART HEREOF.
FILE WITH THE SECRETARY OF STATE CALIFORNIA
CUSTOMER NO. 1070-005
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ KATHRYN M. WHITE Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) ACKNOWLEDGMENT COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 127
<TABLE>
<S><C>
FINANCING STATEMENT - FOLLOW INSTRUCTIONS CAREFULLY THIS SPACE FOR USE OF FILING OFFICER
This Financing Statement is presented for filing pursuant to the Uniform Commercial Code
and will remain effective, with certain exceptions, for 5 years from date of filing.
- -------------------------------------------------------------------------------------------------------
A. NAME & TEL. # OF CONTACT AT FILER (optional) B. FILING OFFICE ACCT. # (optional)
Phone 800-331-3282 Fax 818-909-4717
- -------------------------------------------------------------------------------------------------------
C. RETURN COPY TO: (Name and Mailing Address)
-----
Data File Services, Inc.
P.O. Box 275 0000000001708000
Van Nuys, CA 91408-2750
-----
- ------------------------------------------------------------------------------------------------------------------------------------
D. OPTIONAL DESIGNATION (if applicable): [ ] LESSOR/LESSEE [ ] CONSIGNOR/CONSIGNEE [ ] NON-UCC FILING
- ------------------------------------------------------------------------------------------------------------------------------------
1. DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (1a or 1b) FILED WITH: CALIFORNIA
---------------------------------------------------------------------------------------------------------------------------------
1a. ENTITY'S NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
1b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
THE LIGHTSPAN PARTNERSHIP, INC.
- ------------------------------------------------------------------------------------------------------------------------------------
1c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
10140 CAMPUS POINT DRIVE SAN DIEGO CA 92121
- ------------------------------------------------------------------------------------------------------------------------------------
1d. S.S. OR TAX I.D.# OPTIONAL 1e. TYPE OF ENTITY 1f. ENTITY'S STATE 1g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
2. ADDITIONAL DEBTOR'S EXACT FULL LEGAL NAME - insert only one debtor name (2a or 2b)
- ------------------------------------------------------------------------------------------------------------------------------------
2a. ENTITY's NAME
OR ---------------------------------------------------------------------------------------------------------------------------------
2b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
2c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
- ------------------------------------------------------------------------------------------------------------------------------------
2d. S.S. OR TAX I.D.# OPTIONAL 2e. TYPE OF ENTITY 2f. ENTITY'S STATE 2g. ENTITY'S ORGANIZATIONAL I.D. #, if any
ADD'NL INFO RE OR COUNTRY OF
ENTITY DEBTOR ORGANIZATION [ ]NONE
- ------------------------------------------------------------------------------------------------------------------------------------
3. SECURED PARTY'S (ORIGINAL S/P OR ITS TOTAL ASSIGNEE) EXACT FULL LEGAL NAME - insert only one secured party name (3a or 3b)
- ------------------------------------------------------------------------------------------------------------------------------------
3a. ENTITY's NAME
TRANSAMERICA BUSINESS CREDIT CORPORATION
OR ---------------------------------------------------------------------------------------------------------------------------------
3b. INDIVIDUAL'S LAST NAME FIRST NAME MIDDLE NAME SUFFIX
- ------------------------------------------------------------------------------------------------------------------------------------
3c. MAILING ADDRESS CITY STATE COUNTRY POSTAL CODE
76 BATTERSON PARK ROAD FARMINGTON CT 06032
- ------------------------------------------------------------------------------------------------------------------------------------
4. This FINANCING STATEMENT covers the following types or items of property:
SEE EXHIBITS I AND II ATTACHED HERETO AND MADE A PART HEREOF.
FILE WITH THE SECRETARY OF STATE CALIFORNIA
CUSTOMER NO. 1070-005
- ------------------------------------------------------------------------------------------------------------------------------------
5. CHECK This FINANCING STATEMENT is signed by the Secured Party instead 7. If filed in Florida (check one)
BOX [X] of the Debtor to perfect a security interest (a) in collateral Documentary Documentary stamp
(if applicable) already subject to a security interest in another jurisdiction [ ] stamp tax paid [ ] tax not applicable
when it was brought into this state, or when the debtor's
location was changed to this state, or (b) in accordance with
other statutory provisions (additional data may be required)
- ------------------------------------------------------------------------------------------------------------------------------------
6. REQUIRED SIGNATURE(S) 8. [ ] This FINANCING STATEMENT is to be filed (for record)
THE LIGHTSPAN PARTNERSHIP, INC. (or recorded) in the REAL ESTATE RECORDS
/s/ KATHRYN M. WHITE Attach Addendum (if applicable)
- ------------------------------------------------------------------------------------------------------------------------------------
TRANSAMERICA BUSINESS CREDIT CORPORATION 9. Check to REQUEST SEARCH CERTIFICATE(S) on Debtor(s)
(ADDITIONAL FEE)
(optional) [ ] All Debtors [ ] Debtor 1 [ ] Debtor 2
- ------------------------------------------------------------------------------------------------------------------------------------
(1) SEARCH REQUEST COPY - NATIONAL FINANCING STATEMENT (FORM UCC 1) (TRANS) (REV. 12/18/95) Prepared by Data File Services, Inc.
P.O. Box 275 Van Nuys, CA 91408-0275
Tel (818) 909-2200
</TABLE>
<PAGE> 128
EXHIBIT I TO UCC-1
LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.
LESSOR: TRANSAMERICA BUSINESS CREDIT CORPORATION
The property described on Exhibit II attached hereto, which is leased pursuant
to Master Lease Agreement dated August 14, 1997 between above-named Lessee and
Lessor, and Schedule No. 5 thereto (collectively, the "Lease"), all
replacements, substitutions, additions, attachments, accessions, parts, fittings
and accessories thereto and therefor, whether owned or hereafter acquired, and
all proceeds (including insurance proceeds and any sublease and the rentals and
profits thereon) of and from said property. The Secured Party is a Lessor and
the Debtor is a Lessee in respect to the leased property, and the Lease is not
intended as a security agreement to create a security interest in Lessor. This
statement is not to be evidence that the Lease is a security agreement, but if
it is determined to be so for other reasons, this financing statement is filed
to perfect the Secured Party's security interest in the property.
LESSOR: LESSEE:
TRANSAMERICA BUSINESS THE LIGHTSPAN PARTNERSHIP, INC.
CREDIT CORPORATION
By: By: /s/ KATHRYN M. WHILE
------------------------------ -------------------------------
Title: Title: Assistant Corporate Secretary
---------------------------
Date: Date:
---------------------------- ----------------------------
<PAGE> 129
Page 1 of 3
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and
The Lightspan Partnership, Inc. (as Lessee)
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
EXEMPT COMPUTER EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
Proliant 5500; Smart 10140 Campus Pt. Dr.,
1 Array 3200 Controller 4948382075154 San Diego, CA Creative Computers 12/29/98 P42510380102 3,895.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Proliant 3000/5000 123123123/ " Creative Computers 12/29/98 P42510380101 781.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 9.1GB SCSI N/A " Creative Computers 12/29/98 P42510380102 2,775.00
- ------------------------------------------------------------------------------------------------------------------------------------
Proliant 5500r PII400
1 Xeon D851CCT20383 " Creative Computers 12/30/98 P42510380103 7,000.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Task Chair N/A " Office Depot 01/06/99 60517194 289.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Compaq Memory Kit N/A " Delec 01/06/99 158270601998087 4,390.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 U4MTQ " Dell 01/12/99 207040916 2,414.00
- ------------------------------------------------------------------------------------------------------------------------------------
Computer Discount
1 SONY VAIO 505FX SO134206315 " Warehouse 01/20/99 9849249 2,162.17
- ------------------------------------------------------------------------------------------------------------------------------------
1 Compaq Presario Notebook V811BVQ21910 " Compusource 01/20/99 3042 1,799.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File (2) N/A " Boise Cascade 01/26/99 81307 807.00
- ------------------------------------------------------------------------------------------------------------------------------------
D808BRZ31019;
2 Proliant 3000 Pentium II D810BRZ30546 " uBid. 02/24/99 U03460970101 2,534.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Deskjet 712C SMY8C8120S0 " Creative Computer 02/25/99 P45386320101 202.00
- ------------------------------------------------------------------------------------------------------------------------------------
D808BRZ31885;
2 Proliant 3000 Pentium II D810BRZ30232 " uBid. 02/25/99 U03514560101 2,934.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Laserjet 8000N UFDD003209 " Compusource 02/26/99 3265 2,465.00
- ------------------------------------------------------------------------------------------------------------------------------------
SUB TOTAL: 34,447.17
TAXABLE COMPUTER EQUIPMENT
- ------------------------------------------------------------------------------------------------------------------------------------
6108 Avenida Encinas,
1 20" Pedestal Fan N/A Carlsbad, CA Pak West 09/22/98 237720 235.00
- ------------------------------------------------------------------------------------------------------------------------------------
5 5 black stools N/A " Action Wholesale 10/12/98 183914 288.90
- ------------------------------------------------------------------------------------------------------------------------------------
XB81610RAZ3; 10140 Campus. Pt. Dr.,
2 CD Zip Drive XB81618RAZ3 San Diego, CA Apple Computer 04/20/98 305501 4,130.00
- ------------------------------------------------------------------------------------------------------------------------------------
5 Telephones,(5) N/A " CMS Communications 10/16/98 9823971 2,100.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Stylus Color Printer AEY0034971 " Creative Computers 11/13/98 P40663920102 1,410.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Hon 2 Drawer File N/A " Office Depot 11/16/98 57901390 155.00
- ------------------------------------------------------------------------------------------------------------------------------------
2 Task Chair(2) N/A " Office Depot 11/16/98 57901390 300.00
- ------------------------------------------------------------------------------------------------------------------------------------
0106310011070;
0106310011076;
0106310011081;
0106310011074;
0106310011077;
0106310017964;
0106310011075;
0106310011078;
9 Iyama Visionmaster Pro 0106310017967 " CDW 11/25/98 9387077 8,253.00
- -------------------------------------------------------------------------------------------------------------------- ---------------
</TABLE>
<PAGE> 130
Page 2 of 3
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and
The Lightspan Partnership, Inc. (as Lessee)
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 HP Deskjet 697C Printer SCN88K1217W " Creative Computers 11/25/98 P41147790101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 PC Adapter Cards N/A " Creative Computers 11/25/98 P41147790101 135.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 6' SCSI N/A " Creative Computers 11/25/98 P41147790101 150.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HGB6R " Dell 11/25/98 196010086 2,269.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell Dimension XPS R450 HFRP6 " Dell 11/25/98 196010029 2,286.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 12/01/98 587900039 110.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 12/02/98 58575094 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
HLCO1; HLCOQ; HLCO3;
HLCOW; HLCOE; HLCOZ;
8 Dell Dimension XPS R450 HLCOG; HLCOL " Dell 12/07/98 196987671 18,072.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Cyrix MII system listed on invoice " Fry's Electronics 08/28/98 1305685 809.70
- ------------------------------------------------------------------------------------------------------------------------------------
1 K6-2 Test system listed on invoice " Fry's Electronics 08/28/98 1305685 712.92
- ------------------------------------------------------------------------------------------------------------------------------------
1 4 Drawer File N/A " Office Depot 09/03/98 52487425 420.00
- ------------------------------------------------------------------------------------------------------------------------------------
BPODPMT66X200SL2RAM;
13 13 Overdrive processors 12312312313 " Creative Computers 10/06/98 P39109890101 2,470.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 2 6.4GB EIDE N/A " Creative Computers 10/06/98 P39109890102 570.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML47 " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
1 Dell XPS Pentium GML4B " Dell 10/07/98 186025532 2,389.00
- ------------------------------------------------------------------------------------------------------------------------------------
220 N. 22nd Pl, APT
1 HP Deskjet 697C Printer SMX8C21104M 2026, Mesa, AZ Creative Computers 12/21/98 P42398340101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
236 N. Governor's Ave.
1 HP Deskjet 695C Printer SMX8BC120MM Dover, DE Creative Computers 01/26/99 P43953020101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
5011 Wood Iron Dr.
1 HP Deskjet 697C SCN88S1K3YJ Duluth, GA Creative Computers 11/16/98 P40663120101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1606 E. 550 Rd. Buy.Com (Phil Tish
1 HP Deskjet 710C SG8731W1S2 Lawrence, KS ExpenseR) 02/05/99 652347 166.95
- ------------------------------------------------------------------------------------------------------------------------------------
204 Brenhaven Blvd.
1 HP Deskjet 695C SUS8BA1V0J5 Brandon, MS Creative Computers 01/29/99 P44076720101 175.00
- ------------------------------------------------------------------------------------------------------------------------------------
5101 Butternut Rd.,
1 HP Deskjet 627C SUS88H1S1TK Durhan, NC Creative Computers 10/16/98 P39532240101 156.00
- ------------------------------------------------------------------------------------------------------------------------------------
31-24 99th St. Buy.Com (Phil Tish
1 HP Deskjet 710C SG8763W09S Flushing, NY ExpenseR) 02/16/99 708874 163.95
- ------------------------------------------------------------------------------------------------------------------------------------
4421 Carrington CT,
1 HP Deskjet 697C Printer SMX8BL110YK Harrisburg, PA Creative Computers 12/15/98 P41990550101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
3001 Blue Bird,
1 HP Deskjet 697C Printer SMX8BC120JY McCallen, TX Creative Computers 12/16/98 P42140590101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 131
Page 3 of 3
TO: EXHIBIT II
Sched. No. 5 to Master Lease Agmt.
Sale and Leaseback Agmt. By and between
Bill of Sale Transamerica Business Credit Corporation
UCC(s) (as Lessor); and
The Lightspan Partnership, Inc. (as Lessee)
Dated March 24, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
EQUIPMENT PURCHASE EQUIPMENT
QTY EQUIPMENT DESCRIPTION SERIAL NO. LOCATION VENDOR/SUPPLIER DATE INVOICE NO. COST
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
128 William Richmond,
1 HP Deskjet 697C SCN88S1K3Y1 Williamsburg, VA Creative Computers 11/16/98 P40757900101 181.00
- ------------------------------------------------------------------------------------------------------------------------------------
1077 Norwich Ave.,
1 HP Deskjet 712C SMY8C8120RW Virginia Beach, VA Creative Computers 02/23/99 P45318140101 202.00
- ------------------------------------------------------------------------------------------------------------------------------------
2282 S. Highland Dr., Buy.Com (Phil Tish
1 HP Deskjet 710C SG8761W0PS Camino Island, WA ExpenseR) 02/05/99 652319 166.95
- ------------------------------------------------------------------------------------------------------------------------------------
SUBTOTAL: 52,372.37
EXEMPT EQUIPMENT: 34,447.17
TAXABLE EQUIPMENT: 52,372.37
GRAND TOTAL EXHIBIT II: 86,819.54
===========================================================
</TABLE>
LESSOR: LESSEE:
TRANSAMERICA BUSINESS CREDIT THE LIGHTSPAN PARTNERSHIP, INC.
CORPORATION
BY: BY: /s/ KATHRYN M. WHITE
--------------------------------- --------------------------------
Kathryn M. White
TITLE: TITLE: Assistant Corporate Secretary
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EXHIBIT 10.13
PENTECH FINANCIAL SERVICES, INC.
LEASE NO. 300261
MASTER EQUIPMENT LEASE
This is a Master Equipment Lease between PENTECH FINANCIAL SERVICES, INC., a
California corporation, whose principal office is located at 310 West Hamilton
Avenue, Suite 202, Campbell, California 95008 ("Lessor") and THE LIGHTSPAN
PARTNERSHIP, INC., a California corporation, whose principal office address is
10140 Campus Point Dr., City of San Diego , State of California ("Lessee").
1. LEASE. Lessor agrees to lease to Lessee and Lessee agrees to lease from
Lessor, subject to the terms and conditions of this Master Equipment Lease
("Lease"), the personal property ("Equipment") described in each Acceptance
Supplement ("Supplement") executed and delivered by Lessor and Lessee pursuant
to the terms of this Lease. Each Supplement shall be in the form prescribed by
Lessor and, upon execution and delivery, shall constitute a part of this Lease
to the same extent as if the provisions thereof were set forth in full in this
Lease document; the terms "Agreement", "hereof," "herein," and "thereunder,"
when used in this Lease shall mean this Lease, each Supplement and each Schedule
as hereinafter defined. The Agreement constitutes an agreement to lease.
Ownership of the Equipment remains with Lessor and nothing herein contained
shall be construed as conveying to Lessee any right, title or interest in the
equipment except as a Lessee only.
2. SELECTION OF EQUIPMENT. Lessee acknowledges that it has selected the type,
quantity and supplier of the Equipment referred to herein and that it has
requested Lessor to purchase the same for leasing to Lessee. Lessee agrees that
the Equipment and each part or unit thereof is of a design, size, quality and
capacity required by Lessee and is suitable for its purposes. Lessee
acknowledges that Lessor has informed or advised Lessee, in writing either
previously or by this Lease, of the following: (i) the identity of the supplier;
(ii) that the Lessee may have rights under the Supply Contract; and (iii) that
the Lessee may contact the supplier for a description of any such rights Lessee
may have under the Supply Contract. Lessor hereby assigns to Lessee all rights
which Lessor has or may acquire against any manufacturer, supplier, or
contractor with respect to any warranty or representation relating to the
Equipment leased thereunder.
3. EQUIPMENT TO REMAIN PERSONAL PROPERTY; LOCATION, IDENTIFICATION; INSPECTION.
Lessee represents that the Equipment shall be and at all times remain separately
identifiable personal property. Lessee shall, at its own expense, take such
action as may be necessary to prevent any third party from acquiring any right
to or interest in the Equipment by virtue of the Equipment being deemed to be
real property or a part of other personal property, and shall indemnify Lessor
against any loss which it may sustain by reason of Lessee's failure to do so.
The Equipment may not be removed from the location specified in the Supplement
pertaining thereto without Lessor's prior written consent. If requested by
Lessor, Lessee shall attach to and maintain on each item of Equipment a
conspicuous plate or marking disclosing Lessor's ownership thereof. Lessor or
its representatives may, at all reasonable times, and without advance notice,
inspect the Equipment. Lessee shall promptly advise Lessor of any circumstances
which may in any manner affect any item of Equipment or in any manner affect
Lessor's title thereto.
4. EXECUTION OF FURTHER DOCUMENTATION. Lessee will, at its own expense, promptly
execute and deliver to Lessor such further documentation and assurances and take
such further action as Lessor may from time to time require in order to more
effectively carry out the intent and purpose of the Agreement so as to establish
and protect the rights, interests and remedies intended to be created in favor
of Lessor thereunder, including, without limitation, the execution and filing of
financing statements and continuation statements with respect to the Equipment
and Agreement. Lessee authorizes Lessor to effect any such filing (including the
filing of any financing statements without the signature of Lessee). Any expense
incurred by Lessor in connection with any filings under this paragraph shall be
payable by Lessor on demand.
5. DISCLAIMER OF IMPLIED WARRANTIES. THE PROPERTY WILL BE LEASED "AS IS" AND
"WHERE IS". THE LESSOR HAS NOT MADE, MAY NOT BE CONSIDERED TO HAVE MADE, AND
SPECIFICALLY DISCLAIMS:
(1) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE
PROPERTY, REGARDING TITLE, CONDITION, DESIGN, OPERATION, MERCHANTABILITY,
FREEDOM FROM CLAIMS OF INFRINGEMENT OR THE LIKE, FITNESS FOR USE FOR A
PARTICULAR PURPOSE, QUALITY OF MATERIALS OR WORKMANSHIP, ABSENCE OF DISCOVERABLE
OR NONDISCOVERABLE DEFECTS, OR THAT THE EQUIPMENT IS IN COMPLIANCE WITH ANY
APPLICABLE GOVERNMENT REQUIREMENTS OR REGULATIONS; AND
(2) ANY OTHER EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY WITH RESPECT TO THE
PROPERTY (INCLUDING ANY IMPLIED WARRANTY ARISING FROM A COURSE OF PERFORMANCE,
COURSE OF DEALING, OR USAGE OF TRADE); AND
(3) ANY EXPRESS OR IMPLIED REPRESENTATION OR WARRANTY REGARDING THE
CHARACTERIZATION OF THIS LEASE FOR TAX, ACCOUNTING, OR OTHER PURPOSES.
THE LESSEE WAIVES, RELEASES, RENOUNCES, AND DISCLAIMS EXPECTATION OF OR RELIANCE
ON ANY SUCH WARRANTY OR WARRANTIES.
THE LESSOR WILL NOT HAVE ANY RESPONSIBILITY OR LIABILITY TO THE LESSEE OR ANY
OTHER PERSON, WHETHER ARISING IN CONTRACT OR TORT, OUT OF ANY NEGLIGENCE OR
STRICT LIABILITY OF THE LESSOR OR OTHERWISE, FOR:
(1) ANY LIABILITY, LOSS, OR DAMAGE CAUSED OR ALLEGED TO BE CAUSED DIRECTLY OR
INDIRECTLY BY THE PROPERTY; BY ANY INADEQUACY, DEFICIENCY OR DEFECT OF THE
PROPERTY; OR BY ANY OTHER CIRCUMSTANCES IN CONNECTION WITH THIS LEASE;
(2) THE USE, OPERATION, OR PERFORMANCE OF THE PROPERTY OR ANY RISKS RELATING TO
IT;
(3) ANY CONSEQUENTIAL DAMAGES, INCLUDING THOSE FOR INTERRUPTION OF SERVICE, LOSS
OF BUSINESS, OR ANTICIPATED PROFITS; OR
(4) THE DELIVERY, OPERATION, MAINTENANCE, REPAIR, IMPROVEMENT, OR REPLACEMENT OF
THE PROPERTY.
6. TERM; ACCEPTANCE; RENT; RETURN. The term of lease of each item of Equipment
shall commence on the Commencement Date specified in the Supplement pertaining
to such Equipment and, unless earlier terminated pursuant to the provisions
hereof, shall continue for the term specified in such Supplement. Lessee's
execution and delivery of each Supplement shall constitute Lessee's irrevocable
acceptance of the equipment covered thereby for all purposes of this Agreement.
Lessee shall pay to Lessor, at the addresses specified above or at such other
address as may be provided by Lessor from time to time, rent as specified in
each Supplement. Each date on which an installment of rent is payable is
designated herein as "Rent Payment Date". As to each Supplement, the first Rent
Payment Date shall be the Rent Payment Date set forth therein, with the
succeeding Rent Payment Date on the corresponding day of each month thereafter.
In addition, if applicable, Lessee shall pay interim rent for the period between
the actual commencement of the rent under each Supplement and the date
designated as the Rent Payment Date, based on a 30 day month and the number of
days between the actual commencement date and the first Rent Payment Date.
Should any payment not be made by Lessee on or before the applicable Rent
Payment Date, Lessor shall be entitled to a late payment charge in addition to
the actual rent due of 5% of the late rent and any other amount due but unpaid
under this Agreement. Upon the expiration or earlier termination of the term of
lease of each item of Equipment leased thereunder, Lessee shall at its own
expense return such item to Lessor at such location as Lessor may designate, in
the condition required to be maintained by Paragraph 9 hereof.
7. LESSEE'S OBLIGATIONS IRREVOCABLE. The Lessee's obligation to pay all rent
will be absolute and unconditional and will not be affected or reduced by any
circumstance, including:
(1) Any setoff, counterclaim, recoupment, defense, or other right that the
Lessee may have for any reason against the Lessor, the manufacturer, any seller
of the property, or any person providing services with respect to the property;
(2) Any defect in the title, condition, design, operation, or fitness for use of
the property; any damage to, or loss or destruction of, the property; or any
interruption or cessation in its use or possession by the Lessee for any reason,
whether arising out of or related to an act or omission of the Lessor or any
other person;
(3) Any liens with respect to the property;
(4) The invalidity or unenforceability of this Agreement or any absence of
right, power or authority of the Lessor or Lessee to enter into this lease;
(5) Any insolvency, bankruptcy, reorganization, or similar proceedings by or
against the Lessor or Lessee; or
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(6) Any other circumstance or occurrence of any nature, whether or not similar
to any of the foregoing.
It is the express intention of the Lessor and Lessee that all rent payable under
this Agreement will be payable in all events, unless the obligation to pay is
terminated under the express provisions of this Agreement.
The Lessee hereby waives, to the extent permitted by law, all rights that it may
now have or later acquire, by order or otherwise, to terminate this Agreement or
any obligation imposed on the Lessee in relation to this Agreement.
Nothing in this Agreement may be construed as a waiver of the Lessee's right to
seek a separate recovery of any payment of rent that is not due and payable
under this Agreement. The Lessee retains any right it may have to seek damages,
specific performance, or any other remedy at law or in equity, separately or in
combination, against the Lessor or any other person, on account of the Lessor's
or other person's failure to perform its obligations under this Agreement.
8. RESTRICTIONS ON TRANSFER. THE LESSEE MAY NOT SUBLET OR TRANSFER POSSESSION OF
THE PROPERTY WITHOUT THE PRIOR WRITTEN CONSENT OF THE LESSOR WHICH MAY BE
WITHHELD IN THE SOLE AND ABSOLUTE DISCRETION OF THE LESSOR. THE LESSEE MAY NOT
ASSIGN, PLEDGE, OR OTHERWISE ENCUMBER THIS LEASE.
With respect to any sublease or transfer of possession of the property, the
rights of the sublessee or transferee will be subject and subordinate to all the
terms of this Agreement, including the Lessor's right of repossession on the
occurrence of an event of default. The Lessee will remain primarily liable for
the performance of all the terms of this Agreement to the same extent as if the
sublease or transfer of possession had not occurred.
The Lessor will have the right, at its sole expense, to assign, sell, or
encumber any part of its interest in the property or in this Agreement and any
proceeds of the disposition of that interest, subject to the Lessee's rights
under this lease. To effect or facilitate such assignment, sale or encumbrance,
the Lessee agrees to provide all agreements, consents, conveyances or documents
that may be reasonably requested by the Lessor, including an unrestricted
release of the Lessor from its obligations under this Agreement. That release
will not release the Lessor from any liability that arose before the assignment
or sale.
Any person who succeeds to the rights and interests of the Lessor under this
clause will agree to be bound by the terms of this Agreement without alteration.
The Lessee acknowledges that an assignment, sale, or encumbrance of the Lessor's
interest would not materially change the Lessee's duties under the Agreement or
materially increase its burdens or risks. Even if such a transfer could be
deemed to have that effect, the Lessee agrees that the assignment, sale or
encumbrance will nevertheless be permitted.
Without prejudice to any rights that the Lessee may have against the Lessor, the
Lessee agrees that it will not assert against an assignee any claim or defense
that it may have against the Lessor.
The agreements, covenants, obligations and liabilities contained in this clause,
including but not limited to, all obligations to pay rent and to indemnify each
indemnitee, are made for the benefit of the indemnitees and their respective
successors and assigns.
9. MAINTENANCE COVENANT. The Lessee will:
(1) Furnish all labor and parts required for maintaining, repairing, and
replacing component parts of the property to keep it in good operating condition
and appearance;
(2) Use, operate, maintain, and store the property in a careful and proper
manner;
(3) Protect the property from deterioration;
(4) Comply with the manufacturer's operating procedures and warranty
restrictions and all laws, ordinances, and regulations applicable to the
property or its use and in compliance with the insurance policies required to be
maintained thereunder;
(5) Put the property only to the use contemplated by the manufacturer; and
(6) Maintain accurate and complete records of all repairs and maintenance of the
property and allow the Lessor to inspect those records at any time.
(7) Comply with the maintenance requirements of any maintenance schedule
attached as a part of this agreement.
The Lessee will not make any alterations, additions, or improvements to the
property without the Lessor's prior written consent. All repairs, replacement
parts, additions, alterations, and improvements made to the property by the
Lessee will be considered to be the Lessor's property and subject to the terms
of this Agreement.
10. RISK OF LOSS COVENANT. The Lessee will bear the entire risk of destruction,
loss, theft, requisition of title, or use, confiscation, taking, or damage
(collectively, casualty loss) of the property from any cause during the period
commencing when the property is placed in transit to the Lessee and ending when
the property is returned to the Lessor or its designee following termination as
provided herein. If during that period the property suffers any casualty loss,
the Lessee will notify the Lessor in writing within five days following the
casualty loss. On demand by the Lessor, the Lessee will:
(1) If the damage constituting the casualty loss is repairable, repair the
property to the condition in which the property is required to be maintained
under this Agreement;
(2) If the damaged property is not repairable, replace the property at the
Lessee's sole expense with like property approved by the Lessor and take all
actions and make all payments that may be required to vest in the Lessor title
to the replacement property, free and clear of all liens, encumbrances, or
security interests; or
(3) Pay to the Lessor the casualty value (as defined below) and all other
amounts then due under this Agreement. "Casualty value" is, at any given date,
the stipulated loss value as shown on the applicable Schedule to each
Supplement, and is computed to be the sum of:
(1) The discounted value at that time, of the aggregate unpaid monthly rent
payments to be paid through the then remaining term of this Agreement,
discounting that amount at an annual discount rate of 8 percent; and
(2) The Lessor's reasonable estimate, at that time, of the fair market value of
the property at the end of the term of this Agreement, discounted at an annual
discount rate of 8 percent.
11. INSURANCE. Lessee shall maintain at all times on the equipment, at Lessee's
expense, property damage, direct damage, and liability insurance in such
amounts, against such risks, and in such form and with such insurers as shall be
satisfactory to Lessee. The required insurance shall be as specified in the
applicable Supplement; provided, however, that the amount of direct damage
insurance shall not on any date be less than the greater of the full replacement
value or the Stipulated Loss Value of the Equipment as of such date. Each
insurance policy will name Lessor as additional insured and as loss payee, and
shall contain a clause requiring the insurer to give to Lessor at least 30 days
prior written notice of any alteration in or cancellation of the terms of such
policy. Lessee shall furnish to Lessor a certificate or other evidence
satisfactory to Lessor that such insurance coverage is in effect, provided,
however, that Lessor shall be under no duty to ascertain the existence or
adequacy of such insurance.
12. TAXES; INDEMNITY. Lessee agrees to pay, and to indemnify and hold Lessor
harmless from, all license fees, assessments, and sales, use, property, excise,
and other taxes and charges (other than federal income taxes and taxes imposed
by any other jurisdiction which are based on, or measured by, the net income of
Lessor for reasons other than the ownership or leasing of the Equipment in such
jurisdiction) imposed upon or with respect to (a) the Equipment or any part
thereof arising out of or in connection with the shipment of Equipment or the
possession, ownership, use or operation thereof, or (b) this Agreement or the
consummation of the transactions herein contemplated. The agreements and
indemnities contained in this paragraph shall survive the expiration or earlier
termination of this Agreement.
13. DEPRECIATION INDEMNITY.
(1) Lessor, as the owner of the Equipment, shall be entitled to such deductions,
credits and other benefits as are provided by the Internal Revenue Code of 1986,
as amended (IRC), to an owner of property.
(2) Lessee agrees that neither it nor any corporation controlled by it, in
control of it, or under common control with it, directly or indirectly, will at
any time take any action or file any returns or other documents inconsistent
with the foregoing and that each of such corporations will file such returns,
take such action, and execute such documents as may be reasonable and necessary
to facilitate accomplishment of the intent thereof. Lessee agrees to copy and
make available for inspection and copying by Lessor such records as will enable
Lessor to determine whether it is entitled to the benefit of any amortization or
depreciation deduction, or other deduction or credit which may be available from
time to time with respect to the Equipment.
(3) If Lessor, under any circumstances or for any reason whatsoever, except for
acts of Lessor or future changes in the IRC, shall lose or shall not have the
right to claim or there shall be disallowed or recaptured, all or any portion of
the federal tax depreciation deductions with respect to any item of Equipment
based on depreciation of the Lessor's full cost of such item of Equipment and
computed on the basis of a method of depreciation provided by the IRC as Lessor
in its complete discretion may select, then Lessee agrees to pay Lessor upon
demand an amount which, after deduction of all taxes required to be paid by
Lessor in respect of the receipt thereof under the laws of any federal, state,
or local government or taxing authority of the United States or of any taxing
authority or government subsidiary of any foreign country, shall be equal to the
sum of (I) an amount equal to the additional income taxes paid or payable by
Lessor in consequence of the failure to obtain the benefit of a depreciation
deduction, and (ii) any interest and/or penalty which may be assessed in
connection with any of the foregoing.
The provisions of this paragraph shall survive the expiration or earlier
termination of this Agreement.
14. INDEMNIFICATION COVENANT. The Lessee agrees to indemnify, reimburse, and
hold harmless each indemnitee from and against all claims, damages, losses,
liabilities, demands, suits, judgments, causes of action, civil and criminal
legal proceedings, penalties, fines and other sanctions, and any attorney fees
and other reasonable costs and expenses, arising or imposed with or without the
Lessor's fault or negligence (whether active or passive) or under the doctrine
of strict liability (collectively, "claims"), relating to or arising in any
manner out of:
(1) This Agreement or the breach of any representation, warranty, or covenant
made by the Lessee under this Agreement;
(2) Manufacture, purchase, lease, delivery, nondelivery, acceptance, rejection,
ownership, possession, use, operation, return, or disposition of the Equipment;
(3) The Equipment's condition or any discoverable or nondiscoverable defect in
it arising from its design, testing, or construction; any article used in the
Equipment; or any maintenance, service, or repair, whether or not the Equipment
is in the Lessee's possession and regardless of where the Equipment is located;
or
(4) Any transaction, approval, or document contemplated by this Agreement. The
Lessee waives and releases each indemnitee from any existing or future claims in
any way connected with injury to or death of the Lessee's personnel, loss or
damage of the Lessee's property, or loss of use of any property, which may:
(a) Result from or arise in any manner out of the ownership, leasing, condition,
use, or operation of the Equipment; or
(b) Be caused by any defect in the Equipment; its design, testing, or
construction; any article used in the Equipment; or any maintenance, service, or
repair, whether or not the Equipment is in the Lessee's possession and
regardless of where the Equipment is located. The indemnities described in this
clause will continue in full force and effect notwithstanding the expiration or
other termination of this Agreement and are expressly made for the benefit and
will be enforceable by each indemnitee.
15. COVENANT TO KEEP FREE OF LIENS. The Lessee will not directly or indirectly
create, incur, assume, or suffer to exist any lien on the Equipment, its title,
or any interest in the lien, except for:
(1) The respective rights of the Lessor and Lessee under this Agreement;
(2) Liens granted by the Lessor with respect to the Equipment;
(3) Liens for taxes either not yet due or being contested in good faith by the
Lessee as long as adequate reserves are maintained with respect to those liens
and the Equipment is not, in the Lessor's reasonable opinion, in danger of being
sold, confiscated, forfeited, or seized as a result of the liens; and
(4) Inchoate materialmen's, mechanics', workmen's, repairmen's, employees', or
other like liens arising in the ordinary course of business, which either are
not delinquent or are being contested in good faith by the Lessee, as long as
the Equipment is not, in the Lessor's reasonable opinion, in danger of being
sold, confiscated, forfeited, or seized as a result of the liens.
The Lessee will promptly, at its sole expense, take any action that may be
necessary to discharge any lien except for the liens referred to in paragraphs
(1) and (2) arising at any time with respect to the Equipment.
16. WAIVER OF CONSEQUENTIAL DAMAGES. The Lessee will not be entitled to recover,
and hereby disclaims and waives any right that it may otherwise have to recover,
consequential damages as a result of any breach or alleged breach by the Lessor
of any of the agreements, representations, or warranties of the Lessor contained
in this Agreement.
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17. LESSOR'S RIGHT TO PERFORM. If Lessee fails to make any payment required to
be made thereunder or fails to comply with any other provisions of this
Agreement, Lessor may make such payment or comply with such provisions, and the
amount of such payment and the reasonable expenses of Lessor incurred in
connection with such payment or compliance, shall be payable by Lessee.
18. DEFAULT. Any one of the following occurrences shall, in the Lessor's sole
discretion, constitute a material default by Lessee, of this Agreement:
(1) Failure by Lessee to make any payment of rent or other amount owing
thereunder when due;
(2) Failure of Lessee to perform or observe any other covenant, agreement, or
condition thereunder;
(3) Any representation or warranty made by Lessee herein or in any document or
certificate furnished to Lessor in connection herewith shall prove to be
incorrect at any time;
(4) Lessee shall become insolvent or make an assignment for the benefit of
creditors or consent to the appointment of a trustee or receiver, or a trustee
or receiver shall be appointed for Lessee or for a substantial part of its
property or for the Equipment, or reorganization, arrangement, insolvency,
dissolution, or liquidation proceedings shall be instituted by or against
Lessee.
In such event, Lessor may declare this Agreement to be in default, and may
proceed in accordance with the provisions of Paragraph 19 hereof.
19. REMEDIES.
(1) Remedies. On the occurrence of any event of default and at any time
afterwards as long as it continues, the Lessor may, at its option and without
notice to the Lessee, declare this Agreement to be in default and exercise one
or more of the following remedies:
(a) Declare the then Stipulated Loss Value immediately due and payable with
respect to any or all items of Equipment without notice or demand to Lessee;
(b) Sue for and recover all rent and other payments, then accrued or thereafter
accruing, with respect to any or all items of Equipment;
(c) Take possession of and render unusable any or all items of Equipment,
without demand or notice, wherever same may be located, without any court order
or other process of law and without liability for any damages occasioned by such
taking of possession (any such taking of possession will not constitute a
termination of this lease as to any or all items of Equipment unless Lessor
expressly so notifies Lessee in writing);
(d) Require Lessee to assemble any or all items of Equipment at the original
equipment location, such location to which the equipment may have been moved
with the prior written consent of Lessor, or such other location in reasonable
proximity to either of the foregoing as Lessor designates;
(e) Sell or otherwise dispose of any or all items of Equipment whether or not in
Lessor's possession, in a commercially reasonable manner at public or private
sale and with or without notice to Lessee and apply the net proceeds of such
sale, after deducting all costs of such sale, including, but not limited to,
costs of transportation, repossession, storage, refurbishing, advertising and
broker's fees, to the obligations of Lessee thereunder with Lessee remaining
liable for any deficiency and with any excess being retained by Lessor;
(f) Retain any repossessed items of Equipment and credit the reasonable value
thereof, after deducting all such sales related costs incurred to the date of
crediting, to the obligations of Lessee thereunder with Lessee remaining liable
for any deficiency and with Lessor having no obligation to reimburse Lessee on
account of any excess of such reasonable value over such obligations;
(g) Terminate this lease as to any or all items of Equipment;
(h) Utilize any other remedy available to Lessor at law or in equity.
In each case, plus the amount, if any, as reasonably calculated by the Lessor,
required for the Lessor to receive the same after tax economic return from this
lease that the Lessor would have received if the Lessee had performed all of its
obligations under this Agreement through the end of the lease term.
In addition to the foregoing, the Lessee will be liable for interest on unpaid
amounts at an annual interest rate of 18 percent from the date the same became
due until payment in full, and for all reasonable legal fees and other
reasonable costs and expenses incurred by the Lessor in connection with the
occurrence of any event of default or the exercise of its remedies.
A termination hereunder will occur only upon written notice by Lessor to Lessee
and only with respect to such items of Equipment as to which Lessor specifically
elects to terminate in such notice. Except as to such items with respect to
which there is a termination, this lease will remain in full force and effect
and Lessee will be and remain liable for the full performance of all its
obligations thereunder.
No right or remedy conferred herein is exclusive of any right or remedy
conferred herein or by law; but all such rights and remedies are cumulative of
every other right or remedy conferred thereunder or at law or in equity, by
statute or otherwise, and may be exercised concurrently or separately from time
to time.
(2) In effecting any repossession, the Lessor and its representatives and
agents, to the extent permitted by law, will:
(a) Have the right to enter on any premises where the Lessor reasonably believes
the Equipment is located;
(b) Not be liable, in conversion or otherwise, for the taking of any personal
property of the Lessee that is in or attached to the repossessed Equipment as
long as the Lessor promptly returns that property to the Lessee;
(c) Not be liable in any manner for any damage to any of the Lessee's property
in repossessing and holding the Equipment, except for damage caused by the
Lessor's gross negligence or willful misconduct; and
(d) Have the right to maintain possession of and dispose of the Equipment on any
premises owned by the Lessee or under the Lessee's control.
If reasonably required by the Lessor, the Lessee, at its sole expense, will
assemble and make the Equipment available at a place designated by the Lessor.
If the Equipment is returned to or repossessed by the Lessor, any rights in any
express or implied warranty previously assigned to the Lessee or otherwise held
by it will without further act, notice, or writing be assigned or reassigned to
the Lessor, if assignable. The Lessee will be liable to the Lessor for all
reasonable expenses, costs, and fees incurred in (1) repossessing, storing,
preserving, shipping, maintaining, repairing, and refurbishing the Equipment to
the condition required by this Agreement; and (2) preparing the Equipment for
sale or lease, advertising the sale or lease, and selling or re-letting the
Equipment.
No remedy referred to in this paragraph is intended to be exclusive, but, to the
extent permissible under applicable law, each will be cumulative and operate in
addition to any other remedy referred to above or otherwise available to the
Lessor at law or in equity. The exercise or beginning of exercise by the Lessor
of any one or more of its remedies will not preclude the simultaneous or later
exercise by the Lessor of any other remedies.
No express or implied waiver by the Lessor of any default or event of default
will be construed as a waiver of any future or subsequent default or event of
default.
20. CONDITIONS PRECEDENT. The obligation of Lessor contained in paragraph 1 of
this Agreement shall be subject to the following conditions precedent:
(1) There shall have occurred no material adverse change in the business or the
financial condition of Lessee from the date hereof until the Commencement Date
of any Supplement;
(2) Lessee shall have furnished Lessor with a certificate or other evidence
satisfactory to Lessor that insurance coverage as required by this Agreement is
in effect as to the item of Equipment desired to be leased;
(3) Unless specifically waived by Lessor, Lessee shall have furnished Lessor
opinions of counsel as to the Agreement, in form and substance acceptable to
Lessor;
(4) Unless specifically waived by Lessor, Lessee shall have furnished Lessor
waivers, in form and substance acceptable to Lessor, of all rights in or to the
Equipment of any landlord or mortgagee of any real property upon which the
Equipment is or is to be situated; and
(5) All other instruments and legal and corporate proceedings in connection with
the transactions contemplated by this Agreement shall be satisfactory in form
and substance to Lessor, and counsel to Lessor shall have received copies of all
documents which it may have requested in connection therewith.
If any of the above conditions is not satisfied at the time Lessee submits any
Supplement, Lessor shall have no obligation under this Agreement to lease the
Equipment covered thereby to Lessee.
21. FINANCIALS. Lessee agrees that for so long as any item of Equipment shall be
leased under the Agreement, Lessee will deliver or cause to be delivered to
Lessor (a) as soon as practicable, and in any event within 15 days after the end
of each month, together with the related statements of income and expense for
such monthly period all in reasonable detail prepared in accordance with
generally accepted accounting principles consistently applied throughout the
period involved and certified by Lessee's chief financial officer; and (b) as
soon as practicable, and in any event within 120 days after the close of each
fiscal year of Lessee, the audited balance sheet of Lessee as of the end of such
fiscal year together with the related statements of income and surplus for such
fiscal year all in reasonable detail, prepared in accordance with generally
accepted accounting principles consistently applied throughout the period
involved and certified by an independent certified public accountant acceptable
to Lessor.
22. REPRESENTATIONS, WARRANTIES AND COVENANTS. As a material inducement to
Lessor entering into this Agreement with Lessee, Lessee represents, warrants,
and covenants as follows:
(1) If Lessee is a corporation, or a limited liability company, Lessee is duly
organized and validly existing and is in good standing under the laws of the
state of its incorporation, and is duly qualified and licensed to do business as
a foreign corporation and is in good standing in those jurisdictions where such
qualifications are necessary to authorize Lessee to carry on its present
business and operations, and to own its properties or to perform its obligations
thereunder;
(2) If Lessee is a partnership, Lessee is duly organized and validly existing
under the partnership laws of its state of domicile and is duly authorized in
any foreign jurisdiction where such qualification is necessary to authorize
Lessee to carry on its present business and operations and to own its properties
and to perform its obligations thereunder;
(3) Lessee has full power, authority, and legal right to execute, deliver, and
carry out as Lessee the terms and provisions of this Agreement, and any other
necessary documents in connection with this transaction;
(4) If Lessee is a corporation, Lessee's execution, delivery, and performance of
this Agreement and the other documents and agreements referred to herein, and
the performance of its obligations under this Agreement have all been authorized
by all necessary corporate action, do not require the approval or consent of
stockholders, or of any trustee or holders of any indebtedness or obligation of
Lessee and will not violate any law, governmental rule, regulation or order
binding upon Lessee or any provision of any indenture, mortgage, contract, or
other agreement to which Lessee is a party or by which it is bound or to which
it is subject, and will not violate any provision of the Certificate or Articles
of Incorporation, Bylaws, or any preferred stock agreement of Lessee;
(5) If Lessee is a partnership, Lessee's execution, delivery and performance of
this Agreement and the other documents and agreements referred to herein, and
the performance of its obligations under this Agreement have all been authorized
by all necessary partnership actions;
(6) There are no pending or threatened investigations, actions, or proceedings
before any court or administrative agency or other tribunal body, which seek to
question or set aside any of the transactions contemplated by this Agreement, or
which, if adversely determined, would materially affect the condition, business,
or operation of Lessee;
(7) Lessee is not in default in any material manner in the payment or
performance of any of its obligations or in the performance of any contract,
agreement, or other instrument to which it is a party or by which it or any of
its assets may be bound;
(8) The balance sheet of Lessee as of the end of its most recent fiscal year and
the related profit and loss statement of the Lessee for the fiscal year ended on
said date, including the related schedules and notes, together with the report
of an independent certified public accountant, heretofore delivered to Lessor,
are all true and correct and present fairly (i) the financial position of Lessee
as of the date of said balance sheet and (ii) the results of the operations of
Lessee for said fiscal year;
(9) All proceedings required to be taken to authorize the lease of the Equipment
from Lessor and to protect Lessor's interest in such Equipment, free and clear
of all liens and encumbrances whatsoever, have been taken;
(10) Lessee has no significant liabilities (contingent or otherwise) which are
not disclosed by or reserved against the financial statements referred to in 8
above;
(11) All the financial statements referred to in 8 above have been prepared in
accordance with generally accepted accounting principles and practices applied
on a basis consistently maintained throughout the period involved;
(12) There has been no change which would have a material adverse effect on the
business or financial condition of Lessee from that set forth in the balance
sheet referred to in 8 above;
(13) No authorization, consent, approval, license, exemption of or filing or
registration with any court, governmental unit or department, commission, board,
bureau, agency, instrumentality or the like is required or necessary for the
valid execution and delivery of the Agreement, any bill of sale, and the other
documents and agreements referred to herein;
(14) This Master Lease, the Supplements, and any accompanying documents, having
been duly authorized, executed and delivered to Lessor, constitute legal, valid
and binding obligations of Lessee, enforceable against Lessee in accordance with
the terms thereof except as such terms may be limited by bankruptcy, insolvency,
or similar laws affecting the enforcement of creditor's rights generally;
3
<PAGE> 4
(15) Each item of Equipment will constitute unused "new Section 38 property" in
the hands of Lessor within the meaning of the Internal Revenue Code of 1986, as
amended, on the Commencement Date specified in the Supplement pertaining to said
item of Equipment;
(16) The Equipment is personal property and neither real property nor a fixture;
(17) The Equipment will be used for commercial operations only, not for
personal, family, or household purposes.
(18) As of the Commencement Date of each item of Equipment, a reasonable
estimate of the estimated fair market value of such item of Equipment at the end
of the lease term thereof will be at least 20% of the Lessor's cost thereof
(without including in such value any increase or decrease for inflation or
deflation, and after subtracting from such value any cost for removal and
delivery of possession of Equipment to Lessor at the end of the lease term
thereof); and
(19) As of the Commencement Date of each item of Equipment, a reasonable
estimate of the estimated useful life of such item of Equipment at the end of
the original lease term will be at least two years beyond the lease term
thereof.
23. PURCHASE OPTION. Lessor and Lessee hereby agree that so long as no default
shall have occurred and be continuing, Lessee shall have the option (and Lessor
shall have the right to obligate Lessee) to purchase the Equipment at the
expiration of the lease term for the purchase option price set forth in the
applicable Supplement. In order to exercise the option with respect to all of
the Equipment, Lessee must give Lessor written notice at least 90 days prior to
the expiration of the lease term with respect thereto, and remit the purchase
price in cash to Lessor or its assigns on or before said expiration date. After
receipt of the purchase price in accordance with this paragraph, Lessor will
transfer to Lessee all of its right, title and interest in the Equipment
purchased, as-is, where-is, without recourse, representation or warranty of any
kind, express or implied. Fair Market Sales Value for the purpose of this
paragraph only shall be determined on the basis of and be equal in amount to the
value that would be obtained in a transaction between an informed and willing
buyer and an informed and willing seller, and the cost of moving the Equipment
from the location of current use shall not be a deduction from such value.
24. CHOICE OF LAW. The rights and liabilities of the parties under this
Agreement, and each Supplement, shall be interpreted, enforced and governed in
all respects by the laws of the State of California. Lessee hereby consents and
subjects itself to the jurisdiction of every local, state, and federal court
within the State of California, and agrees that except as otherwise required by
law, Lessee shall never file or maintain any action or proceeding in connection
with this Agreement, or any Supplement in any court outside the State of
California. Lessee hereby agrees that service of process in connection with any
such action upon Lessee may be in the manner provided by the laws of the State
of California.
25. ATTORNEY FEES AND COSTS. Lessee will pay or reimburse Lessor for all costs
and expenses, including repossession, equipment disposition and court costs and
reasonable attorney's fees (including a reasonable fee for services of salaried
counsel employed by Lessor), not offset against amounts recovered or credited as
contemplated in paragraph 19, incurred by Lessor in exercising any of its rights
or remedies thereunder or enforcing any of the terms, conditions or provisions
hereof. This obligation includes the payment or reimbursement of all such
amounts whether an action is ultimately filed and whether an action filed is
ultimately dismissed.
26. HEADINGS FOR CONVENIENCE ONLY. The headings for the paragraphs and
provisions in this Master Lease, as well as the other documents constituting the
Agreement, are intended solely for convenience of reference and are not intended
nor shall they be used to construe, explain, modify or place any meaning upon
any provisions hereof.
27. MODIFICATION. Neither this Master Lease or any other document or Supplement
constituting the Agreement can be modified or amended except by written
agreement signed and dated by both Lessor and Lessee.
28. COUNTERPARTS. This Master Lease and any other document or Supplement
constituting the Agreement may be executed in any number of counterparts. Any
document executed in counterparts shall remain one document. Each counterpart is
an original instrument.
29. PROVISIONS SEVERABLE. Should any provision of the Agreement be determined to
be invalid or unenforceable, such invalidity or unenforceability shall not
affect the remaining provisions hereof.
30. ENTIRE AGREEMENT. This Master Lease, the Supplements, and all other
documents constituting the Agreement constitute the entire agreement between the
parties and no other representation or statements shall be deemed binding, nor
shall there be any reliance by either Lessor or Lessee upon any representations,
agreements, statements, promises, understandings, or inducements made which are
not embodied in the written Agreement.
Executed on June 25, 1999, at San Diego (City), California (State)
By execution hereof, the signer hereby certifies that he has read
this Agreement, and that he is duly authorized to execute this
Master Equipment Lease on behalf of Lessee.
LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.
a California corporation
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
LESSOR: PENTECH FINANCIAL SERVICES, INC.
a California corporation
By: /s/ BENJAMIN E. MILLERBIS
------------------------------------
Name: Benjamin E. Millerbis
----------------------------------
Title: President
---------------------------------
4
<PAGE> 5
PENTECH FINANCIAL SERVICES, INC.
ACCEPTANCE SUPPLEMENT
Supplement No. ONE to Master Equipment Lease No. 300261 Commencement Date JUNE
25, 1999. Expiration Date DECEMBER 1, 2002.
THIS ACCEPTANCE SUPPLEMENT is executed and delivered by PENTECH FINANCIAL
SERVICES, INC., a California corporation ("Lessor") and THE LIGHTSPAN
PARTNERSHIP, INC., a California corporation ("Lessee"), pursuant to and in
accordance with the Master Equipment Lease dated JUNE 25, 1999 between Lessor
and Lessee (the "Agreement"), terms defined therein being used herein with the
same definitions.
A. The Equipment covered by this Acceptance Supplement is described as follows:
See attached Equipment Schedule "A"
B. Lessee confirms that said equipment has been delivered to it, on the 29th day
of April, 1999, duly assembled and installed in good working order and
condition, at the following location:
See attached Equipment Schedule "A"
C. Lessee hereby: (a) confirms that said Equipment is of the size, design,
capacity and manufacture selected by it and meets the provisions of any purchase
order pursuant to which Lessor has acquired title thereto; and (b) irrevocably
accepts said Equipment as-is, where-is for all purposes of the Agreement as of
the Commencement Date set forth above.
D. The term of lease of said Equipment under the Agreement shall commence as of
the Commencement Date set forth above and, unless earlier terminated pursuant to
the provisions of the Agreement, shall expire on the Expiration Date set forth
above.
E. As rent for said Equipment throughout the term of lease referred to in the
preceding paragraph D, Lessee shall pay to Lessor in accordance with the terms
of the Agreement, 42 consecutive rental payments of $2,924.33. Rental payments
shall be made monthly. The first Rent Payment Date shall be JULY 1, 1999, with
subsequent rental payments commencing AUGUST 1, 1999, and continuing thereafter
to and including DECEMBER 1, 2002. Lessee shall pay an Interim Rent of $97.48
PLUS TAX per day for the period from the Commencement Date to the first Rent
Payment Date. Lessee shall pay a sales or use tax of $228.82 which shall be
added to each Rent Payment.
F. The insurance required pursuant to Paragraph 11 of the Agreement shall
include:
1. PHYSICAL DAMAGE TO ALL EQUIPMENT LEASED UNDER THIS SUPPLEMENT:
a. MINIMUM SCOPE OF COVERAGE: FIRE, EXTENDED COVERAGE, VANDALISM, THEFT,
AND MALICIOUS MISCHIEF;
b. Minimum Dollar Limits of Coverage: Not less than the higher of the
Stipulated Loss Value at the time of payment to Lessor of insurance
proceeds or fair market value immediately prior to the physical damage
of each item of Equipment leased hereunder;
c. Maximum Deductibles: Not more than $1,000.00 per occurrence. Lessee
is liable for all deductible amounts.
2. PUBLIC LIABILITY.
a. Minimum Scope of Coverage: Public liability including bodily injury
and property damage;
<PAGE> 6
b. Minimum Dollar Limits of Coverage: (i) Bodily Injury: $1,000,000, per
person per occurrence and $1,000,000, aggregate per occurrence; and (ii)
Property Damage: $1,000,000, per occurrence;
c. Maximum Deductibles: Not more than $1,000.00 per occurrence. Lessee
is liable for all deductible amounts.
G. Lessor has made certain tax assumptions pursuant to Section 13 of the
Agreement. These assumptions are as follows:
1. The Accelerated Cost Recovery System (ACRS) property class for the
Equipment is 5 years.
2. The Depreciation Method is the method selected by the Lessor's tax
department as being more favorable to Lessor, given the facts and
circumstances of each transaction.
H. The purchase option price for the Equipment pursuant to paragraph 23 of the
Agreement shall be the sum of $12,645.76.
The purchase price shall be payable as set forth in Paragraph 23 of the
Agreement.
I. All provisions of the Agreement are hereby incorporated by reference in this
Acceptance Supplement to the same extent as if they were set forth at length
herein.
APPROVED AND AGREED to by the parties hereto as of the Commencement Date set
forth above.
<TABLE>
<S> <C>
LESSOR: PENTECH FINANCIAL SERVICES, INC. LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.
a California corporation a California corporation
The undersigned affirms that he is duly authorized
to execute and deliver this Acceptance Supplement
on behalf of Lessee.
By: ____________________________________ By: ___________________________________
Name: BENJAMIN E. MILLERBIS Name: _________________________________
Title: President Title: ________________________________
</TABLE>
<PAGE> 7
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON AVE.
SUITE 202
CAMPBELL, CA 95008
(408) 378-2000
Lease No. 300261
Supplement No. ONE
SCHEDULE "A"
Attachment to Supplement No. ONE , dated as of JUNE 25, 1999 to Lease Agreement
No. 300261 between PENTECH FINANCIAL SERVICES, INC., a California Corporation,
as Lessor, and THE LIGHTSPAN PARTNERSHIP, INC., a California corporation, as
Lessee, dated as of JUNE 25, 1999.
VENDOR: BOISE CASCADE, FILE 42256, LOS ANGELES, CA 90074-2256, (714) 898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 E4 694L-L FILE, LAT PY 4DWR L/L 42 HONIND
REQ. PROD. # E4694LL
$869.25
</TABLE>
VENDOR: COMP VIEW, 10035 SW ARCTIC DR., BEAVERTON, OR 97005, (503) 641-8439
EQUIPMENT LOCATION: 10801 AVENIDA PLAYA VERACRUZ, SAN DIEGO, CA 92124
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 LCPIFSLP425Z IFS LCD PRJ LP425Z 3DW91400025
SVGA/900 LU
1 PTRCVI4141 TRACKMAN MOUSE 4141 FOR
PC/WIN
1 CASIFSC134 IFS LP420 ATA CASE C134
MANUFACTURER EXTENDED WARRANTY INCLUDED
$4,479.01
</TABLE>
VENDOR: COMP VIEW, 10035 SW ARCTIC DR., BEAVERTON, OR 97005, (503) 641-8439
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
6 LCPIFSLP425Z IFS LCD PRJ LP425Z 3DW91300299, 3DW91300666
SVGA/900 LU 3DW91400243, 3DW91400249
3DW91400257, 3DW91400274
1 LCPPRXDP9250 PROX LCD PROJ G9101481
DP9250 1024X768
1 CASPRXA303 PRX 013 HRD TRVL CS
58/59/92XX
1 PTRCVI4141 TRACKMAN MOUSE 4141
FOR PC/WIN
1 SCRDAL78582 DALITE 78582
INSTA-THEATER 60"
MANUFACTURER EXTENDED WARRANTY INCLUDED
$32,954.68
</TABLE>
Lease No. 300261
Supplement No. ONE
SCHEDULE "A"
Page 1 of 4
<PAGE> 8
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 HEWC4086A HP LASERJET 8000N LASER PRINTER
$2,665.74
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
5 220-1394 DELL DIMENSION XPS T500MHZ 307VA, 307VE, 307VI
PENTIUM III MINITOWER BASE 307WA, 307WI
WITH 512KCACHE
5 310-0050 INTELLIMOUSE, FACTORY INSTALLED
5 310-7002 KEYBOARD, FACTORY INSTALLED
5 311-0410 128MB, SDRAM MEMORY,
FACTORY INSTALLED
5 313-0266 HARMAN/KARDON HK-195 SPEAKERS
FACTORY INSTALLED
5 313-0622 TURTLE BEACH MONTEGO A3D 64
VOICE PCI SOUND CARD, FACTORY INSTALLED
5 313-1086 40X MAX VARIABLE CD ROM
FACTORY INSTALLED
5 313-3607 NO MODEM REQUESTED FOR DELL
DIMENSION
5 320-1109 16MB STB NVIDIA TNT 3D AGP
GRAPHICS CARD, FACTORY INSTALLED
5 320-3000 VIDEO READY OPTION W/O MONITOR
5 340-1581 20.4GB ULTRA ATA HARD DRIVE,
FACTORY INSTALLED
5 340-2409 3.5", 1.44M, NO BEZEL FLOPPY DRIVE
FACTORY INSTALLED
5 340-7775 IOMEGA ZIP 100MB INTERNAL DRIVE
WITH ONE CARTRIDGE (NT), FACTORY INSTALLED
5 412-0203 MICROSOFT INTERNET EXPLORER 4.01 SP1A,
CD WITH DOCS, US, ENGLISH, OEM PACKAGE
FACTORY INSTALLED
5 420-1666 MICROSOFT WINDOWS NT4.0
FACTORY INSTALLED
5 430-1550 3COM 3C905B TXB 10/100 WUOL
NETWORK CARD, FACTORY INSTALLED
5 900-1600 SELECTCARE, INITIAL YEAR, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
5 900-5112 NEXT BUSINESS DAY, PART DELIVERY SERVICE
YEARS 2 & 3 INCLUDED
5 412-0071 MS OFFICE SMALL BUSINESS EDITION 97.2 CD
& NO PRINTED MANUAL, US ENGLISH, FACTORY INSTALLED
5 412-0301 MS ENCARTA ENCYCLOPEDIA 99, CD & DOC,
US ENGLISH, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. ONE
SCHEDULE "A"
Page 2 of 4
<PAGE> 9
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
5 412-0524 MS OFFICE 2000 SMALL BUSINESS UPGRADE
FLYER, US, ENGLISH
SHIPPING/HANDLING
$11,949.55
</TABLE>
VENDOR: CMPEXPRESS.COM, INC., P.O. BOX 54, DOWNINGTOWN, PA 19335, (800) 950-2671
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 546216 COLOR LASERJET 8500DN 6PPM 600DPI
64MB LASERPRINTER
$8,112.75
</TABLE>
VENDOR: CMPEXPRESS.COM, INC., P.O. BOX 54, DOWNINGTOWN, PA 19335, (800) 950-2671
EQUIPMENT LOCATION: 2001 WILSHIRE BLVD., #301, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 216878 PROLIANT 1600 6/450 64MB M1-512K
MID SVR. CD
2 220922 SMART ARRAY 221 1CH PCI ULTRA2
SCSI CONTR; 6MB
3 216795 128MB SDRAM DIMM 100MHZ
PROLIANT 800 1600 1850R
6 215870 9.1GB PLUGABLE W/ULTRA SCSI3 HD
1.0IN 7200RPM
1 076067 FIREWALL MODULE 50 USER
1 216864 6/450 512K PROC. OPT. KIT PROLIANT
800 1600 1850R
$15,670.34
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
10 146424 IBM TP 600E 6/300 4GB 32MB 1S26453AU78NCP54, 1S26453AU78NCZ90
24X, MFG. # 26453AU 1S26453AU78NDB41, 1S26453AU78NDB52
1S26453AU78NDK72, 1S26453AU78NDK77
1S26453AU78NDN40, 1S26453AU78NDP80
1S26453AU78NDT26, 1S26453AU78NDV43
SHIPPING/HANDLING
$26,455.00
</TABLE>
Lease No. 300261
Supplement No. ONE
SCHEDULE "A"
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 146488 SONY VAIO C1X PICTUREBOOK S0131002675
5/26, MFG. # PCG-C1X
$2,225.00
</TABLE>
Page 3 of 4
<PAGE> 10
<TABLE>
<S> <C>
TOTAL FOR ALL INVOICES $105,381.32
===========
LESSOR: PENTECH FINANCIAL SERVICES, INC., LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.,
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
By: By:
--------------------------------------- ---------------------------------------
Name: Benjamin E. Millerbis Name:
------------------------------------- ------------------------------------
Title: President Title:
------------------------------------ -----------------------------------
Date: June 25, 1999 Date: June 25, 1999
------------------------------------- -------------------------------------
</TABLE>
Page 4 of 4
<PAGE> 11
PENTECH FINANCIAL SERVICES, INC.
MASTER EQUIPMENT LEASE NO. 300261
ACCEPTANCE SUPPLEMENT NO. ONE
SCHEDULE C
STIPULATED LOSS PERCENTAGE VALUE
Terms defined in the Agreement shall have the same meanings when used herein.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Rent Payment Stipulated Loss Rent Payment Stipulated Loss Rent Payment Stipulated Loss
Value Percentage Value Percentage Value Percentage
<S> <C> <C> <C> <C> <C>
1 120.00 22 78.00
2 118.00 23 76.00
3 116.00 24 74.00
4 114.00 25 72.00
5 112.00 26 70.00
6 110.00 27 68.00
7 108.00 28 66.00
8 106.00 29 64.00
9 104.00 30 62.00
10 102.00 31 60.00
11 100.00 32 58.00
12 98.00 33 56.00
13 96.00 34 54.00
14 94.00 35 52.00
15 92.00 36 50.00
16 90.00 37 45.00
17 88.00 38 40.00
18 86.00 39 35.00
19 84.00 40 30.00
20 82.00 41 25.00
21 80.00 42 20.00
</TABLE>
Dated: June 25, 1999
<TABLE>
<S> <C>
LESSOR: PENTECH FINANCIAL SERVICES, INC. LESSEE: THE LIGHTSPAN PARTNERSHIP, INC., A CALIFORNIA
A CALIFORNIA CORPORATION CORPORATION
The undersigned affirms that he is duly authorized to
execute and deliver this Acceptance Supplement on behalf
of Lessee.
By: By:
--------------------------------------- ---------------------------------------
Title: President Title:
------------------------------------ ------------------------------------
</TABLE>
<PAGE> 12
PENTECH FINANCIAL SERVICES, INC.
ACCEPTANCE SUPPLEMENT
Supplement No. TWO to Master Equipment Lease No. 300261 Commencement Date JULY
1, 1999. Expiration Date DECEMBER 1, 2002.
THIS ACCEPTANCE SUPPLEMENT is executed and delivered by PENTECH FINANCIAL
SERVICES, INC., a California corporation ("Lessor") and THE LIGHTSPAN
PARTNERSHIP, INC., a California corporation ("Lessee"), pursuant to and in
accordance with the Master Equipment Lease dated JUNE 25, 1999 between Lessor
and Lessee (the "Agreement"), terms defined therein being used herein with the
same definitions.
A. The Equipment covered by this Acceptance Supplement is described as follows:
See attached Equipment Schedule "A"
B. Lessee confirms that said equipment has been delivered to it, on the 25th day
of June , 1999, duly assembled and installed in good working order and
condition, at the following location:
See attached Equipment Schedule "A"
C. Lessee hereby: (a) confirms that said Equipment is of the size, design,
capacity and manufacture selected by it and meets the provisions of any purchase
order pursuant to which Lessor has acquired title thereto; and (b) irrevocably
accepts said Equipment as-is, where-is for all purposes of the Agreement as of
the Commencement Date set forth above.
D. The term of lease of said Equipment under the Agreement shall commence as of
the Commencement Date set forth above and, unless earlier terminated pursuant to
the provisions of the Agreement, shall expire on the Expiration Date set forth
above.
E. As rent for said Equipment throughout the term of lease referred to in the
preceding paragraph D, Lessee shall pay to Lessor in accordance with the terms
of the Agreement, 42 consecutive rental payments of $1,855.97. Rental payments
shall be made monthly. The first Rent Payment Date shall be JULY 1, 1999, with
subsequent rental payments commencing AUGUST 1, 1999, and continuing thereafter
to and including DECEMBER 1, 2002. Lessee shall pay an Interim Rent of $61.87
PLUS TAX per day for the period from the Commencement Date to the first Rent
Payment Date. Lessee shall pay a sales or use tax of $147.89 which shall be
added to each Rent Payment.
F. The insurance required pursuant to Paragraph 11 of the Agreement shall
include:
1. PHYSICAL DAMAGE TO ALL EQUIPMENT LEASED UNDER THIS SUPPLEMENT:
a. MINIMUM SCOPE OF COVERAGE: FIRE, EXTENDED COVERAGE, VANDALISM, THEFT,
AND MALICIOUS MISCHIEF;
b. Minimum Dollar Limits of Coverage: Not less than the higher of the
Stipulated Loss Value at the time of payment to Lessor of insurance
proceeds or fair market value immediately prior to the physical damage
of each item of Equipment leased hereunder;
c. Maximum Deductibles: Not more than $1,000.00 per occurrence. Lessee
is liable for all deductible amounts.
2. PUBLIC LIABILITY:
a. Minimum Scope of Coverage: Public liability including bodily injury
and property damage;
<PAGE> 13
b. Minimum Dollar Limits of Coverage: (I) Bodily Injury: $1,000,000. per
person per occurrence and $1,000,000. aggregate per occurrence; and (ii)
Property Damage: $1,000,000. per occurrence;
c. Maximum Deductibles: Not more than $1,000.00 per occurrence. Lessee
is liable for all deductible amounts.
G. Lessor has made certain tax assumptions pursuant to Section 13 of the
Agreement. These assumptions are as follows:
1. The Accelerated Cost Recovery System (ACRS) property class for the
Equipment is 5 years.
2. The Depreciation Method is the method selected by the Lessor's tax
department as being more favorable to Lessor, given the facts and
circumstances of each transaction.
H. The purchase option price for the Equipment pursuant to Paragraph 23 of the
Agreement shall be the sum of $8,025.83.
The purchase price shall be payable as set forth in Paragraph 23 of the
Agreement.
I. All provisions of the Agreement are hereby incorporated by reference in this
Acceptance Supplement to the same extent as if they were set forth at length
herein.
APPROVED AND AGREED to by the parties hereto as of the Commencement Date set
forth above.
LESSOR: PENTECH FINANCIAL SERVICES, LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.
INC. a California corporation
a California corporation
The undersigned affirms that he is duly
authorized to execute and deliver this
Acceptance Supplement on behalf of
Lessee.
By: By:
-------------------------------- -------------------------------------
Name: BENJAMIN E. MILLERBIS Name: Kathleen R. McElwee
------------------------------ -----------------------------------
Title: President Title: VP Finance & CFO
----------------------------- ----------------------------------
<PAGE> 14
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON AVE.
SUITE 202
CAMPBELL, CA 95008
(408) 378-2000
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
Attachment to Supplement No. TWO , dated as of JULY 1, 1999 to Lease Agreement
No. 300261 between PENTECH FINANCIAL SERVICES, INC., a California Corporation,
as Lessor, and THE LIGHTSPAN PARTNERSHIP, INC., a California corporation, as
Lessee, dated as of JUNE 25, 1999.
VENDOR: THE GOOD GUYS/PHIL TISHKEVICH, WEST LOS ANGELES, CA 90064, (310)
441-4600
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
4 PANPHO KXT2315 TELEPHONES
1 SONY-V SLV798HF VIDEORECORDER 0218639
$465.28
</TABLE>
VENDOR: CIRCUIT CITY STORES, INC./PHIL TISHKEVICH, WEST LOS ANGELES, CA
90034-4203, (310) 391-3144
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 SON KV27S45 27" TELEVISION 8015278
$389.67
</TABLE>
VENDOR: TELEMATION, 20371 LAKE FOREST DR., SUITE A-5, LAKE FOREST, CA 92630,
(949) 587-9966
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 SS SOUNDSTATION, STANDALONE, POLYCOM
1 TELEMATION CATALOG
FREIGHT
$483.80
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 106558 3COM SSI DUAL SPD HUB 500 24P; MFG.
# 3C16611
SHIPPING & HANDLING
$1,838.63
</TABLE>
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
Page 1 of 8
<PAGE> 15
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
4 116405 IIYAMA VISIONMASTER 400 17IN 0107120050566, 0107120051420
MFG. # S701GT 0107120051421, 0107120051422
5 164481 BELKIN MULTIMED 104KEY W95 KB
MFG. # F8E211
SHIPPING & HANDLING
$1,667.82
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 164481 BELKIN MULTIMED 104KEY W95 KB
MFG. # F8E211
2 115531 MS INTELLIMOUSE V3.0 SER/PS2 W
MFG. # 673-00089
2 116405 IIYAMA VISIONMASTER 400 17IN 0107120050565, 0107120050567
MFG. # S701GT
SHIPPING & HANDLING
$922.51
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 112226 MS INTELLIMOUSE V3.0 SER/PS2 3
MFG. # 874-00001
1 114379 IIYAMA VISIONMASTER 502 21IN 0105910027140
MFG. # S102GT
SHIPPING & HANDLING
$1,193.81
</TABLE>
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
VENDOR: CMPEXPRESS.COM, INC., P.O. BOX 54, DOWNINGTOWN, PA 19335, (800) 950-2671
EQUIPMENT LOCATION: 2001 WILSHIRE BLVD., #320, SANTA MONICA, CA 90403
Page 2 of 8
<PAGE> 16
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
3 888656 EXAPAK MAMMOTH EXATAPE
W/10-AME170M 1-18C&1-DCH
1 083205 SMARTUPS 1000VA LINEINT 6RCPTL
S/WINC 120VAC UPS
1 888220 EXB-220RK 8900S 8MM RM 400/800GB
TDKIT FSCSI2
SHIPPING
$11,110.86
</TABLE>
VENDOR: CMPEXPRESS.COM, INC., P.O. BOX 54, DOWNINGTOWN, PA 19335, (800) 950-2671
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
3 220922 SMART ARRAY 221 1CH PCI
ULTRA2 SCSI CONTR 6MB
9 215870 9.1GB PLUGGABLE W/ULTRA 7200RPM CAU45952228584K, 52229604
1.0IN SCSI3 HD CAU45952229604E, CAU45952229818L
CAU45952228226D, UP10352228226D
CAU45952230329A, CAU459522300927
CAU459522303278
$8,037.00
</TABLE>
VENDOR: CMPEXPRESS.COM, INC., P.O. BOX 54, DOWNINGTOWN, PA 19335, (800) 950-2671
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 216877 PROLIANT 1850R 6/450 64MB M1-512K
RM SVR CD
6 215870 9.1GB PLUGGABLE W/ULTRA 7200RPM CAU45952224098G, CAU45952225128B
1.0IN SCSI3 HD 52223743, CAU45952224097F
68218123GA, 6821A089GA
2 220922 SMART ARRAY 221 1CH PCI ULTRA2 P1BA70C9IHP468
SCSI CONTR 6MB P1BA70C9IHP1PR
2 019917 256MB RAM UPGRADE
SHIPPING
$14,271.69
</TABLE>
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 2001 WILSHIRE BLVD., #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 HEWC4086A HP LASERJET 8000N LASER PRINTER USHF000793
$2,656.04
</TABLE>
Page 3 of 8
<PAGE> 17
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
3 IIYA901HT IIYAMA VISIONMASTER PRO 450 450-10028182, 450-10028127
19" MONITOR 450-10028181
2 IIYA101GT IIYAMA VISIONMASTER PRO 501 501-10010282
21" MONITOR 501-10010281
FREIGHT
$4,195.22
</TABLE>
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 COM313618-B21 COMPAQ PROLIANT 1600R 6/450
PROCESSOR MODULE
$2,788.57
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-1392 DELL DIMENSION XPS T500MHZ 049TJ
PENTIUM III MINITOWER BASE WITH 512K CACHE
1 310-0050 INTELLIMOUSE, FACTORY INSTALLED
1 310-7004 WINDOWS MECHANICAL KEYBOARD
FACTORY INSTALLED
1 311-6377 256MB, SDRAM MEMORY,
FACTORY INSTALLED
1 313-0266 HARMAN/KARDON HK-195 SPEAKERS
FACTORY INSTALLED
1 313-1087 40X MAX VARIABLE CD ROM
FACTORY INSTALLED
1 313-3607 NO MODEM REQUESTED FOR DELL
DIMENSION
1 313-4523 INTEGRATED SOUND FOR DELL DIMENSION
</TABLE>
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 320-0066 19" (18.0" VIEWABLE, .26DP) TRINITRON
P990 MONITOR
1 320-3225 16MB DIAMOND VIPER TNT AGP
GRAPHICS CARD, FACTORY INSTALLED
1 340-1581 20.4GB ULTRA ATA HARD DRIVE,
FACTORY INSTALLED
1 340-2409 3.5", 1.44M, NO BEZEL FLOPPY DRIVE
FACTORY INSTALLED
1 340-7775 IOMEGA ZIP 100MB INTERNAL DRIVE
WITH ONE CARTRIDGE (NT), FACTORY INSTALLED
</TABLE>
Page 4 of 8
<PAGE> 18
<TABLE>
<S> <C> <C> <C>
1 412-0203 MICROSOFT INTERNET EXPLORER 4.01 SP1A,
CD WITH DOCS, US, ENGLISH, OEM PACKAGE
FACTORY INSTALLED
1 420-1666 MICROSOFT WINDOWS NT4.0
FACTORY INSTALLED
1 430-1550 3COM 3C905B TXB 10/100 WUOL
NETWORK CARD, FACTORY INSTALLED
1 900-1600 SELECTCARE, INITIAL YEAR, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
1 900-5112 NEXT BUSINESS DAY, PARTS DELIVERY SERVICE
YEARS 2 & 3 INCLUDED
1 412-0071 MS OFFICE SMALL BUSINESS EDITION 97.2 CD
& NO PRINTED MANUAL, US ENGLISH, FACTORY INSTALLED
1 412-0301 MS ENCARTA ENCYCLOPEDIA 99, CD & DOC,
US ENGLISH, FACTORY INSTALLED
1 412-0524 MS OFFICE 2000 SMALL BUSINESS UPGRADE
FLYER, US, ENGLISH
SHIPPING/HANDLING
$3,149.60
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 0C13V, 0C13X
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
2 310-1234 WIN95 104 KEY KEYBOARD
FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0510 128MB, NON-ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
2 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
2 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
2 420-0102 WINDOWS NT WORKSTATION 4.0 CD
CD DOCUMENTATION, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
2 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-1900 SELECTCARE, NEXT BUSINESS DAY ON-SITE
</TABLE>
Page 5 of 8
<PAGE> 19
<TABLE>
<S> <C> <C> <C>
SERVICE, INITIAL YEAR BSC
2 900-1902 SELECTCARE, NEXT BUSINESS DAY ON-SITE
SERVICE, 2 YEAR EXTENDED, BSC
SHIPPING/HANDLING
$4,920.09
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 2001 WILSHIRE BLVD., #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 220-2805 DELL PIII 450K GX1/T+ BASE W/4MB 0M010, 0M012
VIDEO MEMORY, INTEGRATED AUDIO,
512K CACHE, INTEGRATED 10/100 WUOL NETWORKING
2 310-1234 QUIETKEY SPACESAVER 104-KEY KEYBOARD,
OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0287 AZTECH DATA/FAX 56K V.90, PCI
MODEM, OPTIPLEX, FACTORY INSTALLED
2 313-0524 14-32X, IDE, CD-ROM, INTEGRATED SOUND,
FACTORY INSTALLED
2 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
2 340-0701 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS
ONLY, WINDOWS NT 4.0, FACTORY INSTALLED
2 340-0984 10GB HARD DRIVE, EIDE, 7200 RPM,
GX1, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4 OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS
3PCI/2 SHARED/2 ISA WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED,
NEXT BUSINESS DAY ON-SITE SERVICE CONTRACT, BSC
1 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 0M5RJ
VIDEO MEMORY, INTEGRATED AUDIO, 512K CACHE,
INTEGRATED 10/100 WUOL NETWORKING
1 310-1234 QUIETKEY SPACESAVER 104-KEY KEYBOARD,
OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
</TABLE>
Page 6 of 8
<PAGE> 20
<TABLE>
<S> <C> <C> <C>
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 311-0519 128MB, ECC, SDRAM, 1 DIMM UPGRADE,
GX1/GX1P, 350+ MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0287 AZTECH DATA/FAX 56K V.90, PCI
MODEM, OPTIPLEX, FACTORY INSTALLED
1 313-0524 14-32X, IDE, CD-ROM, INTEGRATED SOUND,
FACTORY INSTALLED
1 320-1603 STB NVIDIA TNT 16MB PCI GRAPHICS CARD
FOR OPTIPLEX GX1 SYSTEMS, FACTORY INSTALLED
1 320-3316 MONITOR OPTION-NONE
1 340-0701 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS
ONLY, WINDOWS NT 4.0, FACTORY INSTALLED
1 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM,
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS
3 PCI/2 SHARED/2 ISA WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
</TABLE>
Lease No. 300261
Supplement No. TWO
SCHEDULE "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 900-2912 SELECTCARE, 2 YEAR EXTENDED,
NEXT BUSINESS DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$8,441.11
</TABLE>
VENDOR: ZONES, 707 SOUTH GRADE WAY, RENTON, WA 98055-3233, (425) 430-3000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 A 46791 SONY MULTISCAN 200ES 17" MONITOR S014379549R
1 P 02424 BELKIN ULTRABOARD WIN 95 KEYBOARD
SHIPPING & HANDLING
$350.18
TOTAL FOR ALL INVOICES $66,881.88
</TABLE>
LESSOR: PENTECH FINANCIAL SERVICES, LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.,
INC., A CALIFORNIA CORPORATION
A CALIFORNIA CORPORATION
Page 7 of 8
<PAGE> 21
By: By:
-------------------------------- --------------------------------
Name: Benjamin E. Millerbis Name: Kathleen R. McElwee
------------------------------ ------------------------------
Title: President Title: VP Finance & CFO
----------------------------- -----------------------------
Date: July 1, 1999 Date: July 1, 1999
------------------------------ ------------------------------
Page 8 of 8
<PAGE> 22
PENTECH FINANCIAL SERVICES, INC.
MASTER EQUIPMENT LEASE NO. 300261
ACCEPTANCE SUPPLEMENT NO. TWO
SCHEDULE C
STIPULATED LOSS PERCENTAGE VALUE
Terms defined in the Agreement shall have the same meanings when used herein.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Rent Payment Stipulated Loss Rent Payment Stipulated Loss Rent Payment Stipulated Loss
Value Percentage Value Percentage Value Percentage
<S> <C> <C> <C> <C> <C>
1 120.00 22 78.00
2 118.00 23 76.00
3 116.00 24 74.00
4 114.00 25 72.00
5 112.00 26 70.00
6 110.00 27 68.00
7 108.00 28 66.00
8 106.00 29 64.00
9 104.00 30 62.00
10 102.00 31 60.00
11 100.00 32 58.00
12 98.00 33 56.00
13 96.00 34 54.00
14 94.00 35 52.00
15 92.00 36 50.00
16 90.00 37 45.00
17 88.00 38 40.00
18 86.00 39 35.00
19 84.00 40 30.00
20 82.00 41 25.00
21 80.00 42 20.00
</TABLE>
Dated: July 1, 1999
LESSOR: PENTECH FINANCIAL SERVICES, LESSEE: THE LIGHTSPAN PARTNERSHIP, INC.,
INC. A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
The undersigned affirms that he is duly
authorized to execute and deliver this
Acceptance Supplement on behalf of
Lessee.
By: By:
-------------------------------- -------------------------------------
Title: President Title: VP Finance & CFO
----------------------------- ----------------------------------
<PAGE> 23
PENTECH FINANCIAL SERVICES, INC.
ACCEPTANCE SUPPLEMENT
Supplement No. THREE to Master Equipment Lease No. 300261
Commencement Date SEPTEMBER 1, 1999 Expiration Date FEBRUARY 28, 2003
THIS ACCEPTANCE SUPPLEMENT is executed and delivered by PENTECH FINANCIAL
SERVICES, INC., a California Corporation ("Lessor") and THE LIGHTSPAN
PARTNERSHIP, INC., a California Corporation ("Lessee"), pursuant to and in
accordance with the Master Equipment Lease with effective date of June 25, 1999
between Lessor and Lessee (the "Agreement"), terms defined therein being used
herein with the same definitions.
A. The Equipment covered by this Acceptance Supplement is described on the
Equipment Schedule attached hereto as Exhibit A and made a part hereof by
reference.
B. Lessee confirms that on the date of execution of this Acceptance Supplement,
the Equipment listed on the attached Equipment Schedule (Exhibit A) has been
delivered to it, duly assembled and installed in good working order and
condition, in the location specified on the attached Equipment Schedule (Exhibit
A).
C. Lessee hereby: (a) confirms that said Equipment is of the size, design,
capacity and manufacture selected by it and meets the provisions of any purchase
order pursuant to which Lessor has acquired title thereto; and (b) irrevocably
accepts said Equipment as-is, where-is for all purposes of the Agreement as of
the Commencement Date set forth above.
D. The term of lease of said Equipment under the Agreement shall commence as of
the Commencement Date set forth above and, unless earlier terminated pursuant to
the provisions of the Agreement, shall expire on the Expiration Date set forth
above.
E. As rent for said Equipment throughout the term of lease referred to in the
preceding paragraph D, Lessee shall pay to Lessor in accordance with the terms
of the Agreement, 42 consecutive rental payments of $3,722.25. Rental payments
shall be made monthly . The first Rent Payment Date shall be SEPTEMBER 1, 1999,
with subsequent rental payments commencing OCTOBER 1, 1999, and continuing
thereafter to and including FEBRUARY 1, 2003. Lessee shall pay an Interim Rent
of $124.08 plus tax for the period from the Commencement Date to the first Rent
Payment Date. Lessee shall pay a sales or use tax of $288.80 which shall be
added to each Rent Payment.
F. The insurance required pursuant to Paragraph 11 of the Agreement shall
include:
1. PHYSICAL DAMAGE TO ALL EQUIPMENT LEASED UNDER THIS SUPPLEMENT:
a. Minimum Scope of Coverage: Fire, extended coverage, vandalism, theft,
and malicious mischief;
b. Minimum Dollar Limits of Coverage: Not less than the higher of the
Stipulated Loss Value at the time of payment to Lessor of insurance proceeds or
fair market value immediately prior to the physical damage of each item of
Equipment leased hereunder;
c. Maximum Deductibles: Not more than $1,000.00 per occurrence. Lessee
is liable for all deductible amounts.
2. PUBLIC LIABILITY.
a. Minimum Scope of Coverage: Public liability including bodily injury
and property damage;
b. Minimum Dollar Limits of Coverage: (i) Bodily Injury: $1,000,000, per
person per occurrence and $1,000,000, aggregate per occurrence; and (ii)
Property Damage: $1,000,000, per occurrence;
1
<PAGE> 24
c. Maximum Deductibles: Not more than $1,000.00 per occurrence. Lessee
is liable for all deductible amounts.
G. Lessor has made certain tax assumptions pursuant to Section 13 of the
Agreement. These assumptions are as follows:
1. The Accelerated Cost Recovery System (ACRS) property class for the
Equipment is five years.
2. The Depreciation Method is the method selected by the Lessor's tax
department as being more favorable to Lessor, given the facts and circumstances
of each transaction.
H. The purchase option price for the Equipment pursuant to paragraph 23 of the
Agreement shall be $16,096.23. The purchase price shall be payable as set forth
in Paragraph 23 of the Agreement.
I. All provisions of the Agreement are hereby incorporated by reference in this
Acceptance Supplement to the same extent as if they were set forth at length
herein.
APPROVED AND AGREED to by the parties hereto as of the Commencement Date set
forth above.
LESSOR: LESSEE:
PENTECH FINANCIAL SERVICES, INC. THE LIGHTSPAN PARTNERSHIP, INC.
a California corporation a California corporation
The undersigned affirms that he is
duly authorized to execute and
deliver this Acceptance Supplement
on behalf of Lessee.
By: By:
-------------------------------- --------------------------------
BENJAMIN E. MILLERBIS
Title: President Name:
------------------------------
Title:
-----------------------------
2
<PAGE> 25
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON AVE.
SUITE 202
CAMPBELL, CA 95008
(408) 378-2000
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
Attachment to Supplement No. THREE , dated as of SEPTEMBER 1, 1999 to Lease
Agreement No. 300261 between PENTECH FINANCIAL SERVICES, INC., a California
Corporation, as Lessor, and THE LIGHTSPAN PARTNERSHIP, Inc., a California
corporation, as Lessee, dated as of JUNE 25, 1999.
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
4 E4 919492 RALL, DBL F/42"W LATFILE
2 E4 692L-I FILE, LAT PY 2 DWR L/L 42
1 E4 314PL FILE, 4DWR LTR PY W/LOK $713.50
</TABLE>
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 E4 4430D GLOBAL P/N E44430D OBUS CHAIR, HIGHBACK
W/ADJ. ARMS; FINISH: BLACK; FABRIC: GR.5 #788 NICKEL
1 Z7 DLVRY BLANKETWRAP M & M $523.67
</TABLE>
VENDOR: PROSCREEN INC./NORMAN MCKEITHAN, 10 CRATER LAKE AVE., MEDFORD, OR 97504,
FAX: 541-779-6959
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 PROSCREEN CUSTOM REAR PROJECTION SCREEN
26" X 34" X 1/4" 1.8 GAIN
HCWA PER NORMAN MCKEITHAN REAR SCREEN ORDER
FREIGHT
$216.48
</TABLE>
VENDOR: ERGOTRON/NORMAN MCKEITHAN, 1181 TRAPP RD., ST. PAUL, MN 55121, (651)
681-7600
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 45-007-099-02 12" TRPL, 75X75, RON, APG
MOUNTS FOR BOOTH
FREIGHT
$653.83
</TABLE>
Lease No. 300261
Supplement No. THREE
Page 1 of 20
<PAGE> 26
EXHIBIT "A"
VENDOR: CARVIN CORPORATION/NORMAN MCKEITHAN, 12340 WORLD TRADE DR., SAN DIEGO,
CA 92128, (619) 487-1600
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 P5-150-2 TWO PM5 SPKRS W/HT150 AMP
1 HT150 POWER AMP 150W W/3 YR. WARRANTY 164424
2 PM5-B SPEAR 2-WAY 5.25" BLK CAB 00097 & 00098
1 9000LP WIRELESS SYS VHF LAVALIER MIC 44201010078
$646.39
</TABLE>
VENDOR: GUITAR CENTER/NORMAN MCKEITHAN, CENTER DR., MARCOS, CA 92069, (619)
735-8050
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 SPIRIT RW5353 FOLIO NOTEPAD 6 CHNL MIXER 008616
SKU# 8535002111
1 PROCO EXM5 5' MIC CABLE
SKU# 0818176000
$200.39
</TABLE>
VENDOR: GUITAR CENTER/NORMAN MCKEITHAN, CENTER DR., MARCOS, CA 92069, (619)
735-8050
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 MID ATLANTIC CLAW CABLE ORGANIZER
$6.35
</TABLE>
VENDOR: GUITAR CENTER/NORMAN MCKEITHAN, CENTER DR., MARCOS, CA 92069, (619)
735-8050
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 AT DR8HPROW HEADSET MIC; SKU# 8899494000 00088
1 AT CP8201 LINE TRANSFORMER; SKU# 9072570000
1 DIGITAL REFERENCE DR8HPRO HEADSET MIC
SKU# 5460595000
1 AT DRLW CONDENSER LAV MIC; SKU# 0980521000
1 SKB RACK4 17 3/4" 4 SPACE RO TO RACK CAS
SKU# 1446752000
1 AT DR5500 UHF UNIPACK WIRELESS SYS 7450180
SKU# 8084974112
1 MACKIE 1202VLZPRO 12 CHNL CO MPACT MIXER BU16802
SKU# 0460333112
$1,081.73
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: WAREHOUSE SOUND & LIGHTS/NORMAN MCKEITHAN, 8470 PRODUCTION AVE., SUITE
A, SAN DIEGO, CA 92121
Page 2 of 20
<PAGE> 27
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 SAMSON MIXPAD 4 M48L1024
1 YAMAHA MS202II POWERED SPEAKER PK01427
1 AUDIO-TECHNICA PRO8HEX MIC 00096
1 CU MT101 TRANSFORMER
2 SL23 CABLES
$513.95
</TABLE>
VENDOR: WAREHOUSE SOUND & LIGHTS/NORMAN MCKEITHAN, 8470 PRODUCTION AVE., SUITE
A, SAN DIEGO, CA 92121
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 YAMAHA MS202II POWERED SPEAKER OY01157
1 AUDIO-TECHNICA PRO8HEX MIC 00087
1 CU MT101 TRANSFORMER
2 MDP PLUGS
$309.76
</TABLE>
VENDOR: CMS COMMUNICATIONS, INC., 715 GODDARD AVE., CHESTERFIELD, MO 63005,
(314) 530-1320
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
3 03-3233-6SBN 8405D PLUS W/D SPEAKER-BLCK-NEW
SHIPPING
$1,349.88
</TABLE>
VENDOR: CMS COMMUNICATIONS, INC., 715 GODDARD AVE., CHESTERFIELD, MO 63005,
(314) 530-1320
EQUIPMENT LOCATION: 2001 WILSHIRE BLVD., #300, SANTA MONICA, CA 90403-5640
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
5 03-3156-06B MLX-10DP DISPLAY BLACK
SHIPPING
$1,424.00
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: BUY.COM/PHIL TISHKEVICH, 1681 GRAND AVE., SAN DIEGO, CA 92109
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
Page 3 of 20
<PAGE> 28
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
10 (C5894A"ABA) SKU# 10009729 DESKJETS SMX8AB1S17X, SMX8AD1S0DT
710C 600DPI 6PPM IN BLACK & 3PPM SMX8AD1S0FB, SMX8AD1S0FD
IN COLOR SMX8AD1S0FQ, SMX8AD1S0F
SMX8AD1S0F5, SMX8AD1S07S
SMX8A11S1FX, SMX8A11S16V
SHIPPING/HANDLING
$1,871.40
</TABLE>
VENDOR: COMP VIEW, INC., 10035 SW ARCTIC DR., BEAVERTON, OR 97005, (503)
641-8439
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 LCPIFSLP425Z IFS LCD PRJ LP425Z 3DW92500309
SVGA (INCLUDES EXTENDED WARRANTY)
FREIGHT
$4,066.19
</TABLE>
VENDOR: COMP VIEW, INC., 10035 SW ARCTIC DR., BEAVERTON, OR 97005, (503)
641-8439
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 PLASMA SCREEN 40" PIONEER SYNC
1 WALL MOUNT
FREIGHT
$8,659.11
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 12UVT
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
</TABLE>
Page 4 of 20
<PAGE> 29
<TABLE>
<S> <C> <C> <C>
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 320-5451 17" DELL M770, 16.0" VIEWABLE IMAGE SIZE,
COLOR MONITOR, OPTIPLEX, FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
1 900-2051 BASIC DESKTOP OR NOTEBOOK SET-UP WITH
NETWORK CONNECT, QUANTITY 1, WANG
SHIPPING/HANDLING
$2,289.37
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 16EJ2
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-1234 QUIETKEY SPACESAVER 104-KEY
KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0102 WINDOWS NT WORKSTATION 4.0 CD
CD DOCUMENTATION, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
</TABLE>
Page 5 of 20
<PAGE> 30
<TABLE>
<S> <C> <C> <C>
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,251.92
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 500K GX1/T+ BASE W/4MB 162N1
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0510 128MB, NON-ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 311-0516 128MB NON-ECC, SDRAM, 1 DIMM
UPGRADE, GX1, 350+MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0287 AZTECH DATA/FAX 56K V.90, PCI
MODEM, OPTIPLEX, FACTORY INSTALLED
1 313-0526 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-1603 STB NVIDIA TNT 16MB PCI GRAPHICS
CARD, FOR OPTIPLEX GX1 SYSTEMS, FACTORY INSTALLED
1 320-3316 MONITOR OPTION-NONE
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS
ONLY WINDOWS NT 4.0, FACTORY INSTALLED
1 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM,
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 430-0118 ACTIVE EXPANSION RISER FOR GX1 M/T
SYSTEMS, 3 PCI/2 SHARED/2 ISA WAKE UP ON LAN
FACTORY INSTALLED
1 900-1540 4-HOUR/5X10 PARTS AND LABOR ON-SITE
SERVICE, INITIAL YEAR, WANG
1 900-1542 4-HOUR/5X10 PARTS AND LABOR ON-SITE
SERVICE, 2 YEAR EXTENDED, WANG
SHIPPING/HANDLING
$3,024.47
</TABLE>
Page 6 of 20
<PAGE> 31
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 151752 CPQ TFT 8000 OPAL FLAT PANEL 1 912EA33GH833
MFG# 307906-001 912EA33GI498
SHIPPING & HANDLING
$6,178.39
</TABLE>
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 S E4 12AAT10X LUXSTEEL, P/N E412AAT10X
CHAIR WITH ADJ. ARMS, 3" SEAT W/SLIDING
SEATPAN, FABRIC: CREPE/GRAPHITE
$585.60
</TABLE>
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 E4 694L-L FILE, LAT. PY 4DWR L/L 42
$434.77
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 S E4 1204225 EQUIP. DIST. BOOKCASE, OAK
2 E4 5901AB12T CHAIR, TASK SWIVEL GY
2 E4 5995T ARM, T ADJ.-HT F/5900 BK
1 Z7 DELIVERY & BLANKETWRAP/M & M
$468.25
</TABLE>
VENDOR: BUY.COM/PHIL TISHKEVICH, 1681 GRAND AVE., SAN DIEGO, CA 92109
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
Page 7 of 20
<PAGE> 32
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
11 (C5894A"ABA) SKU# 10009729 DESKJETS SHU94S1N02G, SHU94S1N02S
710C 600DPI 6PPM IN BLACK & 3PPM SHU94S1N022, SHU94S1N03B
IN COLOR SHU94S1N03C, SHU94S1N03
SHU94S1N038, SHU94S1N04C
SHU94S1N04Y, SHU94S1N055
SHU94S1N056
SHIPPING/HANDLING
$1,663.04
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 116406 IIYAMA VISIONMASTER PRO 400 17 0107010002289
MFG# - A701GT 0107010003062
SHIPPING/HANDLING
$809.22
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 116406 IIYAMA VISIONMASTER PRO 400 17 002552180
MFG# - A701GT
SHIPPING/HANDLING
$407.49
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 114019 SEAGATE 18GB U/W SCSI HD LKF45292
MFG# - ST118202LW
SHIPPING/HANDLING
$956.46
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
Page 8 of 20
<PAGE> 33
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 171054 APPLE PM MT G3/350 6GB 64MB CD SSG9188FTGHZ
MFG# - M7556LL/A
1 145682 SIMPLE 64MB APPLE G3 BLUE & WH
MFG# - STA-MACG3/64
SHIPPING/HANDLING
$1,725.81
</TABLE>
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 2000 WILSHIRE BLVD., #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 IIYA101GT IIYAMA VISIONMASTER PRO 501 10010243
21" MONITOR
FREIGHT
$942.50
</TABLE>
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
3 IBM26453AU IBM THINKPAD 600E 6/300 MODEL 78NLM17
32MB RAM/4GB HARD DRIVE, 13.3" ACTIVE COLOR 78NLM37
NOTEBOOK COMPUTER, WIN 98 78NLN58
FREIGHT
$9,591.88
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
3 IBM26453AU IBM THINKPAD 600E 6/300 MODEL 78-PPD01
32MB RAM/4GB HARD DRIVE, 13.3" ACTIVE COLOR 78-PPF01
NOTEBOOK COMPUTER, WIN 98 78-WYW93
FREIGHT
$9,742.50
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1B4K3
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
</TABLE>
Page 9 of 20
<PAGE> 34
<TABLE>
<S> <C> <C> <C>
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,128.92
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1B4L4
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
</TABLE>
Page 10 of 20
<PAGE> 35
<TABLE>
<S> <C> <C> <C>
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,172.02
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 220-2805 DELL PIII 450K GX1/T+ BASE W/4MB 1BLPP & 1BLPT
VIDEO MEMORY, INTEGRATED AUDIO, 512K CACHE,
INTEGRATED 10/100 WUOL NETWORKING
2 310-1234 QUIETKEY SPACESAVER 104-KEY
KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0526 14-32X IDE CD ROM, FACTORY INSTALLED
2 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
2 340-0701 3.5" 1.44MB FLOPPY DRIVE
FACTORY INSTALLED
2 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS
ONLY WINDOWS NT 4.0, FACTORY INSTALLED
2 340-0984 10GB HARD DRIVE, EIDE, 7200 PRM,
GX1, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
</TABLE>
Page 11 of 20
<PAGE> 36
<TABLE>
<S> <C> <C> <C>
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$4,651.71
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 310-0183 AIRBORNE DOCUMENTATION, DELL DIRECT
1 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
$402.99
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1D8IW
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS
</TABLE>
Page 12 of 20
<PAGE> 37
<TABLE>
<S> <C> <C> <C>
DAY ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,128.92
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 1FL98
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 311-0519 128MB, ECC, SDRAM, 1 DIMM
UPGRADE, GX1/GX1P, 350+ MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 313-0554 17/40X CD-ROM, IDE, GX1 M/T, WITH
AUDIO CARD, FACTORY INSTALLED
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
1 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,981.45
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 1K287
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE,
</TABLE>
Page 13 of 20
<PAGE> 38
<TABLE>
<S> <C> <C> <C>
INTEGRATED 10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 311-0519 128MB, ECC, SDRAM, 1 DIMM
UPGRADE, GX1/GX1P, 350+ MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0555 17/40X CD-ROM, IDE, GX1 M/T, WITH
INTEGRATED SOUND, FACTORY INSTALLED
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 420-0387 NT4 SERVICE PACK4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
1 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$3,013.78
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1M7U8 & 1M7UV
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
2 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0287 AZTECH DATA/FAX 56K V.90, PCI
</TABLE>
Page 14 of 20
<PAGE> 39
<TABLE>
<S> <C> <C> <C>
MODEM, OPTIPLEX, FACTORY INSTALLED
2 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
2 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
2 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
2 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
2 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$4,864.42
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
8 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 20QHN, 20QHT, 20QHX VIDEO
MEMORY, INTEGRATED AUDIO 512K CACHE, 20QI2, 20QK4, 20QK9 INTEGRATED
10/100 WUOL NETWORKING 20QKG, 20QKJ
8 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
8 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
8 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
8 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
8 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
8 311-0519 128MB, ECC, SDRAM, 1 DIMM
UPGRADE, GX1/GX1P, 350+ MHZ, FACTORY INSTALLED
8 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
8 313-0555 17/40X CD-ROM, IDE, GX1 M/T, WITH
INTEGRATED SOUND, FACTORY INSTALLED
8 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
8 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
8 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
8 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
8 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
8 420-0387 NT4 SERVICE PACK4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
8 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
8 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
8 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
</TABLE>
Page 15 of 20
<PAGE> 40
<TABLE>
<S> <C> <C> <C>
SHIPPING/HANDLING
$24,110.28
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 21ZK8
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,161.25
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 22A4M & 22A4Q
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
2 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
</TABLE>
Page 16 of 20
<PAGE> 41
<TABLE>
<S> <C> <C> <C>
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
2 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
2 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$4,322.52
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 24881 & 24884
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
2 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
2 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
2 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
2 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
</TABLE>
Page 17 of 20
<PAGE> 42
<TABLE>
<S> <C> <C> <C>
HL OPTIPLEX, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$4,322.52
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 2A1R0
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE,
INTEGRATED 10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0555 17/40X CD-ROM, IDE, GX1 M/T, WITH
INTEGRATED SOUND, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS ONLY
WINDOWS NT 4.0, FACTORY INSTALLED
1 340-0984 10GB HARD DRIVE, EIDE, 7200 PRM,
GX1, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,678.18
</TABLE>
VENDOR: UBID, 135 LA SALLE, DEPARTMENT 1736, CHICAGO, IL 60674-1736, (800)
317-7995
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
</TABLE>
Page 18 of 20
<PAGE> 43
<TABLE>
<S> <C> <C> <C>
1 50835-1451-169 PDC-3000 2 MILLION PIXEL
1600X1200
SHIPPING/HANDLING
$575.96
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A"
VENDOR: ZONES, 707 SOUTH GRADY WAY, RENTON, WA 98055-3233, (425) 430-3000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 M 108066 APPLE POWERBOOK G3/333 64/4.0 SQT9233DSEXW
512K CD
$2,458.00
</TABLE>
VENDOR: ZONES, 707 SOUTH GRADY WAY, RENTON, WA 98055-3233, (425) 430-3000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 P 00101815 TPAD 600E P2-300 32/4.0 1S26453AU78NMH72
24CD 56K 13.3TFT 1S26453AU78TPL10
$5,236.00
</TABLE>
VENDOR: ZONES, 707 SOUTH GRADY WAY, RENTON, WA 98055-3233, (425) 430-3000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 P 00101815 TPAD 600E P2-300 32/4.0 1S26453AU78NMD61
24CD 56K 13.3TFT
$2,618.00
TOTAL FOR ALL INVOICES $134,135.22
</TABLE>
LESSOR: PENTECH FINANCIAL SERVICES, LESSEE: THE LIGHTSPAN PARTNERSHIP,
INC., INC.,
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
By: By:
---------------------------------- -----------------------------------
Name: Benjamin E. Millerbis Name: Kathleen R. McElwee
------------------------------- --------------------------------
Title: President Title: VP Finance & CFO
------------------------------ -------------------------------
Date: September 1, 1999 Date: September 1, 1999
------------------------------- --------------------------------
Page 19 of 20
<PAGE> 44
PENTECH FINANCIAL SERVICES, INC.
MASTER EQUIPMENT LEASE NO. 300261
ACCEPTANCE SUPPLEMENT NO. THREE
SCHEDULE C
STIPULATED LOSS PERCENTAGE VALUE
Terms defined in the Agreement shall have the same meanings when used herein.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Rent Payment Stipulated Loss Rent Payment Stipulated Loss Rent Payment Stipulated Loss
Value Percentage Value Percentage Value Percentage
<S> <C> <C> <C> <C> <C>
1 120.00 22 78.00
2 118.00 23 76.00
3 116.00 24 74.00
4 114.00 25 72.00
5 112.00 26 70.00
6 110.00 27 68.00
7 108.00 28 66.00
8 106.00 29 64.00
9 104.00 30 62.00
10 102.00 31 60.00
11 100.00 32 58.00
12 98.00 33 56.00
13 96.00 34 54.00
14 94.00 35 52.00
15 92.00 36 50.00
16 90.00 37 45.00
17 88.00 38 40.00
18 86.00 39 35.00
19 84.00 40 30.00
20 82.00 41 25.00
21 80.00 42 20.00
</TABLE>
Dated: September 1, 1999
LESSOR: PENTECH FINANCIAL SERVICES, LESSEE: THE LIGHTSPAN PARTNERSHIP,
INC. A CALIFORNIA CORPORATION INC., A CALIFORNIA CORPORATION
The undersigned affirms that he is
duly authorized to execute and
deliver this Acceptance Supplement
on behalf of Lessee.
By: By:
-------------------------------- --------------------------------
Title: President Title:
----------------------------- -----------------------------
<PAGE> 45
BILL OF SALE
This Bill of Sale, dated September 1, 1999, from The Lightspan Partnership,
Inc., a California corporation, hereinafter called "Seller" to Pentech Financial
Services, Inc., a California corporation, hereinafter called "Buyer."
WITNESSETH
In consideration of the receipt of $134,135.22 and other valuable
consideration, the receipt of which is hereby acknowledged, Seller does hereby
sell, assign, transfer, convey and deliver to Buyer the equipment and other
property (collectively the "Equipment") described or otherwise referred to in
Exhibit "A" attached hereto and incorporated herein by this reference.
Seller covenants and warrants that:
A. It is the owner of, and has absolute title to, each and every item of
the Equipment, free and clear of any claim, lien, or encumbrance of any kind
whatsoever.
B. It has not made any prior sale, assignment or transfer of any item of
any interest in any of the Equipment to any person, firm or corporation.
C. It has the present right, power and authority to sell, assign and
transfer each and every item of the Equipment to Buyer.
D. Each and every item of the Equipment is in good repair, condition and
working order.
E. All acts, proceedings and things necessary and required by law and the
articles of incorporation and bylaws of Seller to make this Bill of Sale a
valid, binding and legal obligation of Seller have been done, taken and have
happened; and the execution and delivery hereof have in all respects have been
duly authorized in accordance with law, and said articles of incorporation and
bylaws.
Seller shall forever warrant and defend the sale, assignment, transfer,
conveyance and delivery of each and every item of the Equipment to Buyer, its
successors and assigns, against each and every person whomsoever claiming the
same.
This Bill of Sale is binding upon the successors and assigns of Seller and
inures to the benefit of the successors and assigns of Buyer.
IN WITNESS WHEREOF, Seller has caused this Bill of Sale to be executed on
the day and year first above appearing, by and through an officer thereunto duly
authorized.
The Lightspan Partnership, Inc.
a California corporation
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE> 46
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON AVE.
SUITE 202
CAMPBELL, CA 95008
(408) 378-2000
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
4 E4 919492 RAIL, DBL F/42"W LATFILE
2 E4 692L-L FILE, LAT PY 2 DWR L/L 42
1 E4 314PL FILE, 4DWR LTR PY W/LOK
$713.50
</TABLE>
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 E4 4430D GLOBAL P/N E44430D OBUS CHAIR, HIGHBACK
W/ADJ. ARMS; FINISH: BLACK; FABRIC: GR.5 #788 NICKEL
1 Z7 DLVRY BLANKETWRAP M & M
$523.67
</TABLE>
VENDOR: PROSCREEN INC./NORMAN MCKEITHAN, 10 CRATER LAKE AVE., MEDFORD, OR 97504,
FAX: 541-779-6959
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 PROSCREEN CUSTOM REAR PROJECTION SCREEN
26" X 34" X 1/4" 1.8 GAIN
HCWA PER NORMAN MCKEITHAN REAR SCREEN ORDER
FREIGHT
$216.48
</TABLE>
VENDOR: ERGOTRON/NORMAN MCKEITHAN, 1181 TRAPP RD., ST. PAUL, MN 55121, (651)
681-7600
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 45-007-099-02 12" TRPL, 75X75, RON, APG
MOUNTS FOR BOOTH
FREIGHT
$653.83
</TABLE>
Lease No. 300261
Supplement No. THREE
Page 1 of 20
<PAGE> 47
EXHIBIT "A" TO BILL OF SALE
VENDOR: CARVIN CORPOATION/NORMAN MCKEITHAN, 12340 WORLD TRADE DR., SAN DIEGO, CA
92128, (619) 487-1600
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 P5-150-2 TWO PM5 SPKRS W/HT150 AMP
1 HT150 POWER AMP 150W W/3 YR. WARRANTY 164424
2 PM5-B SPEAR 2-WAY 5.25" BLK CAB 00097 & 00098
1 9000LP WIRELESS SYS VHF LAVALIER MIC 44201010078
$646.39
</TABLE>
VENDOR: GUITAR CENTER/NORMAN MCKEITHAN, CENTER DR., MARCOS, CA 92069, (619)
735-8050
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 SPIRIT RW5353 FOLIO NOTEPAD 6 CHNL MIXER 008616
SKU# 8535002111
1 PROCO EXM5 5' MIC CABLE
SKU# 0818176000 $200.39
</TABLE>
VENDOR: GUITAR CENTER/NORMAN MCKEITHAN, CENTER DR., MARCOS, CA 92069, (619)
735-8050
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 MID ATLANTIC CLAW CABLE ORGANIZER
$6.35
</TABLE>
VENDOR: GUITAR CENTER/NORMAN MCKEITHAN, CENTER DR., MARCOS, CA 92069, (619)
735-8050
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 AT DR8HPROW HEADSET MIC; SKU# 8899494000 00088
1 AT CP8201 LINE TRANSFORMER; SKU# 9072570000
1 DIGITAL REFERENCE DR8HPRO HEADSET MIC
SKU# 5460595000
1 AT DRLW CONDENSER LAV MIC; SKU# 0980521000
1 SKB RACK4 17 3/4" 4 SPACE RO TO RACK CAS
SKU# 1446752000
1 AT DR5500 UHF UNIPACK WIRELESS SYS 7450180
SKU# 8084974112
1 MACKIE 1202VLZPRO 12 CHNL CO MPACT MIXER BU16802
SKU# 0460333112
$1,081.73
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: WAREHOUSE SOUND & LIGHTS/NORMAN MCKEITHAN, 8470 PRODUCTION AVE., SUITE
A, SAN DIEGO, CA 92121
Page 2 of 20
<PAGE> 48
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 SAMSON MIXPAD 4 M48L1024
1 YAMAHA MS202II POWERED SPEAKER PK01427
1 AUDIO-TECHNICA PRO8HEX MIC 00096
1 CU MT101 TRANSFORMER
2 SL23 CABLES
$513.95
</TABLE>
VENDOR: WAREHOUSE SOUND & LIGHTS/NORMAN MCKEITHAN, 8470 PRODUCTION AVE., SUITE
A, SAN DIEGO, CA 92121
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 YAMAHA MS202II POWERED SPEAKER OY01157
1 AUDIO-TECHNICA PRO8HEX MIC 00087
1 CU MT101 TRANSFORMER
2 MDP PLUGS
$309.76
</TABLE>
VENDOR: CMS COMMUNICATIONS, INC., 715 GODDARD AVE., CHESTERFIELD, MO 63005,
(314) 530-1320
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 03-3233-6SBN 8405D PLUS W/D SPEAKER-BLCK-NEW
SHIPPING
$1,349.88
</TABLE>
VENDOR: CMS COMMUNICATIONS, INC., 715 GODDARD AVE., CHESTERFIELD, MO 63005,
(314) 530-1320
EQUIPMENT LOCATION: 2001 WILSHIRE BLVD., #300, SANTA MONICA, CA 90403-5640
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
5 03-3156-06B MLX-10DP DISPLAY BLACK
SHIPPING
$1,424.00
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: BUY.COM/PHIL TISHKEVICH, 1681 GRAND AVE., SAN DIEGO, CA 92109
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
Page 3 of 20
<PAGE> 49
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
10 (C5894A"ABA) SKU# 10009729 DESKJETS SMX8AB1S17X, SMX8AD1S0DT
710C 600DPI 6PPM IN BLACK & 3PPM SMX8AD1S0FB, SMX8AD1S0FD
IN COLOR SMX8AD1S0FQ, SMX8AD1S0F
SMX8AD1S0F5, SMX8AD1S07S
SMX8A11S1FX, SMX8A11S16V
SHIPPING/HANDLING
$1,871.40
</TABLE>
VENDOR: COMP VIEW, INC., 10035 SW ARCTIC DR., BEAVERTON, OR 97005, (503)
641-8439
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 LCPIFSLP425Z IFS LCD PRJ LP425Z 3DW92500309
SVGA (INCLUDES EXTENDED WARRANTY)
FREIGHT
$4,066.19
</TABLE>
VENDOR: COMP VIEW, INC., 10035 SW ARCTIC DR., BEAVERTON, OR 97005, (503)
641-8439
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 PLASMA SCREEN 40" PIONEER SYNC
1 WALL MOUNT
FREIGHT
$8,659.11
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 12UVT
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
</TABLE>
Page 4 of 20
<PAGE> 50
<TABLE>
<S> <C> <C> <C>
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 320-5451 17" DELL M770, 16.0" VIEWABLE IMAGE SIZE,
COLOR MONITOR, OPTIPLEX, FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
1 900-2051 BASIC DESKTOP OR NOTEBOOK SET-UP WITH
NETWORK CONNECT, QUANTITY 1, WANG
SHIPPING/HANDLING
$2,289.37
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 16EJ2
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-1234 QUIETKEY SPACESAVER 104-KEY
KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0102 WINDOWS NT WORKSTATION 4.0 CD
CD DOCUMENTATION, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
</TABLE>
Page 5 of 20
<PAGE> 51
<TABLE>
<S> <C> <C> <C>
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,251.92
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 500K GX1/T+ BASE W/4MB 162N1
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0510 128MB, NON-ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 311-0516 128MB NON-ECC, SDRAM, 1 DIMM
UPGRADE, GX1, 350+MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0287 AZTECH DATA/FAX 56K V.90, PCI
MODEM, OPTIPLEX, FACTORY INSTALLED
1 313-0526 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-1603 STB NVIDIA TNT 16MB PCI GRAPHICS
CARD, FOR OPTIPLEX GX1 SYSTEMS, FACTORY INSTALLED
1 320-3316 MONITOR OPTION-NONE
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY
INSTALLED
1 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS
ONLY WINDOWS NT 4.0, FACTORY INSTALLED
1 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM,
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 430-0118 ACTIVE EXPANSION RISER FOR GX1 M/T
SYSTEMS, 3 PCI/2 SHARED/2 ISA WAKE UP ON LAN
FACTORY INSTALLED
1 900-1540 4-HOUR/5X10 PARTS AND LABOR ON-SITE
SERVICE, INITIAL YEAR, WANG
1 900-1542 4-HOUR/5X10 PARTS AND LABOR ON-SITE
SERVICE, 2 YEAR EXTENDED, WANG
SHIPPING/HANDLING
$3,024.47
</TABLE>
Page 6 of 20
<PAGE> 52
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 151752 CPQ TFT 8000 OPAL FLAT PANEL 1 912EA33GH833
MFG# 307906-001 912EA33GI498
SHIPPING & HANDLING
$6,178.39
</TABLE>
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 S E4 12AAT10X LUXSTEEL, P/N E412AAT10X
CHAIR WITH ADJ. ARMS, 3" SEAT W/SLIDING
SEATPAN, FABRIC: CREPE/GRAPHITE
$585.60
</TABLE>
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 E4 694L-L FILE, LAT. PY 4DWR L/L 42
$434.77
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: BOISE CASCADE, 12131 WESTERN AVE., GARDEN GROVE, CA 92841, (714)
898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 S E4 1204225 EQUIP. DIST. BOOKCASE, OAK
2 E4 5901AB12T CHAIR, TASK SWIVEL GY
2 E4 5995T ARM, T ADJ.-HT F/5900 BK
1 Z7 DELIVERY & BLANKETWRAP/M & M
$468.25
</TABLE>
VENDOR: BUY.COM/PHIL TISHKEVICH, 1681 GRAND AVE., SAN DIEGO, CA 92109
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
Page 7 of 20
<PAGE> 53
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
11 (C5894A"ABA) SKU# 10009729 DESKJETS SHU94S1N02G, SHU94S1N02S
710C 600DPI 6PPM IN BLACK & 3PPM SHU94S1N022, SHU94S1N03B
IN COLOR SHU94S1N03C, SHU94S1N03
SHU94S1N038, SHU94S1N04C
SHU94S1N04Y, SHU94S1N055
SHU94S1N056
SHIPPING/HANDLING
$1,663.04
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 116406 IIYAMA VISIONMASTER PRO 400 17 0107010002289
MFG# - A701GT 0107010003062
SHIPPING/HANDLING
$809.22
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 116406 IIYAMA VISIONMASTER PRO 400 17 002552180
MFG# - A701GT
SHIPPING/HANDLING
$407.49
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 114019 SEAGATE 18GB U/W SCSI HD LKF45292
MFG# - ST118202LW
SHIPPING/HANDLING
$956.46
</TABLE>
VENDOR: CDW COMPUTER CENTERS, INC., P.O. BOX 75723, CHICAGO, IL 60675, (847)
465-6000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Page 8 of 20
<PAGE> 54
<TABLE>
<S> <C> <C> <C>
1 171054 APPLE PM MT G3/350 6GB 64MB CD SSG9188FTGHZ
MFG# - M7556LL/A
1 145682 SIMPLE 64MB APPLE G3 BLUE & WH
MFG# - STA-MACG3/64
SHIPPING/HANDLING
$1,725.81
</TABLE>
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 2000 WILSHIRE BLVD., #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 IIYA101GT IIYAMA VISIONMASTER PRO 501 10010243
21" MONITOR
FREIGHT
$942.50
</TABLE>
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 IBM26453AU IBM THINKPAD 600E 6/300 MODEL 78NLM17
32MB RAM/4GB HARD DRIVE, 13.3" ACTIVE COLOR 78NLM37
NOTEBOOK COMPUTER, WIN 98 78NLN58
FREIGHT
$9,591.88
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: COMPUSOURCE, 3529 CANNON RD., SUITE 2B187, OCEANSIDE, CA 92056, (760)
744-5550
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
3 IBM26453AU IBM THINKPAD 600E 6/300 MODEL 78-PPD01
32MB RAM/4GB HARD DRIVE, 13.3" ACTIVE COLOR 78-PPF01
NOTEBOOK COMPUTER, WIN 98 78-WYW93
FREIGHT
$9,742.50
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1B4K3
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
</TABLE>
Page 9 of 20
<PAGE> 55
<TABLE>
<S> <C> <C> <C>
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,128.92
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1B4L4
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
</TABLE>
Page 10 of 20
<PAGE> 56
<TABLE>
<S> <C> <C> <C>
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,172.02
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 220-2805 DELL PIII 450K GX1/T+ BASE W/4MB 1BLPP & 1BLPT
VIDEO MEMORY, INTEGRATED AUDIO, 512K CACHE,
INTEGRATED 10/100 WUOL NETWORKING
2 310-1234 QUIETKEY SPACESAVER 104-KEY
KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0526 14-32X IDE CD ROM, FACTORY INSTALLED
2 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
2 340-0701 3.5" 1.44MB FLOPPY DRIVE
FACTORY INSTALLED
2 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS
ONLY WINDOWS NT 4.0, FACTORY INSTALLED
2 340-0984 10GB HARD DRIVE, EIDE, 7200 PRM,
GX1, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
</TABLE>
Page 11 of 20
<PAGE> 57
<TABLE>
<S> <C> <C> <C>
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC SHIPPING/HANDLING
$4,651.71
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 310-0183 AIRBORNE DOCUMENTATION, DELL DIRECT
1 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
$402.99
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1D8IW
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0525 14-32X IDE CD ROM, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17" , MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE
FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE
FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
</TABLE>
Page 12 of 20
<PAGE> 58
<TABLE>
<S> <C> <C> <C>
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,128.92
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 1FL98
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 311-0519 128MB, ECC, SDRAM, 1 DIMM
UPGRADE, GX1/GX1P, 350+ MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 313-0554 17/40X CD-ROM, IDE, GX1 M/T, WITH
AUDIO CARD, FACTORY INSTALLED
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
1 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,981.45
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 1K287
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE,
</TABLE>
Page 13 of 20
<PAGE> 59
<TABLE>
<S> <C> <C> <C>
INTEGRATED 10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 311-0519 128MB, ECC, SDRAM, 1 DIMM
UPGRADE, GX1/GX1P, 350+ MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0555 17/40X CD-ROM, IDE, GX1 M/T, WITH
INTEGRATED SOUND, FACTORY INSTALLED
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 420-0387 NT4 SERVICE PACK4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
1 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$3,013.78
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 1M7U8 & 1M7UV
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
2 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0287 AZTECH DATA/FAX 56K V.90, PCI
</TABLE>
Page 14 of 20
<PAGE> 60
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
MODEM, OPTIPLEX, FACTORY INSTALLED
2 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
2 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
2 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
2 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
2 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$4,864.42
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
8 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 20QHN, 20QHT, 20QHX
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE, 20QI2, 20QK4, 20QK9
INTEGRATED 10/100 WUOL NETWORKING 20QKG, 20QKJ
8 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
8 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
8 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
8 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
8 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
8 311-0519 128MB, ECC, SDRAM, 1 DIMM
UPGRADE, GX1/GX1P, 350+ MHZ, FACTORY INSTALLED
8 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
8 313-0555 17/40X CD-ROM, IDE, GX1 M/T, WITH
INTEGRATED SOUND, FACTORY INSTALLED
8 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
8 320-0344 DELL ULTRASCAN P990, 17.9" VIEWABLE IMAGE
SIZE, OPTIPLEX, G1/GX1/GX1P, FACTORY INSTALLED
8 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
8 340-2658 20.0GB HARD DRIVE, EIDE, 7200 RPM
GX1, M/T, OPTIPLEX, FACTORY INSTALLED
8 420-0153 WINDOWS NT, NTFS FILE SYSTEM
FACTORY INSTALLED
8 420-0387 NT4 SERVICE PACK4, OPTIPLEX, ENGLISH,
FACTORY INSTALLED
8 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
8 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
8 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
</TABLE>
Page 15 of 20
<PAGE> 61
<TABLE>
<S> <C> <C> <C>
SHIPPING/HANDLING
$24,110.28
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 21ZK8
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,161.25
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 22A4M & 22A4Q
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
2 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
</TABLE>
Page 16 of 20
<PAGE> 62
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
2 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
2 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
HL OPTIPLEX, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$4,322.52
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 220-2801 DELL PIII 450K GX1/L+ BASE W/4MB 24881 & 24884
VIDEO MEMORY, INTG. AUDIO 512K CACHE, INTG.
10/100 WUOL NETWORKING
2 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
2 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
2 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
2 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
2 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+, FACTORY INSTALLED
2 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
2 313-0557 17/40X CD-ROM, IDE, GX1 L, WITH
INTEGRATED SOUND, FACTORY INSTALLED
2 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
2 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
2 340-0657 3.5" 1.44 MB FLOPPY DRIVE, FACTORY INSTALLED
2 340-0987 10GB HARD DRIVE, EIDE, 7200 RPM,
</TABLE>
Page 17 of 20
<PAGE> 63
<TABLE>
<S> <C> <C> <C>
HL OPTIPLEX, FACTORY INSTALLED
2 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
2 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
2 430-0115 PASSIVE EXPANSION RISER FOR G X1L SYSTEMS
1PCI/1 SHARED/1 ISA, WAKE UP ON LAN, FACTORY INSTALLED
2 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
2 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$4,322.52
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 220-2815 DELL PIII 500K GX1/T+ BASE W/4MB 2A1R0
VIDEO MEMORY, INTEGRATED AUDIO 512K CACHE,
INTEGRATED 10/100 WUOL NETWORKING
1 310-0038 PERFORMANCE MECHANICAL 104-KEY
FULL-SIZE KEYBOARD, OPTIPLEX, FACTORY INSTALLED
1 310-2268 REDUCED DOCUMENTATION FOR GX1
SYSTEMS, FACTORY INSTALLED
1 310-3600 PS2 INTELLIMOUSE, FACTORY INSTALLED
1 310-3641 OPEN MANAGE CLIENT, WEST,
NO DISKETTE, FACTORY INSTALLED
1 311-0513 128MB, ECC, SDRAM, 1 DIMM,
100MHZ, GX1, 350+ MHZ, FACTORY INSTALLED
1 313-0276 HARMON KARDON HK195 SPEAKERS
FOR DELL OPTIPLEX, FACTORY INSTALLED
1 313-0555 17/40X CD-ROM, IDE, GX1 M/T, WITH
INTEGRATED SOUND, FACTORY INSTALLED
1 320-0120 ULTRASCAN 1000HS, 17", MODEL D1025TM
WITH 16.0" VIEWABLE IMAGE SIZE, COLOR MONITOR
1 320-0220 4MB VIDEO MEMORY UPGRADE FACTORY INSTALLED
1 340-0701 3.5" 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 340-0756 ZIP DRIVE FOR GX1/GX1P (M/T) SYSTEMS ONLY
WINDOWS NT 4.0, FACTORY INSTALLED
1 340-0984 10GB HARD DRIVE, EIDE, 7200 PRM,
GX1, FACTORY INSTALLED
1 420-0153 WINDOWS NT, NTFS FILE SYSTEM, FACTORY INSTALLED
1 420-0387 NT4 SERVICE PACK 4, OPTIPLEX, ENGLISH
FACTORY INSTALLED
1 430-0118 ACTIVE EXPANSION RISER FOR G X1 M/T SYSTEMS,
3PCI/2 SHARED/2 ISA, WAKE UP ON LAN, FACTORY INSTALLED
1 900-2910 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-2912 SELECTCARE, 2 YEAR EXTENDED, NEXT BUSINESS
DAY ON-SITE SERVICE CONTRACT, BSC
SHIPPING/HANDLING
$2,678.18
</TABLE>
VENDOR: UBID, 135 LA SALLE, DEPARTMENT 1736, CHICAGO, IL 60674-1736, (800)
317-7995
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
</TABLE>
Page 18 of 20
<PAGE> 64
<TABLE>
<S> <C> <C> <C>
1 50835-1451-169 PDC-3000 2 MILLION PIXEL
1600X1200
SHIPPING/HANDLING
$575.96
</TABLE>
Lease No. 300261
Supplement No. THREE
EXHIBIT "A" TO BILL OF SALE
VENDOR: ZONES, 707 SOUTH GRADY WAY, RENTON, WA 98055-3233, (425) 430-3000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 M 108066 APPLE POWERBOOK G3/333 64/4.0 SQT9233DSEXW
512K CD
$2,458.00
</TABLE>
VENDOR: ZONES, 707 SOUTH GRADY WAY, RENTON, WA 98055-3233, (425) 430-3000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
2 P 00101815 TPAD 600E P2-300 32/4.0 1S26453AU78NMH72
24CD 56K 13.3TFT 1S26453AU78TPL10
$5,236.00
</TABLE>
VENDOR: ZONES, 707 SOUTH GRADY WAY, RENTON, WA 98055-3233, (425) 430-3000
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1 P 00101815 TPAD 600E P2-300 32/4.0 1S26453AU78NMD61
24CD 56K 13.3TFT
$2,618.00
TOTAL FOR ALL INVOICES $134,135.22
===========
</TABLE>
LESSOR: PENTECH FINANCIAL SERVICES, LESSEE: THE LIGHTSPAN PARTNERSHIP,
INC., A CALIFORNIA CORPORATION INC., A CALIFORNIA
CORPORATION
By: By:
-------------------------------- --------------------------------
Name: Benjamin E. Millerbis Name: Kathleen R. McElwee
------------------------------ ------------------------------
Title: President Title: VP Finance & CFO
----------------------------- -----------------------------
Date: September 1, 1999 Date: September 1, 1999
------------------------------ ------------------------------
<PAGE> 1
EXHIBIT 10.14
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING AGREEMENT
EFA #200281
THIS EQUIPMENT FINANCING AGREEMENT ("agreement") is dated as of the date set
forth at the foot hereof and is between PENTECH FINANCIAL SERVICES, INC., a
California corporation ("Secured Party") and the debtor designated at the foot
hereof ("Debtor").
1. EQUIPMENT; SECURITY INTEREST. The terms and conditions of this agreement
cover each item of machinery, equipment and other property (individually an
"Item" or "Item of Equipment" and collectively the "Equipment") described in a
schedule now or hereafter executed by the parties hereto and made a part hereof
(individually a "Schedule" and collectively the "Schedules"). Debtor hereby
grants Secured Party a security interest in and to all Debtor's right, title and
interest in and to the Equipment under the Uniform Commercial Code, such grant
with respect to an Item of Equipment to be as of Debtor's execution of a related
equipment financing commitment referencing this agreement or, if Debtor then has
no interest in such Item, as of such subsequent time as Debtor acquires an
interest in the Item. Such security interest is granted by Debtor to secure
performance by Debtor of Debtor's obligations to Secured Party hereunder and
under any other agreements under which Debtor has or may hereafter have
obligations to Secured Party. Debtor will ensure that such security interest
will be and remain a sole and valid first lien security interest subject only to
the lien of current taxes and assessments not in default but only if such taxes
are entitled to priority as a matter of law.
2. DEBTOR'S OBLIGATIONS. The obligations of Debtor under this agreement
respecting an Item of Equipment, except the obligation to pay installment
payments with respect thereto which will commence as set forth in paragraph 3
below, commence upon the grant to Secured Party of a security interest in the
Item. Debtor's obligations hereunder with respect to an Item of Equipment and
Secured Party's security interest therein will continue until payment of all
amounts due, and performance of all terms and conditions required, hereunder
with respect thereto; provided, however, that if this agreement is then in
default said obligations and security interest will continue during the
continuance of said default. Upon termination of Secured Party's security
interest in an Item of Equipment, Secured Party will execute such release of
interest with respect thereto as Debtor reasonably requests.
3. INSTALLMENT PAYMENTS AND OTHER PAYMENTS. Debtor will repay advances Secured
Party makes on account of the Equipment together with interest in installment
payments in the amounts and at the times set forth in the Schedules, whether or
not Secured Party has rendered an invoice therefor, at the office of Secured
Party set forth at the foot hereof, or to such person and/or at such other place
as Secured Party may from time to time designate on notice to Debtor. Any other
amounts required to be paid Secured Party by Debtor hereunder are due upon
Debtor's receipt of Secured Party's invoice therefor and will be payable as
directed in the invoice. Payments under this agreement may be applied to
Debtor's then accrued obligations to Secured Party in such order as Secured
Party may choose.
4. NET AGREEMENT; NO OFFSET; SURVIVAL. This agreement is a net agreement, and
Debtor will not be entitled to any abatement of installment payments or other
payments due hereunder or any reduction thereof under any circumstances or for
any reason whatsoever. Debtor hereby waives any and all existing and future
claims, as offsets, against any installment payments or other payments due
hereunder and agrees to pay the installment payments and other amounts due
hereunder as and when due regardless of any offset or claim which may be
asserted by Debtor or on its behalf. The obligations and liabilities of Debtor
hereunder will survive the termination of this agreement.
5. FINANCING AGREEMENT. THIS AGREEMENT IS SOLELY A FINANCING AGREEMENT. DEBTOR
ACKNOWLEDGES THAT THE EQUIPMENT HAS OR WILL HAVE BEEN SELECTED AND ACQUIRED
SOLELY BY DEBTOR FOR DEBTOR'S PURPOSES, THAT SECURED PARTY IS NOT AND WILL NOT
BE THE VENDOR OF ANY EQUIPMENT AND THAT SECURED PARTY HAS NOT MADE AND WILL NOT
MAKE ANY AGREEMENT, REPRESENTATION OR WARRANTY WITH RESPECT TO THE
MERCHANTABILITY, CONDITION, QUALIFICATION OR FITNESS FOR A PARTICULAR PURPOSE OR
VALUE OF THE EQUIPMENT OR ANY OTHER MATTER WITH RESPECT THERETO IN ANY RESPECT
WHATSOEVER.
6. NO AGENCY. DEBTOR ACKNOWLEDGES THAT NO AGENT OF THE MANUFACTURER OR OTHER
SUPPLIER OF AN ITEM OF EQUIPMENT OR OF ANY FINANCIAL INTERMEDIARY IN CONNECTION
WITH THIS AGREEMENT IS AN AGENT OF SECURED PARTY. SECURED PARTY IS NOT BOUND BY
A REPRESENTATION OF ANY SUCH PARTY AND, AS CONTEMPLATED IN PARAGRAPH 27 BELOW,
THE ENTIRE AGREEMENT OF SECURED PARTY AND DEBTOR CONCERNING THE FINANCING OF THE
EQUIPMENT IS CONTAINED IN THIS AGREEMENT AS IT MAY BE AMENDED AS PROVIDED IN
THAT PARAGRAPH.
7. ACCEPTANCE. Execution by Debtor and Secured Party of a Schedule covering the
Equipment or any Items thereof will conclusively establish that such Equipment
has been included under and will be subject to all the terms and conditions of
this agreement. If Debtor has not furnished Secured Party with a Schedule by the
earlier of fourteen (14) days after receipt thereof or expiration of the
commitment period set forth in the applicable equipment financing commitment,
Secured Party may terminate its obligation to advance funds as to the applicable
Equipment.
8. LOCATION; INSPECTION; USE. Debtor will keep, or in the case of motor
vehicles, permanently garage and not remove from the United States, as
appropriate, each Item of Equipment in Debtor's possession and control at the
Equipment Location designated in the applicable Schedule, or at such other
location to which such Item of Equipment may have been moved with the prior
written consent of Secured Party. Whenever requested by Secured Party, Debtor
will advise Secured Party as to the exact location of an Item of Equipment.
Secured Party will have the right to inspect the Equipment and observe its use
during normal business hours and to enter into and upon the premises where the
Equipment may be located for such purpose. The Equipment will at all times be
used solely for commercial or business purposes and operated in a careful and
proper manner and in compliance with all applicable laws, ordinances, rules and
regulations, all conditions and requirements of the policy or policies of
insurance required to be carried by Debtor under the terms of this agreement and
all manufacturer's instructions and warranty requirements. Any modifications or
additions to the Equipment required by any such governmental edict or insurance
policy will be promptly made by Debtor.
9. ALTERATIONS; SECURITY INTEREST COVERAGE. Without the prior written consent of
Secured Party, Debtor will not make any alterations, additions or improvements
to any Item of Equipment which detract from its economic value or functional
utility, except as may be required pursuant to paragraph 8 above. Secured
Party's security interest in the Equipment will include all modifications and
additions thereto and replacements and substitutions therefor, in whole or in
part. Such reference to replacements and substitutions will not grant Debtor
greater rights to replace or substitute than are provided in paragraph 11 below
or as may be allowed upon the prior written consent of Secured Party.
10. MAINTENANCE. Debtor will maintain the Equipment in good repair, condition
and working order. Debtor also will cause each Item of Equipment for which a
service contract is generally available to be covered by such a contract which
provides coverages typical as to property of the type involved and is issued by
a competent servicing entity.
11. LOSS AND DAMAGE; CASUALTY VALUE. In the event of the loss of, theft of,
requisition of, damage to or destruction of an Item of Equipment ("Casualty
Occurrence") Debtor will give Secured Party prompt notice thereof and will
thereafter place such Item in good repair, condition
<PAGE> 2
and working order; provided, however, that if such Item is determined by Secured
Party to be lost, stolen, destroyed or damaged beyond repair, is requisitioned
or suffers a constructive total loss as defined in any applicable insurance
policy carried by Debtor in accordance with paragraph 14 below, Debtor, at
Secured Party's option, will (a) replace the Item with like equipment in good
repair, condition and working order whereupon such replacement equipment will be
deemed such Item for all purposes hereof or (b) pay Secured Party the "Casualty
Value" of such Item which will equal the total of (i) all installment payments
and other amounts due with respect to such item from Debtor to Secured Party at
the time of such payment and (ii) each future installment payment due with
respect to such Item with each such payment other than any final uneven payment
discounted at eight percent (8%) per annum simple interest from the date due to
the date of such payment. Any final uneven payment will be due without discount.
The discounting contemplated in this paragraph will be in accordance with the
Financial Compound Interest and Annuity Tables, Sixth Edition published by the
Financial Publishing Company. Upon such replacement or payment, as appropriate,
this agreement and Secured Party's security interest will terminate with, and
only with, respect to the Item of Equipment so replaced or as to which such
payment is made in accordance with paragraph 2 above.
12. TITLING; REGISTRATION. Each Item of Equipment subject to title registration
laws will at all times be titled and/or registered by Debtor as Secured Party's
agent and attorney-in-fact with full power and authority to register (but
without power to affect title to) the Equipment in such manner and in such
jurisdiction or jurisdictions as Secured Party directs. Debtor will promptly
notify Secured Party of any necessary or advisable retitling and/or
reregistration of an Item of Equipment in a jurisdiction other than one in which
such Item is then titled and/or registered. Any and all documents of title will
be furnished or caused to be furnished Secured Party by Debtor within sixty (60)
days of the date any titling or registering or retitling or reregistering, as
appropriate, is directed by Secured Party.
13. TAXES. Debtor will make all filings as to and pay when due all personal
property and other ad valorem taxes and all other taxes, fees, charges and
assessments based on the ownership or use of the Equipment and will pay as
directed by Secured Party or reimburse Secured Party for all taxes, including,
but not limited to, gross receipts taxes (exclusive of federal and state taxes
based on Secured Party's net income, unless such net income taxes are in
substitution for or relieve Debtor from any taxes which Debtor would otherwise
be obligated to pay under the terms of this paragraph 13), fees, charges and
assessments whatsoever, however designated, whether based on the installment
payments or other amounts due hereunder, levied, assessed or imposed upon the
Equipment or otherwise related hereto or to the Equipment, now or hereafter
levied, assessed or imposed under the authority of a federal, state or local
taxing jurisdiction, regardless of when and by whom payable. Filings with
respect to such other amounts will, at Secured Party's option, be made by
Secured Party or by Debtor as directed by Secured Party.
14. INSURANCE. Debtor will procure and continuously maintain all risk insurance
against loss of or damage to the Equipment from any cause whatsoever for not
less than the full replacement value thereof naming Secured Party as Loss Payee.
Such insurance must be in a form and with companies approved by Secured Party,
must provide at least thirty (30) days advance written notice to Secured Party
of cancellation, change or modification in any term, condition or amount of
protection provided therein, must provide full breach of warranty protection and
must provide that the coverage is "primary coverage" (does not require
contribution from any other applicable coverage). Debtor will provide Secured
Party with an original policy or certificate evidencing such insurance. In the
event of an assignment of this agreement by Secured Party of which Debtor has
notice, Debtor will cause such insurance to provide the same protection to the
assignee as its interest may appear. The proceeds of such insurance, at the
option of Secured Party or such assignee, as appropriate, will be applied toward
(a) the repair or replacement of the appropriate Item or Items of Equipment, (b)
payment of the Casualty Value thereof or (c) payment of, or as provision for,
satisfaction of any other accrued obligations of Debtor hereunder. Debtor hereby
appoints Secured Party as Debtor's attorney-in-fact with full power and
authority to do all things, including, but not limited to, making claims,
receiving payments and endorsing documents, checks or drafts, necessary to
secure payments due under any policy contemplated hereby on account of a
Casualty Occurrence. Debtor and Secured Party contemplate that the jurisdictions
where the Equipment will be located will not impose any liability upon Secured
Party for personal injury and/or property damage resulting out of the
possession, use, operation or condition of the Equipment. In the event Secured
Party determines that such is not or may not be the case with respect to a given
jurisdiction, Debtor will provide Secured Party with public liability and
property damage coverage applicable to the Equipment in such amounts and in such
form as Secured Party requires.
15. SECURED PARTY'S PAYMENT. If Debtor fails to pay any amounts due hereunder or
to perform any of its other obligations under this agreement, Secured Party may,
at its option, but without any obligation to do so, pay such amounts or perform
such obligations, and Debtor will reimburse Secured Party the amount of such
payment or cost of such performance.
16. INDEMNITY. Debtor does hereby assume liability for and does agree to
indemnify, defend, protect, save and keep harmless Secured Party from and
against any and all liabilities, losses, damages, penalties, claims, actions,
suits, costs, expenses and disbursements, including court costs and legal
expenses, of whatever kind and nature, imposed on, incurred by or asserted
against Secured Party (whether or not also indemnified against by any other
person) in any way relating to or arising out of this agreement or the
manufacture, financing, ownership, delivery, possession, use, operation,
condition or disposition of the Equipment by Secured Party or Debtor, including,
without limitation, any claim alleging latent and other defects, whether or not
discoverable by Secured Party or Debtor, and any other claim arising out of
strict liability in tort, whether or not in either instance relating to an event
occurring while Debtor remains obligated under this agreement, and any claim for
patent, trademark or copyright infringement. Debtor agrees to give Secured Party
and Secured Party agrees to give Debtor notice of any claim or liability hereby
indemnified against promptly following learning thereof.
17. DEFAULT. Any of the following will constitute an event of default here
under: (a) Debtor's failure to pay when due any installment payment or other
amount due hereunder, which failure continues for ten (10) days after the due
date thereof; (b) Debtor's default in performing any other obligation, term or
condition of this agreement or any other agreement between Debtor and Secured
Party or default under any further agreement providing security for the
performance by Debtor of its obligations hereunder, provided such default has
continued for more than twenty (20) days, except as provided in (c) and (d)
hereinbelow, or, without limiting the generality of subparagraph (1)
hereinbelow, default under any lease or any mortgage or other instrument
contemplating the provision of financial accommodation applicable to the real
estate where an Item of Equipment is located; (c) any writ or order of
attachment or execution or other legal process being levied on or charged
against any Item of Equipment and not being released or satisfied within ten
(10) days; (d) Debtor's failure to comply with its obligations under paragraph
14 above or any transfer by Debtor in violation of paragraph 21 below; (e) a
non-appealable judgement for the payment of money in excess of $100,000 being
rendered by a court of record against Debtor which Debtor does not discharge or
make provision for discharge in accordance with the terms thereof within ninety
(90) days from the date of entry thereof; (f) death or judicial declaration of
incompetency of Debtor, if an individual; (g) the filing by Debtor of a petition
under the Bankruptcy Act or any amendment thereto or under any other insolvency
law or law providing for the relief of debtors, including, without limitation, a
petition for reorganization, arrangement or extension, or the commission by
Debtor of an act of bankruptcy; (h) the filing against Debtor of any such
petition not dismissed or permanently stayed within thirty (30) days of the
filing thereof; (i) the voluntary or involuntary making of an assignment of
substantial portion of its assets by Debtor for the benefit of creditors,
appointment of a receiver or trustee for Debtor or for any of Debtor's assets,
institution by or against Debtor or any other type of insolvency proceeding
(under the Bankruptcy Code or otherwise) or of any formal or informal proceeding
for dissolution, liquidation, settlement of claims against or winding up of the
affairs of Debtor, Debtor's cessation of business activities or the making by
Debtor of a transfer of all or a material portion of Debtor's assets or
inventory not in the ordinary course of business; (j) the occurrence of any
event described in parts (e), (f), (g), (h) or (i) hereinabove with respect to
any guarantor or other party liable for payment or performance of this
agreement; (k) any certificate, statement, representation, warranty or audit
heretofore or hereafter furnished with respect hereto by or on behalf of Debtor
or any guarantor or other party liable for payment or performance of this
agreement proving to have been false in any material respect at the time as of
which the facts therein set forth were stated or certified or having omitted any
substantial contingent or unliquidated liability or claim against Debtor or any
such guarantor or other party; (l) breach by Debtor of any lease or agreement
providing financial accommodation under which Debtor or its property is bound or
(m) a transfer of effective control of Debtor, if an organization.
<PAGE> 3
18. REMEDIES. Upon the occurrence of an event of default, Secured Party will
have the rights, options, duties and remedies of a secured party, and Debtor
will have the rights and duties of a debtor, under the Uniform Commercial Code
(regardless of whether such Code or a law similar thereto has been enacted in a
jurisdiction wherein the rights or remedies are asserted) and, without limiting
the foregoing, Secured Party may exercise any one or more of the following
remedies: (a) declare the Casualty Value or such lesser amount as may be set by
law immediately due and payable with respect to any or all Items of Equipment
without notice or demand to Debtor; (b) sue from time to time for and recover
all installment payments and other payments then accrued and which accrue during
the pendency of such action with respect to any or all Items of Equipment; (c)
take possession of and, if deemed appropriate, render unusable any or all Items
of Equipment, without demand or notice, wherever same may be located, without
any court order or other process of law and without liability for any damages
occasioned by such taking of possession and remove, keep and store the same or
use and operate or lease the same until sold; (d) require Debtor to assemble any
or all Items of Equipment at the Equipment Location therefor, such location to
which such Equipment may have been moved with the written consent of Secured
Party or such other location in reasonable proximity to either of the foregoing
as Secured Party designates; (e) upon ten days notice to Debtor or such other
notice as may be required by law, sell or otherwise dispose of any Item of
Equipment, whether or not in Secured Party's possession, in a commercially
reasonable manner at public or private sale at any place deemed appropriate and
apply the net proceeds of such sale, after deducting all costs of such sale,
including, but not limited to, costs of transportation, repossession, storage,
refurbishing, advertising and broker's fees, to the obligations of Debtor to
Secured Party hereunder or otherwise, with Debtor remaining liable for any
deficiency and with any excess being returned to Debtor; (f) upon thirty (30)
days notice to Debtor, retain any repossessed or assembled Items of Equipment as
Secured Party's own property in full satisfaction of Debtor's liability for the
installment payments due hereunder with respect thereto, provided that Debtor
will have the right to redeem such Items by payment in full of its obligations
to Secured Party hereunder or otherwise or to require Secured Party to sell or
otherwise dispose of such Items in the manner set forth in subparagraph (e)
hereinabove upon notice to Secured Party within such thirty (30) day period or
(g) utilize any other remedy available to Secured Party under the Uniform
Commercial Code or similar provision of law or otherwise at law or in equity.
No right or remedy conferred herein is exclusive of any other right or remedy
conferred herein or by law; but all such remedies are cumulative of every other
right or remedy conferred hereunder or at law or in equity, by statute or
otherwise, and may be exercised concurrently or separately from time to time.
Any sale contemplated by subparagraph (e) of this paragraph 18 may be adjourned
from time to time by announcement at the time and place appointed for such sale,
or for any such adjourned sale, without further published notice, and Secured
Party may bid and become the purchaser at any such sale. Any sale of an Item of
Equipment, whether under said subparagraph or by virtue of judicial proceedings,
will operate to divest all right, title, interest, claim and demand whatsoever,
either at law or in equity, of Debtor in and to said Item and will be a
perpetual bar to any claim against such Item, both at law and in equity, against
Debtor and all persons claiming by, through or under Debtor.
19. DISCONTINUANCE OF REMEDIES. If Secured Party proceeds to enforce any right
under this agreement and such proceedings are discontinued or abandoned for any
reason or are determined adversely, then and in every such case Debtor and
Secured Party will be restored to their former positions and rights thereunder.
20. SECURED PARTY'S EXPENSES. Debtor will pay Secured Party all costs and
expenses, including reasonable attorney's fees and court costs and sales costs
not offset against sales proceeds under paragraph 18 above, incurred by Secured
Party in exercising any of its rights or remedies hereunder or enforcing any of
the terms, conditions or provisions hereof. This obligation includes the payment
or reimbursement of all such amounts whether an action is ultimately filed and
whether an action filed is ultimately dismissed.
21. ASSIGNMENT. Without the prior written consent of Secured Party, Debtor will
not sell, lease, pledge or hypothecate, except as provided in this agreement, an
Item of Equipment or any interest therein or assign, transfer, pledge or
hypothecate this agreement or any interest in this agreement or permit the
Equipment to be subject to any lien, charge or encumbrance of any nature except
the security interest of Secured Party contemplated hereby. Debtor's interest
herein is not assignable and will not be assigned or transferred by operation of
law. Consent to any of the foregoing prohibited acts applies only in the given
instance and is not a consent to any subsequent like act by Debtor or any
person.
All rights of Secured Party hereunder may be assigned pledged, mortgaged,
transferred or otherwise disposed of, either in whole or in part, without notice
to Debtor but always, however, subject to the rights of Debtor under this
agreement. If Debtor is given notice of any such assignment, Debtor will
acknowledge receipt thereof in writing. In the event Secured Party assigns this
agreement or the installment payments due or to become due hereunder or any
other interest herein, whether as security for any of its indebtedness or
otherwise, no breach or default by Secured Party hereunder or pursuant to any
other agreement between Secured Party and Debtor, should there be one, will
excuse performance by Debtor of any provision hereof, it being understood that
in the event of such default or breach by Secured Party that Debtor will pursue
any rights on account thereof solely against Secured Party. No such assignee,
unless such assignee agrees in writing, will be obligated to perform any duty,
covenant or condition required to be performed by Secured Party in connection
with this agreement.
Subject always to the foregoing, this agreement insures to the benefit of, and
is binding upon, the heirs, legatees, personal representatives, successors and
assigns of the parties hereto.
22. MARKINGS; PERSONAL PROPERTY. If Secured Party supplies Debtor with labels,
plates, decals or other markings stating that Secured Party has an interest in
the Equipment, Debtor will affix and keep the same prominently displayed on the
Equipment or will otherwise make the Equipment or its then location or
locations, as appropriate, at Secured Party's request to indicate Secured
Party's security interest in the Equipment. The Equipment is, and at all times
will remain, personal property notwithstanding that the Equipment or any Item
thereof may now be, or hereafter become, in any manner affixed or attached to,
or embedded in, or permanently resting upon real property or any improvement
thereof or attached in any manner to what is permanent as by means of cement,
plaster, nails, bolts, screws or otherwise. If requested by Secured Party,
Debtor will obtain and deliver to Secured Party waivers of interest or liens in
recordable form satisfactory to Secured Party from all persons claiming any
interest in the real property on which an Item of Equipment is or is to be
installed or located.
23. LATE CHARGE. If Debtor fails to pay any installment payment or any other sum
to be paid by Debtor to Secured Party within seven (7) days of when due, Debtor
will pay to Secured Party (a) Secured Party's collection costs paid third
parties relevant to the collection thereof and (b) interest on such unpaid
installment or other amount at the rate of eighteen percent (18%) per annum, or
at such greater or lesser contract rate as may be applicable, computed from the
date due to the date paid.
24. NON-WAIVER. No covenant or condition of this agreement can be waived except
by the written consent of Secured Party. Forbearance or indulgence by Secured
Party in regard to any breach hereunder will not constitute a waiver of the
related covenant or condition to be performed by Debtor.
25. ADDITIONAL DOCUMENTS. In connection with and in order to perfect and
evidence the security interest in the Equipment granted Secured Party hereunder
Debtor will execute and deliver to Secured Party such financing statements and
similar documents as Secured Party requests. Debtor authorizes Secured Party
where permitted by law to make filings of such financing statements without
Debtor's signature. Debtor further will furnish Secured Party (a) a fiscal year
end financial statement including balance sheet and profit and loss statement
within ninety (90) days of the close of each fiscal year, (b) any other
information normally provided by Debtor to the public and (c) such other
financial data or information relative to this agreement and the Equipment,
including, without limitation, copies of vendor proposals and purchase orders
and agreements, listings of serial numbers or other identification data and
confirmations of such information, as Secured Party may from time to time
reasonably request. Debtor will procure
<PAGE> 4
and/or execute, have executed, acknowledge, have acknowledged, deliver to
Secured Party, record and file such other documents and showings as Secured
Party deems necessary or desirable to protect its interest in and rights under
this agreement and interest in the Equipment. Debtor will pay as directed by
Secured Party or reimburse Secured Party for all filing, search, title report,
legal and other fees incurred by Secured Party in connection with any documents
to be provided by Debtor pursuant to this paragraph or paragraph 22 and any
further similar documents Secured Party may procure.
26. DEBTOR'S WARRANTIES. Debtor certifies and warrants that the financial data
and other information which Debtor has submitted, or will submit, to Secured
Party in connection with this agreement is, or will be at time of delivery, as
appropriate, a true and complete statement of the matters therein contained.
Debtor further certifies and warrants that (a) this agreement has been duly
authorized by Debtor and when executed and delivered by the person signing on
behalf of Debtor below will constitute the legal, valid and binding obligation,
contract and agreement of Debtor enforceable against Debtor in accordance with
its respective terms; (b) this agreement and each and every showing provided by
or on behalf of Debtor in connection herewith may be relied upon by Secured
Party in accordance with the terms thereof notwithstanding the failure of Debtor
or other applicable party to ensure proper attestation thereto, whether by
absence of a seal or acknowledgment or otherwise; (c) Debtor has the right,
power and authority to grant a security interest in the Equipment to Secured
Party for the uses and purposes herein set forth and (d) each Item of Equipment
will, at the time such Item becomes subject hereto, be in good repair, condition
and working order.
27. ENTIRE AGREEMENT. This instrument constitutes the entire agreement between
Secured Party and Debtor and will not be amended, altered or changed except by a
written agreement signed by the parties.
28. NOTICES. Notices under this agreement must be in writing and must be mailed
by United States mail, certified mail with return receipt requested, duly
addressed, with postage prepaid, to the party involved at its respective address
set forth at the foot hereof or at such other address as such party may provide
on notice to the other from time to time. Notices will be effective when
deposited. Each party will promptly notify the other of any change in the first
party's address.
29. GENDER; NUMBER; JOINT AND SEVERAL LIABILITY. Whenever the context of this
agreement requires, the neuter gender includes the feminine or masculine and the
singular number includes the plural; and whenever the words "Secured Party" are
used herein, they include all assignees of Secured Party, it being understood
that specific reference to "assignee" in paragraph 14 above is for further
emphasis. If there is more than one Debtor named in this agreement, the
liability of each will be joint and several.
30. TITLES. The titles to the paragraphs of this agreement are solely for the
convenience of the parties and are not an aid in the interpretation of the
instrument.
31. GOVERNING LAW; VENUE. This agreement will be governed and construed in
accordance with the law of the State of California. Venue for any action related
to this agreement will be in an appropriate court in Santa Clara County,
California, to which Debtor consents, or in another court selected by Secured
Party which has jurisdiction over the parties. In the event any provision hereof
is declared invalid, such provision will be deemed severable from the remaining
provisions of this agreement which will remain in full force and effect.
32. TIME. Time is of the essence of this agreement and each and all of its
provisions.
IN WITNESS WHEREOF, the undersigned have executed this agreement as of
July 1, 1999
- --------------
(Date)
<TABLE>
<S> <C>
PENTECH FINANCIAL SERVICES, INC., THE LIGHTSPAN PARTNERSHIP, INC.,
A CALIFORNIA CORPORATION (Secured Party) A CALIFORNIA CORPORATION (Debtor)
By: By:
-------------------------------------- -----------------------------------------
(Title) (Title)
---------------------------------- -------------------------------------
Address: 310 West Hamilton Ave #202 Address: 10140 Campus Point Drive
Campbell, CA. 95008 San Diego, CA 92121
</TABLE>
<PAGE> 5
PENTECH FINANCIAL SERVICES, INC.
EQUIPMENT FINANCING COMMITMENT
EFA No 200281
Subject to the terms set forth in this commitment, the following equipment
financing transaction is agreed to by the undersigned Debtor and PENTECH
FINANCIAL SERVICES, INC., a California corporation("Secured Party") in
connection with the terms of the Equipment Financing Agreement herein referenced
(the "Agreement").
Equipment Financing Agreement: Dated as of JULY 1, 1999
Equipment (all Equipment to be acceptable to Secured Party):
Commitment Amount: $94,168.87
Installment Payments: 42 payments of 2.775% of advance
payable monthly in advance, PLUS A FINAL PAYMENT EQUAL
TO 12% OF THE ADVANCE.
First and last such payments are due at time of
scheduling.
Commitment Expiration Date: MARCH 30, 2000. As more fully
explained below, Secured Party has no obligation to
make any advance with respect to Equipment not covered
by a Schedule to the Agreement executed by Secured
Party and Debtor on or prior to this date.
Debtor will comply with, procure, execute and/or have executed, acknowledge,
have acknowledged, deliver to Secured Party, record and file any documents set
forth in Exhibit A or accompanying this commitment. The form, substance and
sufficiency of all documents and showings employed in documenting the
contemplated financing transaction must be acceptable to Secured Party and its
counsel. Debtor will do likewise as to such further documents and showings as
Secured Party and its counsel may now or hereafter deem reasonably necessary or
advisable to protect Secured Party's rights under the Agreement and interest in
the Equipment. Debtor will pay as directed by Secured Party or reimburse Secured
Party for all searches, filings, title reports, attorney's services and other
charges incurred by Secured Party in connection with all such documents and
showings and any similar documents and showings Secured Party may procure.
Secured Party may, at its option, terminate its obligations to Debtor hereunder
with respect to any and all unscheduled Items of Equipment: (a) at or subsequent
to the Commitment Expiration Date, (b) upon the advent of a material adverse
change in Debtor's financial condition or Debtor's probable ability to perform
its obligations under the Agreement, (c) if the Agreement or any other agreement
under which Debtor has obligations to Secured Party is in default or an event
which with the giving of notice or lapse of time or both would constitute such a
default has occurred and is continuing or (d) with respect to which more than
fifteen percent (15%) would be advanced for shipping costs, installation charges
and design costs by giving Debtor written notice of such termination.
ACCEPTED AND AGREED to as of: July 1, 1999
<TABLE>
<S> <C>
PENTECH FINANCIAL SERVICES, INC. THE LIGHTSPAN PARTNERSHIP, INC.,
a California corporation (Secured Party) a California corporation (Debtor)
By: By:
-------------------------------------- -----------------------------------------
(Title) (Title)
---------------------------------- --------------------------------------
Address: 310 WEST HAMILTON AVE Address: 10140 CAMPUS POINT DRIVE
CAMPBELL, CA. 95008 SAN DIEGO, CA 92121
</TABLE>
<PAGE> 6
EXHIBIT A TO EQUIPMENT FINANCING COMMITMENT
Accepted by Debtor as of July 1, 1999
Page 1 of 2
These provisions hereby become part of the Equipment Financing Commitment
between PENTECH FINANCIAL SERVICES, INC., a California corporation, Secured
Party, and THE LIGHTSPAN PARTNERSHIP, INC., a California corporation, Debtor,
dated JULY 1, 1999.
In addition to the terms of the Agreement, Debtor further agrees to the
following additional provisions:
1. UCC SEARCH/RELEASES
The Secured Party may search all public records of Debtor to locate and
identify any conflicting liens against the above referenced Equipment.
Releases from any intervening parties holding a security interest in said
Equipment shall be required prior to funding provided herein.
2. TYPE OF FINANCING
This is a net equipment financing transaction whereby maintenance,
insurance, property taxes, and all items of a similar nature are for the
account of the Debtor.
3. EXPENSES
All expenses associated with the completion of this Agreement including,
but not limited to, UCC filing fees and searches, documentation costs,
legal expenses, and equipment verification costs are for the account of the
debtor.
4. MASTER AGREEMENT
This is a Master Equipment Financing Agreement whereby Schedules may be
funded as equipment is delivered. Each Schedule to the Agreement, however,
shall cover equipment with a minimum aggregate cost of $50,000.00.
5. INSTALLMENT PAYMENT AMOUNT
The installment payment amount of $27.75 per $1,000.00 of advance payable
monthly in advance is based on the current Wall Street Journal prime rate
of 7.75%. Once a Schedule is funded, however, the installment payment
amount remains fixed for the duration of the term.
6. COMMITMENT EXPIRATION DATE
The commitment expiration date of March 30, 2000 may be extended ninety
(90) days, at Secured Party's sole discretion upon such terms and
conditions as may be required by Secured Party, including review of the
Debtor's then current financial condition. Debtor agrees to provide Secured
Party such financial information and other information Secured Party may
reasonably request to evaluate Debtor's financial condition for purposes of
granting such extension.
1
<PAGE> 7
7. COMMITMENT FEE DEPOSIT
Debtor shall provide Secured Party a $10,000.00 commitment fee deposit,
receipt of which is hereby acknowledged. This deposit shall be applied to
the advance payments due for the last Schedule funded under this Agreement.
Any unapplied balance as of the commitment expiration date may be retained
by Secured Party.
8. MONTHLY FINANCIAL STATEMENTS
Debtor agrees to provide Secured Party the Debtor's internally prepared
financial statements on an ongoing basis not later than fifteen (15) days
after the close of each month of Debtor's fiscal year. Upon request by
Secured Party, Debtor also agrees to provide any other pertinent and
reasonable information as Secured Party may deem necessary to evaluate
Debtor's future financial condition.
9. ANNUAL FINANCIAL STATEMENTS
Debtor agrees to provide Secured Party the Debtor's annual financial
statements within ninety (90) days of the close of Debtor's fiscal year
end.
10. SCHEDULES
There shall be one (1) Schedule to the Agreement covering equipment with a
maximum aggregate cost of $94,168.87.
2
<PAGE> 8
PENTECH FINANCIAL SERVICES, INC.
310 WEST HAMILTON AVE.
SUITE 202
CAMPBELL, CA 95008
(408) 378-2000
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
Attachment to Schedule No. ONE, dated as of JULY 1, 1999 to Equipment Financing
Agreement No. 200281 between PENTECH FINANCIAL SERVICES, INC., a California
Corporation, as Secured Party, and THE LIGHTSPAN PARTNERSHIP, INC., a California
corporation, as Debtor, dated as of JULY 1, 1999.
VENDOR: BEARCOM, P.O. BOX 200600, DALLAS, TX 75320-0600, (214) 340-8876
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 AAH25RDC9AA3-N HT750 UHF 4WT 16CH 672TYU4798
403-470MHZ
1 H229I HT750/1250 LITHIUM-ION BATTERY
1 PMAE4003 HT750/1250 UHF STUBBY ANTENNA
F1 463.225 TXR; F1 DPL 546; F2 464.475 TXR; F3 464.5375 TXR; F4
464.5625 TXR; F2-F4 DPL 364
$622.00
</TABLE>
VENDOR: BOISE CASCADE, FILE 42256, LOS ANGELES, CA 90074-2256, (714) 898-7540
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 E4 582LL FILE, LAT 2 DRW 36"W PY HONIND
$212.00
</TABLE>
VENDOR: CONVOY AUDIO VIDEO/NORMAN MCKEITHAN, 7770 VICKERS ST., SAN DIEGO, CA
92111-1545, (619) 279-3825
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 CANON VIDECAM. 2361
$1,500.00
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 460-8600 DELL DIMENSION XPS 500MHZ 11ZRE
PENTIUM III MINITOWER BASE WITH MMX
TECHNOLOGY AND 512K CACHE
1 310-0050 INTELLIMOUSE, FACTORY INSTALLED
1 310-7002 KEYBOARD, FATORY INSTALLED
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
Page 1 of 9
<PAGE> 9
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 311-0410 128MB, SDRAM MEMORY,
FACTORY INSTALLED
1 313-0266 HARMAN/KARDON HK-195 SPEAKERS
FACTORY INSTALLED
1 313-1087 40X MAX VARIABLE CD ROM,
FACTORY INSTALLED
1 313-3607 NO MODEM REQUESTED FOR DELL
DIMENSION
1 313-4523 INTEGRATED SOUND FOR DELL DIMENSION
1 320-0228 17" (16.0" VIEWABLE, .26DP) M780
FACTORY INSTALLED
1 320-1109 16MB STB NVIDIA TNT 3D AGP
GRAPHICS CARD, FACTORY INSTALLED
1 340-1559 12.9GB 7200RPM HARD DRIVE
FACTORY INSTALLED
1 340-2409 3.5", 1.44M, NO BEZEL FLOPPY DRIVE
FACTORY INSTALLED
1 412-0203 MICROSOFT INTERNET EXPLORER 4.01 SP1A,
CD WITH DOCS, US, ENGLISH, OEM PACKAGE,
FACTORY INSTALLED
1 420-1666 MICROSOFT WINDOWS NT4.0, FACTORY INSTALLED
1 430-1550 3COM 3C905B TXB 10/100 WUOL NETWORK
CARD, FACTORY INSTALLED
1 900-1600 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 NEXT BUSINESS DAY, PARTS DELIVERY SERVICE
YEARS 2 & 3 INCLUDED
1 412-0071 MS OFFICE SMALL BUSINESS EDITION 97.2
CD & NO PRINTED MANUAL, US ENGLISH,
FACTORY INSTALLED
1 412-0301 MS ENCARTA ENCYCLOPEDA 99, CD & DOC,
US ENGLISH, FACTORY INSTALLED
1 412-0524 MS OFFICE 2000 SMALL BUSINESS UPGRADE
FLYER, US, ENGLISH
$2,274.00
</TABLE>
VENDOR: CREATIVE COMPUTERS, FILE 55327, LOS ANGELES, CA 90074-5327, (800)
739-3282
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 P POW 26616 PROLIANT 1200/1600/2500 512K 283697001
PLUGGABLE COMP.
$587.00
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
VENDOR: CREATIVE COMPUTERS, FILE 55327, LOS ANGELES, CA 90074-5327, (800)
739-3282
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
Page 2 of 9
<PAGE> 10
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 P CPU 35193 TPAD 600 PII300 64/6/DVD/56K/ 1S264555U78BXV60
13.3TF/W98 IBM
$3,599.00
</TABLE>
VENDOR: CMPEXPRESS.COM, INC., P.O. BOX 54, DOWNINGTOWN, PA 19335, (800) 950-2671
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 220922 SMART ARRAY 221 1CH PCI ULTRA2
SCSI CONTR; 6MB
3 215885 6/300 512K PROC. OPT. KIT PROLIANT 1600 3000
3 904247 256MB KIT COMPAQ PROLIANT 3000
6 218960 18.2GB PLUGGABLE W/ULTRA SCSI3 HD
1.6IN 7200RPM
1 218509 SMART-2HD PCI 2CH ARRAY CONTROLLER
W/16MB CACHE
1 218968 CABLE KIT PROLIANT 3000 5500
1 218982 REDUNDANT FANS KIT PROLIANT 3000 5500-6/200
$14,390.82
</TABLE>
VENDOR: ACTION WHOLESALE PRODUCTS, INC., 1441 EAST MCFADDEN AVE., SANTA ANA, CA
92705, (714) 480-0100
EQUIPMENT LOCATION: 6108 AVENIDA ENCINAS, SUITE D, CARLSBAD, CA 92008
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
6 3-72W4824W SERIES 1
8 W4824W SHELF
2 3-84W4824W SERIES 1
1 3-84W7224WH SERIES 1
1 W7224WH SHELF
$636.10
</TABLE>
VENDOR: BEARCOM, P.O. BOX 200600, DALLAS, TX 75320-0600, (214) 340-8876
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
4 AAH25RDC9AA3-N HT750 UHF 4WT 16CH 672TYS2991, 672TYU3180
403-470MHZ 672TYU8047, 672TYU8787
4 H229I HT750/1250 LITHIUM-ION BATTERY
4 PMAE4003 HT750/1250 UHF STUBBY ANTENNA
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
VENDOR: BEARCOM (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
6 NAE6522 P100/200/GP300 UHF STUBBY ANT. F1 463.225 TXR;
F2 464.475 TXR; F3 464.5375 TXR; F4 464.5625 TXR;
F1 DPL 546; F2-F4 DPL 364
$2,554.00
</TABLE>
Page 3 of 9
<PAGE> 11
VENDOR: SEARS/PHIL TISHKEVICH, SANTA MONICA, CA 01178, (310) 454-5071
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 18' REFRIGERATOR
$449.99
</TABLE>
VENDOR: SEARS/PHIL TISHKEVICH, SANTA MONICA, CA 01178, (310) 454-5071
EQUIPMENT LOCATION: 2001 WILSHIRE, #320, SANTA MONICA, CA 90403
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 MICROWAVE OVEN
$149.88
</TABLE>
VENDOR: BUY.COM/PHIL TISHKEVICH, (888) 880-1030
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
21 HEWLETT PACKARD (C5894A#ABA) SKU# 433934 SSG864130TF, SSG864130YJ
DESKJET 710C 600DPI 6PPM IN BLACK & 3PPM SSG864131YD, SSG8641310R
IN COLOR SSG8641311B, SSG8641312
SSG8641312Y, SSG8641314N
SSG8641318Z, SSG86413191
SSG86413192, SSG8651300
SSG8651300Q, SSG8651300R
SSG8651300S, SSG8651300Y
SSG86513009, SSG8651302
SSG86513033, SSG86513035
SSG86513038
$3,652.95
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
VENDOR: BUY.COM/PHIL TISHKEVICH, (888) 880-1030
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 HEWLETT PACKARD (C5894A#ABA) SKU# 433934
DESKJET 710C 600DPI 6PPM IN BLACK & 3PPM
IN COLOR
$173.95
</TABLE>
VENDOR: CMPEXPRESS.COM/PHIL TISHKEVICH, 5000 HILLTOP DR., BROOKHAVEN, PA 19015,
(800) 950-2671
Page 4 of 9
<PAGE> 12
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 COMPUTER: 256MB DIMM MEM KIT 2X128 BUFFERED
EDO ECC DIMMS (COMPAQ - SERVER OPTIONS)
$870.33
</TABLE>
VENDOR: BUY.COM/PHIL TISHKEVICH, (888) 880-1030
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
2 HEWLETT PACKARD (C5894A#ABA) SKU# 433934 SSG86B131B9
DESKJET 710C 600DPI 6PPM IN BLACK & 3PPM SSG86B131J6
IN COLOR
$331.90
</TABLE>
VENDOR: BUY.COM/PHIL TISHKEVICH, (888) 880-1030
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 HEWLETT PACKARD (C5894A#ABA) SKU# 433934 SG86B131B9
DESKJET 710C 600DPI 6PPM IN BLACK & 3PPM
IN COLOR
$167.95
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
VENDOR: CREATIVE COMPUTERS, FILE 55327, LOS ANGELES, CA 90074-5327, (800)
739-3282
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
10 P CPU 42420 TPAD 600 PII 300 32, 4, 24X, 1S26453AU78MYW20
13.3TFT, 56, 98 IBM 1S26453AU78MYR42
1S26453AU78MYL34
1S26453AU78MYV38
1S26453AU78MZY06
1S26453AU78MYN94
1S26453AU78MYT25
1S26453AU78MYV08
1S26453AU78MYR75
1S26453AU78MYT22
$27,650.00
</TABLE>
Page 5 of 9
<PAGE> 13
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 460-8600 DELL DIMENSION XPS 500MHZ UWQGI
PENTIUM III MINITOWER BASE WITH MMX
TECHNOLOGY AND 512K CACHE
1 310-0050 INTELLIMOUSE, FACTORY INSTALLED
1 310-7002 KEYBOARD, FATORY INSTALLED
1 311-0410 128MB, SDRAM MEMORY,
FACTORY INSTALLED
1 313-0266 HARMAN/KARDON HK-195 SPEAKERS
FACTORY INSTALLED
1 313-1087 40X MAX VARIABLE CD ROM,
FACTORY INSTALLED
1 313-3607 NO MODEM REQUESTED FOR DELL
DIMENSION
1 313-4523 INTEGRATED SOUND FOR DELL DIMENSION
1 320-0066 19" (18.0" VIEWABLE, .26DP) TRINITRON
P990 MONITOR
1 320-1109 16MB STB NVIDIA TNT 3D AGP
GRAPHICS CARD, FACTORY INSTALLED
1 340-1559 12.9GB 7200RPM HARD DRIVE
FACTORY INSTALLED
1 340-2409 3.5", 1.44M, NO BEZEL FLOPPY DRIVE
FACTORY INSTALLED
1 412-1212 MCAFEEE VIRUSSCAN 3.1.6, CD
FACTORY INSTALLED, US, ENGLISH, OEM PACKAGE
1 420-2083 MICROSOFT WINDOWS 98, WITH CD, FACTORY INSTALLED
1 430-1550 3COM 3C905B TXB 10/100 WUOL NETWORK
CARD, FACTORY INSTALLED
1 900-1600 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-5112 NEXT BUSINESS DAY, PARTS DELIVERY SERVICE
YEARS 2 & 3 INCLUDED
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
VENDOR: DELL COMPUTER (CONTINUED)
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 412-0071 MS OFFICE SMALL BUSINESS EDITION 97.2
CD & NO PRINTED MANUAL, US ENGLISH,
FACTORY INSTALLED
1 412-0524 MS OFFICE 2000 SMALL BUSINESS UPGRADE
FLYER, US, ENGLISH
1 412-1398 MS BOOKSHELF 99, CD & DOCUMENTS US ENGLISH,
FACTORY INSTALLED, OEM PRODUCT
$2,452.00
</TABLE>
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 220-1459 DELL DIMENSION XPS R400MHZ 06RVI
PENTIUM II MINITOWER BASE WITH MMX TECHNOLOGY
AND 512K CACHE
1 310-0589 MOUSEMAN WHEEL (PS/2V)
</TABLE>
Page 6 of 9
<PAGE> 14
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 310-7002 KEYBOARD, FACTORY INSTALLED
1 311-0408 64MB, SDRAM MEMORY, FACTORY INSTALLED
1 313-0266 HARMAN/KARDON HK-195 SPEAKERS
FACTORY INSTALLED
1 313-0622 TURTLE BEACH MONTEGO A3D 64 VOICE
PCI SOUND CARD, FACTORY INSTALLED
1 313-1086 40X MAX VARIABLE CD ROM, FACTORY INSTALLED
1 313-3607 NO MODEM REQUESTED FOR DELL DIMENSION
1 320-0228 17" (16.0" VIEWABLE, .26DP) M780
FACTORY INSTALLED
1 320-5433 ATI XPERT 98D 8MB 3D 2X AGP GRAPHICS
CARD, FACTORY INSTALLED
1 340-4882 8.4GB ULTRA ATA HARD DRIVE 5400RPM,
FACTORY INSTALLED
1 340-7016 3.5, 1.44MB FLOPPY DRIVE, FACTORY INSTALLED
1 412-1212 MCAFEE VIRUSSCAN 3.1.6, CD,
FACTORY INSTALLED, US ENGLISH, OEM PACKAGE
1 420-2083 MICROSOFT WINDOWS 98, WITH CD,
FACTORY INSTALLED
1 430-3034 3COM 3C905B FAST ETHERLINK XL
10/100 PCI NIC, FACTORY INSTALLED
1 900-1600 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-5112 NEXT BUSINESS DAY, PARTS DELIVERY SERVICE
YEARS 2 & 3 INCLUDED
1 412-0071 MS OFFICE SMALL BUSINESS EDITION 97.2
CD & NO PRINTED MANUAL, US ENGLISH, FACTORY INSTALLED
1 412-0524 MS OFFICE 2000 SMALL BUSINESS UPGRADE
FLYER, US, ENGLISH
1 412-1398 MS BOOKSHELF 99, CD & DOCUMENTS US ENGLISH,
FACTORY INSTALLED, OEM PRODUCT
$1,590.00
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
VENDOR: DELL COMPUTER, P.O. BOX 21022, PASADENA, CA 91185-1022, (800) 426-5150
EQUIPMENT LOCATION: 10140 CAMPUS POINT DRIVE, SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 460-8600 DELL DIMENSION XPS 500MHZ 058JU
PENTIUM III MINITOWER BASE WITH MMX
TECHNOLOGY AND 512K CACHE
1 310-0050 INTELLIMOUSE, FACTORY INSTALLED
1 310-7002 KEYBOARD, FATORY INSTALLED
1 311-0410 128MB, SDRAM MEMORY,
FACTORY INSTALLED
1 313-0266 HARMAN/KARDON HK-195 SPEAKERS
FACTORY INSTALLED
1 313-1087 40X MAX VARIABLE CD ROM,
FACTORY INSTALLED
1 313-3607 NO MODEM REQUESTED FOR DELL
DIMENSION
1 313-4523 INTEGRATED SOUND FOR DELL DIMENSION
1 320-1109 16MB STB NVIDIA TNT 3D AGP GRAPHICS
CARD, FACTORY INSTALLED
1 320-3000 VIDEO READY OPTION W/O MONITOR
1 340-2409 3.5", 1.44M, NO BEZEL FLOPPY DRIVE
FACTORY INSTALLED
1 340-5750 12.9GB ULTRA ATA HARD DRIVE 5400 RPM,
FACTORY INSTALLED
1 365-1234 READYWARE FACTORY INSTALLATION SERVICE
1 412-1212 MCAFEE VIRUSSCAN 3.1.6, CD,
</TABLE>
Page 7 of 9
<PAGE> 15
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
FACTORY INSTALLED, US ENGLISH, OEM PACKAGE
1 420-2083 MICROSOFT WINDOWS 98, WITH CD,
FACTORY INSTALLED
1 430-1550 3COM 3C905B TXB 10/100 WUOL NETWORK
CARD, FACTORY INSTALLED
1 900-1600 SELECTCARE, INITIAL YEAR, NEXT BUSINESS DAY
ON-SITE SERVICE CONTRACT, BSC
1 900-5112 NEXT BUSINESS DAY, PARTS DELIVERY SERVICE
YEARS 2 & 3 INCLUDED
1 412-0071 MS OFFICE SMALL BUSINESS EDITION 97.2
CD & NO PRINTED MANUAL, US ENGLISH, FACTORY INSTALLED
1 412-0524 MS OFFICE 2000 SMALL BUSINESS UPGRADE
FLYER, US, ENGLISH
1 412-1398 MS BOOKSHELF 99, CD & DOCUMENTS US ENGLISH,
FACTORY INSTALLED, OEM PRODUCT
$1,903.00
</TABLE>
EFA No. 200281
Schedule No. ONE
SCHEDULE "A"
VENDOR: CREATIVE COMPUTERS, FILE 55327, LOS ANGELES, CA 90074-5327, (800)
739-3282
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
1 P OUT 36140 HP DESKJET 710C PRINTER SMY8AB110FD
1 P CAB 83338 6' IEEE 1284 PRINTER CBL
DB25-CENT 36M
$202.00
</TABLE>
VENDOR: CREATIVE COMPUTERS, FILE 55327, LOS ANGELES, CA 90074-5327, (800)
739-3282
EQUIPMENT LOCATION: 10140 CAMPUS POINT DR., SAN DIEGO, CA 92121
<TABLE>
<CAPTION>
QTY. EQUIPMENT DESCRIPTION SERIAL NUMBER INVOICE AMOUNT
- ---- --------------------- ------------- --------------
<S> <C> <C> <C>
10 P CPU 42420 TPAD 600 PII 300 32, 4, 24X, 1S26453AU78NBN03
13.3TFT, 56, 98 IBM 1S26453AU78NAT92
1S26453AU78NBR06
1S26453AU78NAN02
1S26453AU78NAF03
1S26453AU78NAF92
1S26453AU78NAK07
1S26453AU78NCV29
1S26453AU78NAG77
$28,200.00
--------------
TOTAL FOR ALL INVOICES $94,168.87
==============
</TABLE>
Schedule "A" is attached to and a part of PENTECH FINANCIAL SERVICES, INC. EFA
Schedule No. ONE , and constitutes a true and accurate description of the
equipment.
Page 8 of 9
<PAGE> 16
<TABLE>
<S> <C>
SECURED PARTY: PENTECH FINANCIAL SERVICES, INC., DEBTOR: THE LIGHTSPAN PARTNERSHIP, INC.,
A CALIFORNIA CORPORATION A CALIFORNIA CORPORATION
By: By:
----------------------------------------- --------------------------------------------
Name: Benjamin E. Millerbis Name:
--------------------------------------- ------------------------------------------
Title: President Title:
-------------------------------------- -----------------------------------------
Date: July 1, 1999 Date: July 1, 1999
-------------------------------------- ------------------------------------------
</TABLE>
Page 9 of 9
<PAGE> 1
EXHIBIT 10.15
THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
JULY 8, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1.1 Certain Definitions..................................................... 2
1.2 Restrictions............................................................ 3
1.3 Restrictive Legend...................................................... 3
1.4 Notice of Proposed Transfers............................................ 4
1.8 Limitations on Subsequent Registration Rights........................... 8
1.9 Expenses of Registration................................................ 8
1.10 Registration Procedures................................................. 9
1.11 Indemnification.........................................................11
1.12 Information by Holder...................................................13
1.13 Rule 144 Reporting......................................................13
1.14 Transfer of Registration Rights.........................................13
1.15 Standoff Agreement......................................................14
1.16 Termination of Rights...................................................14
2.1 Right of First Offer....................................................14
2.2 Termination of Right of First Offer.....................................16
Affirmative Covenants of the Company............................................16
3.1 Financial Information...................................................16
3.2 Operating Plan and Budget...............................................17
3.3 Inspection..............................................................17
3.4 Assignment of Rights to Financial Information...........................17
3.5 Proprietary Information Agreement.......................................17
3.6 Board of Directors......................................................18
3.7 Restrictions on Employee Stock..........................................18
3.8 Termination of Covenants................................................19
3.9 Definition of Investor..................................................19
3.10 Qualified Small Business Stock..........................................19
3.11 Capital Stock of Subsidiaries...........................................19
3.12 Approval of Certain Actions.............................................19
3.13 Most Favored Nations Treatment..........................................19
Right of First Refusal..........................................................20
4.1 Restriction on Transfer.................................................20
4.2 Notice Requirement......................................................20
4.3 Option of Investors.....................................................20
</TABLE>
1.
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
4.4 Special Provisions Regarding Exchanges..................................21
4.5 Option of Company.......................................................21
4.6 Transfer of Shares......................................................21
4.7 Effect of Notice........................................................22
4.8 Certain Transfers Exempt................................................22
4.9 Pledge of Stock.........................................................23
4.10 Termination.............................................................23
5.1 Assignment..............................................................23
5.2 Third Parties...........................................................23
5.3 Governing Law...........................................................23
5.4 Counterparts............................................................23
5.5 Notices.................................................................23
5.6 Severability............................................................23
5.7 Amendment and Waiver....................................................24
5.8 Effect of Amendment or Waiver...........................................24
5.9 Termination of Prior Agreement..........................................24
5.10 Rights of Holders.......................................................24
5.11 Delays or Omissions.....................................................24
EXHIBIT A - Schedule of Investors
</TABLE>
2.
<PAGE> 4
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the "Agreement") is
entered into as of the 8th day of July 1999, by and among The Lightspan
Partnership, Inc., a California corporation (the "Company"), and the persons set
forth on the Schedule of Investors attached hereto as Exhibit A (the
"Investors").
RECITALS
A. The Company sold and issued to certain of the Investors (the "Series
A Holders") 7,467,500 shares of the Series A Preferred Stock of the Company
pursuant to that certain Series A Preferred Stock Purchase Agreement between the
Company and the Series A Holders dated as of December 6, 1993 (the "Series A
Agreement"); the Company sold and issued to certain of the Investors (the
"Series B Holders") 11,666,664 shares of the Series B Preferred Stock of the
Company pursuant to that certain Series B Preferred Stock Purchase Agreement
between the Company and the Series B Holders dated as of February 7, 1995 (the
"Series B Agreement"); the Company sold and issued to certain of the Investors
(the "Series C Holders") 3,264,285 shares of the Series C Preferred Stock of the
Company pursuant to that certain Series C Preferred Stock Purchase Agreement
between the Company and the Series C Holders dated as of September 20, 1996 (the
"Series C Agreement"); and the Company sold and issued to certain of the
Investors (the "Series D Holders") 13,129,443 shares of the Series D Preferred
Stock of the Company pursuant to that certain Series D Preferred Stock Purchase
Agreement between the Company and the Series D Holders dated as of June 24, 1997
(the "Series D Agreement"). The Company (i) has issued a warrant to purchase
150,000 shares Series A Preferred Stock to Comdisco Ventures, (ii) has issued
warrants to purchase an aggregate of 150,000 shares of Series B Preferred Stock
to Comdisco Ventures, (iii) has issued warrants to purchase 70,000 and 26,625
shares of Series C Preferred Stock to Silicon Valley Bank and Comdisco Ventures,
respectively, and (iv) has issued warrants to purchase an aggregate of 3,636,876
shares of Series D Preferred Stock to certain investors; the aforementioned
parties are collectively referred to herein as "Warrant Holders," and the
Preferred Stock issuable upon exercise of the aforementioned warrants are
collectively referred to herein as "Warrant Shares." Pursuant to that certain
Investor Rights Agreement dated as of June 24, 1997 (the "Prior Agreement") the
Company granted to such Series A Holders, Series B Holders, Series C Holders,
Series D Holders and Warrant Holders certain rights.
B. Pursuant to that certain Series E Preferred Stock Purchase Agreement
of even date herewith (the "Series E Agreement"), the Company has agreed to sell
to certain of the Investors up to a total of 6,000,000 shares of Series E
Preferred Stock of the Company and, as an inducement for such Investors to
purchase such shares, the Company, the Series A Holders, the Series B Holders,
the Series C Holders, the Series D Holders and the Warrant Holders have agreed
to enter into this Agreement to supersede, amend and restate the rights granted
to the Series A Holders, the Series B Holders, the Series C Holders, the Series
D Holders and the Warrant Holders in the Prior Agreement and extend such rights,
as so superseded, amended and restated to the purchasers of Series E Preferred
Stock.
C. The Company has entered into that certain Agreement and Plan of
Reorganization with Academic Systems Corporation dated as of May 10, 1999,
pursuant to which the Company will
<PAGE> 5
issue to certain stockholders of Academic Systems Corporation (the
"Academic Preferred Holders") shares of its Series E Preferred Stock. The
Company and the Investors desire to extend the rights granted hereunder to the
Academic Preferred Holders. Upon receipt of the Series E Preferred Stock by the
Academic Preferred Holders, the Academic Preferred Holders shall be considered
as "Investors" hereunder.
D. The shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock, Series D Preferred Stock and Series E Preferred Stock
held by the Investors are referred to collectively herein as the "Shares."
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1
RESTRICTIONS ON TRANSFERABILITY;
REGISTRATION RIGHTS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Conversion Shares" means the Common Stock issued or issuable upon
conversion of the Shares.
"Holder" shall mean (i) any Investor or Warrant Holder holding
Registrable Securities and (ii) any person holding Registrable Securities to
whom the rights under this Agreement have been transferred in accordance with
Section 1.14 hereof.
"Initiating Holders" shall mean (i) any Investors, Warrant Holders
or transferees of Investors or Warrant Holders under Section 1.14 hereof who in
the aggregate are Holders of not less than thirty percent (30%) of the
Registrable Securities, or (ii) any Investors, Warrant Holders or transferees of
Investors or Warrant Holders under Section 1.14 hereof who propose to register
securities, the aggregate offering price of which, net of underwriting discounts
and commissions, exceeds $10,000,000.
The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.5, 1.6 and 1.7 hereof, including, without
limitation, all registration, qualification, listing and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and the expense of any special audits incident
-2-
<PAGE> 6
to or required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by the
Company).
"Registrable Securities" means (i) the Shares; (ii) the Conversion
Shares; (iii) any Common Stock of the Company issued or issuable in respect of
the Shares or Conversion Shares or other securities issued or issuable with
respect to the Shares or Conversion Shares upon any stock split, stock dividend,
recapitalization, or similar event, or any Common Stock otherwise issued or
issuable with respect to the Shares or Conversion Shares; and (iv) the Warrant
Shares and shares of Common Stock issuable upon conversion of the Warrant
Shares; provided, however, that shares of Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(1) thereof so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale.
"Restricted Securities" shall mean the securities of the Company
required to bear the legend set forth in Section 1.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (as
limited by Section 1.9).
1.2 Restrictions. The Shares and the Conversion Shares shall not be
sold, assigned, transferred or pledged except upon the conditions specified in
this Agreement, which conditions are intended to ensure compliance with the
provisions of the Securities Act. Each Investor will cause any proposed
purchaser, assignee, transferee or pledgee of the Shares and the Conversion
Shares held by such Investor to agree to take and hold such securities subject
to the provisions and upon the conditions specified in this Agreement.
1.3 Restrictive Legend. Each certificate representing (i) the Shares,
(ii) the Conversion Shares, and (iii) any other securities issued in respect of
the securities referenced in clauses (i) and (ii) upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.4 below) be stamped
or otherwise imprinted with a legend in the following form (in addition to any
legend required under applicable state securities laws):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SHARES MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE
COUNSEL FOR THE COMPANY) REASONABLY
-3-
<PAGE> 7
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT."
"THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED
ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE
SECRETARY OF THE COMPANY."
Each Investor consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Restricted
Securities in order to implement the restrictions on transfer established in
this Section 1.
1.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) an unqualified written
opinion of legal counsel who shall, and whose legal opinion shall, be reasonably
satisfactory to the Company, addressed to the Company, to the effect that the
proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, or (iii) any other evidence
reasonably satisfactory to counsel to the Company, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with Rule 144, (b) in any transaction in
which an Investor which is a corporation distributes Restricted Securities after
six (6) months after the purchase thereof solely to its majority owned
subsidiaries or affiliates, or (c) in any transaction in which an Investor which
is a partnership or limited liability company distributes Restricted Securities
after six (6) months after the purchase thereof solely to partners or members
thereof; provided that each transferee agrees in writing to be subject to the
terms of this Section 1.4. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
1.3 above, except that such certificate shall not bear such restrictive legend
if, in the opinion of counsel for such holder and the Company, such legend is
not required in order to establish compliance with any provisions of the
Securities Act.
1.5 Requested Registration
(a) Request for Registration. In case the Company shall receive from
Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to the Registrable Securities, the
Company will:
-4-
<PAGE> 8
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within thirty (30) days after receipt of such written notice from
the Company; provided, however, that the Company shall not be obligated to take
any action to effect any such registration, qualification or compliance pursuant
to this Section 1.5:
(1) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction and except as may be required by the Securities
Act;
(2) Prior to the earlier of (i) three (3) months following the
effective date of the first public offering of the Common Stock of the Company
to the general public which is effected pursuant to a registration statement
filed with, and declared effective by, the Commission under the Securities Act
(the "Initial Public Offering") or (ii) July 8, 2004;
(3) During the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the earlier of
(i) one (1) year from the date sixty (60) days prior to the Company's estimated
date of filing of, or (ii) the date six (6) months immediately following the
effective date of, any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and that the Company's estimate of the date of
filing such registration statement is made in good faith;
(4) After the Company has effected three (3) such registrations
pursuant to this subparagraph 1.5(a), each such registration has been declared
or ordered effective and the securities offered pursuant to each such
registration have been sold; or
(5) If the Company shall furnish to such Holders a certificate,
signed by the President of the Company, stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near future,
then the Company's obligation to use its best efforts to register, qualify or
comply under this Section 1.5 shall be deferred for a period not to exceed
ninety (90) days from the date of receipt of written request from the Initiating
Holders; provided, however, that the Company may not utilize this right more
than twice in any twelve (12) month period.
-5-
<PAGE> 9
Subject to the foregoing clauses (1) through (5), the Company shall file
a registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 1.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.5(a)(i). The right of any Holder to registration pursuant to Section
1.5 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 1.5 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent requested, to the
extent provided herein.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into and perform its
obligations under an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by a majority in interest of the
Initiating Holders (which managing underwriter shall be reasonably acceptable to
the Company). Notwithstanding any other provision of this Section 1.5, if the
managing underwriter advises the Initiating Holders in writing that marketing
factors require a limitation of the number of shares to be underwritten, then
the Company shall so advise all Holders of Registrable Securities and the number
of shares of Registrable Securities that may be included in the registration and
underwriting shall be allocated among all Holders thereof in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by such Holders at the time of filing the registration statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to ninety (90) days after the
effective date of such registration.
1.6 Company Registration.
(a) Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities, either for its own
account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests made within fifteen (15) days after receipt of such written notice from
the Company by any Holder, but only to the extent that such inclusion will not
diminish the number of securities included by the Company or by holders of the
Company's securities who have demanded such registration except as provided in
Section 1.6(b) below.
-6-
<PAGE> 10
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into and perform its obligations under an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by the Company (or by the holders who have demanded such
registration). Notwithstanding any other provision of this Section 1.6, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities to be included in the registration and
underwriting, on a pro rata basis based on the total number of securities
(including, without limitation, Registrable Securities) entitled to registration
pursuant to registration rights granted to the participating Holders by the
Company; provided, however, that if such offering is the initial public offering
of shares to the public, no such reduction may reduce the number of securities
being sold by the Company for its own account; and provided further that if such
offering is not the initial offering of shares to the public, no such reduction
may reduce the number of securities being sold by the Holders to less than
thirty percent (30%) of the shares being sold in such offering. To facilitate
the allocation of shares in accordance with the above provisions, the Company or
the underwriters may round the number of shares allocated to any Holder or other
holder to the nearest 100 shares. If any Holder or other holder disapproves of
the terms of any such underwriting, he or she may elect to withdraw therefrom by
written notice to the Company and the managing underwriter. Any securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration, and shall not be transferred in a public distribution prior to
ninety (90) days after the effective date of the registration statement relating
thereto.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration, whether or not any
Holder has elected to include securities in such registration.
1.7 Registration on Form S-3.
(a) The Company shall use its best efforts to qualify for
registration on Form S-3 or any comparable or successor form. To that end the
Company shall register (whether or not required by law to do so) the Common
Stock under the Exchange Act in accordance with the provisions of the Exchange
Act following the effective date of the first registration of any securities of
the Company on Form S-1 or any comparable or successor form or form.
(b) If any Holder or Holders of not less than twenty percent (20%)
of the Registrable Securities requests that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities, the reasonably anticipated aggregate
price to the public of which, net of underwriting discounts and commissions,
would exceed $250,000, and the Company is a registrant entitled to use Form S-3
to register the Registrable Securities for such an offering, the Company shall
use its best efforts to cause such Registrable Securities to be registered for
the offering on such form. The Company will (i) promptly give written notice of
the proposed registration to all other Holders, and (ii) as soon as
-7-
<PAGE> 11
practicable, use its best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within thirty (30) days after receipt
of such written notice from the Company. The substantive provisions of Section
1.5(b) shall be applicable to each registration initiated under this Section
1.7.
(c) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act; (ii) during the period
starting with the date sixty (60) days prior to the filing of, and ending on the
earlier of (x) one year from the date sixty (60) days prior to the Company's
date of filing of, or (y) a date six (6) months following the effective date of,
a registration statement (other than with respect to a registration statement
relating to a Rule 145 transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of Registrable
Securities), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or
(iii) if the Company shall furnish to such Holder a certificate signed by the
President of the Company stating that, in the good faith judgment of the Board
of Directors, it would be seriously detrimental to the Company or its
shareholders for registration statements to be filed in the near future, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed ninety (90) days from the
receipt of the request to file such registration by such Holder or Holders;
provided, however, that the Company may not utilize this right more than twice
in any twelve (12) month period.
1.8 Limitations on Subsequent Registration Rights. From and after the
date hereof, the Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights with
respect to such securities unless (i) such new registration rights, including
standoff obligations, are on a pari passu basis with those rights of the Holders
hereunder; or (ii) such new registration rights, including standoff obligations,
are subordinate to the registration rights granted Holders hereunder.
1.9 Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Sections 1.5 and 1.6 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration shall be borne by the Company, provided that
the Company shall not be required to pay the Registration Expenses of any
registration proceeding begun pursuant to Section 1.5, the request of which has
been subsequently withdrawn by the Initiating Holders. In such case, (i) the
Holders of Registrable Securities to have been registered shall bear all such
Registration Expenses pro rata on the basis of the number of shares to have been
registered, and (ii) the Company shall be deemed not to have effected a
registration pursuant to subparagraph 1.5(a) of this Agreement. Notwithstanding
the foregoing, however, if at the time of
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the withdrawal, the Holders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, of which the Company had knowledge at the time of
the request, then the Holders shall not be required to pay any of said
Registration Expenses. In such case, the Company shall be deemed not to have
effected a registration pursuant to subparagraph 1.5(a) of this Agreement.
Unless otherwise stated, all other Selling Expenses relating to securities
registered on behalf of the Holders and all Registration Expenses incurred in
connection with any registration pursuant to Section 1.7 shall be borne by the
Holders of the registered securities included in such registration pro rata on
the basis of the number of shares so registered.
1.10 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the registration
statement has been completed; provided, however, that in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such period shall be extended, if
necessary, to keep the registration statement effective until all such
Registrable Securities are sold, provided that if Rule 415, or any successor
rule under the Securities Act, permits an offering on a continuous or delayed
basis, and provided further that if applicable rules under the Securities Act
governing the obligation to file a post-effective amendment permit, in lieu of
filing a post-effective amendment which (y) includes any prospectus required by
Section 10(a)(3) of the Securities Act or (z) reflects facts or events
representing a material or fundamental change in the information set forth in
the registration statement, the incorporation by reference of information
required to be included in (y) and (z) above shall be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
(b) Furnish to the Holders participating in such registration and to
the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(c) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statements as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any
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such seller, prepare and furnish to such seller a reasonable number of copies of
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchaser of such shares, such prospectus shall not
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading or incomplete in the light of the circumstances then existing;
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions;
(f) Cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed;
(g) Provide a transfer agent and registrar for all Registrable
Securities and a CUSIP number for all such Registrable Securities, in each case
not later than the effective date of such registration;
(h) Make available for inspection by any Holder participating in
such registration, any underwriter participating in any disposition pursuant to
such registration, and any attorney or accountant retained by any such Holder or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers and directors to
supply all information reasonably requested by any such Holder, underwriter,
attorney or accountant in connection with such registration statement; provided,
however, that such Holder, underwriter, attorney or accountant shall agree to
hold in confidence and trust all information so provided;
(i) Furnish to each Holder participating in such registration
(i) in the case of an underwritten public offering, a copy of
any opinion of counsel for the Company provided to the underwriters
participating in such offering, dated the effective date of the
registration statement;
(ii) in the case of an underwritten public offering, a copy of
any "comfort" letters provided to the underwriters participating in
such offering and signed by the Company's independent public
accountants who have examined and reported on the Company's
financial statements included in the registration statement, to the
extent permitted by the standards of the AICPA or other relevant
authorities, and
(iii) a copy of all documents filed with and all correspondence
from or to the Commission in connection with any such offering other
than non-substantive cover letters and the like.
(j) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least twelve months, but not more than
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eighteen months, beginning with the first month after the effective date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
1.11 Indemnification.
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of any
rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Holder, each of its officers and
directors, and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, as such expenses
are incurred, provided that the Company will not be liable in any such case to
the extent that any such claim, loss, damage, liability or expense arises out of
or is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of the officers and directors and each person
controlling such other Holders within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such other Holders, such directors, officers, persons, underwriters
or control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, as such expenses are incurred, in each case to the extent,
but only to the extent, that such untrue statement (or alleged untrue statement)
or omission (or alleged omission) is made in such registration statement,
prospectus, offering circular or other document in
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reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided that in no event shall any indemnity
under this subparagraph 1.11(b) exceed the net proceeds received by such Holder
in such registration.
(c) Each party entitled to indemnification under this Section 1.11
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the Indemnifying Party, if representation of such
Indemnified Party by the counsel retained by the Indemnifying Party would be
inappropriate due to actual or potential differing interests between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 1.11 unless the failure to give such notice is materially prejudicial to
an Indemnifying Party's ability to defend such action. No Indemnifying Party, in
the defense of any such claim or litigation, shall, except with the consent of
each Indemnified Party, consent to entry of any judgment or enter into any
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation.
(d) If the indemnification provided for in this Section 1.11 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any claim, loss, damage, liability or action referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such claim, loss, damage, liability or action
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and the Indemnified Party on the other in
connection with the actions that resulted in such claims, loss, damage,
liability or action, as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
related to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
(e) The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section were based solely upon the
number of entities from whom contribution was requested or by any other method
of allocation which does not take account of the equitable considerations
referred to above in this Section 1.11. The amount paid or payable by an
Indemnified Party as a result of the losses, claims, damages and liabilities
referred to above in this Section 1.11 shall be deemed to include any legal or
other expenses reasonably incurred by such
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Indemnified Party in connection with investigating or defending any such action
or claim, subject to the provisions of Section 1.11 hereof. Notwithstanding the
provisions of this Section 1.11, no Holder shall be required to contribute any
amount or make any other payments under this Agreement which in the aggregate
exceed the net proceeds (after selling expenses) received by such Holder. No
person guilty of fraudulent misrepresentation (within the meaning of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
1.12 Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
1.13 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended (the "Exchange Act");
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted Securities, to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
of the Company and other information in the possession of or reasonably
obtainable by the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
1.14 Transfer of Registration Rights. The rights to cause the Company to
register securities granted to any party hereto under Sections 1.5, 1.6 and 1.7
may be assigned to a transferee or assignee reasonably acceptable to the Company
in connection with any transfer or assignment of Registrable Securities by such
party (together with any affiliate); provided that (a) such transfer may
otherwise be effected in accordance with applicable securities laws, (b) notice
of such assignment is given to the Company, and (c) such transferee or assignee
(i) is a wholly-owned subsidiary or constituent partner or limited liability
company member or an affiliate (including limited partners, retired partners,
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) of such party, or (ii) acquires
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from such party at least 100,000 shares of Registrable Securities (as
appropriately adjusted for stock splits and the like).
1.15 Standoff Agreement. Each Holder agrees in connection with any
registration of the Company's securities (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan) that, upon request of the Company or the underwriters managing any
underwritten offering of the Company's securities, not to sell, make any short
sale of, loan, pledge or otherwise hypothecate or encumber, grant any option for
the purchase of, or otherwise dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days from the effective date of such
registration in the case of a registration for the Company's initial public
offering and ninety (90) days from the effective date of such registration in
the case of other registrations) as may be requested by the Company or such
managing underwriters; provided, that the officers and directors of the Company
who own stock of the Company also agree to such restrictions.
1.16 Termination of Rights. The rights of any particular Holder to cause
the Company to register securities under Sections 1.5, 1.6 and 1.7 shall
terminate with respect to such Holder on the fifth year anniversary of the
effective date of the Company's Initial Public Offering.
SECTION 2
RIGHT OF FIRST OFFER
2.1 Right of First Offer.
(a) Right of First Offer. Subject to the terms and conditions
contained in this Section 2.1, the Company hereby grants to each Investor the
right of first offer to purchase its Pro Rata Portion of any New Securities (as
defined in subsection 2.1(b)) which the Company may, from time to time, propose
to sell and issue. An Investor's "Pro Rata Portion" for purposes of this Section
2.1 is the ratio that (x) the sum of the number of shares of the Company's
Common Stock then held by such Investor and the number of shares of the
Company's Common Stock issuable upon conversion of the Preferred Stock then held
by such Investor bears to (y) the sum of the total number of shares of Company's
Common Stock then outstanding and the number of shares of the Company's Common
Stock issuable upon conversion of the then outstanding Preferred Stock. Each
Series B Holder shall have a right of overallotment such that if any Series B
Holder fails to exercise its right to purchase its total Pro Rata portion of New
Securities, the other Series B Holders may purchase the non-purchasing Series B
Holder's portion on a pro rata basis within fifteen (15) days from the date that
the Company provides written notice of such failure. Each Series C Holder shall
have a right of over-allotment such that if any Series C Holder fails to
exercise its right to purchase its total Pro Rata Portion of New Securities, the
other Series C Holders may purchase the non-purchasing Series C Holder's portion
on a pro rata basis within fifteen (15) days from the date that the Company
provides written notice of such failure. Each Series D Holder shall have a right
of over-allotment such that if any Series D Holder fails to exercise its right
to purchase its total Pro Rata Portion of New Securities, the other Series D
Holders may purchase the non-purchasing Series D Holder's portion on a pro rata
basis within fifteen (15) days from the date that the Company provides written
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notice of such failure. Each Series E Holder shall have a right of
over-allotment such that if any Series E Holder fails to exercise its right to
purchase its total Pro Rata Portion of New Securities, the other Series E
Holders may purchase the non-purchasing Series E Holder's portion on a pro rata
basis within fifteen (15) days from the date that the Company provides written
notice of such failure.
(b) Definition of New Securities. Except as set forth below, "New
Securities" shall mean any shares of capital stock of the Company, including
Common Stock and Preferred Stock, whether authorized or not, and rights, options
or warrants to purchase said shares of Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible into said
shares of Common Stock or Preferred Stock. Notwithstanding the foregoing, "New
Securities" does not include (i) the Shares or the Conversion Shares, (ii)
securities offered to the public generally pursuant to a registration statement
under the Securities Act, (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially all of
the assets or shares, or other consolidation, merger or reorganization whereby
the Company or its shareholders own not less than a majority of the voting power
of the surviving or successor corporation (or other corporation which is the
issuer of the capital stock into which the capital stock of the Company is
converted or exchanged in such consolidation, merger or reorganization), (iv)
shares of the Company's Common Stock or related options convertible into or
exercisable for such Common Stock issued to employees, officers and directors
of, and consultants, customers, and vendors to, the Company, pursuant to any
arrangement approved by the Board of Directors of the Company, (v) shares of the
Company's Common Stock or related options convertible into or exercisable for
such Common Stock issued to any bank, equipment lessor or other similar
financial institution if and to the extent that the transaction in which such
sale or grant is to be made is approved by the Company's Board of Directors with
at least seventy-five percent (75%) of the members of the Board of Directors
voting in favor of such sale or grant, (vi) stock issued pursuant to any rights
or agreements, including, without limitation, convertible securities, options
and warrants, provided that the Company shall have complied with the right of
first offer established by this Section 2.1 with respect to the initial sale or
grant by the Company of such rights or agreements, or (vii) stock issued in
connection with any stock split, stock dividend or recapitalization by the
Company.
(c) Notice of Right. In the event the Company proposes to undertake
an issuance of New Securities, it shall give each Investor written notice of its
intention, describing the type of New Securities and the price and terms upon
which the Company proposes to issue the same. The Holders shall have fifteen
(15) days from the date of receipt of any such notice to agree to purchase
shares of such New Securities (up to the amount referred to in subsection
2.1(a)), for the price and upon the terms specified in the notice, by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased.
(d) Exercise of Right. If any Investor exercises its right of first
offer hereunder, the closing of the purchase of the New Securities with respect
to which such right has been exercised shall take place within ninety (90)
calendar days after the Investor gives notice of such exercise, which period of
time shall be extended in order to comply with applicable laws and regulations.
Upon exercise of such right of first offer, the Company and the Investor shall
be legally obligated to consummate the purchase contemplated thereby and shall
use their best efforts to secure any approvals required in connection therewith.
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(e) Lapse and Reinstatement of Right. In the event an Investor fails
to exercise the right of first offer provided in this Section 2.1 within said
fifteen (15) day period and after expiration of the fifteen (15) day period for
the over-allotment provisions of this Section 2.1, the Company shall have ninety
(90) days thereafter to sell or enter into an agreement (pursuant to which the
sale of New Securities covered thereby shall be closed, if at all, within sixty
(60) days from the date of said agreement) to sell the New Securities not
elected to be purchased by such Investor at the price and upon the terms no more
favorable to the purchasers of such securities than specified in the Company's
notice. In the event the Company has not sold the New Securities or entered into
an agreement to sell the New Securities within said ninety (90) day period (or
sold and issued New Securities in accordance with the foregoing within sixty
(60) days from the date of said agreement), the Company shall not thereafter
issue or sell any New Securities without first offering such securities to the
Investors in the manner provided above.
(f) Assignment. The right of the Investors to purchase any part of
the New Securities may be assigned in whole or in part to any partner, member,
subsidiary, affiliate or shareholder of an Investor, or other persons or
organizations who acquire from an Investor at least 100,000 shares of Restricted
Securities (as adjusted for stock splits and the like).
2.2 Termination of Right of First Offer. The right of first offer
granted under Sections 2.1 of this Agreement shall terminate on and be of no
further force or effect upon the closing of a firmly underwritten public
offering of Common Stock at a price per share of at least $10.00 (subject to
adjustments for stock splits, stock dividends, combinations and
recapitalizations) and resulting in aggregate gross proceeds to the Company of
at least $20,000,000 (a "Qualifying Public Offering").
SECTION 3
Affirmative Covenants of the Company
The Company hereby covenants and agrees as follows:
3.1 Financial Information. So long as an Investor is a holder of 100,000
Shares and/or shares of Common Stock issued upon the conversion thereof (as
adjusted for any stock splits, consolidations and the like), the Company will
furnish to such Investor the following reports:
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail and
certified by independent public accountants of national standing selected by the
Company; and
(b) As soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter and an
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unaudited balance sheet and a statement of shareholder's equity as of the end of
such fiscal quarter and a statement showing the number of shares of each class
and series of capital stock and securities convertible into or exercisable for
shares of capital stock outstanding at the end of the period, the number of
common shares issuable upon conversion or exercise of any outstanding securities
convertible or exercisable for common shares and the exchange ratio or exercise
price applicable thereto, all in sufficient detail as to permit the Holder to
calculate its percentage equity ownership in the Company.
(c) As soon as practicable after the end of each calendar month, and
in any event within 30 days thereafter, consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of each calendar month, and
consolidated statements of income and cash flow for such period and for the
current fiscal year to date, together with a comparison of such statements to
the Company's operating plan then in effect.
3.2 Operating Plan and Budget. So long as an Investor holds at least
100,000 Shares and/or shares of Common Stock issued upon conversion thereof (as
adjusted for any stock splits, consolidations and the like), as soon as
practicable upon approval or adoption by the Company's Board of Directors, the
Company will furnish such Investor with the Company's budget and operating plan
(including projected balance sheets and profit and loss and cash flow
statements) for such fiscal year.
3.3 Inspection. The Company shall permit each Investor, at such
Investor's expense, to visit and inspect the Company's properties, to examine
its books of account and records and to discuss the Company's affairs, finances
and accounts with its officers, all at such reasonable times as may be requested
by the Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 3.3 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
3.4 Assignment of Rights to Financial Information. The rights granted
pursuant to Sections 3.1 and 3.2 may be assigned by an Investor to a third party
who acquires at least 100,000 Shares and/or shares of Common Stock issued upon
conversion thereof (as adjusted for any stock splits, consolidations and the
like) from such Investor and who is not a Competitor of the Company, provided
that the Company receives notice twenty (20) days prior to such assignment.
"Competitor" shall mean any Person whose primary business is the development and
marketing of educational programs and software. "Person" shall mean an
individual, a partnership, a joint venture, a corporation, a trust, a
joint-stock company, a union, a business association, a firm, an unincorporated
organization, a government or any department or agency thereof, or other entity.
3.5 Proprietary Information Agreement. The Company shall require each
person employed by the Company who shall, in the ordinary course of their
employment, have access to the Company's confidential and proprietary
information, to execute a proprietary information agreement.
3.6 Board of Directors. The Company will hold meetings of its Board of
Directors not less frequently than once every quarter.
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3.7 Restrictions on Employee Stock. The Company shall not sell stock to
employees or consultants, except as provided in this Section 3.7.
(a) Employee Stock Vesting. The Company may sell shares of Common
Stock, or grant options to purchase Common Stock, provided that such shares or
options shall be subject to vesting at the rate of one-quarter at the end of the
first year of full time employment, and monthly thereafter in thirty-six (36)
equal monthly installments. Vesting of stock issued to consultants shall be
determined by the Company's Board of Directors on a case by case basis.
(b) Unvested Shares. Unvested shares shall be purchasable by the
Company or its assignee at cost upon termination of employment for any reason.
Unvested shares shall be nontransferable.
(c) Company's Right of First Refusal.
(i) Prior to making any sale or transfer of vested shares of
Common Stock, a holder of such vested shares (the "Common Stock Holder") shall
give the Company the opportunity to purchase such vested shares in accordance
with this Section 3.7(c).
(ii) Notice of Right. The Common Stock Holder shall give notice
(the "Transfer Notice") to the Company in writing of such intention, specifying
the amount of vested shares proposed to be sold or transferred, the proposed
price per share therefor (the "Transfer Price") and the other material terms
upon which such disposition is proposed to be made. The Company shall have
fifteen (15) days from the date of receipt of the Transfer Notice to agree to
purchase such shares at the Transfer Price and upon the terms specified in the
Transfer Notice by giving written notice to the Common Stock Holder and stating
therein the quantity of shares to be purchased.
(iii) Exercise of Right. If the Company exercises its right of
first refusal hereunder, the closing of the purchase of the shares with respect
to which such right has been exercised shall take place within ninety (90)
calendar days after the Company gives notice of such exercise, which period of
time shall be extended in order to comply with applicable laws and regulations.
Upon exercise of its right of first refusal, the Company and the Common Stock
Holder shall be legally obligated to consummate the purchase contemplated
thereby and shall use their best efforts to secure any approvals required in
connection therewith.
(iv) Lapse and Reinstatement of Right. In the event the Company
fails to exercise the right of first refusal within said fifteen (15) day
period, the Common Stock Holder shall have ninety (90) days thereafter to sell
or enter into an agreement (pursuant to which the sale of shares covered thereby
shall be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the shares not elected to be purchased by the Company at the
price and upon the terms no more favorable to the purchasers of such securities
than specified in the Transfer Notice. In the event the Common Stock Holder has
not sold the shares or entered into an agreement to sell the shares within said
ninety (90) day period (or sold the shares in accordance with the foregoing
within sixty (60) days from the date of said agreement), the Common Stock Holder
shall not thereafter sell or transfer any vested shares without first offering
such securities to the Company in the manner provided above.
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<PAGE> 22
(v) Assignment. The right of Company to purchase any part of the
vested shares may be assigned in whole or in part to any shareholder or
shareholders of the Company or other persons or organizations.
(vi) Termination of Right of First Refusal. The right of first
refusal granted under this Section 3.7(c) shall terminate on and be of no
further force or effect upon the closing of a Qualifying Public Offering.
3.8 Termination of Covenants. The covenants set forth in Sections 3.1
through 3.7 shall terminate on, and be of no further force or effect after, the
date on which the Company is required to file reports with the Commission
pursuant to Section 13 or 15(d) of the Exchange Act.
3.9 Definition of Investor. For purposes of determining the amount of
shares held by an Investor, all Investors affiliated with any Investor shall be
treated as a single Investor.
3.10 Qualified Small Business Stock. The Company covenants that so long
as Registrable Securities or Shares are held by an Investor (or a transferee in
whose hands the Registrable Securities or shares are eligible to qualify as
Qualified Small Business Stock as defined in Section 1202(c) of the Internal
Revenue Code of 1986, as amended), it will use its reasonable efforts to cause
the Registrable Securities or Shares to qualify as Qualified Small Business
Stock.
3.11 Capital Stock of Subsidiaries. The Company covenants that it will
not allow to be issued any shares of capital stock of any subsidiary without the
unanimous approval of the Company's Board of Directors.
3.12 Approval of Certain Actions.
(a) Notwithstanding any provision in the Company's Amended and
Restated Articles of Incorporation (the "Restated Articles"), the Company agrees
that it will not (i) take any of the actions set forth in Article THIRD,
Sections 7(b)(i), 7(b)(ii), 7(b)(v), 7(b)(vi) and 7(b)(vii) of the Restated
Articles or (ii) redeem any shares of Series C Preferred Stock pursuant to
Article THIRD, Section 5 of the Restated Articles, without first obtaining the
approval (by vote or consent as provided by law) of at least three Corporate
Investors (as defined below).
(b) For purposes of this Section 3.12, a "Corporate Investor" shall
mean each of COMCAST Programming Holdings, Inc., Microsoft Corporation, TCI ETC
Holdings, Inc., and Tribune Company, or any affiliate of any Corporate Investor
which receives such Corporate Investor's interests in the Company.
3.13 Most Favored Nations Treatment. The Company covenants that in the
event that, at any time an Investor holds Registrable Securities or Shares, the
Company modifies, amends or otherwise supplements any provision of this
Agreement or the Preferred Stock Purchase Agreement between the Company and any
Investor pursuant to which Shares or Registrable Securities were acquired, or
otherwise enters into any other agreement or arrangement with any Investor
(other than by an amendment of this Agreement or any Preferred Stock Purchase
Agreement pursuant to which
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<PAGE> 23
any Investor acquired Shares or Registrable Securities that is effected in
accordance with the amendment provisions herein or therein) the effect of which,
in any such case, is to increase or enhance the rights and privileges of such
Investor in respect of its Registrable Securities or Shares over the rights and
privileges applicable to the interests of other Investors in Registrable
Securities or Shares, the Company shall promptly give written notice to all such
other Investors of such increase or enhancement of rights and, if so requested
by any such other Investor, shall take all necessary action consistent with the
terms of this Agreement to ensure that the rights and privileges of such other
Investor making such request are increased or enhanced to an equal or greater
extent.
SECTION 4
Right of First Refusal
4.1 Restriction on Transfer. No Investor shall transfer, assign,
hypothecate, encumber, pledge or otherwise alienate (hereinafter "transfer") any
Shares (or any shares of Common Stock issued upon conversion thereof) unless
such Investor previously complied with all provisions of this Section 4. Any
transfer not made in accordance with this Section 4 shall be voidable by the
Company, and the Company shall not be obligated to treat the transferee in such
transaction as a shareholder for any purpose.
4.2 Notice Requirement. If an Investor seeks to transfer any Shares or
any shares of Common Stock issuable upon conversion thereof, whether voluntarily
or involuntarily, such Investor (the "Offering Shareholder") shall first give
written notice of such intention ("Notice of Transfer") to all other Investors
and to the Secretary of the Company. The Notice of Transfer shall specify the
number of Shares or shares of Common Stock to be transferred (the "Offered
Shares"), and state the price and all other terms of the proposed transaction.
The Notice of Transfer shall constitute an irrevocable offer to sell the Offered
Shares during the periods described below.
4.3 Option of Investors.
(a) For thirty (30) days following the deemed receipt of a Notice of
Transfer (the "Option Period"), the First Option Holders (as defined below)
shall have an irrevocable right to purchase the Offered Shares in accordance
with the terms stated in the Notice of Transfer. For purposes of this Section
4.3, "First Option Holders" shall mean (i) in the case of a proposed transfer of
Common Stock, the Investors holding Common Stock and (ii) in the case of a
proposed transfer of Preferred Stock, the Investors holding Shares of the same
series as the Offered Shares. Each First Option Holder shall have the option to
purchase (i) in the case of a proposed transfer of Common Stock, that proportion
of the shares available for purchase as the number of shares of Common Stock
held by such First Option Holder bears to the total number of shares of Common
Stock held by all First Option Holders, or (ii) in the case of a proposed
transfer of shares of a series of Preferred Stock, that proportion of the shares
available for purchase as the number of shares of such series held by such First
Option Holder bears to the total number of shares of such series held by all
First Option Holders. The right may be exercised by a written notice, signed by
each First Option Holder who chooses to exercise such right, stating that the
First Option Holder desires to purchase such First Option Holder's portion of
the Offered Shares and tendering the purchase price therefor. Such notice
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<PAGE> 24
shall be delivered to the Offering Shareholder before expiration of the Option
Period. Failure to respond in writing within the Option Period to the Notice of
Transfer shall be deemed an irrevocable waiver by such First Option Holder of
such First Option Holder's right to acquire its portion of the Offered Shares.
Each First Option Holder shall have a right of over-allotment such that if any
First Option Holder fails to exercise its right to purchase its portion of the
Offered Shares, the other First Option Holders may purchase the non-purchasing
First Option Holder's portion on a pro rata basis within fifteen (15) days from
the date that the Offering Shareholder provides written notice of such failure.
(b) To the extent that the First Option Holders do not elect to
acquire all of the Offered Shares, the remaining Investors shall have an
irrevocable right, for thirty (30) days following expiration of the Option
Period (or the additional 15-day period provided for over-allotments) (the
"Second Option Period") to purchase any Offered Shares not purchased by the
First Option Holders. Each such Investor shall have the option to purchase that
proportion of the remaining shares available for purchase as the number of
shares of Common Stock owned by, or issuable upon conversion of the Shares owned
by, such Investor bears to the total number of shares of Common Stock owned by,
or issuable upon conversion of the Shares owned by, the remaining Investors. The
right may be exercised by a written notice, signed by each Investor who chooses
to exercise such right, stating that the Investor desires to purchase such
Investor's portion of the Offered Shares and tendering the purchase price
therefor. Such notice shall be delivered to the Offering Shareholder before
expiration of the Second Option Period. Failure to respond in writing within the
Second Option Period to the Notice of Transfer shall be deemed an irrevocable
waiver by such Investor of such Investor's right to acquire a proportionate part
of the shares of the Offered Shares.
4.4 Special Provisions Regarding Exchanges. If the Notice of Transfer
specifies consideration other than cash, then the Offered Shares may be
purchased in cash for the net fair market value of such property, as determined
in good faith by an independent appraiser. All expenses for such independent
appraiser shall be borne by the Offering Shareholder.
4.5 Option of Company. To the extent that the Investors do not elect to
acquire all of the Offered Shares, the Company shall have an irrevocable right,
for thirty (30) days following expiration of the Second Option Period (the
"Third Option Period") to purchase any Offered Shares not purchased by the
Investors in accordance with the terms stated in the Notice of Transfer. The
right may be exercised by a written notice, signed by the President of the
Company, stating that the Company desires to purchase such Offered Shares and
tendering the purchase price therefor. Such notice shall be delivered to the
Offering Shareholder before expiration of the Third Option Period.
4.6 Transfer of Shares. If the Offered Shares are not purchased and paid
for by the Investors within the Option Period or the Second Option Period or by
the Company or its assignee(s) within the Third Option Period, said Offered
Shares may be transferred, at any time within one hundred twenty (120) days
after delivery of the Notice of Transfer, in strict accordance with the terms
specified in the Notice of Transfer. Any transferee shall receive and hold said
Offered Shares subject to the right of first refusal set forth in this Section
4. If such transfer is not made within said one hundred twenty (120) day period
in strict accordance with the terms specified in the Notice of
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<PAGE> 25
Transfer, the Offered Shares shall not be transferred except in accordance with
the restrictions of this Section 4.
4.7 Effect of Notice. The purchase price for Offered Shares shall be
deemed tendered, and said Offered Shares shall be deemed purchased, at such time
as the Offering Shareholder receives written notice enclosing a cashier's check
for the purchase price or stating that the purchase price has been delivered to
a third party (such as counsel to the Company) with instructions to deliver such
amount to the Offering Shareholder upon surrender of certificates representing
the Offered Shares, duly endorsed with signatures guaranteed. All rights
accorded the Offering Shareholder with respect to the Offered Shares, other than
the right to payment therefor, shall cease at that time. If payment is tendered
directly to the Offering Shareholder, the Offering Shareholder shall promptly
cause to be delivered certificates representing the Offered Shares, duly
endorsed with signatures guaranteed, to the Company's transfer agent for
cancellation or transfer.
4.8 Certain Transfers Exempt. Notwithstanding anything else contained in
this Section 4 to the contrary, an Investor shall be permitted to make transfers
of shares held by such Investor without complying with the provisions of this
Section 4 in the circumstances set forth below in this Section 4.8. An Investor
may make a gift of shares of the Company to his or her spouse, issue, other
members of his or her immediate family, or to a trust for the benefit of such
Investor, spouse, issue or other members, without complying with the provisions
of this Section 4. Except as set forth below, an Investor other than a natural
person may distribute for no additional consideration (but not sell or exchange)
shares of the Company to its partners (general or limited), members,
stockholders, wholly-owned subsidiaries or affiliates in accordance with their
beneficial interest in the shares of the Company without complying with the
provisions of this Section 4. Such transferees shall hold such shares of the
Company subject to the right of first refusal set forth in this Section 4 and
shall be required to confirm same in writing prior to receipt of such shares. An
Investor may transfer his or its shares for value to a parent, subsidiary or
other affiliated company without complying with the provisions of this Section
4. The provisions of this Section 4 shall not apply to any transfer of Shares by
an Investor in connection with an acquisition of the stock or assets of the
Company (regardless of the form of such acquisition); provided, however, that,
if less than all of the Shares are acquired in any such acquisition, each
Investor is permitted to sell the same proportion of its or his shares. The
provisions of this Section 4 shall not apply to any transfer of Shares by an
Investor in connection with the acquisition of such Investor (regardless of the
form of such acquisition) except that if more than 25% of the total assets of an
Investor (determined on a consolidated, fair market value basis in good faith by
such Investor) consists of shares of the Company, a transfer of shares or other
equity interests (hereinafter "shares") of such investor (or a transfer of
shares of any parent of such Investor as to which more than 25% of the total
assets of such parent (so determined on a consolidated, fair market value basis)
consists of the interest of such parent in shares of the Company) constituting
voting control of such Investor (or parent) shall be deemed to be a transfer of
shares of the Company subject to Section 4 unless such transfer is a transfer to
a partner, shareholder, parent, subsidiary or affiliate otherwise excepted from
compliance with Section 4 by the foregoing provisions of this Section 4.8. If a
transfer of shares of the Company is deemed to result from the transfer of
shares of an Investor (or parent) by virtue of the except clause of the
foregoing sentence, the Notice of Transfer shall state, in addition to the
offering price of the Offered Shares as contemplated by Section 4.2, the
equivalent offering price at which the shares of the Investor (or parent) would
be transferred pursuant to Section 4.6 and the basis for the determination
thereof and
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<PAGE> 26
the relationship between the two prices, which relationship shall be determined
in good faith by such Investor taking into account relative fair market values
of the assets involved.
4.9 Pledge of Stock. Subject to Section 1.15 above, an Investor may
pledge Shares or Common Stock of the Company to the Company or a bank or other
financial institution, provided that the pledge or security agreement under
which such shares are pledged specifies that (i) the pledgee shall not sell or
transfer such shares (other than to the Investor upon termination of the pledge)
without first offering the same to the Investors and the Company pursuant to the
provisions of this Section 4 and (ii) that the pledgee agrees to be bound by all
other terms and conditions of this Agreement if such pledgee becomes the
Investor with respect to such shares.
4.10 Termination. The restrictions imposed by this Section 4 shall
terminate immediately prior to the closing of a Qualifying Public Offering.
Securities received pursuant to any stock dividend, stock split,
recapitalization, or exercise of a conversion right shall be subject to this
Section 4 to the same extent as the shares of the Company with respect to which
they were issued.
SECTION 5
Miscellaneous
5.1 Assignment. Except as otherwise provided herein, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective successors and assigns of the parties hereto.
5.2 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
5.3 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California in the United States of America.
5.4 Counterparts. This Agreement may be executed in two or more
counterparts and signature pages may be delivered by facsimile, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
5.5 Notices. Any notice required or permitted by this Agreement shall be
in writing and shall be sent by prepaid registered or certified mail, return
receipt requested, addressed to the other party at the address shown below or at
such other address for which such party gives notice hereunder. Such notice
shall be deemed to have been given three (3) days after deposit in the mail.
5.6 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.
-23-
<PAGE> 27
5.7 Amendment and Waiver. Any provision of this Agreement may be amended
with the written consent of the Company and the Holders of at least fifty
percent (50%) of the outstanding shares of the Registrable Securities provided
that (i) no such amendment shall be effective unless it shall have been approved
by at least three Corporate Investors, (ii) no such amendment shall impose or
increase any liability or obligation on a Holder without the consent of such
Holder and (iii) no such amendment having an adverse effect on any Holder in
relation to the other Holders may be made without consent of such Holder. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder of Registrable Securities and the Company. In addition, the
Company may waive performance of any obligation owing to it, as to some or all
of the Holders of Registrable Securities, or agree to accept alternatives to
such performance, without obtaining the consent of any Holder of Registrable
Securities. In the event that an underwriting agreement is entered into between
the Company and any Holder, and such underwriting agreement contains terms
differing from Section 1.11 of this Agreement with respect to indemnification
made available to underwriters, as to any such Holder the terms of such
underwriting agreement shall govern.
5.8 Effect of Amendment or Waiver. The Investors and their successors
and assigns acknowledge that by the operation of Section 5.7 hereof the Holders
of a majority of the outstanding Registrable Securities, acting in conjunction
with the Company, will have the right and power to diminish or eliminate any or
all rights pursuant to this Agreement.
5.9 Termination of Prior Agreement. Upon execution of this Agreement by
the Company and the Investors, the Investor Rights Agreement dated June 24, 1997
among the Company and certain of the Investors shall terminate, be of no further
force and effect and shall, in all respects, be superseded by the provisions of
this Agreement.
5.10 Rights of Holders. Each holder of Registrable Securities shall have
the absolute right to exercise or refrain from exercising any right or rights
that such holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
5.11 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be made in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under this Agreement, or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
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<PAGE> 28
[THIS SPACE LEFT BLANK INTENTIONALLY]
-25-
<PAGE> 29
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
THE LIGHTSPAN PARTNERSHIP, INC.
By: ________________________________________
Carl E. Zeiger, President and
Chief Operating Officer
SZ INVESTMENTS LLC
By: Zell General Partnership, Inc.
Its: Managing Member
By: ________________________________________
Title: _____________________________________
STATE TREASURER OF THE STATE OF MICHIGAN,
Custodian of the Michigan Public School
Employees' Retirement System, State
Employees' Retirement System, Michigan
State Police Retirement System, and
Michigan Judges' Retirement System
By: ________________________________________
Linda Rose, Acting Administrator
COMCAST PROGRAMMING HOLDINGS,
INC.
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 30
TCI ETC HOLDING, INC.
By: ________________________________________
Title: _____________________________________
MICROSOFT CORPORATION
By: ________________________________________
Title: _____________________________________
TRIBUNE COMPANY
By: ________________________________________
Title: _____________________________________
ACCEL IV L.P.
By: Accel IV Associates L.P.
Its General Partner
By: ________________________________________
General Partner
ACCEL INVESTORS '93 L.P.
By: ________________________________________
General Partner
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 31
ELLMORE C. PATTERSON PARTNERS
By: ________________________________________
General Partner
ACCEL KEIRETSU L.P.
By: Accel Partners & Co., Inc.
Its General Partner
By: ________________________________________
PROSPER PARTNERS
By: ________________________________________
Attorney-In-Fact
KLEINER PERKINS CAUFIELD & BYERS VI
By: Its General Partner:
KPCB VI Associates
By: ________________________________________
Its General Partner
KPCB VI FOUNDERS FUND
By: Its General Partner:
KPCB VI Associates
By: ________________________________________
Its General Partner
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 32
INSTITUTIONAL VENTURE PARTNERS V
By: ________________________________________
General Partner
INSTITUTIONAL VENTURE MANAGEMENT V
By: ________________________________________
General Partner
"INVESTOR:"
____________________________________________
By: ________________________________________
Title: _____________________________________
"INVESTOR:"
____________________________________________
By: ________________________________________
Title: _____________________________________
"INVESTOR:"
____________________________________________
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 33
U.S. INFORMATION TECHNOLOGY INVESTMENT
ENTERPRISE PARTNERSHIP
By: ________________________________________
Title: _____________________________________
U.S. INFORMATION TECHNOLOGY NO.2
INVESTMENT ENTERPRISE PARTNERSHIP
By: ________________________________________
Title: _____________________________________
JAFCO G-7(B) INVESTMENT ENTERPRISE
PARTNERSHIP
By: ________________________________________
Title: _____________________________________
JAFCO G-7(A) INVESTMENT ENTERPRISE
PARTNERSHIP
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 34
JAFCO R-2 INVESTMENT ENTERPRISE
PARTNERSHIP
By: ________________________________________
Title: _____________________________________
JAFCO JS-2 INVESTMENT ENTERPRISE
PARTNERSHIP
By: ________________________________________
Title: _____________________________________
JAPAN ASSOCIATED FINANCE CO. LTD.
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 35
TECHNO VII-A LIMITED PARTNERSHIP
By: ________________________________________
Title: _____________________________________
TECHNO VII-B LIMITED PARTNERSHIP
By: ________________________________________
Title: _____________________________________
TECHNO VIII LIMITED PARTNERSHIP
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 36
NASSAU CAPITAL LLC
By: ________________________________________
Title: _____________________________________
KECALP, INC.
By: ________________________________________
Title: _____________________________________
TULLY FAMILY INVESTMENT LIMITED
PARTNERSHIP
By: ________________________________________
Title: _____________________________________
____________________________________________
MICHAEL J. GROSSMAN, M.D.
____________________________________________
ROBERT HAWK
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 37
NAS PARTNERS I L.L.C.
By: ________________________________________
John G. Quigley
Member
NASSAU CAPITAL PARTNERS II L.P.
By: Nassau Capital L.L.C.,
its General Partner
By: ________________________________________
John G. Quigley
Member
MERRILL LYNCH KECALP L.P. 1997
By: KECALP, Inc.
its General Partner
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 38
TULLY CAPITAL PARTNERS LLC
By: ________________________________________
Title: _____________________________________
MICHAEL GROSSMAN PAINE WEBBER IRA ROLLOVER
ACCOUNT #DG7901-68
By: ________________________________________
Title: _____________________________________
____________________________________________
MARGARET STEVENS GROSSMAN
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 39
LIBERTY MEDIA CORPORATION
By: ________________________________________
Title: _____________________________________
SONY CORPORATION OF AMERICA
By: ________________________________________
Title: _____________________________________
IGNITE VENTURES I, L.P.
By: ________________________________________
Nobuo Mii
Title: _____________________________________
____________________________________________
STEWART BOXER
____________________________________________
CHRIS CHAI
____________________________________________
LISA CHAI
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 40
COMCAST INTERACTIVE INVESTMENTS, INC.
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 41
DHM ARCADIA PARTNERS
By: ________________________________________
Title: _____________________________________
[SIGNATURE PAGE TO THE LIGHTSPAN PARTNERSHIP, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
<PAGE> 42
EXHIBIT A
<TABLE>
<CAPTION>
<S> <C>
SZ Investments, LLC State Treasurer of the State of Michigan
Two North Riverside Plaza, Suite 600 Alternate Investments Division
Chicago, IL 60606 Treasury Building
Attn: William Pate P.O. Box 15128
Lansing, MI 48901
Attn: David Turner
U.S. Information Technology Investment Enterprise U.S. Information Technology No. 2 Investment
Partnership Enterprise Partnership
505 Hamilton Ave. 505 Hamilton Ave.
Palo Alto, CA 94301 Palo Alto, CA 94301
Attn: Barry Schiffman Attn: Barry Schiffman
JAFCO G-7(A) Investment Enterprise Partnership JAFCO G-7(B) Investment Enterprise Partnership
505 Hamilton Ave. 505 Hamilton Ave.
Palo Alto, CA 94301 Palo Alto, CA 94301
Attn: Barry Schiffman Attn: Barry Schiffman
JAFCO R-2 Investment Enterprise Partnership JAFCO JS-2 Investment Enterprise Partnership
505 Hamilton Ave. 505 Hamilton Ave.
Palo Alto, CA 94301 Palo Alto, CA 94301
Attn: Barry Schiffman Attn: Barry Schiffman
Japan Associated Finance Co., Ltd. Tribune Company
505 Hamilton Ave. 435 North Michigan Ave.
Palo Alto, CA 94301 Chicago, IL 60611
Attn: Barry Schiffman Attn: David Hiller/Donn Davis
COMCAST Programming Holdings, Inc. Microsoft Corporation
1500 Market St., 35th Floor 1 Microsoft Way
Philadelphia, PA 19102-4735 Redmond, WA 98052
Attn: Kathy Hyneman Attn: Peter Neupert
TCI ETC Holdings, Inc. Accel IV L.P.
700 14th St., N.W., Fifth Floor c/o Carter Sednaoui
Washington, DC 20005 Accel Partners
One Palmer Square
Princeton, NJ 08542
</TABLE>
<PAGE> 43
<TABLE>
<CAPTION>
<S> <C>
Accel Investors '93 L.P. Ellmore C. Patterson Partners
c/o Carter Sednaoui c/o Carter Sednaoui
Accel Partners Accel Partners
One Palmer Square One Palmer Square
Princeton, NJ 08542 Princeton, NJ 08542
Accel Keiretsu L.P. Prosper Partners
c/o Carter Sednaoui c/o Carter Sednaoui
Accel Partners Accel Partners
One Palmer Square One Palmer Square
Princeton, NJ 08542 Princeton, NJ 08542
Kleiner Perkins Caufield & Byers VI KPCB VI Founders Fund
Four Embarcadero Center, Suite 3520 Four Embarcadero Center, Suite 3520
San Francisco, CA 94111 San Francisco, CA 94111
Attn: John Doerr Attn: John Doerr
Institutional Venture Partners V Institutional Venture Management V
3000 Sand Hill Road, Building 2, Suite 290 3000 Sand Hill Road, Building 2, Suite 290
Menlo Park, CA 94025 Menlo Park, CA 94025
Attn: Ruth Ann Quindlen Attn: Attn: Ruth Ann Quindlen
Anderson Lightspan Partners Techno VII-A Limited Partnership
c/o Anderson Enterprises LLC c/o Techno Venture Co., Ltd.
330 Spring Creek Road 15-5, Ichibancho
Rockford, IL 61107 Chiyoda-Ku
Attn: Duane Bach Tokyo 102 Japan
Attn: Yasu Dohi
Techno VII-B Limited Partnership Techno VIII Limited Partnership
c/o Techno Venture Co., Ltd. c/o Techno Venture Co., Ltd.
15-5, Ichibancho 15-5, Ichibancho
Chiyoda-Ku Chiyoda-Ku
Tokyo 102 Japan Tokyo 102 Japan
Attn: Yasu Dohi Attn: Yasu Dohi
Nassau Capital Partners II L.P. KECALP Inc.
22 Chambers Street World Financial Center, South Tower
Princeton, NJ 08542 250 Vesey Street
Attn: William Stewart New York, NY 10281
Attn: Robert Tully
</TABLE>
<PAGE> 44
<TABLE>
<CAPTION>
<S> <C>
NAS Partners I LLC Merrill Lynch KECALP L.P. 1997
22 Chambers Street World Financial Center, South Tower
Princeton, NJ 08542 250 Vesey Street
Attn: William Stewart New York, NY 10281
Attn: Robert Tully
Tully Capital Partners LLC Margaret Stevens Grossman
c/o Heron Investments 310 Forward Street
301 Tresser Blvd., 13th Floor La Jolla, CA 92037
Stamford, CT 06901
Attn: Timothy J. Tully
Paine Webber Rollover IRA Robert Hawk
Michael S. Grossman #6 Hilton Head Drive
310 Forward Street Rancho Mirage, CA 92270
La Jolla, CA 92037
Liberty Media Corporation Sony Corporation of America
9197 South Peoria Street 550 Madison Avenue, 33rd Floor
Englewood, CO 80112-5833 New York, NY 10022-3211
Ignite Ventures I, L.P. Stewart Boxer
The Ignite Group 171 12th Street, #100
255 Shoreline Drive, Suite 510 Oakland, CA 94607
Redwood City, CA 94065
Attention: Steve Payne
Chris and Lisa Chai Comcast Interactive Investments, Inc.
118 Mallorca Way c/o Comcast Corporation
San Francisco, CA 94123 1500 Market Street
Philadelphia, PA 19102
</TABLE>
<PAGE> 1
EXHIBIT 10.16
AMENDMENT AND WAIVER
This AMENDMENT AND WAIVER is entered into as of October 29, 1999 by and
between THE LIGHTSPAN PARTNERSHIP, INC. (the "COMPANY") and the undersigned
(each an "INVESTOR" and collectively the "INVESTORS").
RECITALS
WHEREAS, the Company desires to sell shares of its Series E Preferred
Stock in addition to the shares of Series E Preferred Stock already issued to
certain persons selected by the Company (the "SALES");
WHEREAS, as set forth in Section 2 of the Amended and Restated Investor
Rights Agreement dated as of July 8, 1999 by and between the Company and the
persons or entities listed on Exhibit A thereto (the "IRA"), the Company has
granted to the persons listed on Exhibit A to the IRA the right of first offer
(the "RIGHT OF FIRST OFFER") to purchase from the Company any shares that the
Company proposes to sell and issue from time to time;
WHEREAS, Section 5.7 of the IRA provides that "Holders" of at least 50%
of the "Registrable Securities," as such terms are defined in the IRA, shall
have the ability to amend the IRA;
WHEREAS, as set forth in Section 1.3 of that certain Series E Preferred
Stock Purchase Agreement dated as of July 8, 1999 by and among the Company and
certain purchasers of the Company's Series E Preferred Stock listed on Exhibit A
thereto (the "SERIES E AGREEMENT"), the Company has agreed not to issue
additional shares of Series E Preferred Stock;
WHEREAS, Section 7.4 of the Series E Agreement provides that holders of
a majority of the outstanding "Shares," as defined in the Series E Agreement,
may waive provisions of the Series E Agreement;
WHEREAS, the Investors collectively represent (i) 50% of the Holders of
Registrable Securities under the IRA and (ii) a majority of the holders of the
outstanding Shares under the Series E Agreement; and
WHEREAS, the Investors desire to waive the Right of First Offer as to
and to permit the Sales, and permit new purchasers of Series E Preferred Stock
to become parties to the IRA.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. The limitation on future sales of Series E Preferred Stock contained
in Section 1.3 of the Series E Agreement is hereby waived as to any shares of
Series E Preferred stock that the Company shall issue or sell on or prior to
November 21, 1999, pursuant to the resolution of the Company's Board of
Directors.
1.
<PAGE> 2
2. Section 2.1(b) of the IRA is hereby amended and restated to read in
its entirety as follows:
(B) DEFINITION OF NEW SECURITIES. Except as set forth below, "New
Securities" shall mean any shares of capital stock of the Company,
including Common Stock and Preferred Stock, whether authorized or not,
and rights, options or warrants to purchase said shares of Common Stock
or Preferred Stock, and securities of any type whatsoever that are, or
may become, convertible into said shares of Common Stock or Preferred
Stock. Notwithstanding the foregoing, "New Securities" does not include
(i) the Shares or the Conversion Shares, (ii) securities offered to the
public generally pursuant to a registration statement under the
Securities Act, (iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of substantially
all of the assets or shares, or other consolidation, merger or
reorganization whereby the Company or its shareholders own not less than
a majority of the voting power of the surviving or successor corporation
(or other corporation which is the issuer of the capital stock into
which the capital stock of the Company is converted or exchanged in such
consolidation, merger or reorganization), (iv) shares of the Company's
Common Stock or related options convertible into or exercisable for such
Common Stock issued to employees, officers and directors of, and
consultants, customers, and vendors to, the Company, pursuant to any
arrangement approved by the Board of Directors of the Company, (v)
shares of the Company's Common Stock or related options convertible into
or exercisable for such Common Stock issued to any bank, equipment
lessor or other similar financial institution if and to the extent that
the transaction in which such sale or grant is to be made is approved by
the Company's Board of Directors with at least seventy-five percent
(75%) of the members of the Board of Directors voting in favor of such
sale or grant, (vi) stock issued pursuant to any rights or agreements,
including, without limitation, convertible securities, options and
warrants, provided that the Company shall have complied with the right
of first offer established by this Section 2.1 with respect to the
initial sale or grant by the Company of such rights or agreements, (vii)
stock issued in connection with any stock split, stock dividend or
recapitalization by the Company or (viii) shares of Series E Preferred
Stock issued pursuant to Section 5.12 hereof.
3. New Section 5.12 is hereby added to the IRA to read in its entirety
as follows:
5.12 ADDITIONAL INVESTORS. Notwithstanding anything to the
contrary contained herein, if the Company shall sell and issue, on or
before November 21, 1999, shares of its Series E Preferred Stock in
addition to those shares of Series E Preferred Stock issued and sold
pursuant to the Series E Agreement and those shares of Series E
Preferred Stock issued and sold to the Academic Preferred Holders, any
purchaser of such shares of Series E Preferred Stock may become a party
to this Agreement by executing and delivering an additional counterpart
signature page to this Agreement and shall be deemed an "INVESTOR"
hereunder.
2.
<PAGE> 3
4. This Amendment and Waiver may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signature pages may be
delivered by facsimile.
IN WITNESS WHEREOF, the parties have executed this AMENDMENT AND WAIVER
as of the date first above written.
COMPANY:
THE LIGHTSPAN PARTNERSHIP, INC.
By:
------------------------------
Its:
-----------------------------
3.
<PAGE> 4
INVESTOR:
- ----------------------------------
By:
------------------------------
Its:
-----------------------------
[Signature Page to Amendment and Waiver]
<PAGE> 1
EXHIBIT 10.17
AMENDMENT TO INVESTOR RIGHTS AGREEMENT
This AMENDMENT is entered into as of October 29, 1999 by and between THE
LIGHTSPAN PARTNERSHIP, INC. (the "COMPANY") and the undersigned (each an
"INVESTOR" and collectively the "INVESTORS").
RECITALS
WHEREAS, pursuant to that certain Stock Purchase Agreement by and
between the Company and CINAR Corporation dated as of October 29, 1999, the
Company desires to sell shares of its Series E Preferred Stock, shares of its
Common Stock and a warrant to purchase shares of its Series E Preferred Stock
(the "WARRANT") (collectively the "SECURITIES") to CINAR Corporation (the
"SALE");
WHEREAS, it is a condition to the closing of the Sale that the Company
amend the Amended and Restated Investor Rights Agreement dated as of July 8,
1999, as amended, by and between the Company and the persons or entities listed
on Exhibit A thereto (the "IRA"), as set forth herein;
WHEREAS, Section 5.7 of the IRA provides that "Holders" of at least 50%
of the "Registrable Securities," as such terms are defined in the IRA, shall
have the ability to amend the IRA;
WHEREAS, the Investors collectively represent (i) 50% of the Holders of
Registrable Securities under the IRA and (ii) a majority of the holders of the
outstanding Shares under the Series E Agreement; and
WHEREAS, the Investors desire to alter and amend their rights as set
forth in the IRA.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Upon close of the Sale, CINAR Corporation shall be deemed to be an
"Investor" under the IRA; shares of Series E Preferred Stock held by CINAR
Corporation or its permitted assigns shall be deemed to be "Shares" under the
IRA; the Warrant shall be deemed to be a "Warrant" thereunder and the shares of
Series E Preferred Stock Issuable upon exercise of the Warrant shall be deemed
to be "Warrant Shares" thereunder.
2. The restrictions and prohibitions in the IRA regarding the transfer
by CINAR Corporation of its rights under the IRA and the transfer by CINAR
Corporation of its securities shall not apply to the transfer by CINAR
Corporation of its rights under the IRA and the transfer by CINAR Corporation of
its Securities to any corporation or other entity which controls, is controlled
by, or is under common control with CINAR Corporation. A corporation or other
entity will be regarded as in control of another corporation or entity if it
owns or directly or indirectly controls 100% of the voting securities or other
ownership interest of the other corporation or entity. Notwithstanding the
foregoing, any transfer that would otherwise by subject to section 1.15 of the
IRA shall be permitted by this section 2 of this Amendment only upon the written
consent of the underwriters.
1
<PAGE> 2
3. This Amendment and Waiver may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. Signature pages may be
delivered by facsimile.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties have executed this AMENDMENT AND WAIVER
as of the date first above written.
COMPANY:
THE LIGHTSPAN PARTNERSHIP, INC.
By:
-------------------------------
Its:
------------------------------
INVESTOR:
- ----------------------------------
By:
-------------------------------
Its:
------------------------------
<PAGE> 1
EXHIBIT 10.18
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this __________ day of
__________, 19__ by and between The Lightspan Partnership, Inc., a Delaware
corporation (the "Corporation"), and __________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in
__________ capacity as __________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as __________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
__________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
__________ of the Corporation or as a director, officer or other fiduciary of an
affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; provided,
however, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE> 2
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees),
witness fees, damages, judgments, fines and amounts paid in settlement and any
other amounts that Agent becomes legally obligated to pay because of any claim
or claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent
by the Corporation under the non-exclusivity provisions of the Code and Section
41 of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section
3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent solely for an
accounting of profits made from the purchase or sale by Agent of securities of
the Corporation pursuant to the provisions of Section 16(b) of the Securities
Exchange Act of 1934 and amendments thereto or similar provisions of any
federal, state or local statutory law;
(b) on account of Agent's conduct that is established by a final
judgment as knowingly fraudulent or deliberately dishonest or that constituted
willful misconduct;
(c) on account of Agent's conduct that is established by a final
judgment as constituting a breach of Agent's duty of loyalty to the Corporation
or resulting in any personal profit or advantage to which Agent was not legally
entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both
the Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated
by Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE> 3
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is a
director, officer, employee or other agent of the Corporation (or is or was
serving at the request of the Corporation as a director, officer, employee or
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at
its own expense;
(b) except as otherwise provided below, the Corporation may, at
its option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding 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 Agent unless (i)
the employment of counsel by Agent has been authorized by the Corporation, (ii)
Agent shall have reasonably concluded, and so notified the Corporation, that
there is an actual conflict of interest between the Corporation and Agent 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 Agent's separate counsel shall be at the expense
of the Corporation. The Corporation shall not be entitled to assume the defense
of any action, suit or proceeding brought by or on behalf of the Corporation or
as to which Agent shall have made the conclusion provided for in clause (ii)
above; and
3.
<PAGE> 4
(c) the Corporation shall not be liable to indemnify Agent under
this Agreement for any amounts paid in settlement of any action or claim
effected without its written consent, which shall not be unreasonably withheld.
The Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim for
indemnification is made under Section 3 hereof (other than an action brought to
enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of Directors
or its stockholders) to have made a determination prior to the commencement of
such enforcement action that indemnification of Agent is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or its stockholders) that such indemnification is improper
shall be a defense to the action or create a presumption that Agent is not
entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall
continue after Agent has ceased to be a director, officer, employee or other
agent of the Corporation or to serve at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise and shall inure
to the benefit of Agent's heirs, executors and administrators.
4.
<PAGE> 5
(b) The Corporation shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination
or cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute but one and the same
Agreement. Only one such counterpart need be produced to evidence the existence
of this Agreement.
17. HEADINGS. The headings of the sections of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given (i)
upon delivery if delivered by hand to the party to whom such communication was
directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
(b) If to the Corporation, to:
THE LIGHTSPAN PARTNERSHIP, INC.
10140 Campus Point Drive
San Diego, CA 92121
or to such other address as may have been furnished to Agent by the Corporation.
19. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and supercedes and
merges all prior agreements or understandings, whether written or oral [,
including, without limitation, that certain Indemnification Agreement by and
between the Corporation and the Agreement dated as of
5.
<PAGE> 6
______________]. This Agreement does not supercede or amend any contrary
provisions contained in the Company's Certificate of Incorporation or Bylaws.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
and as of the day and year first above written.
THE LIGHTSPAN PARTNERSHIP, INC.
By:
-------------------------------------
Title:
----------------------------------
AGENT
----------------------------------------
Address:
----------------------------------------
----------------------------------------
6.
<PAGE> 1
Exhibit 10.19
DEVELOPER AGREEMENT
THIS DEVELOPER AGREEMENT (the "Developer Agreement" or the "Agreement") is
entered into as of the 26th day of January, 1996, by and between SONY COMPUTER
ENTERTAINMENT AMERICA, a division of Sony Interactive Entertainment Inc.,
formerly known as Sony Electronic Publishing Company, with offices at 550
Madison Avenue, New York, New York 10022 (hereinafter "Sony"), and The Lightspan
Partnership, Inc., with offices at 2382 Faraday Avenue, Suite 300, Carlsbad, CA
92008-7218 (hereinafter "Developer").
WHEREAS, Sony and/or its affiliates have developed a CD-based interactive
console for playing video games and for other entertainment purposes known as
PlayStation(TM) (formerly known under the development code name "PS-X(TM)")
(hereinafter referred to as the "Player") and also own or have the right to
grant licenses to certain intellectual property rights used in connection with
the Player.
WHEREAS, Developer desires to be granted a non-exclusive license to develop
Products (as defined below) for the School Market (as defined below) pursuant to
the terms and conditions set forth in this Agreement.
WHEREAS, Sony and Developer have entered into a Sale and License Agreement,
dated as of January 12, 1996, regarding the distribution of PlayStation consoles
and accessories and Products to the School Market (hereinafter the "License
Agreement").
WHEREAS, Sony is willing, on the terms and subject to the conditions of this
Agreement, to grant Developer the desired non-exclusive license to develop
Products for the School Market.
WHEREAS, the Developer desires to obtain from Sony, and Sony is willing to
provide Developer with, certain software, hardware and documentation for use by
Developer in the development of application software for the Player (the
"Development Tools").
NOW, THEREFORE, in consideration of the representations, warranties and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, Developer and Sony
hereby agree as follows:
1. DEFINITION OF TERMS.
1.1 "Developer Software" means Developer's application object code and data
(including audio and video material) developed by Developer in accordance with
this Agreement, which, when linked to any software provided by Sony, create
Executable Software. All Developer Software shall be educational in nature.
1.2 "Documentation" means any document, including the Tool Catalog,
regarding usage of the Hardware Tools or the Software Tools and provided by Sony
to the Developer in writing, on floppy discs, on CD-ROM discs or through
electronic media.
1.3 "Executable Software" means Developer's object code software which
includes the Developer Software and any software (whether in object code or
source code form) provided by Sony which is intended to be combined with
Developer Software for execution on a Player and has the ability to communicate
with the software resident in the Player.
-1- CONFIDENTIAL
<PAGE> 2
1.4 "Hardware Tools" means the hardware described in the Tool Catalog
which was developed by Sony for use in the creation of Executable Software.
1.5 "Intellectual Property Rights" means, by way of example but not by way
of limitation, all current and future worldwide patents and other patent
rights, copyrights, trademarks, service marks, trade names, mask work rights,
trade secret rights, technical information, know-how, and the equivalents of
the foregoing under the laws of any jurisdiction, and all other proprietary or
intellectual property rights throughout the universe, including without
limitation all applications and registrations with respect thereto, and all
renewals and extensions thereof.
1.6 "Products" shall mean the Executable Software embodied on CD-ROM
media.
1.7 "Software Tools" means the software described in the Tool Catalog
which may be provided to the Developer by Sony for use in the creation of
Executable Software on floppy discs, CD-ROM discs or through electronic media.
1.8 "Sony Materials" means any data, object code, source code,
documentation, and hardware provided or supplied to Developer by Sony,
including, without limitation, any portion or portions of the Development Tools.
1.9 "Sony Trademarks" means the trademarks, service marks and logos
designated by Sony. Nothing contained in this Agreement shall in any way grant
Developer the right to use the trademark "Sony" in any manner as a trademark,
trade name, service mark or logo other than as expressly permitted by Sony. Sony
may amend such Sony Trademarks upon reasonable notice to Developer.
1.10 "Tool Catalog" means the PS-X Development Tool Catalog prepared by
Sony and provided separately to the Developer.
1.11 "School Market" shall mean distribution directly by Licensee to and
for elementary and secondary (i.e., K-12) students, through distribution and
sale to elementary and secondary (i.e., K-12) public and private schools in the
United States and Canada.
2. LICENSE AND PROVISION OF DEVELOPMENT TOOLS.
2.1 LICENSE. Sony hereby grants to Developer, and Developer hereby
accepts, for the term of this Agreement, within the United States and Canada,
under Sony's Intellectual Property Rights, including without limitation any
relevant patents Sony may own or have acquired by license, a non-exclusive,
nontransferable license, without the right to sublicense (except as
specifically provided herein) to use the object code version of any software
supplied by Sony that is intended to be combined with Developer Software and
executed on a Player internally as may reasonably be necessary to develop
Products for the School Market. Developer agrees that all rights to
manufacture, market, distribute and sell Products shall be governed by the
terms and conditions of the License Agreement.
2.2 SOFTWARE TOOLS. Sony herby agrees to provide to Developer, and
Developer hereby accepts, for the term and subject to the conditions set forth
herein, the Software Tools. Developer will not, except as provided herein,
permit, directly or indirectly, any third party to use all or any part of the
Software Tools or the Documentation. Developer will only use the Software Tools
internally for the sole purpose of developing the Executable Software in
accordance with the Developer Agreement, and will only use the Documentation
supplied with the Software Tools to
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support such efforts. Developer shall not sell, lease, license or otherwise
transfer or dispose of the Software Tools, or permit any lien or other
encumbrance with respect to the Software Tools. Developer shall not make any
alterations, additions or modifications to the Software Tools without the
written permission of Sony in its discretion, and, if such permission is
granted, all right, title and interest in alterations or modifications shall
become the property of, and are hereby assigned to, Sony. Developer shall
execute such additional documents as reasonably necessary to effectuate any such
assignment.
2.3 HARDWARE TOOLS. Sony hereby agrees to provide to Developer, and
Developer hereby accepts, for the term and subject to the conditions set forth
herein, the Hardware Tools. Developer will only use the Hardware Tools
internally for the sole purpose of developing the Executable Software in
accordance with the Developer Agreement, and will only use the Documentation
supplied with the Hardware Tools to support such efforts. Sony shall retain
title to the Hardware Tools, and Developer shall keep such system free of all
security interests, liens and other encumbrances. Developer will not, except as
provided herein, permit, directly or indirectly, any third party to use all or
any part of the Hardware Tools. Developer shall not sell, lease or otherwise
transfer or dispose of the Hardware Tools, or permit any lien or other
encumbrance with respect to the Hardware Tools. Developer shall not make any
alterations, additions or modifications to the Hardware Tools without the
written permission of Sony in its discretion, and, if such permission is
granted, all right, title and interest in alterations or modifications shall
become the property of, and are hereby assigned to, Sony. Developer shall
execute such additional documents as reasonably necessary to effectuate any such
assignment.
3. CONSIDERATION AND DELIVERY.
3.1 CONSIDERATION. Sony agrees to provide such number of copies of the
Software Tools, Documentation and other Sony Materials and provide such number
of units of the Hardware Tools as Developer may reasonably request, subject to
availability, during the term of this Developer Agreement. The nonrefundable
amount to be paid by Developer (the "Nonrefundable Payment") for each such copy
and/or unit shall be set forth in the Tool Catalog. The Nonrefundable Payment
for Development Tools may be changed by Sony from time to time without notice to
Developer. Any Nonrefundable Payments are exclusive of any withholding taxes or
other assessments which may be imposed by any governmental authority or any
other U.S. or foreign federal, state or local sales or value-added tax, use or
excise tax, customs duties or other similar taxes or duties, which Sony may be
required to collect or pay. Developer shall be solely responsible for the
payment or reimbursement of any such taxes, fees, and other such charges or
assessments applicable to the payment by Developer of any such Nonrefundable
Payment. In addition, Developer shall pay or reimburse Sony for all personal
property taxes or similar charges, however imposed, on the ownership, use and
possession of the Development Tools during the term of the Developer Agreement.
3.2 DELIVERY. Sony shall deliver the Development Tools and any other
requisite Sony Materials to Developer, when available, at the site listed in
Exhibit A hereto (the "Development Site") for use only at such Development Site,
subject to receipt of the Nonrefundable Payment. Developer shall bear all
transport costs, including but not limited to, any insurance costs, related
thereto and risk of loss or damage in transit to any and all of the Development
Tools shall vest in Developer immediately upon delivery to the carrier.
4. LIMITATIONS ON LICENSES; RESERVATION OF RIGHTS.
4.1 REVERSE ENGINEERING PROHIBITED. Developer hereby agrees not to
disassemble, peel
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semiconductor components, decompile, or otherwise reverse engineer or attempt
to reverse engineer or derive source code from, all or any portion of the Sony
Materials (whether or not all or any portion of the Sony Materials are
integrated with the Developer Software), or permit or encourage any third party
to do so, or use or acquire any materials from any third party who does so.
Developer shall not use, modify, reproduce, sublicense, distribute, create
derivative works from, or otherwise provide to third parties, the Sony
Materials, in whole or in part, other than as expressly permitted by this
Developer Agreement. Developer shall be required in all cases to pay royalties
in accordance with payments made under the License Agreement to Sony on any
products which are in any way derived from the disassembly, decompilation,
reverse engineering of, or use of source code derived from the Sony Materials.
4.2 RESERVATION OF SONY'S RIGHTS. The licenses granted in this Developers
Agreement extend only to development of Products for the School Market for use
on the Player, in such format as may be designated by Sony. Without limiting
the generality of the foregoing and except as otherwise provided herein,
Developer shall not have the right to publish, manufacture, market, promote,
distribute, sell or transmit the Executable Software or the Products in any
manner, including, but not limited to, distribution or sale outside the School
Market (including without limitation to or through retail channels of
distribution) or via electronic means or any other means now known or hereafter
devised, including without limitation, via wireless, cable, fiber optic means,
telephone lines, microwave and/or radio waves, or over a network of
interconnected computers or other devices. This Developer Agreement does not
grant any right or license, under any Intellectual Property Rights of Sony or
otherwise, except as expressly provided herein, and no other right or license
is to be implied by or inferred from any provision of this Developer Agreement
or the conduct of the parties hereunder. Developer shall not make use of any of
the Development Tools, other Sony Materials or the Player or any Intellectual
Property Rights related to the Sony Materials and Player (or any portion
thereof) except as authorized by and in compliance with the provisions of this
Developer Agreement or as may be otherwise expressly authorized in writing by
Sony. No right, license or privilege has been granted to Developer hereunder
concerning the development of any collateral product or other use or purpose
of any kind whatsoever which displays or depicts any of the Sony Trademarks.
4.3 RESERVATION OF DEVELOPER'S RIGHTS. Developer retains all rights, title
and interest in and to the Developer Software, including without limitation,
Developer's Intellectual Property Rights therein, and nothing in this Agreement
shall be construed to restrict the right of Developer to develop products
incorporating the Developer Software (separate and apart from the Sony
Materials) for any hardware platform or service other than the Player.
4.4 THIRD PARTY DEVELOPMENT. Developer may develop Products under
contract for a third party provided that such third party is: (i) an authorized
developer that has executed a Developer Agreement, or (ii) an authorized
subcontractor that is in compliance with the provisions of Section 15.5.
Developer shall notify Sony in writing of the identity of any such third party
within thirty (30) days of entering into an agreement or other arrangement with
the third party. Developer shall have the responsibility for determining that
such third parties meet the criteria set forth herein. Developer shall not have
the right to develop, publish, manufacture, market, promote, distribute, sell
or transmit the Executable Software or the Products in any manner for end user
or any third parties not in compliance with the above criteria unless Developer
directly enters into a License Agreement with Sony. Developer agrees that,
pursuant to the License Agreement, any publication, marketing, distribution or
sale of Products outside of the School Market may only be made upon negotiation
of a separate agreement with Sony for such rights, and that Sony shall have a
right of first refusal to distribute, publish, market or sell such Products.
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5. TITLE TO DEVELOPMENT TOOLS. Subject to the rights granted by Sony to
Developer hereunder, all rights with respect to the Development Tools,
including, without limitation, all of Sony's Intellectual Property Rights
therein, are and shall be the exclusive property of Sony. Nothing herein shall
give Developer any right, title or interest in or to the Development Tools (or
any portion thereof), or any Intellectual Property Rights therein other than the
right to use the Development Tools for the development of the Executable
Software solely in accordance with the provisions of this Developer Agreement.
Developer shall not do or cause to be done any act or thing contesting or
in any way impairing or tending to impair any of Sony's rights, title, and/or
interests in or to the Development Tools (or any portion thereof).
6. CONFIDENTIALITY.
6.1 NONDISCLOSURE AGREEMENT. Developer hereby acknowledges that the
Nondisclosure Agreement dated September 28, 1995 between Sony and Developer
("Nondisclosure Agreement") will remain in full force and effect with respect to
the Confidential Information of Sony throughout the term of this Agreement.
Except as otherwise specified herein, the terms and provisions of the
Nondisclosure Agreement shall apply with respect to the Confidential Information
of Sony.
6.2 CONFIDENTIAL INFORMATION OF DEVELOPER. For the purposes of this
Developer Agreement, "Confidential Information" of Developer shall mean the
Developer Software as provided to Sony pursuant to this Developer Agreement and
all documentation and information relating thereto that is disclosed in writing
or in any other form by Developer to Sony if the information is designated as
(or is provided under circumstances indicating the information is) confidential
or proprietary.
6.3 PRESERVATION OF CONFIDENTIALITY: NON-DISCLOSURE. Sony shall take all
steps necessary to preserve the confidentiality of the Confidential Information
of the Developer, and except as may be expressly authorized by Developer or
unless one of the exceptions set forth in Section 6.5 applies, Sony shall not at
any time, either before or after any termination of this Developer Agreement,
directly or indirectly: (i) disclose any Confidential Information to any person
other than an employee or subcontractor of the receiving party who needs to know
or have access to such Confidential Information for the purposes of this
Developer Agreement, and only to the extent necessary for such purposes; (ii)
except as otherwise provided in this Developer Agreement, duplicate the
Confidential Information for any purpose whatsoever; (iii) use the Confidential
Information for any reason or purpose other than as expressly permitted in this
Developer Agreement; or (iv) remove any copyright notice, trademark notice
and/or other proprietary legend set forth on or contained within any of the
Confidential Information.
6.4 OBLIGATIONS UPON UNAUTHORIZED DISCLOSURE. If at any time either Sony
or Developer (the "receiving party") becomes aware of any unauthorized
duplication, access, use, possession or knowledge of any Confidential
Information of the other party (the "disclosing party"), the receiving party
shall immediately notify the disclosing party. The receiving party shall provide
any and all reasonable assistance to the disclosing party to protect the
disclosing party's proprietary rights in any Confidential Information that the
receiving party or its employees or permitted publishers or subcontractors may
have directly or indirectly disclosed or made available and that may be
duplicated, accessed, used, possessed or known in a manner or for a purpose not
expressly authorized by this Developer Agreement including but not limited to
enforcement of confidentiality agreements, commencement and prosecution in good
faith (alone or with the disclosing party) of legal action, and reimbursement
for all reasonable attorneys' fees (and all related costs), costs and expenses
incurred by the disclosing party to protect its proprietary rights in the
Confidential Information. The receiving party shall take all reasonable steps
requested by the disclosing party to prevent the recurrence of any unauthorized
duplication, access, use, possession or knowledge of
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the Confidential Information.
6.5 EXCEPTIONS. The foregoing restrictions will not apply to information
to the extent that the receiving party can demonstrate such information: (i) was
known to the receiving party at the time of disclosure to the receiving party by
the disclosing party as shown by the files of the receiving party in existence
at the time of disclosure; (ii) becomes part of information in the public domain
through no fault of the receiving party; (iii) has been rightfully received from
a third party authorized by the disclosing party to make such disclosure without
restriction; or (iv) has been disclosed by court order or as otherwise required
by law (including without limitation to the extent that disclosure may be
required under Federal or state securities laws), provided that the receiving
party has notified the disclosing party immediately upon learning of the
possibility of any such court order or legal requirement and has given the
disclosing party a reasonable opportunity (and cooperated with the disclosing
party) to contest or limit the scope of such required disclosure (including
application for a protective order). Information shall not be deemed known to
the receiving party or publicly known for purposes of the above exceptions (A)
merely because it is embraced by more general information in the prior
possession of the receiving party or others, or (B) merely because it is
expressed in public material in general terms not specifically the same as
Confidential information.
6.6 CONFIDENTIALITY OF AGREEMENT. The terms and conditions of this
Developer Agreement shall be treated as Confidential Information; provided that
each party may disclose the terms and conditions of this Developer Agreement:
(i) to legal counsel; (ii) in confidence, to accountants, banks and financing
sources and their advisors; and (iii) in confidence, in connection with the
enforcement of this Developer Agreement or rights under this Developer
Agreement. Both parties shall treat the fact that the parties have entered into
this Developer Agreement as Confidential Information until a public announcement
regarding this Developer Agreement is released by Sony, at its sole discretion,
announcing that Developer has become a Developer under this Developer Agreement.
Notwithstanding the foregoing, Developer shall not disclose any Confidential
Information or any of the terms of this Agreement to TCI (Telecommunications
Inc.), Microsoft or any other investors in Licensee without Sony's prior written
approval.
7. USAGE.
7.1 LOCATION AND ACCESS. Developer agrees to use and store the Sony
Materials solely at the Development Site or other location approved in writing
by Sony and insure that they are accessible only to those employees and
subcontractors entitled to use such Sony Materials. Developer agrees to restrict
access to the Sony Materials so that only those employees and subcontractors
entitled to access to such Sony Materials pursuant to the terms of the
Nondisclosure Agreement may see or use the Sony Materials. In the event that
Developer wishes to change the Development Site, it shall obtain Sony's prior
written approval thereto. Developer shall affix to and maintain on the Hardware
Tools, in a conspicuous location, a notice stating that such hardware is owned
by Sony. In addition, Developer must preserve any other proprietary rights
notices placed on the Sony Materials by Sony and must place all such notices on
any copies made as permitted by the terms hereof.
7.2 DEVELOPER DESIGNEE. Developer agrees that the individual named in
Exhibit A hereto shall act as the designated caretaker of the Sony Materials
(the "Developer Designee"). The Developer Designee shall be responsible for
receiving all Sony Materials, overseeing that the terms of this Section 7 are
fulfilled and shall act as Developer's contact for matters related to the Sony
Materials. In the event that Developer wishes to appoint a new Developer
Designee, it shall give Sony written notice ten (10) days prior to the change.
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7.3 COPIES. Developer agrees that it shall not make, nor allow anyone else
to make, a copy of any Software Tools or Documentation; provided, however, that
Developer may, without payment of any additional license fee, make one (1) copy
of each set of Software Tools and Documentation licensed from Sony for backup
purposes only. In addition, if Sony chooses to provide, or permits Developer to
obtain, any Software Tools or Documentation via electronic media, Developer may
copy such Software Tools and/or Documentation from the electronic media subject
to the payment of the applicable fees for each such copy. Any copies permitted
pursuant to the terms of this Section 7.3 shall be used pursuant to the terms
and conditions hereof.
7.4 VERIFICATION OF COMPLIANCE. Developer agrees that authorized Sony
representatives may at any time or times upon reasonable notice to Developer
inspect the Development Site, the Development Tools and copies of other Sony
Materials during Developer's normal business hours in order to verify that
Developer is complying with its obligations under this Developer Agreement.
7.5 CARE. Developer undertakes, at all times until the Hardware Tools are
returned to Sony, to: (i) take all reasonable and proper care of the Hardware
Tools; (ii) keep the Hardware Tools in good and serviceable condition; (iii)
ensure the full compliance with all instructions relating to the maintenance,
security or operation of the Hardware Tools; (iv) maintain and service with all
due care the Hardware Tools at its expense in accordance with any written
instructions given by Sony; (v) take all such further steps as are necessary to
ensure that the Hardware Tools are safe and constituting no risk to the health
or safety of any person or property; (vi) inform Sony immediately or any failure
or breakdown in the Hardware Tools howsoever caused.
7.6 LIMITATION ON USE. In developing the Executable Software, Developer
shall fully comply in all respects with any and all technical specifications
which may from time to time be issued by Sony or forwarded by Licensed
Publishers to Developer at the instruction of Sony. For purposes of this
Agreement, such technical specifications, whenever issued, shall be deemed to be
Documentation. Developer shall not develop or attempt to develop Executable
Software other than by the use of the Development Tools strictly in accordance
with all the terms and provisions of this Agreement.
8. REPAIRS AND ENHANCEMENTS.
8.1 NOTIFICATION OF DEFECTS. Developer will notify Sony of any material
reproducible errors, bugs or defects that Developer uncovers in the Development
Tools, and in the event that within the first six (6) months of delivery of such
Development Tools to Developer, such Development Tools are found to have such
material errors, bugs or defects (not due to the negligence or fault of
Developer), then Sony shall make such efforts as Sony in its discretion deems
reasonable to fix such errors, bugs or defects in such Development Tools.
8.2 ENHANCEMENTS. During the term of this Developer Agreement, Sony will
notify Developer if and when (i) any revised or updated version of the Software
Tools or Documentation are generally released to Sony's Developers and the terms
of the license therefor, and Developer shall be entitled to license from Sony
such revisions or updates on such terms, and (ii) any updated, modified or
enhanced version or component for the Hardware Tools are generally released to
Sony's Developers, and the terms of delivery therefor, and Developer shall be
entitled to obtain from Sony such update, modification, enhancement or component
on such terms.
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9. REPRESENTATIONS AND WARRANTIES.
9.1 REPRESENTATIONS AND WARRANTIES OF SONY. Sony represents and warrants
solely for the benefit of Developer that Sony has the right, power and
authority to enter into this Developer Agreement and to fully perform its
obligations hereunder.
9.2 REPRESENTATIONS AND WARRANTIES OF DEVELOPER. Developer represents and
warrants that: (i) there is no threatened or pending action, suit, claim or
proceeding alleging that the use by Developer of all or any part of the
Developer Software or any underlying work or content embodied therein, or any
name, designation or trademark used in conjunction with the Products infringes
or otherwise violates any Intellectual Property Right or other right or interest
of any kind whatsoever of any third party, or otherwise contesting any right,
title or interest of Developer in or to the Developer Software or any
underlying work or content embodied therein, or any name, designation or
trademark used in conjunction with the Products; (ii) Developer has the right,
power and authority to enter into this Developer Agreement and to fully perform
its obligations hereunder; (iii) the making of this Developer Agreement by
Developer does not violate any separate agreement, rights or obligations
existing between Developer and any other person or entity, and, throughout the
term of this Developer Agreement, Developer shall not make any separate
agreement with any person or entity that is inconsistent with any of the
provisions of this Developer Agreement; (iv) Developer shall not make any
representation or give any warranty to any person or entity expressly or
impliedly on Sony's behalf, or to the effect that the Products are connected in
any way with Sony (other than that the Products have been developed under
license from Sony); (v) the Executable Software shall be delivered to
Publishers by Developer solely in object code or source code form; (vi) each of
the Products shall be developed in an ethical manner and in accordance with all
applicable laws and regulations and will not contain any obscene matter; and
(vii) Developer's policies and practices with respect to the development of the
Products shall in no manner reflect adversely upon the name, reputation or
goodwill of Sony.
10. INDEMNITIES; LIMITED LIABILITY.
10.1 INDEMNIFICATION BY SONY. Sony shall indemnify and hold Developer
harmless from and against any and all claims, losses, liabilities, damages,
expenses and costs, including, without limitation, reasonable fees for
attorneys, expert witnesses and litigation costs, and including costs incurred
in the settlement or avoidance of any such claim which result from or are in
connection with a breach of any of the warranties provided by Sony herein;
provided, however, that Developer shall give prompt written notice to Sony of
the assertion of any such claim, and provided, further, that Sony shall have
the right to select counsel and control the defense and/or settlement thereof,
subject to the right of Developer to participate in any such action or
proceeding at its own expense with counsel of its own choosing. Sony shall have
the exclusive right, at its discretion, to commence and prosecute at its own
expense any lawsuit or to take such other action with respect to such matters
as shall be deemed appropriate by Sony. Developer agrees to provide Sony, at no
expense to Developer, reasonable assistance and cooperation concerning any such
matter; and Developer shall not agree to the settlement of any such claim,
action or proceeding without Sony's prior written consent.
10.2 INDEMNIFICATION BY DEVELOPER. Developer shall indemnify and hold Sony
harmless from and against any and all claims, losses, liabilities, damages,
expenses and costs, including, without limitation, reasonable fees for
attorneys, expert witnesses and litigation costs, and including costs incurred
in the settlement or avoidance of any such claim, which result from or are
in connection with (i) a breach of any of the representations or warranties
provided by Developer herein, including without limitation claims resulting
from Developer's failure to timely pay any
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withholding taxes or other assessments as set forth in Section 3.1 hereto or
any breach of Developer's confidentiality obligations as set forth in Section 6
hereto; or (ii) any claim of infringement or alleged infringement of any third
party's Intellectual Property Rights with respect to the Developer Software; or
(iii) any claims of or in connection with any bodily injury (including death)
or property damage, by whomsoever such claim is made, arising out of, in whole
or in part, the development of the Products or any use of any of the
Development Tools hereunder, unless due to the negligence of Sony in performing
any of the specific duties and/or providing any of the specific services
required of it hereunder; provided, however, that Sony shall give prompt
written notice to Developer of the assertion of any such claim, and provided,
further, that Developer shall have the right to select counsel and control the
defense and/or settlement thereof, subject to the right of Sony to participate
in any such action or proceeding at its own expense with counsel of its own
choosing. Developer shall have the exclusive right, at its discretion, to
commence and/or prosecute at its own expense any lawsuit or to take such other
action with respect to such matter as shall be deemed appropriate by Developer.
Sony shall provide Developer, at no expense to Sony, reasonable assistance and
cooperation concerning any such matter. If Sony is joined as a party to any
lawsuit initiated by or against Developer, Developer shall indemnify and hold
Sony harmless from and against all claims, losses, liabilities, damages,
expenses and costs, including, without limitation, reasonable fees for
attorneys and court costs, incurred in connection with any such lawsuit. Sony
shall not agree to the settlement of any such claim, action or proceeding
without Developer's prior written consent.
10.3 LIMITATION OF LIABILITY.
10.3.1 LIMITATION OF SONY'S LIABILITY. IN NO EVENT SHALL SONY OR
ITS AFFILIATES, SUPPLIERS, OFFICERS, DIRECTORS, EMPLOYEES OR AGENTS BE LIABLE
FOR PROSPECTIVE PROFITS, OR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
ARISING OUT OF OR IN CONNECTION WITH THIS DEVELOPER AGREEMENT, INCLUDING
WITHOUT LIMITATION THE BREACH OF THIS DEVELOPER AGREEMENT BY SONY, THE USE OF
THE PRODUCTS BY DEVELOPER, ANY LICENSED PUBLISHER OR ANY END USERS AND/OR THE
USE OF OR INABILITY TO USE THE DEVELOPMENT TOOLS BY DEVELOPER, WHETHER UNDER
THEORY OF CONTRACT, TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY
OR OTHERWISE. SONY SHALL NOT BE LIABLE FOR ANY INJURY, LOSS OR DAMAGE, DIRECT
OR CONSEQUENTIAL, ARISING OUT OF THE USE OR INABILITY TO USE THE DEVELOPMENT
TOOLS. IN NO EVENT SHALL SONY'S LIABILITY ARISING UNDER OR IN CONNECTION WITH
THIS DEVELOPER AGREEMENT, INCLUDING WITHOUT LIMITATION ANY LIABILITY FOR DIRECT
DAMAGES, AND INCLUDING WITHOUT LIMITATION ANY LIABILITY UNDER SECTION 10.1 AND
ANY WARRANTY IN SECTION 9.1 HERETO, EXCEED THE TOTAL AMOUNT PAID BY DEVELOPER
TO SONY UNDER THIS DEVELOPER AGREEMENT. EXCEPT AS EXPRESSLY SET FORTH HEREIN,
NEITHER SONY NOR ANY AFFILIATE, NOR ANY OF THEIR RESPECTIVE DIRECTORS,
OFFICERS, EMPLOYEES OR AGENTS, SHALL BEAR ANY RISK, OR HAVE ANY RESPONSIBILITY
OR LIABILITY, OF ANY KIND TO DEVELOPER OR TO ANY THIRD PARTIES WITH RESPECT TO
THE QUALITY AND/OR PERFORMANCE OF ANY PORTION OF THE SONY MATERIALS, ANY
PRODUCT, ANY OF THE DEVELOPMENT TOOLS OR ANY PORTION THEREOF.
10.3.2 LIMITATION OF DEVELOPER'S LIABILITY. IN NO EVENT SHALL
DEVELOPER BE LIABLE TO SONY FOR ANY PROSPECTIVE PROFITS, OR SPECIAL, INCIDENTAL
OR CONSEQUENTIAL DAMAGES ARISING OUT OF OR IN CONNECTION WITH (i) THIS
DEVELOPER AGREEMENT, (ii) THE USE IN ACCORDANCE WITH THE TERMS AND CONDITIONS
OF THIS DEVELOPER AGREEMENT OF THE DEVELOPMENT TOOLS, OR (iii) THE USE OR
DISTRIBUTION IN ACCORDANCE WITH THE TERMS AND CONDITIONS OF THIS AGREEMENT OF
ANY OBJECT CODE PROVIDED BY SONY, IN WHOLE OR IN PART, WHETHER UNDER THEORY OF
CONTRACT,
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TORT (INCLUDING NEGLIGENCE), INDEMNITY, PRODUCT LIABILITY OR OTHERWISE,
PROVIDED THAT SUCH LIMITATIONS SHALL NOT APPLY TO DAMAGES RESULTING FROM
DEVELOPER'S BREACH OF SECTIONS 2, 4, 5, 6, 10.2 OR 11.2 OF THIS AGREEMENT, AND
PROVIDED FURTHER THAT SUCH LIMITATIONS SHALL NOT APPLY TO AMOUNTS WHICH
DEVELOPER MAY BE REQUIRED TO PAY TO THIRD PARTIES UNDER SECTIONS 10.2 OR 15.9.
10.3.3. DEVELOPER'S OBLIGATIONS. If at any time or times subsequent to
Sony's approval of the Executable Software as contemplated by the License
Agreement to be signed by Licensed Publishers, Sony identifies any bugs with
respect to the Product or any bugs are brought to the attention of Sony,
Developer shall, at no cost to Sony, promptly correct any such bugs, to Sony's
reasonable satisfaction. In the event any units of any of the Products create
any risk of loss or damage to any property or injury to any person, Developer
shall immediately take effective steps or cooperate with the appropriate
Licensed Publisher to take effective steps, at Developer's or Licensed
Publisher's sole liability and expense, to recall and/or remove such defective
product units from any affected channels of distribution. Either Developer or
the appropriate Licensed Publisher shall provide all end-user support for the
Products.
10.4. DISCLAIMER OF WARRANTIES. NEITHER SONY NOR ITS AFFILIATES AND
SUPPLIERS MAKE, NOR DOES DEVELOPER RECEIVE, ANY WARRANTIES, EXPRESS, IMPLIED OR
STATUTORY REGARDING THE SONY MATERIALS, THE PLAYER OR THE DEVELOPMENT TOOLS
PROVIDED HEREUNDER, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, SONY AND
ITS AFFILIATES AND SUPPLIERS EXPRESSLY DISCLAIM THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE AND THEIR EQUIVALENTS
UNDER THE LAWS OF ANY JURISDICTION, REGARDING THE SONY MATERIALS, THE PLAYER OR
THE DEVELOPMENT TOOLS. ANY WARRANTY AGAINST INFRINGEMENT THAT MAY BE PROVIDED
IN SECTION 2-312(3) OF THE UNIFORM COMMERCIAL CODE AND/OR IN ANY OTHER
COMPARABLE STATUTE IS EXPRESSLY DISCLAIMED.
11. COPYRIGHT, TRADEMARK AND TRADE SECRET RIGHTS.
11.1 DEVELOPER RIGHTS. The copyrights with respect to the Developer
Software (exclusive of the rights licensed from Sony hereunder) and any names
or other designations used as titles for the Products are and shall be the
exclusive property of Developer or of any third party from which Developer has
been granted, or to whom Developer has granted, the license and related rights
to develop and otherwise exploit any such Developer Software or any such names
or other designations.
11.2 SONY RIGHTS.
11.2.1 LICENSE OF SONY MATERIALS AND PLAYER. Subject to the
rights granted by Sony to Developer hereunder, all rights with respect to the
Sony Materials and Player, including, without limitation, all of Sony's
Intellectual Property Rights therein, are and shall be the exclusive property
of Sony. Nothing herein shall give Developer any right, title or interest in or
to the Sony Materials or the Player (or any portion thereof), other than the
non-exclusive license and privilege during the term hereof to use the Sony
Materials and Player for the development of the Executable Software solely in
accordance with the provisions of this Developer Agreement. Developer shall not
to or cause to be done any act or thing contesting or in any way impairing to
tending to impair any of Sony's rights, title, and/or interests in or to the
Sony Materials or the Player (or any portion thereof).
11.2.1 SONY TRADEMARKS. The Sony Trademarks and the goodwill
associated
-10- CONFIDENTIAL
<PAGE> 11
therewith are and shall be the exclusive property of Sony. Nothing herein shall
give Developer any right, title or interest in or to any of the Sony Trademarks.
Developer shall not do or cause to be done any act or thing contesting or in any
way impairing or tending to impair any of Sony's rights, title, or interests in
or to any of the Sony Trademarks, nor shall Developer register any trademark in
its own name or in the name of any other person or entity which is similar to or
is likely to be confused with any of the Sony Trademarks.
11.3 EFFECT OF TERMINATION. Upon the expiration or earlier termination of
this Developer Agreement for any reason, Developer shall immediately cease and
desist from any further use of the Sony Materials licensed hereunder.
12. COPYRIGHT, TRADEMARK AND TRADE SECRET PROTECTION.
In the event that either Developer or Sony discovers or otherwise becomes
aware that any of the Intellectual Property Rights of the other embodied in any
of the Developed Products have been or are being infringed upon by any third
party, then the party with knowledge of such infringement or apparent
infringement shall promptly notify the other party.
13. TERM AND TERMINATION.
13.1 EFFECTIVE DATE; TERM. This Developer Agreement shall not be binding
upon the parties until it has been signed by or on behalf of each party, in
which event it shall be effective as of the date first written above (the
"Effective Date"). Unless sooner terminated in accordance with the provisions
hereof, the initial term of this Developer Agreement shall be four (4) years
from the Effective Date.
13.2 TERMINATION BY SONY. Sony shall have the right to terminate this
Developer Agreement immediately, by providing written notice of such election
to Developer, upon the occurrence of any of the following events or
circumstances: (i) If Developer breaches any of its material obligations
provided for in this Developer Agreement and such breach is not corrected or
cured within thirty (30) days after receipt of written notice of such breach;
(ii) If the License Agreement between Sony and Developer is terminated for any
reason; (iii) If, in Sony's reasonable judgment, the laws or enforcement of the
laws of the country or countries in which the Developer or the Development Site
is located do not protect Sony's Intellectual Property Rights; (iv) Developer's
failure to pay, or a statement that it is unable to pay, any amount due
hereunder, or is unable to pay its debts generally as they shall become due; or
(v) Developer's filing of an application for, or consenting to, or directing
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of all or substantially all of Developer's property,
whether tangible or intangible, wherever located; or (vi) The making by
Developer of a general assignment for the benefit of creditors; or (vii) The
commencing by Developer or Developer's intention to commence a voluntary case
under any applicable bankruptcy laws (as now or hereafter may be in effect); or
(viii) The adjudication that Developer is a bankrupt or insolvent; or (ix) The
filing by Developer or the intent to file by Developer of a petition seeking to
take advantage of any other law providing for the relief of debtors; or (x)
Developer's acquiescence to, intention to acquiesce to, or failure to have
dismissed within ninety (90) days, any petition filed against it in any
involuntary case under any such bankruptcy law; or (xi) If control of more than
fifty percent (50%) of the ownership of Developer or substantially all of
Developer's assets are transferred to any person or entity; or (xii) If,
directly or indirectly, control of more than twenty-five percent (25%) of the
ownership of Licensee or substantially all of Licensee's assets are transferred
to any one of Acclaim Entertainment, Atari, Blockbuster, Electronic Arts,
Hasbro, Matsushita, Mattel, Microsoft, NEC, Nintendo, Philips, Sega, 3DO, Time
Warner, Viacom International, Virgin Games, Williams
-11-
CONFIDENTIAL
<PAGE> 12
Entertainment, or any other dedicated platform holder, known or unknown.
13.3 PRODUCT-BY-PRODUCT TERMINATION BY SONY. In addition to the events
of termination described in Section 13.2 above, Sony, at its option, shall be
entitled to terminate, on a product-by-product basis, the licenses and related
rights herein granted to Developer in the event that (i) Developer fails to
comply with the requirements of Section 4.4 in connection with the development
of any Product or (ii) any third party with whom Developer has contracted
pursuant to the provisions of Section 4.4 hereto breaches any of its material
obligations to Sony pursuant to its agreement with Sony with respect to such
Product.
13.4 PAYMENTS NONREFUNDABLE. In the event of the termination of this
Developer Agreement in accordance with any of the provisions of Section 13,
above, no portion of any payments of any kind whatsoever, including without
limitation any and all Nonrefundable Payments, previously provided to Sony
hereunder shall be owed or be repayable to Developer.
14. EFFECT OF EXPIRATION OR TERMINATION.
14.1 REVERSION OF RIGHTS. If this Developer Agreement is terminated by
Sony as a result of any breach or default by Developer, all rights herein
granted by Sony to Developer shall immediately revert to Sony, and Developer
shall cease and desist from any further use of the Development Tools,
Documentation, other Sony Materials and any Intellectual Property Rights
therein.
14.2 RETURN OF DEVELOPMENT TOOLS. Upon the expiration or earlier
termination of this Developer Agreement, Developer shall immediately deliver to
Sony, or if and to the extent requested by Sony destroy, all Development Tools,
Documentation, other Sony Materials and any and all copies thereof, including,
without limitation, any Confidential Information including such information,
knowledge, or know-how of which either party, as the receiving party, was
apprised and which was reduced to tangible or written form by such party or on
its behalf at any time during the term of this Developer Agreement. Within five
(5) working days after any such destruction, Developer shall provide Sony with
an itemized statement certified to be accurate by an officer of Developer,
indicating the number of copies and/or units of the Development Tools,
Documentation and other Sony Materials which have been destroyed, the location
and date of such destruction and the disposition of the remains of such
destroyed materials.
14.3 EFFECT OF EXPIRATION OR TERMINATION OF DEVELOPER AGREEMENT. Sony
shall be under no obligation to renew or extend this Developer Agreement
notwithstanding any actions taken by either of the parties prior to the
expiration of this Developer Agreement. Upon the expiration of this Developer
Agreement, neither party shall be liable to the other for any damages (whether
direct, consequential, or incidental, and including, without limitation, any
expenditures, loss of profits, or prospective profits) sustained or arising out
of or alleged to have been sustained or to have arisen out of such expiration.
However, the expiration of this Developer Agreement shall not excuse either
party from its previous breach of any of the provisions of this Developer
Agreement or from any obligations surviving the expiration of this Developer
Agreement, and full legal and equitable remedies shall remain available for any
breach or threatened breach of this Developer Agreement or any obligations
arising therefrom.
14.4 TERMINATION WITHOUT PREJUDICE. The expiration or termination of
this Developer Agreement in accordance with the provisions of Section 13,
above, shall be without prejudice to any rights or remedies which one party may
otherwise have against the other party.
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<PAGE> 13
15. MISCELLANEOUS PROVISIONS.
15.1 NOTICES. All notices or other communications required or desired to be
sent to either of the parties shall be in writing and shall be sent by
registered or certified mail, postage prepaid, return receipt requested, or sent
by recognized international courier service (e.g., Federal Express, DHL, etc.),
telex, telegram or facsimile, with charges prepaid and subject to confirmation
by letter sent via registered or certified mail, postage prepaid, return receipt
requested. The address for all notices or other communications required to be
sent to Sony or Developer, respectively, shall be the mailing address stated in
the preamble hereof, or such other address as may be provided by written notice
from one party to the other on at least ten (10) days' prior written notice. Any
such notice shall be effective upon the date of receipt.
15.2 FORCE MAJEURE. Neither Sony nor Developer shall be liable for any loss
or damage or be deemed to be in breach of this Developer Agreement if its
failure to perform or failure to cure any of its obligations under this
Developer Agreement results from any event or circumstance beyond its reasonable
control, including, without limitation, any natural disaster, fire, flood,
earthquake, or other Act of God; shortage of equipment, materials, supplies, or
transportation facilities; strike or other industrial dispute; war or rebellion;
or compliance with any law, regulation, or order (whether valid or invalid) of
any governmental body, other than an order, requirement, or instruction arising
out of Developer's violation of any applicable law or regulation; provided,
however, that the party interfered with gives the other party written notice
thereof promptly, and, in any event, within fifteen (15) working days of
discovery of any such Force Majeure condition. If notice of the existence of any
Force Majeure condition is provided within such period, the time for performance
or cure shall be extended for a period equal to the duration of the Force
Majeure event or circumstance described in such notice, except that any such
cause shall not excuse the payment of any sums owed to Sony prior to, during, or
after any such Force Majeure condition.
15.3 NO PARTNERSHIP OR JOINT VENTURE. The relationship between Sony and
Developer, respectively, is that of licensor and licensee. Developer is an
independent contractor and is not the legal representative, agent, joint
venturer, partner, or employee of Sony for any purpose whatsoever. Neither party
has any right or authority to assume or create any obligations of any kind or to
make any representation or warranty on behalf of the other party, whether
express or implied, or to bind the other party in any respect whatsoever.
15.4 ASSIGNMENT. Sony has entered into this Developer Agreement based upon
the particular reputation, capabilities and experience of Developer and its
officers, directors and employees. Accordingly, Developer may not assign this
Developer Agreement or any of its rights hereunder, nor delegate or otherwise
transfer any of its obligations hereunder, to any third party unless the prior
written consent of Sony shall first be obtained. Any attempted or purported
assignment, delegation or other such transfer without the required consent of
Sony shall be void and a material breach of this Developer Agreement. Subject to
the foregoing, this Developer Agreement shall inure to the benefit of the
parties and their respective successors and permitted assigns. Sony shall have
the right to assign any and all of its rights and obligations hereunder to any
affiliate(s).
15.5 SUBCONTRACTORS. Developer shall not sell, lease, assign, delegate,
subcontract, license or otherwise transfer or encumber all or any portion of the
rights herein granted. Developer shall have the right to employ suitable
subcontractors for the purposes of assisting Developer with the development of
the Products, provided that Developer must obtain the prior written consent of
Sony, which consent may not be unreasonably withheld or delayed. Developer shall
not disclose to any subcontractor any Confidential Information of Sony (as
defined herein and in the Nondisclosure
-13- CONFIDENTIAL
<PAGE> 14
Agreement), including, without limitation, any Development Tools or other Sony
Materials, or allow any usage of the Development Tools by any such
subcontractor unless and until Developer shall have such subcontractor sign a
written agreement containing substantially identical terms to the Nondisclosure
Agreement, the confidentiality provisions of this Agreement and Section 7 of
this Agreement and shall submit a copy of such agreement to Sony. Any and all
agreements between Developer and its permitted subcontractors shall provide
that Sony is a third party beneficiary of such agreements and has the full
right to bring any actions against such subcontractors to comply in all
respects with the terms and conditions of this Agreement and the Developer
Agreement. Notwithstanding any consent which may be granted by Sony for
Developer to employ any such permitted subcontractor(s), or any such separate
agreement(s) that may be entered into by Developer with any such permitted
subcontractor, Developer shall remain fully liable for its compliance with all
of the provisions of this Developer Agreement and for the compliance of any and
all permitted subcontractors with the provisions of any agreements entered into
by such subcontractors in accordance with this Section 15.5. Developer shall
cause its subcontractors to comply in all respects with the terms and
conditions of this Developer Agreement, and hereby unconditionally guarantees
all obligations of its subcontractors. Notwithstanding the foregoing, Developer
shall not subcontract any rights under this Agreement to TCI
(Telecommunications, Inc.) or Microsoft without Sony's prior written approval.
15.6 COMPLIANCE WITH APPLICABLE LAWS. The parties shall at all times
comply with all applicable regulations and orders of their respective countries
and all conventions and treaties to which their countries are a party or
relating to or in any way affecting this Developer Agreement and the
performance by the parties of this Developer Agreement. Each party, at its own
expense, shall negotiate and obtain any approval, license or permit required in
the performance of its obligations, and shall declare, record or take such
steps to render this Developer Agreement binding, including, without
limitation, the recording of this Developer Agreement with any appropriate
governmental authorities (if required).
15.7 GOVERNING LAW; CONSENT TO JURISDICTION. This Developer Agreement
shall be governed by and interpreted in accordance with the laws of the State
of New York, excluding that body of law related to choice of laws, and of the
United States of America. Any action or proceeding brought to enforce the terms
of this Developer Agreement or to adjudicate any dispute arising hereunder
shall be brought in the courts of the County of New York, State of New York (if
under State law) or the Southern District of New York (if under Federal law).
Each of the parties hereby submits itself to the exclusive jurisdiction and
venue of such courts for purposes of any such action and agrees that any
service of process may be effected by delivery of the summons in the manner
provided in the delivery of notices set forth in Section 15.1 above.
15.8 LEGAL COSTS AND EXPENSES. In the event it is necessary for either
party to retain the services of an attorney or attorneys to enforce the terms
of this Developer Agreement or to file or defend any action arising out of this
Agreement, then the prevailing party in any such action shall be entitled, in
addition to any other rights and remedies available to it at law or in equity
to recover from the other party its reasonable fees for attorneys and expert
witnesses, plus such court costs and expenses as may be fixed by any court of
competent jurisdiction. The term "prevailing party" for the purposes of this
Section shall include a defendant who has by motion, judgment, verdict or
dismissal by the court, successfully defended against any claim that has been
asserted against it.
15.9 REMEDIES. Unless expressly set forth to the contrary, either party's
election of any remedies provided for in this Developer Agreement shall not be
exclusive of any other remedies available hereunder or otherwise at law or in
equity, and all such remedies shall be deemed to be cumulative. Any breach of
Sections 2, 4, 6, 7 and 11 of this Agreement would cause irreparable
-14- CONFIDENTIAL
<PAGE> 15
harm to Sony, the extent of which would be difficult to ascertain. Accordingly,
Developer agrees that, in addition to any other remedies to which Sony may be
entitled, in the event of a breach by Developer or any of its employees or
permitted subcontractors of any such sections of this Agreement. Sony shall be
entitled to the immediate issuance without bond of exparte injunctive relief
enjoining any breach or threatened breach of any or all of such provisions. In
addition, Developer shall indemnify Sony for all losses, damages, liabilities,
costs and expenses (including actual attorneys' fees and all related costs)
which Sony may sustain or incur as a result of such breach.
15.10 SEVERABILITY. In the event that any provision of this Developer
Agreement (or portion thereof) is determined by a court of competent
jurisdiction to be invalid or otherwise unenforceable, such provision (or part
thereof) shall be enforced to the extent possible consistent with the stated
intention of the parties, or, if incapable of such enforcement, shall be deemed
to be deleted from this Developer Agreement, while the remainder of this
Developer Agreement shall continue in full force and remain in effect according
to its stated terms and conditions.
15.11 SECTIONS SURVIVING EXPIRATION OR TERMINATION. The following
sections shall survive the expiration or earlier termination of this Developer
Agreement for any reason: 4, 6, 9.2, 10, 11, 12, 13.3, 14, 15.4, 15.5, 15.7,
15.8, 15.9, and 15.10.
15.12 WAIVER. No failure or delay by either party in exercising any
right, power, or remedy under this Developer Agreement shall operate as a
waiver of any such right, power, or remedy. No waiver of any provision of this
Developer Agreement shall be effective unless in writing and signed by the
party against whom such waiver is sought to be enforced. Any waiver by either
party of any provision of this Developer Agreement shall not be construed as a
waiver of any other provision of this Developer Agreement, nor shall such waiver
operate as or be construed as a waiver of such provision respecting any future
event or circumstance.
15.13 MODIFICATION. No modification of any provision of this Developer
Agreement shall be effective unless in writing and signed by both of the
parties.
15.14 HEADINGS. The section headings used in this Developer Agreement
are intended primarily for reference and shall not by themselves determine the
construction or interpretation of this Developer Agreement or any portion
hereof.
15.15 INTEGRATION. This Developer Agreement (together with the
Exhibits attached hereto) constitutes the entire agreement between Sony and
Developer and supersedes all prior or contemporaneous agreements, proposals,
understandings, and communications between Sony and Developer, whether oral or
written, with respect to the subject matter hereof; provided, however, that
notwithstanding anything to the contrary in the foregoing, the Nondisclosure
Agreement referred to in Section 6 hereto shall remain in full force and effect.
15.16 COUNTERPARTS. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, and both of which together shall
constitute one and the same instrument.
15.17. CONSTRUCTION. This Developer Agreement shall be fairly
interpreted in accordance with its terms and without any strict construction in
favor of or against either of the parties.
15.18 EXPORT. Developer shall not reexport, directly or indirectly,
any Development Tools outside of the United States or Canada. In addition,
Developer certifies that it shall not reexport,
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<PAGE> 16
directly or indirectly, any Development Tools in violation of U.S. law and
regulations. If for any reason Sony permits Developer to reexport Development
Tool, Developer shall be exporter of record and shall be solely responsible for
the obtaining of the compliance with any required export licenses. Developer
certifies that the Development Tools will not be resold or delivered, directly
or indirectly, to entities located in destinations prohibited under U.S. laws
and regulations or resold or delivered, directly or indirectly, to nationals
from those destinations. The prohibited destinations include Cuba, Iraq, Libya,
North Korea, Yugoslavia (Serbia and Montenegro) or any other countries that are
subsequently declared prohibited destinations under such laws or regulations.
Prohibited sales may subject Developer to fines and imprisonment under
applicable U.S. law. Violation of this certification will result in the
termination for cause of this Agreement and all licenses granted hereunder from
Sony to Developer. In addition, Developer shall, at its own expense, obtain and
arrange for the maintenance in full force and effect of all governmental
approvals, consents, licenses, authorizations, declarations, filings and
registrations as may be necessary or advisable for performance of all of the
terms and conditions of this Agreement, including, but not limited to, foreign
exchange approvals, import and offer agent licenses, fair trade approvals and
all approvals which may be required to realize the purposes of this Agreement.
IN WITNESS WHEREOF, the parties have caused this Developer Agreement to be duly
executed as of the day and year first written above.
SONY COMPUTER THE LIGHTSPAN PARTNERSHIP, INC.
ENTERTAINMENT AMERICA
By /s/ Bernard Stolar By /s/ J. T. Kernan
---------------------- --------------------------
Bernard Stolar J. T. Kernan
Title: VP Bus. Dev. Title: Chairman & CEO
------------------- -----------------------
Date: 02-22-26 Date: 1/30/96
-------------------- ------------------------
NOT AN AGREEMENT UNTIL
EXECUTED BY BOTH PARTIES
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<PAGE> 17
EXHIBIT A
Development Site:
2352 FARADAY AVENUE
------------------------
CARLSBAD, CA 92008
------------------------
Developer Designee:
signature illegible
------------------------
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<PAGE> 1
EXHIBIT 10.22
ACADEMIC SYSTEMS FULFILLMENT AGREEMENT - VERSION 1.0
PARTIES:
This Agreement is made and entered into between Academic Systems Corporation, a
California corporation, whose address is 444 Casino Street, Mountain View,
California 94041 ("Academic Systems"), and FGI Print Management, a Illinois
corporation, whose address is 4725 Hannover Place, Fremont, CA 94538 ("FGI").
FGI includes FGI Print Management whose headquarters are located at 1040
Muirfield Drive in Hanover Park, Illinois ("FGI Print Management"). FGI also has
marketing and distribution centers (the "FGI Distribution Centers") located in
Fremont, California (Western Region), Denver, Colorado (Rocky Mountain Region),
Topeka, Kansas (central 1), Hays, Kansas (Central Region 11), and Norcross,
Georgia (Southern Region).
TERM:
The term of this agreement is one (1) year from the date of execution by both
parties. This Agreement renews automatically for an additional one (1) year term
on the anniversary date of the existing Agreement. Either party may terminate
this Agreement with or without cause by providing sixty (60) days written notice
to the address above. Upon termination or expiration, FGI shall promptly ship
(at Academic Systems' cost) to locations designated by Academic Systems all
Academic Systems' materials under the possession or control of FGI.
GENERAL FULFILLMENT COMMITMENT:
FGI will administer and distribute printed material under the guidelines set
forth in this Agreement and as mutually agreed upon from time to time between
Academic Systems and FGI. FGI shall hold merchandise in any of its FGI
Distribution Centers for the purpose of shipping to Academic Systems and drop
shipping to Academic Systems' designated customer locations across the United
States and International in the most economical and expeditious manner possible.
STORAGE AND FREIGHT:
FGI agrees to store all merchandise in the package quantities mutually agreed
and designated as minimum release quantities or package quantities deemed
feasible by Academic Systems. FGI agrees to pre-pay all shipping and carrier
charges of this merchandise and bill Academic System at the most economical
rates available. Storage will be charged at $7.00 per pallet per month.
- --------------------------------------------------------------------------------
Academic Systems Fulfillment Agreement
Revision Date: June 9, 1998
Page 1 of 6
<PAGE> 2
RELEASES TO SHIP:
For purposes of this Agreement, a "Release" means a purchase order or other
authorization or instruction from Academic Systems to effectuate a specific
shipment of merchandise under this Agreement. Releases may be phoned in, faxed
or entered on the on-line order entry system. FGI agrees to a standard shipment
time of 24 hours from receipt of Release. FGI will be responsible for insurance
liability for all warehoused materials while stored in a designated FGI
facility. FGI will furnish Academic Systems with a copy of all insurance
policies.
ONLINE ORDER ENTRY AND REPORTING SYSTEM:
FGI has in place a computer system which will link to locations designated by
Academic Systems (the "FGI Data System"). FGI agrees to provide Academic
Systems with a minimum of the following on-line information via the FGI Data
System:
1. Item identification - all items will be entered by FGI into the FGI
Data Systems in accordance with part numbers created by Academic Systems.
2. Stock Status - information on each item will be accessible by
Academic Systems 24 hours a day, 365 days per year to attain "real time" stock
availability status, on hand quantities, Release quantities (that day), net
stock availability, and on order (if this particular item is currently in a
restocking situation, information will be shown under stock status).
3. Product History - the Academic Systems immediate past 12 months of
Release history (by Academic Systems product number) will be displayed under
product history. Product history will include for each Release: the number of
cartons or shipping units released. Academic Systems' purchase order or Release
number, and method of shipment (UPS, NDA, FED EX, etc.).
4. Item Comment Maintenance - Academic Systems can send "product e-mail"
conveying any special information for each product in the FGI Data System,
e.g., re-order now, change copy, destroy balance of material, etc.
5. Order Entry - by simply entering the pre-assigned product number in
the order entry program. Academic Systems can Release any item for
distribution. This order information is printed out at FGI and distributed
within 24 hours. Cut off time for same day shipping is 2:00 p.m. Central time.
Same day shipping will incur a rush charge. Several types of order
acknowledgment systems are available for Academic Systems to choose from.
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Academic Systems Fulfillment Agreement
Revision Date: June 9, 1998
Page 2 of 6
<PAGE> 3
6. Item Pricing - all prices are accessible either under "contract prices"
loaded into the system or under an estimate program, identified by product,
utilizing a "quick quote" program designed specifically for Academic Systems.
7. Open orders - all orders in production will be displayed showing
Academic Systems' purchase order or Release number, order date, and quantity
ordered.
8. Order History - every Release made during the past 12 months can be
instantly accessed. Information includes full display of corresponding invoice
information.
9. Reports - standard reports will be sent to Academic Systems weekly,
biweekly, monthly, or by special request. Since all software used is custom and
designed specifically for FGI customer reports, displayed information can be
developed by product, "ship to", or department of Academic Systems' choice,
customized reports or downloads will be available upon request, at no
additional charge.
10. Reordering - Academic Systems and FGI will jointly determine reorder
or safety levels for each item in inventory. The inventory system will (daily)
print out when these reorder or safety levels are reached, whereupon Academic
Systems will be notified prior to production to determine copy changes,
deletions etc.
The foregoing reports and online services will be provided at no additional
charge to Academic Systems. If Academic Systems requests in writing any custom
computer reports, screens or any other computer related tasks, FGI will
undertake such tasks at an hourly rate of $125.00, payable net 30 days from
invoice.
Excess and Obsolete Material:
The parties shall negotiate in good faith and document a system for disposing
of excess or obsolete inventories (the "Scrap Material"). The Scrap Materials
document shall be attached hereto as Appendix 2.
Service and Freight Charges:
During the initial one (1) year term of this Agreement, the charges for FGI's
services under this Agreement shall be as set forth on Appendix 1 attached
hereto and by this reference incorporated herein. FGI will prepay freight and
insurance. FGI terms are net 30 days, with the exception of freight, which shall
be net 7 days. Should any portion of an invoice be disputed, Academic Systems
agrees to pay the undisputed portion according to its terms and Academic
Systems will notify FGI promptly of the dispute. Both parties agree to use
their best efforts to resolve the disputed portion of the invoice within thirty
(30) days of learning of the dispute. FGI warrants and guarantees that the
prices extended to Academic Systems under this
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Academic Systems Fulfillment Agreement
Revision Date: June 9, 1998
Page 3 of 6
<PAGE> 4
Agreement are as favorable as the best pricing offered to any other FGI
customer for like services in like quantities.
Quarterly and Annual Business Reviews:
Academic Systems and FGI will meet quarterly to review the current business
relationship, service levels, effectiveness of the program, suggestions for
improvement, and any other issue in the spirit to optimize the relationship for
mutual benefit. Annual reviews will include discussions of potential price
increases or decreases for labor only (people working on Academic Systems work)
not to exceed 5% annually.
Service Performance Levels:
In the event of any major service failure by either party, the specific failure
will be documented in writing. The party committing the failure will
acknowledge and rectify any service failure by taking appropriate remedial or
recovery actions. Resolution of the service failure will be signed off by both
parties.
Bankruptcy:
If either party shall be adjudicated a bankrupt, institute voluntary
proceedings for bankruptcy or reorganization, make an assignment for the
benefit of its creditors, apply for or consent to the appointment of a receiver
for it or its property, or admit in writing its inability to pay its debits as
they become due, the other party may terminate the Agreement without prior
notice. Any such termination will not relieve either party from any accrued
obligations thereunder.
Assignment:
Neither party to this Agreement will assign any right(s) thereunder without the
prior written consent of the other party, except that FGI may assign payments
due to FGI to any affiliated company without consent. Subject to this consent,
this Agreement will inure to the benefit of and will bind the successors and
assigns of the parties hereto.
Insurance:
FGI will carry sufficient insurance as is customary in the industry for the
services performed and provide copies of the same and obtain reasonable
endorsements naming Academic Systems as an additional insured, as requested
from Academic Systems from time to time.
Governing Law:
This Agreement will be governed by the laws of the State of California.
- --------------------------------------------------------------------------------
Academic Systems Fulfillment Agreement
Revision Date: June 9, 1998
Page 4 of 6
<PAGE> 5
Academic Systems and FGI acknowledges having read this Agreement and agrees to
be bound by its terms. This Agreement between Academic Systems and FGI governs
with respect to the subject matter hereof and supersedes all previous
contemporaneous written and oral agreements and communications relating to the
subject matter hereof.
In witness thereof, the parties here to have signed this Agreement by their
authorized representatives
Academic Systems Corporation FGI Print Management
By: [ILLEGIBLE] By: [ILLEGIBLE]
--------------------------- ---------------------------
Date: 6/12/98 Date: 6/12/98
------------------------- -------------------------
- ---------------------------------------------------------------------------
Academic Systems Fulfillment Agreement
Revision Date: June 9, 1998
Page 5 of 6
<PAGE> 6
Appendix 1
SCHEDULE OF CHARGES
- --------------------------------------------------------------------------------
A) $5.00 per release* for 1-5 line items.
B) $15.00 per release* for 6 line items and above.
C) Charges for fulfillment/distribution:
1. Touch on pre-assembly $ .06 per unit
2. Touch on custom kit $ .07 per unit
3. Touch at order pick $ .07 per unit
4. Shrinkwrap books $ .30 per set
5. Label product (includes print & touch) $ .10 per label
6. Cost for P.O.D.s $1.50 per
7. Order Cost - Rush 2 times regular order costs
8. Cost for RMAs 1.5 times regular order costs
9. Re-inventory components $ .10 per unit
10. Shipping cartons $ .10 per unit (estimate)
11. Receipt of materials not purchased $ .50 per carton
through FGI
Note: charge includes the following:
a. Verifying quantity received
b. Entering receipts into system
c. Assigning storage locations
d. Physically placing into storage
e. Any necessary re-stocking
f. Storage space costs
- --------------------------------------------------------------------------------
Academic Systems Fulfillment Agreement
Revision Date: June 9, 1998
Page 6 of 6
<PAGE> 1
EXHIBIT 10.23
THE LIGHTSPAN PARTNERSHIP, INC.
SERIES E PREFERRED STOCK PURCHASE AGREEMENT
This SERIES E PREFERRED STOCK PURCHASE AGREEMENT ( the "AGREEMENT") is
made as of October 29, 1999, by and among THE LIGHTSPAN PARTNERSHIP, INC., a
California corporation (the "COMPANY"), with its principal office at 10140
Campus Point Drive, San Diego, California, 92008, and LIBERTY LIGHTSPAN
HOLDINGS, INC. (the "PURCHASER").
WHEREAS, the Company desires to issue, and the Purchaser desires to
acquire, Series E Preferred Stock of the Company as herein described, on the
terms and conditions hereinafter set forth;
NOW, THEREFORE, IT IS AGREED between the parties as follows:
1. PURCHASE AND SALE OF STOCK. Purchaser hereby purchases from the
Company, and the Company hereby sells to Purchaser, an aggregate of
160,000 shares of Series E Preferred Stock of the Company $0.001 par value per
share (the "STOCK") at $5.00 per share for an aggregate purchase price of
$800,000, payable by wire transfer in the amount of $400,000 and by the
assignment and assumption of certain contract rights as set forth in Section 2
hereof. The closing hereunder, including payment for and delivery of the Stock
(the "CLOSING"), shall occur at the offices of the Company substantially
simultaneously with the execution of this Agreement.
2. ASSIGNMENT AND ASSUMPTION. Purchaser does hereby transfer, assign and
convey to the Company all of its rights, title and interest in and to the
Termination Agreement by and between Ingenius and Yahoo Corporation dated as of
the 14th day of May, 1998 (the "TERMINATION AGREEMENT"). The Company does hereby
from and after the date hereof accept and assume all rights, title, interest,
liabilities and obligations of Purchaser in, to and associated with the
Termination Agreement.
3. LIMITATIONS ON TRANSFER; LEGENDS.
(a) Purchaser agrees not to make any disposition of all or any portion
of the Stock unless and until:
(i) There is then in effect a registration statement under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), covering such
proposed disposition and such disposition is made in accordance with such
registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the
terms of this Agreement, (B) Purchaser shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, Purchaser shall have furnished the Company
with an opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act. It is agreed
<PAGE> 2
that the Company will not require opinions of counsel for transactions made
pursuant to Rule 144.
(iii) Notwithstanding the provisions of paragraphs (i) and (ii)
above, no such registration statement or opinion of counsel shall be necessary
for a transfer by (A) a partnership to its partners or former partners in
accordance with partnership interests, (B) a limited liability company to its
members or former members in accordance with their interest in the limited
liability company, or (C) an individual to one or more of his or her family
members or a trust for the benefit of such individuals; provided that in each
case the transferees will be subject to the terms of this Agreement to the same
extent as if they were the original Purchaser hereunder.
(b) All certificates representing the Stock shall have endorsed thereon
legends in substantially the following forms (in addition to any other legend
which may be required by other agreements between the parties hereto):
(i) "THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH REGISTRATION IS
NOT REQUIRED."
(ii) "THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
COMPANY AND THE SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF
THE COMPANY."
(iii) Any legend required by appropriate blue sky officials.
(c) Subject to the final sentence of Section 3(a)(ii) above, the Company
shall be obligated to reissue promptly unlegended certificates at the request of
any holder thereof if the holder shall have obtained an opinion of counsel
(which counsel may be counsel to the Company) reasonably acceptable to the
Company to the effect that the securities proposed to be disposed of may
lawfully be so disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
4. REPRESENTATIONS OF COMPANY. The Company hereby represents and warrants
as follows:
(a) AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization, execution
and delivery of this Agreement and the Investor Rights Agreement dated as of
July 8, 1999 by and among the Company and the Investors listed on Exhibit A
thereto, the performance of all obligations of the Company hereunder and
thereunder, and the authorization, issuance (or reservation for issuance),
<PAGE> 3
sale and delivery of the Stock being sold hereunder and the Common Stock
issuable upon conversion of the Stock has been taken, and this Agreement and the
Investor Rights Agreement each constitute valid and legally binding obligations
of the Company, enforceable in accordance with their respective terms, subject
to: (i) judicial principles limiting the availability of specific performance,
injunctive relief, and other equitable remedies; (ii) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights; and (iii) limitations on
the enforceability of the indemnification provisions of the Investor Rights
Agreement.
(b) VALID ISSUANCE OF PREFERRED AND COMMON STOCK. The Stock, when
issued, sold and delivered in accordance with the terms of this Agreement for
the consideration expressed herein, will be duly and validly issued, fully paid,
and nonassessable, and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investor Rights Agreement
and under applicable state and federal securities laws. The Common Stock
issuable upon conversion of the Stock has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Company's
Articles of Incorporation, will be duly and validly issued, fully paid, and
nonassessable and will be free of restrictions on transfer other than
restrictions on transfer under this Agreement and the Investor Rights Agreement
and under applicable state and federal securities laws. The Company has obtained
all necessary permits and qualifications, if any, or secured an exception
therefrom, required by any state or country for the offer and sale of the Stock
(c) DISCLOSURE. Except as disclosed in writing to the Purchaser or any
representative of the Purchaser, the representations and warranties of the
Company contained in Section 2 of that certain Series E Preferred Stock Purchase
Agreement dated as of July 8, 1999, as amended (the "STOCK PURCHASE AGREEMENT"),
are true and correct today in all material respects as if made today.
5. REPRESENTATIONS OF PURCHASER. Purchaser understands that the Stock has
not been registered under the Securities Act. Purchaser also understands that
the Stock is being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement. Purchaser hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial experience
in evaluating and investing in private placement transactions of securities in
companies similar to the Company and therefore is capable of evaluating the
merits and risks of investing in the Company and has the capacity to protect its
own interests. Purchaser must bear the economic risk of this investment
indefinitely unless the Stock is registered pursuant to the Securities Act, or
an exemption from registration is available. Purchaser also understands that
there is no assurance that any exemption from registration under the Securities
Act will be available and that, even if available, such exemption may not allow
Purchaser to transfer all or any portion of the Stock under the circumstances,
in the amounts or at the times Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the Stock for
Purchaser's own account for investment only, and not with a view towards its
distribution.
<PAGE> 4
(c) PURCHASER CAN PROTECT HIS INTEREST. Purchaser represents that it has
either (i) preexisting personal or business relationships with the Company or
any of its officers, directors or controlling persons, or (ii) the capacity to
protect its own interests in connection with the purchase of the Stock by virtue
of the business or financial expertise of itself or of professional advisors to
Purchaser who are unaffiliated with and who are not compensated by the Company
or any of its affiliates, directly or indirectly.
(d) NO GENERAL SOLICITATION. Purchaser is aware of no publication of any
advertisement in connection with the transactions contemplated in the Agreement.
(e) ACCREDITED INVESTOR. Purchaser represents that it is an accredited
investor within the meaning of Regulation D under the Securities Act.
(f) COMPANY INFORMATION. Purchaser has had an opportunity to discuss the
Company's business, management and financial affairs with directors, officers
and management of the Company and has had the opportunity to review the
Company's operations and facilities. Purchaser has also had the opportunity to
ask questions of and receive answers from, the Company and its management
regarding the terms and conditions of this investment.
(g) RULE 144. Purchaser acknowledges and agrees that the Stock must be
held indefinitely unless it is subsequently registered under the Securities Act
or an exemption from such registration is available. Purchaser has been advised
or is aware of the provisions of Rule 144 promulgated under the Securities Act
as in effect from time to time, which permits limited resale of shares purchased
in a private placement subject to the satisfaction of certain conditions,
including, among other things: the availability of certain current public
information about the Company, the resale occurring following the required
holding period under Rule 144 and the number of shares being sold during any
three-month period not exceeding specified limitations.
(h) RESIDENCE. Purchaser resides or is domiciled at the address set
forth on the signature page hereof.
6. INDEMNIFICATION. Sections 6 and 7.9 of the Stock Purchase Agreement are
incorporated herein and made a part hereof mutatis mutandis. The Company shall
hold harmless and indemnify Purchaser and each of Ingenius and Liberty Media
Corporation and their respective general partners, directors, officers,
employees, agents and affiliates (each an "Indemnitee") from and against any
damages, costs, liabilities and expenses (including, without limitation,
reasonable legal fees and disbursements) directly or indirectly suffered or
incurred by any Indemnitee or to which any Indemnitee may otherwise become
subject at any time and that arise in connection with the Termination Agreement.
7. MARKET STAND-OFF AGREEMENT. Purchaser hereby agrees that Purchaser shall
not sell, transfer, make any short sale of, grant any option for the purchase
of, or enter into any hedging or similar transaction with the same economic
effect as a sale, the Stock (or other securities of the Company) held by
Purchaser (other than those included in the registration) for a period specified
by the representative of the underwriters of Common Stock (or other securities)
of the Company
<PAGE> 5
not to exceed one hundred eighty (180) days following the effective date of a
registration statement of the Company filed under the Securities Act; provided
that:
(a) such agreement shall apply only to the Company's initial public
offering; and
(b) all executive officers and directors of the Company enter into
similar agreements or be bound by substantially similar provisions.
Purchaser agrees to execute and deliver such other agreements as may be
reasonably requested by the Company or the underwriter which are consistent with
the foregoing or which are necessary to give further effect thereto. In
addition, if reasonably requested by the Company or the representative of the
underwriters of Common Stock (or other securities) of the Company, Purchaser
shall provide, within ten (10) days of such request, such information as may be
required by the Company or such representative in connection with the completion
of any public offering of the Company's securities pursuant to a registration
statement filed under the Securities Act. The obligations described in this
Section 6 shall not apply to a registration relating solely to employee benefit
plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the
future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar form that may be promulgated in the future. The Company
may impose stop-transfer instructions with respect to the shares of Stock (or
other securities) subject to the foregoing restriction until the end of said one
hundred eighty (180) day period.
8. MISCELLANEOUS.
(a) NOTICES. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery or sent
by telegram or fax or upon deposit in the United States Post Office, by
registered or certified mail with postage and fees prepaid, addressed to the
other party hereto at the address appearing on the records of the Company, or at
such other address as such party may designate by ten (10) days' advance written
notice to the other party hereto.
(b) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
the successors and assigns of the Company and, subject to the restrictions on
transfer herein set forth, be binding upon Purchaser, Purchaser's successors,
and assigns.
(c) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
(d) FURTHER EXECUTION. The parties agree to take all such further
action(s) as may reasonably be necessary to carry out and consummate this
Agreement as soon as practicable, and to take whatever steps may be necessary to
obtain any governmental approval in connection with or otherwise qualify the
issuance of the securities that are the subject of this Agreement.
(e) INDEPENDENT COUNSEL. Purchaser acknowledges that this Agreement has
been prepared on behalf of the Company by Cooley Godward LLP, counsel to the
Company and that Cooley Godward LLP does not represent, and is not acting on
behalf of, Purchaser. Purchaser has
<PAGE> 6
been provided with an opportunity to consult with Purchaser's own counsel with
respect to this Agreement.
(f) ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes and merges all prior agreements or understandings, whether written or
oral. This Agreement may not be amended, modified or revoked, in whole or in
part, except by an agreement in writing signed by each of the parties hereto.
(g) SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (i) such
provision shall be excluded from this Agreement, (ii) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (iii)
the balance of the Agreement shall be enforceable in accordance with its terms.
(h) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
(i) PRONOUNS. References to a Purchaser, including by use of a pronoun,
shall be deemed to include masculine, feminine, singular, plural, individuals,
partnerships or corporations where applicable.
[SIGNATURE PAGE FOLLOWS]
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have executed the SERIES E
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY: PURCHASER:
THE LIGHTSPAN PARTNERSHIP, INC.
By:
--------------------------------------- -------------------------------
Carl E. Zeiger Name of Purchaser
President and Chief Operating Officer
--------------------------------
Signature
--------------------------------
Printed Name of Signor
--------------------------------
Title (if applicable)
Address: c/o Liberty Digital,
Inc.
9197 So. Peoria Street
Englewood, CO 80112
Attn: Bruce Ravenel
<PAGE> 1
EXHIBIT 10.24
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series A Preferred Stock of
Curriculum Television Corporation
Dated as of March 15, 1994 (the "Effective Date")
WHEREAS, Curriculum Television Corporation, a California corporation
(the "Company") has entered into a Master Lease Agreement dated as of March 15,
1994, Equipment Schedule No. VL-1, and related Schedules (the "Leases") with
Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Preferred
Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 150,000 fully paid and
non-assessable shares of the Company's Series A Preferred Stock ("Preferred
Stock") at a purchase price of $1.00 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERMS OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
(b) Acceleration of Term. Notwithstanding the term of this Warrant
Agreement fixed pursuant to Section 2(a) hereof and the provisions of Section
8(a) below, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon either: (i) the closing of
the issuance and sale of shares of Common Stock of the Company in the Company's
first public offering of securities for its own account pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Initial Public Offering"), provided that the Common Stock issuable to
Warrantholder upon the automatic conversion from Preferred Stock issuable to
Warrantholder upon exercise hereof shall be included in such registration
statement only upon request of Warrantholder; or (ii) a merger of the Company
with or into another corporation provided that such merger results in a per
share value of $2.00 or more for Lessee's stock (the "Accelerating Merger").
<PAGE> 2
The Company shall notify the Warrantholder if the Initial Public Offering
or Accelerating Merger is proposed, within a reasonable period of time prior to
the filing of a registration statement or a firm commitment with respect to an
Accelerating Merger, as applicable, and if the Company fails to deliver such
written notice within a reasonable period of time, anything to the contrary in
this Warrant Agreement notwithstanding, the rights to purchase will not expire
until ten (10) business days after the Company delivers such notice to the
Warrantholder. Such notice shall also contain such details of the proposed
Initial Public Offering or Accelerating Merger as are reasonable in the
circumstances and notice that this Warrant Agreement is expected to expire upon
closing thereof. If such closing does not take place, the company shall promptly
notify the Warrantholder that such proposed transaction has been terminated.
Anything to the contrary in this Warrant Agreement notwithstanding, the
Warrantholder may rescind any exercise of its purchase rights promptly after
such notice of termination of the proposed transaction if the exercise of
Warrants occurred after the Company notified the Warrantholder that the Initial
Public Offering or Accelerating Merger was proposed or if the exercise were
otherwise precipitated by such proposed Initial Public Offering or Accelerating
Merger. In event of such rescission, the Warrants will continue to be
exercisable on the same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form
attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and
executed. Promptly upon receipt of the Notice of Exercise and the payment of
the purchase price in accordance with the terms set forth below, and in no
event later than twenty-one (21) days thereafter, the Company shall issue to
the Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the Notice of Exercise indicating the number of
shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with request to the offering;
2
<PAGE> 3
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21)
day period ending three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices quoted
on the NASDAQ system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair market value
of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number
of shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be
duly registered, listed or approved for listing on such domestic securities
exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
3
<PAGE> 4
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. Subject in all respects to Section 2 (b)
above, if at any time there shall be a capital reorganization of the shares of
the Company's stock (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), or a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person (hereinafter referred to as
a "Merger Event"), then, as a part of such Merger Event, lawful provision shall
be made so that the Warrantholder shall thereafter be entitled to receive, upon
exercise of the Warrant, the number of shares of preferred stock or other
securities of the successor corporation resulting from such Merger Event,
equivalent in value to that which would have been issuable if Warrantholder had
exercised this Warrant immediately prior to the Merger Event. In any such case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
Agreement with respect to the rights and interest of the Warrantholder after the
Merger Event to the end that the provisions of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares of Preferred Stock
purchasable) shall be applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution,
and (ii) the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
4
<PAGE> 5
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
of equipment leased pursuant to the Leases exceeds $1,500,000, Warrantholder
shall have the right to purchase from the Company, at the Exercise Price
(adjusted as set forth herein), an additional number of shares, which number
shall be determined by (i) multiplying the amount by which the Warrantholder's
total equipment cost exceeds $1,500,000 by 10%, and (ii) dividing the product
thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit __ (the "Charter"). The
Company shall promptly provide the Warrantholder with any restatement,
amendment, modification or waiver of the Charter. The Company shall provide
Warrantholder with prior written notice of any issuance of its Stock or other
equity security to occur after the Effective Date of this Warrant, which notice
shall include (a) the price at which such stock or security is to be sold, (b)
the number of shares to be issued, and (c) such other information as necessary
for Warrantholder to determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities, (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in connection with each such event, the Company
shall send to the Warrantholder: (A) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Preferred Stock shall be entitled thereto) or
for determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
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<PAGE> 6
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, excepting those liens,
charges or encumbrances caused or permitted to be caused by the Warrantholder;
provided, however, that the Preferred Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended, and minutes
of all Board of Directors (including all committees of the Board of Directors,
if any) and Shareholder meetings or actions taken by written consent, to date.
The issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice to,
registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of applicable Federal and State
securities law filings, which filings, if applicable, will be effective by the
time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common Stock,
Preferred Stock or any other securities of the Company have been duly authorized
and validly issued and are fully paid and nonassessable. All outstanding shares
of Common Stock, Preferred Stock and any other securities were issued in full
compliance with all Federal and state securities laws. In addition:
(i) The authorized capital of the Company consists of (A) 10,000,000 shares
of Common Stock, of which 6,047,000 shares are issued and outstanding, and (B)
7,635,000 shares of preferred stock, of which 7,135,000 shares are issued and
outstanding and are convertible into 7,635,000 shares of Common Stock at $1.00
per share.
(ii) The Company has reserved (A) 98,000 shares of Common Stock for
issuance under its Nonqualified Stock Option Plan, under which 80,000 options
are outstanding at an average price of $.001 per share, and (B) 1,963,000 shares
of Common Stock for issuance under its Incentive Stock Option Plan, under which
735,000 options are outstanding at an average price of $.001 per share. There
are no other options, warrants, conversion privileges or other rights presently
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<PAGE> 7
outstanding to purchase or otherwise acquire any authorized but unissued shares
of the Company's capital stock or other securities of the Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock; provided, however, that all holders of Preferred
Stock have contractual rights to participate in future financings.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued; provided, however, that all holders of Series A
Preferred Stock have "demand" and "piggy-back" registration rights.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon
Section 4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102 (f) thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present
intention of selling or engaging in any public distribution of the same except
pursuant to a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration qualifications requirements thereof, and (ii) that the Company's
reliance on such exemption is predicated on the representations set forth in
this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred
Stock or Preferred Stock issuable upon exercise of such rights unless and until
(i) it shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
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<PAGE> 8
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
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<PAGE> 9
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Leasing Director, cc: Legal Department, (and/or, if by facsimile, (708)
518-5465 and (ii) to the Company at 2382 Faraday Avenue, Suite 300, Carlsbad, CA
92008 (and/or if by facsimile, (619) 930-2350 or at such other address as any
such party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds
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<PAGE> 10
$1,000,000, the Company will also provide Warrantholder with an opinion from the
Company's counsel with respect to those same representations, warranties and
covenants. The Company shall also supply such other documents as the
Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: CURRICULUM TELEVISION
----------------------------------
By: /s/ [ILLEGIBLE]
---------------------------------------
Title: President
------------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ JILL C. HANSES
----------------------------------------
Title: AVP / Venture Lease Group
-------------------------------------
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<PAGE> 11
EXHIBIT I
NOTICE OF EXERCISE
TO:
------------------------------
(1) The undersigned Warrantholder hereby elects to purchase ___________ shares
of the Preferred Stock of _______________, pursuant to the terms of the
Warrant Agreement dated the _______ day of __________, 19____ (the "Warrant
Agreement") between ______________________ and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
_______________________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
- -------------------------------------
(Name)
- -------------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
11
<PAGE> 12
ACKNOWLEDGEMENT OF EXERCISE
The undersigned _____________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Preferred Stock of _________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that __________ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company:
By:
-----------------------------------
Title:
--------------------------------
Date:
---------------------------------
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<PAGE> 13
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute
this form and supply required information. Do not use this form
to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ---------------------------------------------------------------------
(Please Print)
whose address is
-----------------------------------------------------
- ---------------------------------------------------------------------
Dated
-------------------------------------------------
Holder's Signature
------------------------------------
Holder's Address
--------------------------------------
------------------------------------------------------
Signature Guaranteed:
------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond
with the name as it appears on the face of the Warrant
Agreement, without alteration or enlargement or any
change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the
foregoing Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.25
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL
(WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series B Preferred Stock of
Lightspan Partnership, Inc.
Dated as of May 30, 1995 (the "Effective Date")
WHEREAS, Lightspan Partnership, Inc., a California corporation (the
"Company") has entered into a Master Lease Agreement dated as of March 15, 1994,
Equipment Schedule No. VL-3 & VL-4, and related Schedules (the "Leases") with
Comdisco, Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Preferred
Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 75,000 fully paid and
non-assessable shares of the Company's Series B Preferred Stock ("Preferred
Stock") at a purchase price of $3.00 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
(b) Acceleration of Term. Notwithstanding the term of this Warrant
Agreement fixed pursuant to Section 2(a) hereof and the provisions of Section
8(a) below, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon either: (i) the closing of
the issuance and sale of shares of Common Stock of the Company in the Company's
first public offering of securities for its own account pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Initial Public Offering"), provided that the Common Stock issuable to
Warrantholder upon the automatic conversion from Preferred Stock issuable to
Warrantholder upon exercise hereof shall be included in such registration
statement only upon request of Warrantholder; or (ii) a merger of the Company
with or into another corporation provided that such merger results in a per
share value of $6.00 or more for Lessee's stock (the "Accelerating Merger").
<PAGE> 2
The Company shall notify the Warrantholder if the Initial Public Offering
or Accelerating Merger is proposed, within a reasonable period of time prior to
the filing of a registration statement or a firm commitment with respect to an
Accelerating Merger, as applicable, and i. the Company fails to deliver such
written notice within a reasonable period of time, anything to the contrary in
this Warrant Agreement notwithstanding, the rights to purchase will not expire
until ten (10) business days after the Company delivers such notice to the
Warrantholder. Such notice shall also contain such details of the proposed
Initial Public Offering or Accelerating Merger as are reasonable in the
circumstances and notice that this warrant Agreement is expected to expire upon
closing thereof. If such closing does not take place, the company shall promptly
notify the warrantholder that such proposed transaction has been terminated.
Anything to the contrary in this Warrant Agreement notwithstanding, the
Warrantholder may rescind any exercise of its purchase rights promptly after
such notice of termination of the proposed transaction if the exercise of
Warrants occurred after the Company notified the Warrantholder that the Initial
Public Offering or Accelerating Merger was proposed or if the exercise were
otherwise precipitated by such proposed Initial Public Offering or Accelerating
Merger. In event of such rescission, the Warrants will continue to be
exercisable on the name terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time, prior
to the expiration of the term set forth in Section 2 above, by tendering to the
Company at its principal office a notice of exercise in the form attached hereto
as Exhibit I (the "Notice of Exercise"), duly completed and executed. Promptly
upon receipt of the Notice of Exercise and the payment of the purchase price in
accordance with the terms set forth below, and in no event later than twenty-one
(21) days thereafter, the Company shall issue to the Warrantholder a certificate
for the number of shares of Preferred Stock purchased and shall execute the
Notice of Exercise indicating the number of shares which remain subject to
future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price to Public"
specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
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<PAGE> 3
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall
be deemed to be the average of the closing prices over a twenty-one
(21) day period ending three days before the day the current fair
market value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices
quoted on the NASDAQ system (or similar system) over the twenty-one
(21) day period ending three days before the day current fair market
value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities exchange,
as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
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<PAGE> 4
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. Subject in all respects to Section 2(b)
above, if at any time there shall be a capital reorganization of the shares of
the Company's stock (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), or a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person (hereinafter referred to as
a "Merger Event"), then, as a part of such Merger Event, lawful provision shall
be made so that the Warrantholder shall thereafter be entitled to receive, upon
exercise of the Warrant, the number of shares of preferred stock or other
securities of the successor corporation resulting from such Merger Event,
equivalent in value to that which would have been issuable if Warrantholder had
exercised this Warrant immediately prior to the Merger Event. In any such case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
Agreement with respect to the rights and interest of the Warrantholder after the
Merger Event to the end that the provisions of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares of Preferred Stock
purchasable) shall be applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent the
right to acquire such number and kind of securities as would have been issuable
as the result of such change with respect to the securities which were subject
to the purchase rights under this Warrant Agreement immediately prior to such
combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time shall
combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
4
<PAGE> 5
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total cost
of equipment leased pursuant to the Leases exceeds $1,100,000 for VL-3 or
$1,000,000 for VL-4, Warrantholder shall have the right to purchase from the
Company, at the Exercise Price (adjusted as set forth herein), an additional
number of shares, which number shall be determined by (i) multiplying the
amount by which the Warrantholder's total equipment cost exceeds $1,100,000 for
VL-3 by 10% or $1,000,000 for VL-4 by 11.5%, and (ii) dividing the product
thereof by the Exercise Price per share referenced above. None of the equipment
leased pursuant to, and described on VL-3 and VL-4 shall be deemed to give any
rights to the Warrantholder under Section 8(e) of the Warrant dated March 15,
1994, granted by the Company to Warrantholder.
(f) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Articles of
Incorporation"). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Charter. The Company shall
provide Warrantholder with prior written notice of any issuance of its stock or
other equity security to occur after the Effective Date of this Warrant, which
notice shall include (a) the price at which such stock or security is to be
sold, (b) the number of shares to be issued, and (c) such other information as
necessary for Warrantholder to determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property, stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
of any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in connection with each such event, the Company
shall send to Warrantholder: (A) at least twenty (20) days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution, subscription rights (specifying the date
on which the holders of Preferred Stock shall be entitled thereto) or for the
determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
5
<PAGE> 6
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, excepting those liens,
charges or encumbrances caused or permitted to be caused by the Warrantholder;
provided, however, that the Preferred Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended, and minutes
of all Board of Directors (including all committees of the Board of Directors,
if any) and Shareholder meetings or actions taken by written consent, to date.
The issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Leases and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of applicable Federal and State
securities law filings, which filings, if applicable, will be effective by the
time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 30,000,000
shares of Common Stock, of which 6,047,000 shares are issued and outstanding,
(B) 7,617,500 shares of Preferred Series A Stock of which 7,467,500 shares are
issued and outstanding and are convertible into 7,617,000 shares of Common Stock
at $1.00 per share, and (C) 11,739,664 shares of Preferred Series B Stock of
which 11,666,664 shares are issued and outstanding and are convertible into
11,739,664 shares of Common Stock at $3.00 per share.
(ii) The Company has reserved (A) 1,788,500 shares of Common Stock for
issuance under its Incentive Stock Option Plan under which 1,706,167 options are
outstanding at average prices of $.10 and $.30 per share dependent on date of
6
<PAGE> 7
but unissued shares of the Company's capital stock or other securities of the
Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock; provided, however, that all holders of Preferred
Stock have contractual rights to participate in future financings.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in this
Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued; provided, however, that all holders of Series A
Preferred Stock have "demand" and "piggy-back" registration rights.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102 (f) thereof.
(h) Compliance with Rule 144. At the written request of the Warrantholder
who proposes to sell Preferred Stock issuable upon the exercise of the Warrant
in compliance with Rule 144 promulgated by the Securities and Exchange
Commission, the Company shall furnish to the Warrantholder, within ten days
after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
7
<PAGE> 8
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of the
Securities Exchange Act of 1934 (the "1934 Act"), or if a registration statement
covering the securities under the 1933 Act is not in effect when it desires to
sell (i) the rights to purchase Preferred Stock pursuant to this Warrant
Agreement, or (ii) the Preferred Stock issuable upon exercise of the right to
purchase, it may be required to hold such securities for an indefinite period.
The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
8
<PAGE> 9
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail as
hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention: James Labe, Venture
Leasing Director, cc: Legal Department, (and/or, if by facsimile, (708) 518-5465
and (ii) to the Company at 2382 Faraday Avenue, Suite 300, Carlsbad, CA 92008
(and/or if by facsimile, (619) 930-2350 or at such other address as any such
party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions of
the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the
9
<PAGE> 10
Company's counsel with respect to those same representations, warranties and
covenants. The Company shall also supply such other documents as the
Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed by its officers thereunto duly authorized as of the Effective
Date.
Company: LIGHTSPAN PARTNERSHIP, INC.
-----------------------------
By: /s/ CARL SEIGER
----------------------------------
Title: [ILLEGIBLE]
-------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ [ILLEGIBLE]
----------------------------------
Title: [ILLEGIBLE]
-------------------------------
6/29/95
10
<PAGE> 11
EXHIBIT I
NOTICE OF EXERCISE
TO:
------------------------------
(1) The undersigned Warrantholder hereby elects to purchase ___________ shares
of the Preferred Stock of _______________, pursuant to the terms of the
Warrant Agreement dated the _______ day of __________, 19____ (the "Warrant
Agreement") between ______________________ and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
_______________________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
- -------------------------------------
(Name)
- -------------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
11
<PAGE> 12
ACKNOWLEDGEMENT OF EXERCISE
The undersigned _____________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Preferred Stock of _________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that __________ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company:
By:
-----------------------------------
Title:
--------------------------------
Date:
---------------------------------
12
<PAGE> 13
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute
this form and supply required information. Do not use this form
to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ---------------------------------------------------------------------
(Please Print)
whose address is
-----------------------------------------------------
- ---------------------------------------------------------------------
Dated
-------------------------------------------------
Holder's Signature
------------------------------------
Holder's Address
--------------------------------------
------------------------------------------------------
Signature Guaranteed:
------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond
with the name as it appears on the face of the Warrant
Agreement, without alteration or enlargement or any
change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the
foregoing Warrant Agreement.
13
<PAGE> 1
EXHIBIT 10.26
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR
AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series B Preferred Stock of
Lightspan Partnership, Inc.
Dated as of April 26, 1996 (the "Effective Date")
WHEREAS, Lightspan Partnership, Inc., a California corporation (the
"Company") has entered into a Loan and Security Agreement and Secured Promissory
Note dated April 26, 1996 (the "Loan") with Comdisco, Inc., a Delaware
corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in consideration
for such Loan, the right to purchase shares of its Preferred Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Loan and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder is
entitled, upon the terms and subject to the conditions hereinafter set forth, to
subscribe to and purchase, from the Company, 75,000 fully paid and
non-assessable shares of the Company's Series B Preferred Stock ("Preferred
Stock") at a purchase price of $3.00 per share (the "Exercise Price").
If the Company prepays the outstanding principal in whole along with
accrued and unpaid interest at any time before October 1, 1997 during the term
of the Loan, then the number of shares of the Company's Series B Preferred
Stock, which the Warrantholder shall be entitled to purchase hereunder shall be
reduced by subtracting the applicable number of shares set forth below in the
following formula from 75,000 shares:
<TABLE>
<CAPTION>
<S> <C>
Months Reduction of Shares
0-6 50,000
7-12 25,000
13-18 0
</TABLE>
The number and purchase price of such shares are subject to adjustment
as provided in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
<PAGE> 2
(b) Acceleration of Term. Notwithstanding the term of this Warrant
Agreement fixed pursuant to Section 2(a) hereof and the provisions of Section 8
(a) below, the right to purchase Preferred Stock as granted herein shall expire,
if not previously exercised, immediately upon either: (i) the closing of the
issuance and sale of shares of Common Stock of the Company in the Company's
first public offering of securities for its own account pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Initial Public Offering"), provided that the Common Stock issuable to
Warrantholder upon the automatic conversion from Preferred Stock issuable to
Warrantholder upon exercise hereof shall be included in such registration
statement only upon request of Warrantholder; or (ii) a merger of the Company
with or into another corporation provided that such merger results in a per
share value of $6.00 or more for Lessee's stock (the "Accelerating Merger").
The Company shall notify the Warrantholder if the Initial Public
Offering or Accelerating Merger is proposed, within a reasonable period of time
prior to the filing of a registration statement or a firm commitment with
respect to an Accelerating Merger, as applicable, and if the Company fails to
deliver such written notice within a reasonable period of time, anything to the
contrary in this Warrant Agreement notwithstanding, the rights to purchase will
not expire until ten (10) business days after the Company delivers such notice
to the Warrantholder. Such notice shall also contain such details of the
proposed Initial Public Offering or Accelerating Merger as are reasonable in the
circumstances and notice that this Warrant Agreement is expected to expire upon
closing thereof. If such closing does not take place, the company shall promptly
notify the Warrantholder that such proposed transaction has been terminated.
Anything to the contrary in this Warrant Agreement notwithstanding, the
Warrantholder may rescind any exercise of its purchase rights promptly after
such notice of termination of the proposed transaction if the exercise of
Warrants occurred after the Company notified the Warrantholder that the Initial
Public Offering or Accelerating Merger was proposed or if the exercise were
otherwise precipitated by such proposed Initial Public Offering or Accelerating
Merger. In event of such rescission, the Warrants will continue to be
exercisable on the same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable
by the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form attached
hereto as Exhibit I (the "Notice of Exercise") , duly completed and executed.
Promptly upon receipt of the Notice of Exercise and the payment of the purchase
price in accordance with the terms set forth below, and in no event later than
twenty-one (21) days thereafter, the Company shall issue to the Warrantholder a
certificate for the number of shares of Preferred Stock purchased and shall
execute the Notice of Exercise indicating the number of shares which remain
subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either
(i) by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
----------
A
Where: X = the number of shares of Preferred Stock to be issued
to the Warrantholder.
2
<PAGE> 3
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean
with respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering,
and if the Company's Registration Statement relating to such public
offering has been declared effective by the SEC, then the initial "Price
to Public" specified in the final prospectus with respect to the
offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value
shall be deemed to be the average of the closing prices over a
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined;
or
(b) if actively traded over-the-counter, the fair market value
shall be deemed to be the average of the closing bid and asked
prices quoted on the NASDAQ system (or similar system) over the
twenty-one (21) day period ending three days before the day the
current fair market value of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market,
the current fair market value of Common Stock shall be the highest price
per share which the Company could obtain from a willing buyer (not a
current employee or director) for shares of Common Stock sold by the
Company, from authorized but unissued shares, as determined in good
faith by its Board of Directors, unless the Company shall become subject
to a merger, acquisition or other consolidation pursuant to which the
Company is not the surviving party, in which case the fair market value
of Common Stock shall be deemed to be the value received by the holders
of the Company's Preferred Stock on a common equivalent basis pursuant
to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number of
shares purchasable hereunder. All other terms and conditions of such amended
Warrant Agreement shall be identical to those contained herein, including, but
not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservation of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
3
<PAGE> 4
(b) Registration or Listing. If any shares of Preferred Stock required
to be reserved hereunder require registration with or approval of any
governmental authority under any Federal or State law (other than any
registration under the 1933 Act, as then in effect, or any similar Federal
statute then enforced, or any state securities law, required by reason of any
transfer involved in such conversion), or listing on any domestic securities
exchange, before such shares may be issued upon conversion, the Company will, at
its expense and as expeditiously as possible, use its best efforts to cause such
shares to be duly registered, listed or approved for listing on such domestic
securities exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of
the registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. Subject in all respects to Section 2 (b)
above, if at any time there shall be a capital reorganization of the shares of
the Company's stock (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), or a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, or the sale of all or substantially all of the
Company's properties and assets to any other person (hereinafter referred to as
a "Merger Event"), then, as a part of such Merger Event, lawful provision shall
be made so that the Warrantholder shall thereafter be entitled to receive, upon
exercise of the Warrant, the number of shares of preferred stock or other
securities of the successor corporation resulting from such Merger Event,
equivalent in value to that which would have been issuable if Warrantholder had
exercised this Warrant immediately prior to the Merger Event. In any such case,
appropriate adjustment (as determined in good faith by the Company's Board of
Directors) shall be made in the application of the provisions of this Warrant
Agreement with respect to the rights and interest of the Warrantholder after the
Merger Event to the end that the provisions of this Warrant Agreement (including
adjustments of the Exercise Price and number of shares of Preferred Stock
purchasable) shall be applicable to the greatest extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of any
other class or classes, this Warrant Agreement shall thereafter represent.
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<PAGE> 5
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which were
subject to the purchase rights under this Warrant Agreement immediately prior to
such combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution specifically
provided for in the foregoing subsections (a) or (b)) of the Company's stock,
then the Exercise Price shall be adjusted, from and after the record date of
such dividend or distribution, to that price determined by multiplying the
Exercise Price in effect immediately prior to such record date by a fraction (i)
the numerator of which shall be the total number of all shares of the Company's
stock outstanding immediately prior to such dividend or distribution, and (ii)
the denominator of which shall be the total number of all shares of the
Company's stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Preferred Stock
(calculated to the nearest whole share) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Preferred Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(e) Antidilution Rights. Additional antidilution rights applicable to
the Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Articles of
Incorporation"). The Company shall promptly provide the Warrantholder with any
restatement, amendment, modification or waiver of the Charter. The Company shall
provide Warrantholder with prior written notice of any issuance of its stock or
other equity security to occur after the Effective Date of this warrant, which
notice shall include (a) the price at which such stock or security is to be
sold, (b) the number of shares to be issued, and (c) such other information as
necessary for Warrantholder to determine if a dilutive event has occurred.
(f) Notice of Adjustments. If: (i) the Company shall declare any
dividend or distribution upon its stock, whether in cash, property, stock or
other securities; (ii) the Company shall offer for subscription prorata to the
holders of any class of its Preferred or other convertible stock any additional
shares of stock of any class or other rights; (iii) there shall be any Merger
Event; or (iv) there shall be any voluntary or involuntary dissolution,
liquidation or winding up of the Company; then, in connection with each such
event, the Company shall send to the Warrantholder: (A) at least twenty (20)
days' prior written notice of the date on which the books of the Company shall
close or a record shall be taken for such dividend, distribution, subscription
rights (specifying the date on which the holders of Preferred Stock shall be
entitled thereto) or for determining rights to vote in respect of such Merger
Event, dissolution, liquidation or winding up; and (B) in the case of any such
Merger Event, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place (and specifying
the date on which the holders of Preferred Stock shall be entitled to exchange
their Preferred Stock for securities or other property deliverable upon such
Merger Event, dissolution, liquidation or
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<PAGE> 6
winding up). In the case of a public offering, the Company shall give
Warrantholder at least twenty (20) days written notice prior to the effective
date thereof.
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
method by which such adjustment was calculated, (iv) the Exercise Price, and (v)
the number of shares subject to purchase hereunder after giving effect to such
adjustment, and shall be given by first class mail, postage prepaid, addressed
to the Warrantholder, at the address as shown on the books of the Company.
(g) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall begin
on the date Warrantholder actually receives a written notice containing all the
information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, excepting those liens,
charges or encumbrances caused or permitted to be caused by the Warrantholder;
provided, however, that the Preferred Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended, and minutes
of all Board of Directors (including all committees of the Board of Directors,
if any) and Shareholder meetings or actions taken by written consent, to date.
The issuance of certificates for shares of Preferred Stock upon exercise of the
Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Loan and this Warrant Agreement are
not inconsistent with the Company's Charter or Bylaws, do not contravene any law
or governmental rule, regulation or order applicable to it, do not and will not
contravene any provision of, or constitute a default under, any indenture,
mortgage, contract or other instrument to which it is a party or by which it is
bound, and the Loan and this Warrant Agreement constitute legal, valid and
binding agreements of the Company, enforceable in accordance with their
respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its
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<PAGE> 7
obligations under this Warrant Agreement, except for the filing of applicable
Federal and State securities law filings, which filings, if applicable, will be
effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 30,000,000
shares of Common Stock, of which 6,047,000 shares are issued and outstanding,
(B) 7,617,500 shares of Preferred Series A Stock of which 7,467,500 shares are
issued and outstanding and are convertible into 7,617,000 shares of Common Stock
at $1.00 per share, and (c) 11,739,664 shares of Preferred Series B Stock of
which 11,666,664 shares are issued and outstanding and are convertible into
11,739,664 shares of Common Stock at $3.00 per share.
(ii) The Company has reserved (A) 1,788,500 shares of Common Stock for
issuance under its Incentive Stock Option Plan under which 1,706,167 options are
outstanding at average prices of $.l0 and $.30 per share dependent on date of
issue. There are no other options warrants, conversion privileges or other
rights presently outstanding to purchase of otherwise a acquire any authorized
but unissued shares of the Company's capitol stock or other securities of the
Company.
(iii) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock; provided, however, that all holders of Preferred
Stock have contractual rights to participate in future financings.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in
this Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued; provided, however, that all holders of Series A
Preferred Stock have "demand" and "piggyback" registration rights.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representations in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law, in reliance upon Section 25102 (f) thereof.
(h) Compliance with Rule 144. At the written request of the
Warrantholder who proposes to sell Preferred Stock issuable upon the exercise of
the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and
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<PAGE> 8
Exchange Commission as set forth in such Rule, as such Rule may be amended from
time to time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall terminate, as hereinabove provided, the
Warrantholder or holder of a share of Preferred Stock then outstanding as to
which such restrictions have terminated shall be entitled to receive from the
Company, without expense to such holder, one or more new certificates for the
Warrant or for such shares of Preferred Stock not bearing any restrictive
legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience
in financial and business matters as to be capable of evaluating the merits and
risks of its investment, and has the ability to bear the economic risks of its
investment.
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<PAGE> 9
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of
the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration
statement covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase Preferred Stock pursuant to this
Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the
right to purchase, it may be required to hold such securities for an indefinite
period. The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be made
by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall be
binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State of
Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given
in writing and shall be deemed effectively given upon personal delivery,
facsimile transmission (provided that the original is sent by personal delivery
or mail as hereinafter set forth) or seven (7) days after deposit in the United
States mail, by registered or certified mail, addressed (i) to the Warrantholder
at 6111 North River Road, Rosemont, Illinois 60018, attention: James Labe,
Venture Leasing Director, cc: Legal Department, (and/or, if by facsimile, (847)
518-5465) and (ii) to the Company at 2382 Faraday Avenue, Suite 300, Carlsbad,
CA 92008 (and/or if by facsimile, (619) 930-2350) or at such other address as
any such party may subsequently designate by written notice to the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce its rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or an action for specific performance for any
default where Warrantholder will not have an adequate.
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remedy at law and where damages will not be readily ascertainable. The Company
expressly agrees that it shall not oppose an application by the Warrantholder or
any other person entitled to the benefit of this Agreement requiring specific
performance of any or all provisions hereof or enjoining the Company from
continuing to commit any such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, covenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended
by a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Loan referenced in the preamble of this Warrant Agreement exceeds
$1,000,000, the Company will also provide Warrantholder with an opinion from the
Company's counsel with respect to those same representations, warranties and
covenants. The Company shall also supply such other documents as the
Warrantholder may from time to time reasonably request.
IN WITNESS WHEREOF, the parties hereto have caused this warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: LIGHTSPAN PARTNERSHIP, INC
By: /s/ MICHELLE M.HAYS
----------------------------------------
Title: CONTROLLER
-------------------------------------
Warrantholder: COMDISCO, INC.
By: /s/ JAMES P LABE
----------------------------------------
Title: JAMES P LABE, PRESIDENT
------------------------------------
VENTURE LEASE DIVISION
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EXHIBIT I
NOTICE OF EXERCISE
To:
-------------------------------------
(1) The undersigned Warrantholder hereby elects to purchase ___________ shares
of the Preferred Stock of ______________, pursuant to the terms of the
Warrant Agreement dated the _______ day of ____________________, 19__ (the
"Warrant Agreement") between ________________________ and the
Warrantholder, and tenders herewith payment of the purchase price for such
shares in full, together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
_______________________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
- -----------------------------------
(Name)
- -----------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
--------------------------------
Title:
-----------------------------
Date:
------------------------------
11
<PAGE> 12
ACKNOWLEDGEMENT OF EXERCISE
The undersigned ________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ___________
shares of the Preferred Stock of __________________, pursuant to the terms of
the Warrant Agreement, and further acknowledges that __________ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company:
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
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<PAGE> 13
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute this form
and supply required information. Do not use this form to purchase
shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- --------------------------------------------------------------------------------
(Please Print)
whose address is
----------------------------------------------------------------
- --------------------------------------------------------------------------------
Dated
------------------------------------------------------
Holder's Signature
------------------------------------------
Holder's Address
--------------------------------------------
Signature Guaranteed:
----------------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond
with the name as it appears on the face of the Warrant
Agreement, without alteration or enlargement or any
change whatever. officers of corporations and those
acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the
foregoing Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.27
THE WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR
OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT
OR PURSUANT TO RULE 144 OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE
CORPORATION AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.
----------------------------------------------------------
WARRANT TO PURCHASE STOCK
WARRANT TO PURCHASE 70,000 SHARES ISSUE DATE: MARCH 24, 1997
OF THE SERIES C PREFERRED STOCK EXPIRATION DATE: MARCH 24, 2002
OF THE LIGHTSPAN PARTNERSHIP, INC. INITIAL EXERCISE PRICE: $6.00 PER SHARE
THIS WARRANT CERTIFIES THAT, for the agreed upon value of $1.00 and for other
good and valuable consideration, SILICON VALLEY BANK ("Holder") is entitled to
purchase the number of fully paid and non-assessable shares of the class of
securities (the "Shares") of the corporation (the "Company") at the initial
exercise price per Share (the "Warrant Price") all as set forth above and as
adjusted pursuant to Article 2 of this Warrant, subject to the provisions and
upon the terms and conditions set forth in this Warrant.
ARTICLE 1. EXERCISE.
1.1 METHOD OF EXERCISE. Holder may exercise this Warrant by delivering a
duly executed Notice of Exercise in substantially the form attached as Appendix
1 to the principal office of the Company. Unless Holder is exercising the
conversion right set forth in Section 1.2, Holder shall also deliver to the
Company a check for the aggregate Warrant Price for the Shares being purchased.
1.2 CONVERSION RIGHT. In lieu of exercising this Warrant as specified in
Section 1.1, Holder may from time to time convert this Warrant, in whole or in
part, into a number of Shares determined by dividing (a) the aggregate fair
market value of the Shares or other securities otherwise issuable upon exercise
of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair
market value of one Share. The fair market value of the Shares shall be
determined pursuant Section 1.4.
1.3 [OMITTED]
1.4 FAIR MARKET VALUE. If the Shares are traded in a public market, the
fair market value of the Shares shall be the closing price of the Shares (or the
closing price of the Company's stock into which the Shares are convertible)
reported for the business day immediately before Holder delivers its Notice of
Exercise to the Company. If the Shares are not traded in a public market, the
Board of Directors of the Company shall determine fair market value in its
reasonable good faith judgment. The foregoing notwithstanding, if Holder advises
the Board of Directors in writing that Holder disagrees with such determination,
then the Company and Holder shall promptly agree upon a reputable investment
banking firm to undertake such valuation. If the valuation of such investment
banking firm is greater than that determined by the Board of Directors, then all
fees and expenses of such investment banking firm shall be paid by the Company.
In all other circumstances, such fees and expenses shall be paid by Holder.
1.5 DELIVERY OF CERTIFICATE AND NEW WARRANT. Promptly after Holder
exercises or converts this Warrant, the Company shall deliver to Holder
certificates for the Shares acquired and, if this Warrant has not been fully
exercised or converted and has not expired, a new Warrant representing the
Shares not so acquired.
1.6 REPLACEMENT OF WARRANTS. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of loss, theft or destruction, on delivery of an
indemnity agreement reasonably satisfactory in form and amount to the Company
or, in the case of mutilation, or surrender and cancellation of this Warrant,
the Company at its expense shall execute and deliver, in lieu of this Warrant, a
new warrant of like tenor.
1.7 REPURCHASE ON SALE, MERGER OR CONSOLIDATION OF THE COMPANY.
1.7.1 "ACQUISITION". For the purpose of this Warrant, "Acquisition" means
any sale, license, or other disposition of all or substantially all of the
assets of the Company, or any reorganization, consolidation, or merger of the
Company where the holders of the Company's securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction.
1.7.2 ASSUMPTION OF WARRANT. If upon the closing of any Acquisition the
successor entity assumes the obligations of this Warrant, then this Warrant
shall be exercisable for the same securities, cash, and property as would be
payable for the Shares issuable upon exercise of the unexercised portion of this
Warrant as if such Shares were outstanding on the record date for the
Acquisition and subsequent closing. The Warrant Price shall be adjusted
accordingly.
-1-
<PAGE> 2
Warrant to Purchase Stock
- --------------------------------------------------------------------------------
1.7.3 NONASSUMPTION. If upon the closing of any Acquisition the
successor entity does not assume the obligations of this Warrant and Holder has
not otherwise exercised this Warrant in full, then the unexercised portion of
this Warrant shall be deemed to have been automatically converted pursuant to
Section 1.2 and thereafter Holder shall participate in the acquisition on the
same terms as other holders of the same class of securities of the Company.
1.7.4. [omitted]
ARTICLE 2. ADJUSTMENTS TO THE SHARES.
2.1 STOCK DIVIDENDS, SPLITS, ETC. If the Company declares or pays a
dividend on its common stock (or the Shares if the Shares are securities other
than common stock) payable in common stock, or other securities, subdivides the
outstanding common stock into a greater amount of common stock, or, if the
Shares are securities other than common stock, subdivides the Shares in a
transaction that increases the amount of common stock into which the Shares are
convertible, then upon exercise of this Warrant, for each Share acquired, Holder
shall receive, without cost to Holder, the total number and kind of securities
to which Holder would have been entitled had Holder owned the Shares of record
as of the date the dividend or subdivision occurred.
2.2 RECLASSIFICATION, EXCHANGE OR SUBSTITUTION. Upon any reclassification,
exchange, substitution, or other event that results in a change of the number
and/or class of the securities issuable upon exercise or conversion of this
Warrant, Holder shall be entitled to receive, upon exercise or conversion of
this Warrant, the number and kind of securities and property that Holder would
have received for the Shares if this Warrant had been exercised immediately
before such reclassification, exchange, substitution, or other event. Such an
event shall include any automatic conversion of the outstanding or issuable
securities of the Company of the same class or series as the Shares to common
stock pursuant to the terms of the Company's Articles of Incorporation upon the
closing of a registered public offering of the Company's common stock. The
Company or its successor shall promptly issue to Holder a new Warrant for such
new securities or other property. The new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the adjustments
provided for in this Article 2 including, without limitation, adjustments to the
Warrant Price and to the number of securities or property issuable upon exercise
of the new Warrant. The provisions of this Section 2.2 shall similarly apply to
successive reclassifications, exchanges, substitutions, or other events.
2.3 ADJUSTMENTS FOR COMBINATIONS, ETC. If the outstanding Shares are
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares, the Warrant Price shall be proportionately increased.
2.4 [omitted]
2.5 NO IMPAIRMENT. The Company shall not, by amendment of its Articles of
Incorporation or through a reorganization, transfer of assets, consolidation,
merger, dissolution, issue, or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed under this Warrant by the Company, but shall at all times
in good faith assist in carrying out of all the provisions of this Article 2 and
in taking all such action as may be necessary or appropriate to protect Holder's
rights under this Article against impairment. If the Company takes any action
affecting the Shares or its common stock other than as described above that
adversely affects Holder's rights under this Warrant, the Warrant Price shall be
adjusted downward and the number of Shares issuable upon exercise of this
Warrant shall be adjusted upward in such a manner that the aggregate Warrant
Price of this Warrant is unchanged.
2.6 FRACTIONAL SHARES. No fractional Shares shall be issuable upon
exercise or conversion of the Warrant and the number of Shares to be issued
shall be rounded down to the nearest whole Share. If a fractional share interest
arises upon any exercise or conversion of the Warrant, the Company shall
eliminate such fractional share interest by paying Holder amount computed by
multiplying the fractional interest by the fair market value of a full Share.
2.7 CERTIFICATE AS TO ADJUSTMENTS. Upon each adjustment of the Warrant
Price, the Company at its expense shall promptly compute such adjustment, and
furnish Holder with a certificate of its Chief Financial Officer setting forth
such adjustment and the facts upon which such adjustment is based. The Company
shall, upon written request, furnish Holder a certificate setting forth the
Warrant Price in effect upon the date thereof and the series of adjustments
leading to such Warrant Price.
ARTICLE 3. REPRESENTATIONS AND COVENANTS OF THE COMPANY.
3.1 REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Holder as follows:
(a) The initial Warrant Price referenced on the first page of this Warrant
is not greater than
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<PAGE> 3
Warrant to Purchase Stock
- --------------------------------------------------------------------------------
the fair market value of the Shares as of the date of this Warrant.
(b) All Shares which may be issued upon the exercise of the purchase right
represented by this Warrant, and all securities, if any, issuable upon
conversion of the Shares, shall, upon issuance, be duly authorized, validly
issued, fully paid and non-assessable, and free of any liens and encumbrances
except for restrictions on transfer provided for herein or under applicable
federal and state securities laws.
3.2 NOTICE OF CERTAIN EVENTS. If the Company proposes at any time (a) to
declare any dividend or distribution upon its common stock, whether in cash,
property, stock, or other securities and whether or not a regular cash dividend;
(b) to offer for subscription pro rata to the holders of any class or series of
its stock any additional shares of stock of any class or series or other rights;
(c) to effect any reclassification or recapitalization of common stock; (d) to
merge or consolidate with or into any other corporation, or sell, lease,
license, or convey all or substantially all of its assets, or to liquidate,
dissolve or wind up; or (e) offer holders of registration rights the opportunity
to participate in an underwritten public offering of the company's securities
for cash, then, in connection with each such event, the Company shall give
Holder (1) at least 20 days prior written notice of the date on which a record
will be taken for such dividend, distribution, or subscription rights (and
specifying the date on which the holders of common stock will be entitled
thereto) or for determining rights to vote, if any, in respect of the matters
referred to in (c) and (d) above; (2) in the case of the matters referred to in
(c) and (d) above at least 20 days prior written notice of the date when the
same will take place (and specifying the date on which the holders of common
stock will be entitled to exchange their common stock for securities or other
property deliverable upon the occurrence of such event); and (3) in the case of
the matter referred to in (e) above, the same notice as is given to the holders
of such registration rights.
3.3 INFORMATION RIGHTS. So long as the Holder holds this Warrant and/or any
of the Shares, the Company shall deliver to the Holder (a) promptly after
mailing, copies of all notices or other written communications to the
shareholders of the Company, (b) within ninety (90) days after the end of each
fiscal year of the Company, the annual audited financial statements of the
Company certified by independent public accountants of recognized standing and
(c) within forty-five (45) days after the end of each of the first three
quarters of each fiscal year, the Company's quarterly, unaudited financial
statements.
3.4 REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED. The Company
agrees that the Shares or, if the Shares are convertible into common stock of
the Company, such common stock, shall be subject to the registration rights set
forth on Exhibit B, if attached.
ARTICLE 4. MISCELLANEOUS.
4.1 TERM; NOTICE OF EXPIRATION. This Warrant is exercisable, in whole or in
part, at any time and from time to time on or before the Expiration Date set
forth above.
4.2 LEGENDS. This Warrant and the Shares (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) shall be
imprinted with a legend in substantially the following form:
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, PLEDGED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR PURSUANT TO RULE 144 OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE CORPORATION AND ITS COUNSEL
THAT SUCH REGISTRATION IS NOT REQUIRED.
4.3 COMPLIANCE WITH SECURITIES LAWS ON TRANSFER. This Warrant and the
Shares issuable upon exercise this Warrant (and the securities issuable,
directly or indirectly, upon conversion of the Shares, if any) may not be
transferred or assigned in whole or in part without compliance with applicable
federal and state securities laws by the transferor and the transferee
(including, without limitation, the delivery of investment representation
letters and legal opinions reasonably satisfactory to the Company). The Company
shall not require Holder to provide an opinion of counsel if the transfer is to
an affiliate of Holder or if there is no material question as to the
availability of current information as referenced in Rule 144(c), Holder
represents that it has complied with Rule 144(d) and (e) in reasonable detail,
the selling broker represents that it has complied with Rule 144(f), and the
Company is provided with a copy of Holders notice of proposed sale.
4.4 TRANSFER PROCEDURE. Subject to the provisions of Sections 4.2 and 4.3,
Holder may transfer all or part of this Warrant or the Shares issuable upon
exercise of this Warrant (or the securities issuable, directly or indirectly,
upon conversion of the Shares, if any) by giving the Company notice of the
portion of the Warrant being transferred setting forth the name, address and
taxpayer identification number of the transferee and surrendering this Warrant
to the Company for reissuance to the transferee(s) (and Holder if applicable).
Unless the Company is filing financial information with the SEC pursuant to the
Securities Exchange Act of 1934, the Company shall have the right to refuse to
transfer any
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<PAGE> 4
Warrant to Purchase Stock
- --------------------------------------------------------------------------------
portion of this Warrant to any person who directly competes with the Company.
4.5 NOTICES. All notices and other communications from the Company to the
Holder, or vice versa, shall be deemed delivered and effective when given
personally or mailed by first-class registered or certified mail, postage
prepaid, at such address as may have been furnished to the Company or the
Holder, as the case may be, in writing by the Company or such holder from time
to time.
4.6 WAIVER. This Warrant and any term hereof may be changed, waived,
discharged or terminated only by an instrument in writing signed by the party
against which enforcement of such change, waiver, discharge or termination is
sought.
4.7 ATTORNEYS FEES. In the event of any dispute between the parties
concerning the terms and provisions of this Warrant, the party prevailing in
such dispute shall be entitled to collect from the other party all costs
incurred in such dispute, including reasonable attorneys' fees.
4.8 GOVERNING LAW. This Warrant shall be governed by and construed in
accordance with the laws of the State of California, without giving effect to
its principles regarding conflicts of law.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ [ILLEGIBLE]
---------------------------------
CHAIRMAN OF THE BOARD, PRESIDENT
OR VICE PRESIDENT
By: /s/ [ILLEGIBLE]
---------------------------------
SECRETARY OR ASS'T SECRETARY
-4-
<PAGE> 5
Warrant to Purchase Stock
- --------------------------------------------------------------------------------
APPENDIX 1
NOTICE OF EXERCISE
1. The undersigned hereby elects to purchase ________________________
shares of the Common/Series ___________________ Preferred [strike one] Stock of
____________________________ pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Shares/cash [strike one] in the manner specified in the Warrant. This
conversion is exercised with respect to _______________ of the Shares covered
by the Warrant.
[Strike paragraph that does not apply.]
2. Please issue a certificate or certificates representing said shares in
the name of the undersigned or in such other name as is specified below:
------------------------------------------------------
(NAME)
------------------------------------------------------
------------------------------------------------------
(ADDRESS)
3. The undersigned represents it is acquiring the shares solely for its
own account and not as a nominee for any other party and not with a view toward
the resale or distribution thereof except in compliance with applicable
securities laws.
- ------------------------------------------------------
(Signature)
- ------------------------------------------------------
(Date)
APPENDIX 2
[Reserved]
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<PAGE> 6
Warrant to Purchase Stock
- --------------------------------------------------------------------------------
EXHIBIT A
[Reserved]
EXHIBIT B
REGISTRATION RIGHTS
The common stock issuable upon conversion of the Shares, shall be deemed
"registrable securities" or otherwise entitled to "piggy back" registration
rights in accordance with the terms of the following agreement (the "Agreement")
between the Company and its investor(s):
Amended and Restated Investor Rights Agreement dated September 20, 1996
(the "Rights Agreement"), and for purposes thereof the registration rights
granted hereunder shall be considered to be pari passu with existing rights
holders, as referred to in Section 1.8 of the Rights Agreement.
The Company represents and warrants to the Holder that the issuance of this
Warrant complies with the exception set forth in Section 2.1(b)(v) such that
this Warrant does not constitute the issuance of "New Securities" (as defined in
the Rights Agreement), and, thus, the right of first offer set forth in Section
2 of the Rights Agreement is not applicable to the issuance of this Warrant.
The Company agrees that no amendments will be made to the Agreement which
would have an adverse impact on Holder's registration rights thereunder in a
manner different than the rights of the other holders of Registrable Securities
(as defined in the Rights Agreement), without the consent of Holder. By
acceptance of the Warrant to which this Exhibit B is attached, Holder shall be
deemed to be a party to the Agreement.
-6-
<PAGE> 1
EXHIBIT 10.28
THE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY
COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
WARRANT AGREEMENT
To Purchase Shares of the Series C Preferred Stock of
Lightspan Partnership, Inc.
Dated as of April 26, 1996 (the "Effective Date")
WHEREAS, Lightspan Partnership, Inc., a California corporation (the
"Company") has entered into a Master Lease Agreement dated as of March 15, 1994,
Equipment Schedule No. VL-5, and related Schedules (the "Leases") with Comdisco,
Inc., a Delaware corporation (the "Warrantholder"); and
WHEREAS, the Company desires to grant to Warrantholder, in
consideration for such Leases, the right to purchase shares of its Preferred
Stock;
NOW, THEREFORE, in consideration of the Warrantholder executing and
delivering such Leases and in consideration of mutual covenants and agreements
contained herein, the Company and Warrantholder agree as follows:
1. GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.
The Company hereby grants to the Warrantholder, and the Warrantholder
is entitled, upon the terms and subject to the conditions hereinafter set forth,
to subscribe to and purchase, from the Company, 26,625 fully paid and
non-assessable shares of the Company's Series C Preferred Stock ("Preferred
Stock") at a purchase price of $6.00 per share (the "Exercise Price"). The
number and purchase price of such shares are subject to adjustment as provided
in Section 8 hereof.
2. TERM OF THE WARRANT AGREEMENT.
(a) Except as otherwise provided for herein, the term of this Warrant
Agreement and the right to purchase Preferred Stock as granted herein shall
commence on the Effective Date and shall be exercisable for a period of (i) ten
(10) years or (ii) five (5) years from the effective date of the Company's
initial public offering, whichever is longer.
(b) Acceleration of Term. Notwithstanding the term of this Warrant
Agreement fixed pursuant to Section 2(a) hereof and the provisions of Section
8(a) below, the right to purchase Preferred Stock as granted herein shall
expire, if not previously exercised, immediately upon either: (i) the closing of
the issuance and sale of shares of Common Stock of the Company in the Company's
first public offering of securities for its own account pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Initial Public Offering"), provided that the Common Stock issuable to
Warrantholder upon the automatic conversion from Preferred Stock issuable to
Warrantholder upon exercise hereof shall be included in such registration
statement only upon request of Warrantholder; or (ii) a merger of the Company
with or into another corporation provided that such merger results in a per
share value of $6.00 or more for Lessee's stock (the "Accelerating Merger").
<PAGE> 2
The Company shall notify the Warrantholder if the Initial Public Offering
or Accelerating Merger is proposed, within a reasonable period of time prior to
the filing of a registration statement or a firm commitment with respect to an
Accelerating Merger, as applicable, and if the Company fails to deliver such
written notice within a reasonable period of time, anything to the contrary in
this Warrant Agreement notwithstanding, the rights to purchase will not expire
until ten (10) business days after the Company delivers such notice to the
Warrantholder. Such notice shall also contain such details of the proposed
Initial Public Offering or Accelerating Merger as are reasonable in the
circumstances and notice that this warrant Agreement is expected to expire upon
closing thereof. If such closing does not take place, the company shall promptly
notify the Warrantholder that such proposed transaction has been terminated.
Anything to the contrary in this Warrant Agreement notwithstanding, the
Warrantholder may rescind any exercise of its purchase rights promptly after
such notice of termination of the proposed transaction if the exercise of
Warrants occurred after the Company notified the Warrantholder that the Initial
Public Offering or Accelerating Merger was proposed or if the exercise were
otherwise precipitated by such proposed Initial Public Offering or Accelerating
Merger. In event of such rescission, the Warrants will continue to be
exercisable on the same terms and conditions.
3. EXERCISE OF THE PURCHASE RIGHTS.
The purchase rights set forth in this Warrant Agreement are exercisable by
the Warrantholder, in whole or in part, at any time, or from time to time,
prior to the expiration of the term set forth in Section 2 above, by tendering
to the Company at its principal office a notice of exercise in the form
attached hereto as Exhibit I (the "Notice of Exercise"), duly completed and
executed. Promptly upon receipt of the Notice of Exercise and the payment of
the purchase price in accordance with the terms set forth below, and in no
event later than twenty-one (21) days thereafter, the Company shall issue to
the Warrantholder a certificate for the number of shares of Preferred Stock
purchased and shall execute the Notice of Exercise indicating the number of
shares which remain subject to future purchases, if any.
The Exercise Price may be paid at the Warrantholder's election either (i)
by cash or check, or (ii) by surrender of Warrants ("Net Issuance") as
determined below. If the Warrantholder elects the Net Issuance method, the
Company will issue Preferred Stock in accordance with the following formula:
X = Y(A-B)
------
A
Where: X = the number of shares of Preferred Stock to be issued to the
Warrantholder.
Y = the number of shares of Preferred Stock requested to be
exercised under this Warrant Agreement.
A = the fair market value of one (1) share of Common Stock.
B = the Exercise Price.
As used herein, current fair market value of Common Stock shall mean with
respect to each share of Common Stock:
(i) if the exercise is in connection with an initial public offering, and
if the Company's Registration Statement relating to such public offering
has been declared effective by the SEC, then the initial "Price
2
<PAGE> 3
to Public" specified in the final prospectus with respect to the offering;
(ii) if this Warrant is exercised after, and not in connection with the
Company's initial public offering, and:
(a) if traded on a securities exchange, the fair market value shall be
deemed to be the average of the closing prices over a twenty-one (21)
day period ending three days before the day the current fair market
value of the securities is being determined; or
(b) if actively traded over-the-counter, the fair market value shall
be deemed to be the average of the closing bid and asked prices quoted
on the NASDAQ system (or similar system) over the twenty-one (21) day
period ending three days before the day the current fair market value
of the securities is being determined;
(iii) if at any time the Common Stock is not listed on any securities
exchange or quoted in the NASDAQ System or the over-the-counter market, the
current fair market value of Common Stock shall be the highest price per
share which the Company could obtain from a willing buyer (not a current
employee or director) for shares of Common Stock sold by the Company, from
authorized but unissued shares, as determined in good faith by its Board of
Directors, unless the Company shall become subject to a merger, acquisition
or other consolidation pursuant to which the Company is not the surviving
party, in which case the fair market value of Common Stock shall be deemed
to be the value received by the holders of the Company's Preferred Stock on
a common equivalent basis pursuant to such merger or acquisition.
Upon partial exercise by either cash or Net Issuance, the Company shall
promptly issue an amended Warrant Agreement representing the remaining number
of shares purchasable hereunder. All other terms and conditions of such
amended Warrant Agreement shall be identical to those contained herein,
including, but not limited to the Effective Date hereof.
4. RESERVATION OF SHARES.
(a) Authorization and Reservations of Shares. During the term of this
Warrant Agreement, the Company will at all times have authorized and reserved a
sufficient number of shares of its Preferred Stock to provide for the exercise
of the rights to purchase Preferred Stock as provided for herein.
(b) Registration or Listing. If any shares of Preferred Stock required to
be reserved hereunder require registration with or approval of any governmental
authority under any Federal or State law (other than any registration under the
1933 Act, as then in effect, or any similar Federal statute then enforced, or
any state securities law, required by reason of any transfer involved in such
conversion), or listing on any domestic securities exchange, before such shares
may be issued upon conversion, the Company will, at its expense and as
expeditiously as possible, use its best efforts to cause such shares to be duly
registered, listed or approved for listing on such domestic securities
exchange, as the case may be.
5. NO FRACTIONAL SHARES OR SCRIP.
3
<PAGE> 4
No fractional shares or scrip representing fractional shares shall be
issued upon the exercise of the Warrant, but in lieu of such fractional shares
the Company shall make a cash payment therefor upon the basis of the Exercise
Price then in effect.
6. NO RIGHTS AS SHAREHOLDER.
This Warrant Agreement does not entitle the Warrantholder to any voting
rights or other rights as a shareholder of the Company prior to the exercise of
the Warrant.
7. WARRANTHOLDER REGISTRY.
The Company shall maintain a registry showing the name and address of the
registered holder of this Warrant Agreement.
8. ADJUSTMENT RIGHTS.
The purchase price per share and the number of shares of Preferred Stock
purchasable hereunder are subject to adjustment, as follows:
(a) Merger and Sale of Assets. Subject in all respects to Section 2 (b)
above, if at any time there shall be a capital reorganization of the shares of
the Company's stock (other than a combination, reclassification, exchange or
subdivision of shares otherwise provided for herein), or a merger or
consolidation of the Company with or into another corporation when the Company
is not the surviving corporation, or the sale of all or substantially all of
the Company's properties and assets to any other person (hereinafter referred
to as a "Merger Event"), then, as a part of such Merger Event, lawful provision
shall be made so that the Warrantholder shall thereafter be entitled to
receive, upon exercise of the Warrant, the number of shares of preferred stock
or other securities of the successor corporation resulting from such Merger
Event, equivalent in value to that which would have been issuable if
Warrantholder had exercised this Warrant immediately prior to the Merger
Event. In any such case, appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant Agreement with respect to the rights and interest of
the Warrantholder after the Merger Event to the end that the provisions of this
Warrant Agreement (including adjustments of the Exercise Price and number of
shares of Preferred Stock purchasable) shall be applicable to the greatest
extent possible.
(b) Reclassification of Shares. If the Company at any time shall, by
combination, reclassification, exchange or subdivision of securities or
otherwise, change any of the securities as to which purchase rights under this
Warrant Agreement exist into the same or a different number of securities of
any other class or classes, this Warrant Agreement shall thereafter represent
the right to acquire such number and kind of securities as would have been
issuable as the result of such change with respect to the securities which were
subject to the purchase rights under this Warrant Agreement immediately prior
to such combination, reclassification, exchange, subdivision or other change.
(c) Subdivision or Combination of Shares. If the Company at any time
shall combine or subdivide its Preferred Stock, the Exercise Price shall be
proportionately decreased in the case of a subdivision, or proportionately
increased in the case of a combination.
(d) Stock Dividends. If the Company at any time shall pay a dividend
payable in, or make any other distribution (except any distribution
4
<PAGE> 5
specifically provided for in the foregoing subsections (a) or (b) of the
Company's stock, then the Exercise Price shall be adjusted, from and after the
record date of such dividend or distribution, to that price determined by
multiplying the Exercise Price in effect immediately prior to such record date
by a fraction (i) the numerator of which shall be the total number of all shares
of the Company's stock outstanding immediately prior to such dividend or
distribution, and (ii) the denominator of which shall be the total number of all
shares of the Company's stock outstanding immediately after such dividend or
distribution. The Warrantholder shall thereafter be entitled to purchase, at
the Exercise Price resulting from such adjustment, the number of shares of
Preferred Stock (calculated to the nearest whole share) obtained by multiplying
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Preferred Stock issuable upon the exercise hereof immediately prior
to such adjustment and dividing the product thereof by the Exercise Price
resulting from such adjustment.
(e) Right to Purchase Additional Stock. If, the Warrantholder's total
coast of equipment leased pursuant to the Leases exceeds $800,000 for Phase II
available under Equipment Schedule VL-5, Warrantholder shall have the right to
purchase from the Company, at the Exercise Price (adjusted as set forth herein),
an additional number of shares, which number shall be determined by (i)
multiplying the amount by which the Warrantholder's total equipment cost exceeds
$800,000 for Phase II under Equipment Schedule VL-5 by 9.984%, and (ii)dividing
the product thereof by the Exercise Price per share referenced above.
(f) Antidilution Rights. Additional antidilution rights applicable to the
Preferred Stock purchasable hereunder are as set forth in the Company's
Certificate of Incorporation, as amended through the Effective Date, a true and
complete copy of which is attached hereto as Exhibit A (the "Articles of
Incorporation"). The Company shall promptly provided the Warrantholder with any
restatement, amendment, modification or waiver of the Charter. The Company shall
provide Warrantholder with prior written notice of any issuance of its stock or
other equity security to occur after the Effective Date of this Warrant, which
notice shall include (a) the price at which such stock or security is to be
sold, (b) the number of shares to be issued, and (c) such other information as
necessary for Warrantholder to determine if a dilutive event has occurred.
(g) Notice of Adjustments. If: (i) the Company shall declare any dividend
or distribution upon its stock, whether in cash, property stock or other
securities; (ii) the Company shall offer for subscription prorata to the holders
or any class of its Preferred or other convertible stock any additional shares
of stock of any class or other rights; (iii) there shall be any Merger Event; or
(iv) there shall be any voluntary or involuntary dissolution, liquidation or
winding up of the Company; then, in connection with each such event, the Company
shall send to the Warrantholder: (A) at least twenty (20) days' prior written
notice of the date on which the books of the Company shall close or a record
shall be taken for such dividend, distribution, subscription rights (specifying
the date on which the holders of Preferred Stock shall be entitled thereto) or
for determining rights to vote in respect of such Merger Event, dissolution,
liquidation or winding up; and (B) in the case of any such Merger Event,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place (and specifying the date on
which the holders of Preferred Stock shall be entitled to exchange their
Preferred Stock for securities or other property deliverable upon such Merger
Event, dissolution, liquidation or winding up). In the case of a public
offering, the Company shall give Warrantholder at least twenty (20) days written
notice prior to the effective date thereof.
5
<PAGE> 6
Each such written notice shall set forth, in reasonable detail, (i) the
event requiring the adjustment, (ii) the amount of the adjustment, (iii) the
methods by which such adjustment was calculated, (iv) the Exercise Price, and
(v) the number of shares subject to purchase hereunder after giving effect to
such adjustment, and shall be given by first class mail, postage prepaid,
addressed to the Warrantholder, at the address as shown on the books of the
Company.
(h) Timely Notice. Failure to timely provide such notice required by
subsection (g) above shall entitle Warrantholder to retain the benefit of the
applicable notice period notwithstanding anything to the contrary contained in
any insufficient notice received by Warrantholder. The notice period shall
begin on the date Warrantholder actually receives a written notice containing
all the information specified above.
9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
(a) Reservation of Preferred Stock. The Preferred Stock issuable upon
exercise of the Warrantholder's rights has been duly and validly reserved and,
when issued in accordance with the provisions of this Warrant Agreement, will be
validly issued, fully paid and non-assessable, and will be free of any taxes,
liens, charges or encumbrances of any nature whatsoever, excepting those liens,
charges or encumbrances caused or permitted to be caused by the Warrantholder;
provided, however, that the Preferred Stock issuable pursuant to this Warrant
Agreement may be subject to restrictions on transfer under state and/or Federal
securities laws. The Company has made available to the Warrantholder true,
correct and complete copies of its Charter and Bylaws, as amended, and minutes
of all Board of Directors (including all committees of the Board of Directors,
if any) and Shareholder meetings or actions taken by written consent, to date.
The issuance of certificates for shares of Preferred Stock upon exercise of
the Warrant Agreement shall be made without charge to the Warrantholder for any
issuance tax in respect thereof, or other cost incurred by the Company in
connection with such exercise and the related issuance of shares of Preferred
Stock. The Company shall not be required to pay any tax which may be payable in
respect of any transfer involved and the issuance and delivery of any
certificate in a name other than that of the Warrantholder.
(b) Due Authority. The execution and delivery by the Company of this
Warrant Agreement and the performance of all obligations of the Company
hereunder, including the issuance to Warrantholder of the right to acquire the
shares of Preferred Stock, have been duly authorized by all necessary corporate
action on the part of the Company, and the Leases and this Warrant Agreement
are not inconsistent with the Company's Charter or Bylaws, do not contravene
any law or governmental rule, regulation or order applicable to it, do not and
will not contravene any provision of, or constitute a default under, any
indenture, mortgage, contract or other instrument to which it is a party or by
which it is bound, and the Leases and this Warrant Agreement constitute legal,
valid and binding agreements of the Company, enforceable in accordance with
their respective terms.
(c) Consents and Approvals. No consent or approval of, giving of notice
to, registration with, or taking of any other action in respect of any state,
Federal or other governmental authority or agency is required with respect to
the execution, delivery and performance by the Company of its obligations under
this Warrant Agreement, except for the filing of applicable
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<PAGE> 7
Federal and State securities law filings, which filings, if applicable, will be
effective by the time required thereby.
(d) Issued Securities. All issued and outstanding shares of Common
Stock, Preferred Stock or any other securities of the Company have been duly
authorized and validly issued and are fully paid and nonassessable. All
outstanding shares of Common Stock, Preferred Stock and any other securities
were issued in full compliance with all Federal and state securities laws. In
addition:
(i) The authorized capital of the Company consists of (A) 35,000,000
shares of Common Stock, of which 6,100,438 shares are issued and outstanding,
(B) 7,617,500 shares of Preferred Series A Stock of which 7,467,500 shares are
issued and outstanding and are convertible into 7,467,500 shares of Common Stock
at $1.00 per share, (c) 11,816,664 shares of Preferred Series B Stock of which
11,666,664 shares are issued and outstanding and are convertible into 11,666,664
shares of Common Stock at $3.00 per share and (d) 5,000,000 shares of Preferred
Series C Stock of which 3,222,618 shares are issued and outstanding and are
convertible into 3,222,618 shares of Common Stock at $6.00 per share.
(ii) The Company has reserved (A) 4,765,000 shares of Common Stock for
issuance under its 1993 Stock Option Plan under which 3,468,500 options are
outstanding at average prices of $.10 and $.30 per share dependent on date of
issue. There are no other options warrants, conversion privileges or other
rights presently outstanding to purchase of otherwise a acquire any authorized
but unissued shares of the Company's capitol stock or other securities of the
Company.
(iii) The Company has reserved (A) 150,000 shares of Preferred Series A
Stock (and Common Stock issuable upon conversion thereof) for issuance upon
exercise of an outstanding warrant exercisable at $1.00 per share, (B) 150,000
shares of Preferred Series B Stock (and Common Stock issuable upon conversion
thereof) for issuance upon exercise hereof. In addition, the Company has entered
into a warrant agreement with Silicon Valley Bank pursuant to which they have
agreed to issue Silicon Valley Bank a warrant to purchase 35,000 shares of
Preferred Series C Stock at an exercise price of $6.00 per share.
(iv) In accordance with the Company's Articles of Incorporation, no
shareholder of the Company has preemptive rights to purchase new issuances of
the Company's capital stock; provided, however, that all holders of Preferred
Stock have contractual rights to participate in future financings.
(e) Insurance. The Company has in full force and effect insurance
policies, with extended coverage, insuring the Company and its property and
business against such losses and risks, and in such amounts, as are customary
for corporations engaged in a similar business and similarly situated and as
otherwise may be required pursuant to the terms of any other contract or
agreement.
(f) Other Commitments to Register Securities. Except as set forth in
this Warrant Agreement, the Company is not, pursuant to the terms of any other
agreement currently in existence, under any obligation to register under the
1933 Act any of its presently outstanding securities or any of its securities
which may hereafter be issued; provided, however, that all holders of Series A
Preferred Stock have "demand" and "piggy-back" registration rights.
(g) Exempt Transaction. Subject to the accuracy of the Warrantholder's
representation in Section 10 hereof, the issuance of the Preferred Stock upon
exercise of this Warrant will constitute a transaction exempt from (i) the
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<PAGE> 8
registration requirements of Section 5 of the 1933 Act, in reliance upon Section
4(2) thereof, and (ii) the qualification requirements of the California
Corporate Securities Law in reliance upon Section 25102 (f) thereof.
(h) Compliance with Rule 144. At the written request of the
Warrantholder who proposes to sell Preferred Stock issuable upon the exercise of
the Warrant in compliance with Rule 144 promulgated by the Securities and
Exchange Commission, the Company shall furnish to the Warrantholder, within ten
days after receipt of such request, a written statement confirming the Company's
compliance with the filing requirements of the Securities and Exchange
Commission as set forth in such Rule, as such Rule may be amended from time to
time.
10. REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.
This Warrant Agreement has been entered into by the Company in reliance
upon the following representations and covenants of the Warrantholder:
(a) Investment Purpose. The right to acquire Preferred Stock or the
Preferred Stock issuable upon exercise of the Warrantholder's rights contained
herein will be acquired for investment and not with a view to the sale or
distribution of any part thereof, and the Warrantholder has no present intention
of selling or engaging in any public distribution of the same except pursuant to
a registration or exemption.
(b) Private Issue. The Warrantholder understands (i) that the Preferred
Stock issuable upon exercise of this Warrant is not registered under the 1933
Act or qualified under applicable state securities laws on the ground that the
issuance contemplated by this Warrant Agreement will be exempt from the
registration and qualifications requirements thereof, and (ii) that the
Company's reliance on such exemption is predicated on the representations set
forth in this Section 10.
(c) Disposition of Warrantholder's Rights. In no event will the
Warrantholder make a disposition of any of its rights to acquire Preferred Stock
or Preferred Stock issuable upon exercise of such rights unless and until (i) it
shall have notified the Company of the proposed disposition, and (ii) if
requested by the Company, it shall have furnished the Company with an opinion of
counsel (which counsel may either be inside or outside counsel to the
Warrantholder) satisfactory to the Company and its counsel to the effect that
(A) appropriate action necessary for compliance with the 1933 Act has been
taken, or (B) an exemption from the registration requirements of the 1933 Act is
available. Notwithstanding the foregoing, the restrictions imposed upon the
transferability of any of its rights to acquire Preferred Stock or Preferred
Stock issuable on the exercise of such rights do not apply to transfers from the
beneficial owner of any of the aforementioned securities to its nominee or from
such nominee to its beneficial owner, and shall terminate as to any particular
share of Preferred Stock when (1) such security shall have been effectively
registered under the 1933 Act and sold by the holder thereof in accordance with
such registration or (2) such security shall have been sold without registration
in compliance with Rule 144 under the 1933 Act, or (3) a letter shall have been
issued to the Warrantholder at its request by the staff of the Securities and
Exchange Commission or a ruling shall have been issued to the Warrantholder at
its request by such Commission stating that no action shall be recommended by
such staff or taken by such Commission, as the case may be, if such security is
transferred without registration under the 1933 Act in accordance with the
conditions set forth in such letter or ruling and such letter or ruling
specifies that no subsequent restrictions on transfer are required. Whenever the
restrictions imposed hereunder shall
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<PAGE> 9
terminate, as hereinabove provided, the Warrantholder or holder of a share of
Preferred Stock then outstanding as to which such restrictions have terminated
shall be entitled to receive from the Company, without expense to such holder,
one or more new certificates for the Warrant or for such shares of Preferred
Stock not bearing any restrictive legend.
(d) Financial Risk. The Warrantholder has such knowledge and experience in
financial and business matters as to be capable of evaluating the merits and
risks or its investment, and has the ability to bear the economic risks of its
investment.
(e) Risk of No Registration. The Warrantholder understands that if the
Company does not register with the Securities and Exchange Commission pursuant
to Section 12 of the 1933 Act, or file reports pursuant to Section 15(d), of
the Securities Exchange Act of 1934 (the "1934 Act"), or if a registration
statement covering the securities under the 1933 Act is not in effect when it
desires to sell (i) the rights to purchase Preferred Stock pursuant to this
Warrant Agreement, or (ii) the Preferred Stock issuable upon exercise of the
right to purchase, it may be required to hold such securities for an indefinite
period. The Warrantholder also understands that any sale of its rights of the
Warrantholder to purchase Preferred Stock or Preferred Stock which might be
made by it in reliance upon Rule 144 under the 1933 Act may be made only in
accordance with the terms and conditions of that Rule.
11. TRANSFERS. Subject to the terms and conditions contained in Section 10
hereof, this Warrant Agreement and all rights hereunder are transferable in
whole or in part by the Warrantholder and any successor transferee, provided,
however, in no event shall the number of transfers of the rights and interests
in all of the Warrants exceed three (3) transfers. The transfer shall be
recorded on the books of the Company upon receipt by the Company of a notice of
transfer in the form attached hereto as Exhibit II (the "Transfer Notice"), at
its principal offices and the payment to the Company of all transfer taxes and
other governmental charges imposed on such transfer.
12. MISCELLANEOUS.
(a) Effective Date. The provisions of this Warrant Agreement shall be
construed and shall be given effect in all respects as if it had been executed
and delivered by the Company on the date hereof. This Warrant Agreement shall
be binding upon any successors or assigns of the Company.
(b) Attorney's Fees. In any litigation, arbitration or court proceeding
between the Company and the Warrantholder relating hereto, the prevailing party
shall be entitled to attorneys' fees and expenses and all costs of proceedings
incurred in enforcing this Warrant Agreement.
(c) Governing Law. This Warrant Agreement shall be governed by and
construed for all purposes under and in accordance with the laws of the State
of Illinois.
(d) Counterparts. This Warrant Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(e) Notices. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery, facsimile
transmission (provided that the original is sent by personal delivery or mail
as hereinafter set forth) or seven (7) days after deposit in the United States
mail, by registered or certified mail, addressed (i) to the Warrantholder at
6111 North River Road, Rosemont, Illinois 60018, attention:
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<PAGE> 10
James Labe, Venture Leasing Director, cc: Legal Department, (and/or, if by
facsimile, (847) 518-5465) and (ii) to the Company at 2382 Faraday Avenue, Suite
300, Carlsbad, CA 92008 (and/or if by facsimile, (619) 930-2350) or at such
other address as any such party may subsequently designate by written notice to
the other party.
(f) Remedies. In the event of any default hereunder, the non-defaulting
party may proceed to protect and enforce it rights either by suit in equity
and/or by action at law, including but not limited to an action for damages as a
result of any such default, and/or action for specific performance for any
default where Warrantholder will not have an adequate remedy at law and where
damages will not be readily ascertainable. The Company expressly agrees that it
shall not oppose an application by the Warrantholder or any other person
entitled to the benefit of this Agreement requiring specific performance of any
or all provisions hereof or enjoining the Company from continuing to commit any
such breach of this Agreement.
(g) No Impairment of Rights. The Company will not, by amendment of its
Charter or through any other means, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate in order to protect the rights of the
Warrantholder against impairment.
(h) Survival. The representations, warranties, convenants and conditions
of the respective parties contained herein or made pursuant to this Warrant
Agreement shall survive the execution and delivery of this Warrant Agreement.
(i) Severability. In the event any one or more of the provisions of this
Warrant Agreement shall for any reason be held invalid, illegal or
unenforceable, the remaining provisions of this Warrant Agreement shall be
unimpaired, and the invalid, illegal or unenforceable provision shall be
replaced by a mutually acceptable valid, legal and enforceable provision, which
comes closest to the intention of the parties underlying the invalid, illegal or
unenforceable provision.
(j) Amendments. Any provision of this Warrant Agreement may be amended by
a written instrument signed by the Company and by the Warrantholder.
(k) Additional Documents. The Company, upon execution of this Warrant
Agreement, shall provide the Warrantholder with certified resolutions with
respect to the representations, warranties and covenants set forth in
subparagraphs (a) through (d), (f) and (g) of Section 9 above. If the purchase
price for the Leases referenced in the preamble of this Warrant Agreement
exceeds $1,000,000, the Company will also provide Warrantholder with an opinion
from the Company's counsel with respect to those same representations,
warranties and covenants. The Company shall also supply such other documents as
the Warrantholder may from time to time reasonably request.
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<PAGE> 11
IN WITNESS WHEREOF, the parties hereto have caused this Warrant
Agreement to be executed by its officers thereunto duly authorized as of the
Effective Date.
Company: LIGHTSPAN PARTNERSHIP, INC.
By: /s/ [ILLEGIBLE]
-------------------------------------
Title: [CONTROLLER]
----------------------------------
Warrantholder: COMDISCO, INC.
By:
-------------------------------------
Title:
----------------------------------
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<PAGE> 12
EXHIBIT I
NOTICE OF EXERCISES
TO:
------------------------------
(1) The undersigned Warrantholder hereby elects to purchase ___________ shares
of the Preferred Stock of _______________, pursuant to the terms of the
Warrant Agreement dated the _______ day of __________, 19____ (the "Warrant
Agreement") between ______________________ and the Warrantholder, and
tenders herewith payment of the purchase price for such shares in full,
together with all applicable transfer taxes, if any.
(2) In exercising its rights to purchase the Preferred Stock of
_______________________, the undersigned hereby confirms and acknowledges
the investment representations and warranties made in Section 10 of the
Warrant Agreement.
(3) Please issue a certificate or certificates representing said shares of
Preferred Stock in the name of the undersigned or in such other name as is
specified below.
- -------------------------------------
(Name)
- -------------------------------------
(Address)
Warrantholder: COMDISCO, INC.
By:
----------------------------------
Title:
-------------------------------
Date:
--------------------------------
12
<PAGE> 13
ACKNOWLEDGEMENT OF EXERCISE
The undersigned _____________________________________, hereby acknowledge
receipt of the "Notice of Exercise" from Comdisco, Inc., to purchase ____ shares
of the Preferred Stock of _________________, pursuant to the terms of the
Warrant Agreement, and further acknowledges that __________ shares remain
subject to purchase under the terms of the Warrant Agreement.
Company:
By:
-----------------------------------
Title:
--------------------------------
Date:
---------------------------------
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<PAGE> 14
EXHIBIT II
TRANSFER NOTICE
(To transfer or assign the foregoing Warrant Agreement execute
this form and supply required information. Do not use this form
to purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant Agreement and all rights
evidenced thereby are hereby transferred and assigned to
- ---------------------------------------------------------------------
(Please Print)
whose address is
-----------------------------------------------------
- ---------------------------------------------------------------------
Dated
-------------------------------------------------
Holder's Signature
------------------------------------
Holder's Address
--------------------------------------
------------------------------------------------------
Signature Guaranteed:
------------------------------------------------
NOTE: The signature to this Transfer Notice must correspond
with the name as it appears on the face of the Warrant
Agreement, without alteration or enlargement or any
change whatever. Officers of corporations and those
acting in a fiduciary or other representative capacity
should file proper evidence of authority to assign the
foregoing Warrant Agreement.
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<PAGE> 1
EXHIBIT 10.29
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY
OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
WARRANT TO PURCHASE
117,021 SHARES OF SERIES D PREFERRED STOCK
THE LIGHTSPAN PARTNERSHIP, INC.
(INCORPORATED UNDER THE LAWS OF THE STATE OF CALIFORNIA)
THIS CERTIFIES THAT, for value received, Montgomery Securities (the
"Warrantholder") is entitled to purchase, on the terms hereof, One Hundred
Seventeen Thousand Twenty-One (117,021) shares of Series D Preferred Stock (the
"Series D Stock") of The Lightspan Partnership, Inc., a California corporation
(the "Company"), at a purchase price as set forth herein.
1. EXERCISE OF WARRANT.
The terms and conditions upon which this Warrant may be exercised and
the Series D Stock covered hereby (the "Warrant Stock") may be purchased, are as
follows:
1.1. Exercise. This warrant may be exercised in whole or in part at any
time on or after the date hereof, but in no case may this Warrant be exercised
later than 5:00, San Francisco time on June 24, 2002 (the "Termination Date"),
after which time this Warrant shall terminate and shall be void and of no
further force of effect.
1.2. Exercise Price. The purchase price for the shares of Series D Stock
to be issued upon exercise of this Warrant shall be $4.70 per share, subject to
adjustment as set forth herein (the "Exercise Price").
1.3. Method of Exercise. The exercise of the purchase rights evidenced
by this Warrant shall be effected by (a) the surrender of this Warrant, together
with a duly executed copy of the form of Subscription attached hereto, to the
Company at its principal office and (b) the delivery of the Exercise Price
multiplied by the number of shares for which the purchase rights hereunder are
being exercised, by check or bank draft payable to the Company's order or any
other form of consideration approved by the Company's Board of Directors.
1.4. Net Issuance.
<PAGE> 2
(a) Right to Convert In addition to and without limiting the rights
of the Warrantholder under the terms of this Warrant, the Warrantholder shall
have the right to convert this Warrant or any portion hereof (the "Conversion
Right") into shares of Series D Stock as provided in this Section 1.4 at any
time or from time to time during the term of this Warrant. Upon exercise of the
Conversion Right with respect to a particular number of shares subject to this
Warrant (the "Converted Warrant Shares"), the Company shall deliver to the
Warrantholder (without payment by the Warrantholder of any exercise price or any
cash or other consideration) that number of shares of fully paid and
nonassessable Series D Stock computed using the following formula:
Y(A - B)
X = --------
A
Where X = the number of shares of Series D Stock to be
issued to the holder of the Warrant
Y = the number of Converted Warrant Shares
A = the fair market value of one
share of the Company's Series D
Stock on the Conversion Date
(as defined below)
B = the per share exercise price of
the Warrant (as adjusted to the
Conversion Date)
The Conversion Right may only be exercised with respect to a whole number of
shares subject to this Warrant. No fractional shares shall be issuable upon
exercise of the Conversion Right, and if the number of shares to be issued
determined in accordance with the foregoing formula is other than a whole
number, the Company shall pay to the Warrantholder an amount in cash equal to
the fair market value of the resulting fractional share on the Conversion Date.
Shares issued pursuant to the Conversion Right shall be treated as if they were
issued upon the exercise of this Warrant.
(b) Method of Exercise. The Conversion Right may be exercised by the
Warrantholder by the surrender of this Warrant at the principal office of the
Company together with a written statement specifying that the Warrantholder
thereby intends to exercise the Conversion Right and indicating the number of
shares subject to this Warrant which are being surrendered (referred to in
subsection (a) hereof as the Converted Warrant Shares) in exercise of the
Conversion Right. Such conversion shall be effective upon receipt by the Company
of this Warrant together with the aforesaid written statement, or on such later
date as is specified therein (the "Conversion Date"). Certificates for the
shares issuable upon the exercise of the Conversion Date shall be delivered to
the holder promptly following the Conversion Date.
(c) Determination of Fair Market Value. For purposes of this Section
1.4, fair market value of a share of Series D Stock on the Conversion Date shall
be determined as follows:
(i) If the Series D Stock is traded on a stock exchange, the
fair market value of the Series D Stock shall be deemed to be the average of the
closing selling prices of the Series D Stock on the stock exchange determined by
the Company's Board of Directors to be the
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<PAGE> 3
primary market for the Series D Stock over the ten (10) trading day period
ending on the date prior to the Conversion Date, as such prices are officially
quoted in the composite tape of transactions on such exchange;
(ii) If the Series D Stock is traded over-the-counter, the fair
market value of the Series D Stock shall be deemed to be the average of the
closing bid prices (or, if such information is available, the closing selling
prices) of the Series D Stock over the ten (10) trading day period ending on the
date prior to the Conversion Date, as such prices are reported by the National
Association of Securities Dealers through its Nasdaq system or any successor
system; and
(iii) If there is no public market for the Series D Stock, then
the fair market value of the Series D Stock shall be determined by the good
faith judgment of the Company's Board of Directors.
1.5. Issuance of Shares. In the event that the purchase rights evidenced
by this Warrant are exercised in whole or in part, a certificate or certificates
for the purchased shares shall be issued to the Warrantholder as soon as
practicable. The Warrantholder, by acceptance hereof, agrees that this Warrant
and the Warrant Stock are being acquired for investment and that he will not
offer, sell or otherwise dispose of this Warrant or any Warrant Stock except
under circumstances which will not result in a violation of the Securities Act
of 1933, as amended (the "Act"). The Warrant Stock (unless registered under the
Act) shall be stamped or imprinted with a legend in substantially the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
NO SALE OR OTHER DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION STATEMENT
RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO
THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR
RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION."
In the event the purchase rights evidenced by this Warrant are exercised
in part, the Company will also issue to the Warrantholder a new warrant
representing the unexercised purchase rights.
2. CERTAIN ADJUSTMENTS.
2.1. Conversion of Series D Stock. Should all of the Company's Series D
Stock be, or if outstanding would be, at any time prior to the expiration of
this Warrant or any portion thereof, converted into shares of the Company's
Common Stock in accordance with the Articles of Incorporation of the Company in
effect immediately prior to such conversion (the "Conversion Event"), then this
Warrant shall immediately become exercisable for that number of shares of the
Company's Common Stock which is equal to the number of shares of the Common
Stock which would have been received if this Warrant had been exercised in full
and the Series D Stock
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<PAGE> 4
received thereupon had been simultaneously converted into Common Stock
immediately prior to such Conversion Event, and the Exercise Price shall be
immediately adjusted to equal the quotient obtained by dividing (x) the product
obtained by multiplying the Exercise Price by the maximum number of shares of
Series D Stock for which this Warrant was exercisable immediately prior to such
Conversion Event, by (y) the number of shares of Common Stock for which this
Warrant is exercisable immediately after such Conversion Event.
2.2. Stock Dividends. If at any time while this Warrant remains
outstanding and unexpired, the Company pays a dividend or makes a distribution
with respect to the Series D Stock payable in shares of Series D Stock, then the
Exercise Price shall be adjusted, as of the record date of shareholders
established for such purpose (or if no such record is taken, as at the date of
such payment or distribution), to that price determined by multiplying the
Exercise Price in effect immediately prior to such payment or distribution by a
fraction (A) the numerator of which shall be the total number of shares of
Series D Stock outstanding immediately prior to such dividend or distribution,
and (B) the denominator of which shall be the total number of shares of Series D
Stock outstanding immediately after such dividend or distribution. The
Warrantholder shall thereafter be entitled to purchase, at the Exercise Price
resulting from such adjustment, the number of shares of Series D Stock
(calculated to the nearest whole shares) obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Series D Stock issuable upon the exercise hereof immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment. The provisions of this Section 2.2 shall not apply under any of
the circumstances for which an adjustment is provided under Sections 2.3, 2.4 or
2.5.
2.3. Mergers, Consolidations or Sale of Assets. If at any time while
this Warrant remains outstanding and unexpired, there shall be a capital
reorganization of the shares of the Company's capital stock (other than a
combination, reclassification, exchange or subdivision otherwise provided for
herein), or a merger or consolidation of the Company with or into another
corporation in which the Company is not the surviving corporation (collectively,
a "Corporate Transaction"), then:
(i) in the event that the consideration per share to be received by
the holders of the Company's Series D Stock pursuant to the Corporate
Transaction is equal to or exceeds two times the Exercise Price, then the
Warrantholder shall be given ten (10) days written notice prior to the closing
of the Corporate Transaction during which time the Warrantholder may elect to
exercise this Warrant. The Warrantholder may specify that it elects to exercise
this Warrant effective immediately prior to the closing of the Corporate
Transaction. In the event that the Warrantholder elects not to exercise this
Warrant, then this Warrant shall terminate and be of no further force or effect
upon the closing of the Corporate Transaction.
(ii) in the event that the consideration per share to be received by
the holders of the Company's Series D Stock pursuant to the Corporate
Transaction is less than two times the Exercise Price, then lawful provision
shall be made so that the Warrantholder shall thereafter be entitled to receive,
upon exercise of this Warrant, during the period specified in this Warrant and
upon payment of the Exercise Price then in effect, the number of shares of stock
or other securities or property of the successor corporation resulting from such
Corporate Transaction to
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<PAGE> 5
which a holder of the securities deliverable upon exercise of this Warrant would
have been entitled under the provisions of the agreement in such Corporate
Transaction if this Warrant had been exercised immediately prior to such
Corporate Transaction. Appropriate adjustment (as determined in good faith by
the Company's Board of Directors) shall be made in the application of the
provisions of this Warrant with respect to the rights and interests of the
Warrantholder after the Corporate Transaction to the end that the provisions of
this Warrant (including adjustment of the purchase price then in effect and the
number of shares of securities issuable under this Warrant) shall be applicable
after the Corporate Transaction, as near as reasonably may be, in relation to
any shares or other property deliverable after the Corporate Transaction upon
exercise of this Warrant.
2.4. Reclassification. If the Company at any time shall, by subdivision,
combination or reclassification or securities or otherwise, change any of the
securities issuable under this Warrant into the same or a different number of
securities of any other class or classes, this Warrant shall thereafter
represent the right to acquire such number and kind of securities as would have
been issuable as a result of such change with respect to the securities issuable
under this Warrant immediately prior to such subdivision, combination,
reclassification or other change.
2.5. Subdivision or Combination of Shares. If at any time while this
Warrant remains outstanding and unexpired, the number of shares of Series D
Stock outstanding is decreased by a combination of the outstanding shares of
Series D Stock, then the Exercise Price shall be proportionately increased in
the case of a combination of such shares, or shall be proportionately decreased
in the case of a subdivision of such shares, and the number of shares of Series
D Stock issuable upon exercise of the Warrant shall thereafter be adjusted to
equal the product obtained by multiplying the number of shares of Series D Stock
purchasable under this Warrant immediately prior to such Exercise Price
adjustment by a fraction (A) the numerator of which shall be the Exercise Price
immediately prior to such adjustment, and (B) the denominator of which shall be
the Exercise Price immediately after such adjustment.
2.6. Liquidating Dividends, Etc. If the Company at any time while the
Warrant remains outstanding and unexpired makes a distribution of its assets to
the holders of its Series D Stock as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for dividends under applicable law or any distribution to such
holders made in respect of the sale of all or substantially all of the Company's
assets (other than under the circumstances provided for in the foregoing
Sections 2.2 through 2.5), the holder of this Warrant shall be entitled to
receive upon the exercise hereof, in addition to the shares of Series D Stock
receivable upon such exercise, and without payment of any consideration other
than the Exercise Price, an amount in cash equal to the value of such
distribution per share of Series D Stock multiplied by the number of shares of
Series D Stock which, on the record date for such distribution, are issuable
upon exercise of this Warrant (with no further adjustment being made following
any event which causes a subsequent adjustment in the number of shares of Series
D Stock issuable upon the exercise hereof), and an appropriate provision
therefor should be made a part of any such distribution. The value of a
distribution which is paid in other than cash shall be determined in good faith
by the Board of Directors.
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<PAGE> 6
2.7. Notice of Adjustments. Whenever any of the Exercise Price or the
number of securities purchasable under the terms of this Warrant at that
Exercise Price shall be adjusted pursuant to Section 2 hereof, the Company shall
promptly notify the Warrantholder in writing of such adjustment, setting forth
in reasonably detail the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated (including a
description of the basis on which the Company's Board of Directors made any
determination hereunder), and the Exercise Price and number of shares of Series
D Stock or other securities purchasable at that Exercise Price after giving
effect to such adjustment. Such notice shall be mailed (by first class and
postage prepaid) to the registered Warrantholder.
In the event of:
(a) The taking by the Company of a record of the holders of any
class of securities of the Company for the purpose of determining the holders
thereof who are entitled to receive any dividend or other distribution, or any
right to subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
(b) Any capital reorganization of the Company, any reclassification
or recapitalization or recapitalization of the capital stock of the Company or
any transfer of all or substantially all of the assets of the Company to any
other person or any consolidation or merger involving the Company, or
(c) Any voluntary or involuntary dissolution, liquidation, or
winding-up of the Company,
the Company will mail to the Warrantholder, at its list address at least ten
(10) days prior to the earliest date specified therein as described below, a
notice specifying:
(1) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and character of
such dividend, distribution or right; and
(2) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining shareholders
entitled to vote thereon.
3. FRACTIONAL SHARES.
No fractional shares shall be issued in connection with any exercise of
this Warrant. In lieu of the issuance of such fractional share, the Company
shall make a cash payment equal to the then fair market value of such fractional
share as determined by the Company's Board of Directors.
4. RESERVATION OF SERIES D AND COMMON STOCK.
6
<PAGE> 7
The Company shall at all times reserve and keep available out of its
authorized but unissued shares of Series D Stock and Common Stock, solely for
the purpose of effecting the exercise of this Warrant, such number of its shares
of Series D Stock and Common Stock into which such shares of Series D Stock may
at any time be converted as shall from time to time be sufficient to effect the
exercise of this Warrant; and if at any time the number of authorized but
unissued shares of Series D Stock and Common Stock shall not be sufficient to
effect the exercise of the entire Warrant, in addition to such other remedies as
shall be available to the holder of this Warrant, the Company will use its
reasonable efforts to take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Series D
Stock and Common Stock to such number of shares as shall be sufficient for such
purposes.
5. PRIVILEGE OF STOCK OWNERSHIP.
Prior to the exercise of this Warrant, the Warrantholder shall not be
entitled, by virtue of holding this Warrant, to any rights of a shareholder of
the Company, including (without limitation) the right to vote, receive dividends
or other distributions, exercise preemptive rights or be notified of shareholder
meetings, and such holder shall not be entitled to any notice or other
communication concerning the business or affairs of the Company, except as
required by law.
6. LIMITATION OF LIABILITY.
No provision hereof, in the absence of affirmative action by the holder
hereof to purchase the securities issuable under this Warrant, and no mere
enumeration herein of the rights of privileges of the holder hereof, shall give
rise to any liability of such holder for the purchase price or as a shareholder
of the Company, whether such liability is asserted by the Company or by
creditors of the Company.
7. TRANSFERS AND EXCHANGES.
This Warrant may not be transferred or assigned in whole or in part
without (i) the prior written consent of the Company and (ii) compliance with
applicable federal and state securities laws; provided, however, that the
Warrant may be transferred without the prior written consent of the Company in
the following transactions:
A transfer of the Warrant in whole by a holder who is a natural
person during the holder's lifetime or on death by will or intestacy to such
holder's immediate family or to any custodian or trustee for the account of such
holder or such holder's immediate family. "Immediate family" as used herein
shall mean spouse, lineal descendant, father, mother, brother or sister of the
holder.
A transfer of the Warrant in whole to the Company or to any
stockholder of the Company.
A transfer of the Warrant in whole or in part to a person who, at
the time of such transfer, is or is an affiliate of an officer or director of
the Company.
7
<PAGE> 8
A transfer of the Warrant in whole pursuant to and in accordance
with the terms of any merger, consolidation, reclassification of shares or
capital reorganization of a corporate holder.
A transfer of the Warrant in whole to a parent, subsidiary or
affiliate of a holder.
A transfer of the Warrant in whole by a holder which is a limited or
general partnership to any of its partners or former partners.
8. PAYMENT OF TAXES.
The Company shall pay all stamp or similar issue or transfer taxes
payable in respect of the issue or delivery of the securities issuable under
this Warrant. The Company shall not be required, however, to pay any tax or
other charge imposed in connection with any transfer involved in the issue of
any certificate for shares of the securities issuable under this Warrant in any
name other than that of the Warrantholder, and in such case, the Company shall
not be required to issue or deliver any stock certificate until such tax or
other charge has been paid or it has been established to the Company's
satisfaction that no such tax or other charge is due.
9. REGISTRATION RIGHTS.
The Warrantholder shall have the registration rights with respect to the
securities issuable under this Warrant as are set forth in the Amended and
Restated Investor Rights Agreement dated June 23, 1997 (the "Rights
Agreement")(a copy of which is attached hereto). For all such purposes, the
Warrantholder shall be deemed to be a party to said Rights Agreement as if the
Warrantholder was an original signatory thereto, and shall have all the rights,
privileges and obligations granted to or imposed on a party thereto as provided
in this Section 9 and in said Rights Agreement, and the Warrantholder shall for
all such purposes be treated as a "Investor" under said Rights Agreement and the
securities issuable under this Warrant shall be treated as "Registrable
Securities" under said Rights Agreement, as such terms are defined therein.
10. NO IMPAIRMENT OF RIGHTS.
The Company hereby agrees that it will not, through the amendment of its
Certificate of Incorporation or otherwise, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of all
such actions as may be necessary or appropriate in order to protect the rights
of the Warrantholder against impairment.
8
<PAGE> 9
11. SUCCESSORS AND ASSIGNS.
The terms and provisions of this Warrant shall be binding upon the
Company and the Warrantholder and their respective successors and assigns.
12. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and in case of loss,
theft or destruction, upon receipt of an indemnity or security reasonably
satisfactory to the Company, and upon reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
this Warrant, if mutilated, the Company will make and deliver a new warrant of
like tenor and dated as of such cancellation, in lieu of this Warrant.
13. RESTRICTED SECURITIES.
The Warrantholder understands that this Warrant and the securities
purchasable hereunder constitute "restricted securities" under the federal
securities laws inasmuch as they are, or will be, acquired from the Company in
transactions not involving a public offering and accordingly may not, under such
laws and applicable regulations, be resold or transferred without registration
under the Securities Act of 1933 or an applicable exemption from registration.
In this connection, the Warrantholder acknowledges that Rule 144 of the
Securities and Exchange Commission is not now, and may not in the future be,
available for resales of this Warrant and the securities purchased hereunder.
14. SATURDAYS, SUNDAYS, HOLIDAYS.
If the last or appointed day for the taking of any action or the
expiration of any right required or granted herein shall be a Saturday or Sunday
or shall be a legal holiday, then such action may be taken or such right may be
exercised, except as to the purchase price, on the next succeeding day not a
legal holiday.
THE LIGHTSPAN PARTNERSHIP, INC.
By:
-------------------------------------
Carl Zeiger
President and Chief Operating Officer
Dated: June _____, 1997
9
<PAGE> 10
SUBSCRIPTION
The Lightspan Partnership, Inc.
10140 Campus Point Drive
San Diego, California 92121
Ladies and Gentlemen:
The undersigned hereby elects to purchase, pursuant to the provisions of
the Warrant dated _________ , 1997 held by the undersigned, ____________ shares
of the Series D Stock of The Lightspan Partnership, Inc., a California
corporation.
Payment of the per share purchase price required under such Warrant
accompanies this Subscription.
The undersigned hereby represents and warrants that the undersigned is
acquiring such stock for its own account and not for resale or with a view to
distribution of any part thereof and accepts such shares subject to the terms
and conditions of the Warrant.
Dated:__________________, 19__
-----------------------------------
Print Name of Warrantholder
By
--------------------------------
Address: -----------------------------------
-----------------------------------
<PAGE> 1
EXHIBIT 10.30
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. NO SALE
OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY
OR WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF
COUNSEL FOR THE HOLDER, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED UNDER THE ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH ANY STATE SECURITIES
AUTHORITIES. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
Warrant D-1 Void after March 26, 2002
THE LIGHTSPAN PARTNERSHIP, INC.
SERIES D PREFERRED STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Accel IV L.P. and its
registered assigns (hereinafter called the "Holder") is entitled to purchase
from The Lightspan Partnership, Inc. (the "Company"), at any time after the date
specified in Section I hereof and ending at 5:00 p.m. Pacific Standard Time on
the Expiration Date, as such term is defined in Section 1 hereof, Twenty-Eight
Thousand One Hundred Thirty-Seven (28,137) shares of the Company's Series D
Preferred Stock (the "Warrant Shares"). The Exercise Price per share shall be
$3.76 (the "Warrant Price"). This Warrant may be exercised in whole or in part,
at the option of the Holder.
1. Term. This Warrant shall be exercisable immediately, and at any time
through March 26, 2002 (the "Expiration Date").
2. Method of Exercise; Payment; Issuance of New Warrant. Subject to
Section 1 hereof, the purchase right represented by this Warrant may be
exercised by the Holder, in whole or in part, by:
<PAGE> 2
2.1 the surrender of this Warrant (with the notice of exercise form
attached hereto as Attachment A and the Investment Representation Statement
attached hereto as Attachment B duly executed) at the principal office of the
Company; and
2.2 the payment to the Company, by check or wire, of an amount equal
to the then applicable Warrant Price per share multiplied by the number of
Warrant Shares then being purchased.
If this Warrant should be exercised in part only, the Company shall,
upon surrender of this Warrant, execute and deliver a new Warrant evidencing the
rights of the Holder thereof to purchase the balance of the Warrant Shares
purchasable hereunder. Upon receipt by the Company of this Warrant and such
notice of exercise, together with, if applicable, the aggregate Warrant Price,
at such office, or by the stock transfer agent or warrant agent of the Company
at its office, the Holder shall be deemed to be the holder of record of the
applicable Warrant Shares, notwithstanding that the stock transfer books of the
Company shall then be closed or that certificates representing such Warrant
Shares shall not then be actually delivered to the Holder. The Company shall pay
any and all documentary stamp or similar issue or transfer taxes payable in
respect of the issue or delivery of the Warrant Shares.
2.3 Net Exercise. In addition to and without limiting the rights of
the Holder under the terms of this Warrant, the Holder may elect to convert this
Warrant or any portion thereof (the "Conversion Right") into Warrant Shares, the
aggregate value of which Warrant Shares shall be equal to the value of this
Warrant or the portion thereof being converted. The Conversion Right may be
exercised by the Holder by surrender of this Warrant at the principal office of
the Company together with notice of the Holder's intention to exercise the
Conversion Right, in which event the Company shall issue to the Holder a number
of Warrant Shares computed using the following formula:
Y(A - B)
X = --------
A
Where:
X - The number of Warrant Shares to be issued to the holder
upon exercise of Conversion Right.
Y - The number of Warrant Shares issuable under this Warrant.
A - The fair market value of one Warrant Share, as
determined in good faith by the board of directors of the
Company, as at the time the Conversion Right is exercised
pursuant to this Section 2.
B - Exercise Price (as adjusted to the date of such
calculations).
-2-
<PAGE> 3
3. Stock Fully Paid; Reservation of Warrant Shares. All shares of stock
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. During the period within
which the rights represented by this Warrant may be exercised, the Company will
at all times have authorized and reserved for the purpose of issue upon exercise
of the purchase rights evidenced by this Warrant, a sufficient number of shares
of its stock to provide for the exercise of the rights represented by this
Warrant. In the event that there is an insufficient number of Warrant Shares
reserved for issuance pursuant to the exercise of this Warrant, the Company will
take appropriate action to authorize an increase in the capital stock to allow
for such issuance or similar issuance acceptable to the Holder.
4. Adjustment of Warrant Price and Number of Warrant Shares. The number
and kind of Warrant Shares purchasable upon the exercise of this Warrant and
the Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
4.1 Reclassification; Merger. In case of any reclassification or
change of outstanding securities of the class issuable upon exercise of this
Warrant (other than a change in par value, or from par value to no par value, or
from no par value to par value, or as a result of a subdivision or combination),
or in case of any consolidation or merger of the Company with or into another
corporation (other than a merger with another corporation in which the Company
is a continuing corporation and which does not result in any reclassification or
change of outstanding securities issuable upon exercise of this Warrant), or any
other corporate reorganization in which the Company shall not be the continuing
or surviving entity of such consolidation, merger or reorganization, or any
transaction in which in excess of 50% of the Company's voting power is
transferred, or any sale of all or substantially all of the stock or assets of
the Company, the Company shall, as condition precedent to such transaction,
execute a new Warrant or cause such successor or purchasing corporation, as the
case may be, to execute a new Warrant, providing that the Holder shall have the
right to exercise such new Warrant and upon such exercise to receive, in lieu of
each share of stock theretofore issuable upon exercise of this Warrant, the kind
and amount of shares of stock, other securities, money and property receivable
upon such reclassification, change, merger or acquisition by a holder of one
share of stock. Such new Warrant shall provide for adjustments which shall be as
nearly equivalent as may be practicable to the adjustments provided for in this
Section 4. The provisions of this Section 4.1 shall similarly apply to
successive reclassifications, chances, mergers, and acquisitions.
4.2 Subdivision or Combination of Warrant Shares. If the Company at
any time while this Warrant remains outstanding and unexpired shall subdivide or
combine its stock, the Warrant Price shall be proportionately decreased in the
case of a subdivision or increased in the case of a combination.
-3-
<PAGE> 4
4.3 Stock Dividends. If the Company at any time while this Warrant
is outstanding and unexpired shall pay a dividend with respect to stock payable
in, or make any other distribution with respect to stock (except any
distribution specifically provided for in the foregoing Sections 4.1 and 4.2)
of, stock, then the Warrant Price shall be adjusted, from and after the date of
determination of shareholders entitled to receive such dividend or distribution,
to that price determined by multiplying the Warrant Price in effect immediately
prior to such date of determination by a fraction (i) the numerator of which
shall be the total number of shares of stock outstanding immediately prior to
such dividend or distribution, and (ii) the denominator of which shall be the
total number of shares of stock outstanding immediately after such dividend or
distribution.
4.4 Adjustment of Number of Warrant Shares. Upon each adjustment in
the Warrant Price, the number of shares of stock purchasable hereunder shall be
adjusted, to the nearest whole share, to the product obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the Warrant Price
immediately prior to such adjustment and the denominator of which shall be the
Warrant Price immediately thereafter.
5. Fractional Warrant Shares. No fractional Warrant Shares will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
Warrant Price then in effect.
6. Compliance with Securities Act; Non-transferability of Warrant;
Disposition of Shares of Stock.
6.1 Compliance with Securities Act. The Holder, by acceptance
hereof, agrees that this Warrant and the Warrant Shares are being acquired for
investment and that he will not offer, sell or otherwise dispose of this Warrant
or any Warrant Shares except under circumstances which will not result in a
violation of the Securities Act of 1933, as amended (the "Act"). Upon exercise
of this Warrant, the Holder hereof shall confirm in writing, in a form of
Attachment B, that the Warrant Shares so purchased are being acquired for
investment and not with a view toward distribution or resale. In addition, the
Holder shall provide such additional information regarding such Holder's
financial and investment background as the Company may reasonably request. This
Warrant and all Warrant Shares (unless registered under the Act) shall be
stamped or imprinted with a legend in substantially the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT
OF THE COMPANY AND WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED
THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
-4-
<PAGE> 5
ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION."
6.2 Transferability of Warrant. This Warrant may not be transferred
or assigned in whole or in part without (i) the prior written consent of the
Company and (ii) compliance with applicable federal and state securities laws;
provided, however, that the Warrant may be transferred without the prior written
consent of the Company in the following transactions:
A transfer of the Warrant in whole by a Holder who is a natural
person during such Holder's lifetime or on death by will or intestacy to such
Holder's immediate family or to any custodian or trustee for the account of such
Holder or such Holder's immediate family. "Immediate family" as used herein
shall mean spouse, lineal descendant, father, mother, brother, or sister of the
Holder.
A transfer of the Warrant in whole to the Company or to any
shareholder of the Company.
A transfer of the Warrant in whole or in part to a person who,
at the time of such transfer, is or is an affiliate of an officer or director of
the Company.
A transfer of the Warrant in whole pursuant to and in accordance
with the terms of any merger, consolidation, reclassification of shares or
capital reorganization of the corporate shareholder or pursuant to a sale of all
or substantially all of the stock or assets of a corporate shareholder.
A transfer of the Warrant in whole to a parent, subsidiary or
affiliate of a Holder.
A transfer of the Warrant in whole by a Holder which is a
limited or general partnership to any of its partners or former partners.
6.3 Disposition of Warrant Shares. Upon exercise of the Warrant
Shares, the Holder will be entitled to any registration rights granted the other
holders of Series D Preferred Stock. With respect to any offer, sale or other
disposition of any Warrant Shares prior to registration of such shares, the
Holder and each subsequent Holder of this Warrant agrees to give written notice
to the Company prior thereto, describing briefly the manner thereof, together
with a written opinion of such Holder's counsel, if reasonably requested by the
Company, to the effect that such offer, sale or other disposition may be
effected without registration or qualification (under the Act as then in effect
or any federal or state law then in effect) of such Warrant Shares and
indicating whether or not under the Act certificates for such shares to be sold
or otherwise disposed of require any restrictive legend as to applicable
restrictions on transferability in order to
-5-
<PAGE> 6
ensure compliance with the Act; provided, however, that no such opinion of
counsel or no action letter shall be necessary for a transfer without
consideration by a Holder which is a partnership to a partner of such
partnership, so long as such transfer is made pursuant to the terms of the
partnership agreement, or to the transfer by gift, will or intestate succession
by the Holder to his or her spouse or lineal descendants or ancestors or any
trust for the benefit of any of the foregoing if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he/she were
an original Holder hereunder. Notwithstanding the foregoing, such Warrant Shares
may be offered, sold or otherwise disposed of in accordance with Rule 144.
7. Rights of Shareholders. No Holder of this Warrant shall be entitled
to vote or receive dividends or be deemed the holder of stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder of this Warrant, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant has been exercised and the Warrant Shares shall
have become deliverable, as provided herein.
8. Governing Law. The terms and conditions of this Warrant shall be
governed by and construed in accordance with California law.
9. Miscellaneous. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the Company and the registered Holder. All notices and other communications from
the Company to the Holder shall be delivered by hand or mailed by first class
registered or certified mail, postage prepaid, to the address furnished to the
Company in writing by the Holder.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ CARL ZEIGER
-------------------------------------
Carl Zeiger
President
-6-
<PAGE> 7
ATTACHMENT A
NOTICE OF EXERCISE
TO: The Lightspan Partnership, Inc.
1. The undersigned hereby elects to purchase ______shares of stock of
The Lightspan Partnership, Inc. pursuant to the terms of the attached Warrant,
and tenders herewith payment of the purchase price of such shares in full,
together with all applicable transfer taxes, if any.
1. The undersigned hereby elects to convert the attached Warrant into
Warrant Shares in the manner specified in Section 2.3 of the Warrant. This
conversion is exercised with respect to __________ of the Shares covered by the
Warrant.
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares
of stock in the name of the undersigned or in such other name as is specified
below:
Name:
------------------------------------------
Address:
---------------------------------------
---------------------------------------
---------------------------------------
3. The undersigned represents that the aforesaid shares of stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Attachment B.
-------------------------------------------------
WARRANTHOLDER
By:
----------------------------------------------
Title:
-------------------------------------------
Date:
--------------------------
<PAGE> 8
ATTACHMENT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
COMPANY : THE LIGHTSPAN PARTNERSHIP, INC.
SECURITY :
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities and underlying
stock (the "Securities"), I the Purchaser, represent to the Company the
following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933 ("Securities Act").
(b) I understand that the Securities have not been registered under
the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand that, in
the view of the Securities and Exchange Commission ("SEC"), the statutory basis
for such exemption may be unavailable if my representation was predicated solely
upon a present intention to hold these Securities for the minimum capital gains
period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, I understand
that the Company is under no obligation to register the Securities. In addition,
I understand that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
<PAGE> 9
(d) I am aware of the provisions of Rule 144, promulgated under the
Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions.
(e) I further understand that at the time I wish to sell the
Securities there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the requirements
of Rule 144 are not satisfied, registration under the Securities Act, compliance
with Regulation A, or some other registration exemption will be required; and
that, notwithstanding the fact that Rule 144 is not exclusive, the Staff of the
SEC has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rule 144 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk.
----------------------------------------
WARRANTHOLDER
----------------------------------------
(signature)
----------------------------------------
(title)
Date:
--------------------------, ------
<PAGE> 1
EXHIBIT 10.31
THE SECURITY REPRESENTED BY THIS CERTIFICATE WAS ORIGINALLY ISSUED ON MARCH 10,
1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. EXCEPT AS
PROVIDED IN SECTION 7.2 HEREOF, NO SALE OR DISPOSITION MAY BE EFFECTED WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMPANY OR WITHOUT AN EFFECTIVE REGISTRATION
STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL FOR THE HOLDER, REASONABLY
SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE
ACT OR RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH ANY STATE SECURITIES
AUTHORITIES. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.
Warrant D-15 Issued March 10, 1998
THE LIGHTSPAN PARTNERSHIP, INC.
SERIES D PREFERRED STOCK PURCHASE WARRANT
----------
FOR VALUE RECEIVED, The Lightspan Partnership, Inc., a California
corporation (the "Company"), hereby grants to SZ Investments, LLC and its
registered assigns (hereinafter called the "Holder"), subject to the terms and
conditions of this Warrant, the right to purchase at the Exercise Event (as that
term is defined in Section 1 hereof) Three Hundred Thirty-Six Thousand Eight
Hundred Seventy-Nine (336,879) shares of the Company's Series D Preferred Stock,
subject to reduction in accordance with Section 2.2 hereof (the "Warrant
Shares"). The exercise price per share shall be $0.01 (the "Warrant Price").
This Warrant may be exercised only in accordance with Section 1 hereof.
The Holder of this Warrant has purchased 1,329,787 shares of the
Company's Series D Preferred Stock ("Investment Shares") pursuant to that
certain Series D Preferred Stock Purchase Agreement by and between the Company
and certain investors dated as of June 24, 1997, as amended form time to time.
1. Term; Exercise Events. This Warrant shall be exercised pursuant to
Section 3 hereof upon the earliest to occur of the following events or dates
(the "Exercise Event"):
1.1 Change of Control. The date of the closing of any
consolidation or merger of the Company with or into another corporation (other
than a merger with another corporation in which the Company is a continuing
corporation and which does not result in (i) any reclassification or change of
outstanding securities issuable upon exercise of this Warrant and (ii) more than
50%
<PAGE> 2
of the Company's voting power being transferred to stockholders other than the
stockholders holding such voting power before such transfer), or any other
corporate reorganization in which the Company shall not be the continuing or
surviving entity of such consolidation, merger or reorganization and in which in
excess of 50% of the Company's voting power is transferred, or any sale of in
excess of 50% of the Company's stock or all or substantially all of the assets
of the Company;
1.2 Qualifying Public Offering. In connection with the first
firm commitment underwritten public offering of the Company's Common Stock
pursuant to a registration statement (a "Registration Statement") filed pursuant
to the Securities Act of 1933, as amended (the "Act") provided that the public
offering price per share is not less than $10.00 (subject to appropriate
adjustment for stock splits, stock dividends, combinations, recapitalizations
and the like) and the aggregate gross proceeds to the Company are not less than
$20,000,000 (a "Qualifying Public Offering"), on either (A) the closing date of
the Qualifying Public Offering ("Election (A)"), or (B) the six (6) month
anniversary of the closing date of the Qualifying Public Offering ("Election
(B)"), at the election of the Company. The foregoing election by the Company
shall be made in a written notice to the Holder not later than the date a
Registration Statement which includes an estimated offering price or range of
estimated offering prices of the Company's Common Stock is filed pursuant to the
Act; the Company's failure to make an election pursuant hereto shall be deemed
to be an election of Election (A). If the closing of the Qualifying Public
Offering does not occur, an election by the Company pursuant to this Section 1.2
shall not be binding on the Company with respect to any future election
available pursuant to this Section 1.2; or
1.3 Full Term. September 10, 2000.
2. Determination of Number of Warrant Shares. The number of Warrant
Shares purchasable upon exercise of this Warrant shall initially be Three
Hundred Thirty-Six Thousand Eight Hundred Seventy-Nine (336,879), but may be
reduced (but not increased) in accordance with this Section 2.
2.1 Definitions.
"Fair Market Value" shall mean, with respect to a security:
(i) if the security (or the security into which such security is convertible) is
listed on any national securities exchange (as defined under the Securities
Exchange Act of 1934) or The Nasdaq National Market or The Nasdaq Small Cap
Market of The Nasdaq Stock Market, the average closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such exchange
or market for the ten trading days (or such lesser number of days if a public
market has not existed for at least ten trading days) prior to the time of
determination, as reported in The Wall Street Journal; (ii) if the security (or
the security into which such security is convertible) is regularly quoted by a
recognized securities dealer but selling prices are not reported, the mean
between the high bid and low asked prices for the security on the last market
trading day prior to the day of determination; or (iii) in the absence of an
established market for the security (or the security into which such security is
convertible), the fair
-2-
<PAGE> 3
market value of such security as reasonably determined in good faith by the
Company's Board of Directors. "Fair Market Value" shall mean, with respect to
property other than a security, the fair market value of such property as
determined in good faith by the Company's Board of Directors.
"Measurement Value" shall be determined at the Exercise Event,
and shall mean: (i) in the case of the Exercise Event described in Section 1.1,
the Fair Market Value of the consideration to be received by the holder of one.
Warrant Share pursuant to the corporate merger, consolidation or other
reorganization; (ii) in the case of the Exercise Event described in Section 1.2
where the Company has elected Election (A), the expected offering price or, if
an expected offering price range is given, the lowest expected offering price
within such range, of one share of the Company's Common stock as stated in the
Registration Statement; (iii) in the case of the Exercise Event described in
Section 1.2 where the Company has elected Election (B), the Fair Market Value of
one Warrant Share; and (iv) in the case of the Exercise Event described in
Section 1.3, $3.76 (subject to appropriate adjustment for stock splits, stock
dividends, combinations, recapitalizations and the like).
"Return Benchmark" shall be determined at the Exercise Event,
and shall be computed using the following formula:
X = (Y x P) x (1.4)(z)
Where:
X = The Return Benchmark
Y = The number of Investment Shares (subject to
appropriate adjustment for stock splits, stock
dividends, combinations, recapitalizations and the
like).
P = The Liquidation Preference of the Company's Series D
Preferred Stock, as defined in Section 1(d) of the
Company's Amended and Restated Articles of
Incorporation
Z = The number of years elapsed from the date of this
Warrant, in all cases prorated to the day on the basis
of a 365 day year, and carried out to three decimal
points
"Return Shortfall" shall mean (x) the Return Benchmark minus
(y) the Measurement Value multiplied by the number of Investment Shares.
2.2 Number of Warrant Shares Calculation. If the Return Shortfall is
equal to or less than zero, then no shares shall be issuable upon exercise of
this Warrant, and this Warrant shall terminate immediately. If the Return
Shortfall is greater than zero, then the number of Warrant Shares issuable with
respect to this Warrant shall be reduced to that number of Warrant Shares equal
to (x) the Return Shortfall, divided by (y) the Measurement Value; provided,
however, that in no event shall the number of Warrant Shares issuable hereunder
be increased by operation of this Section 2.2. If the Company implements or
declares a stock split, stock dividend
-3-
<PAGE> 4
or stock combination, then the determination of the Measurement Value (including
without limitation the amount set forth in clause (iv) of the definition) and
the Return Benchmark shall be adjusted so as to assure that the result intended
as of the date hereof will not be effected as a result of such change to the
Company's capital structure.
3. Method of Exercise; Payment; Issuance of New Warrant.
3.1 Conventional Exercise. The purchase right represented by
this Warrant may be exercised by the Holder on the Exercise Event, by (a) the
surrender of this Warrant (with the notice of exercise form attached hereto as
Attachment A and the Investment Representation Statement attached hereto as
Attachment B duly executed) at the principal office of the Company, and (b) the
payment to the Company, by check or wire, of an amount equal to the then
applicable Warrant Price multiplied by the number of Warrant Shares then being
purchased (the "Aggregate Exercise Price").
3.2 Net Exercise. In addition to and without limiting the
rights of the Holder under the terms of this Warrant, the Holder may elect to
convert this Warrant or any portion thereof (the "Conversion Right") into
Warrant Shares on the Exercise Event, the aggregate value of which Warrant
Shares shall be equal to the value of this Warrant, determined in accordance
with this Section 3.2. The Conversion Right may be exercised by the Holder by
surrender of this Warrant at the principal office of the Company together with
notice of the Holder's intention to exercise the Conversion Right, in which
event the Company shall issue to the Holder a number of Warrant Shares computed
using the following formula:
Y x (A - B)
X = -----------
A
Where:
X = The number of Warrant Shares to be issued to the holder
upon exercise of Conversion Right.
Y = The number of Warrant Shares issuable under this Warrant.
A = The Fair Market Value of one Warrant Share at the time the
Conversion Right is exercised pursuant to this
Section 3.2.
B = The Warrant Price.
3.3 Automatic Exercise. Notwithstanding anything else to the
contrary herein, if any Warrant Shares are issuable pursuant to this Warrant, as
determined in accordance with Section 2 hereof, this Warrant shall automatically
be deemed to be exercised pursuant to Section 3.2 above without any further
action on behalf of the Holder, if, prior to or upon occurrence of the
-4-
<PAGE> 5
Exercise Event, the Holder fails to provide written notice whether it intends to
exercise this Warrant in accordance with Sections 3.1 or 3.2 above.
3.4 Effect of Exercise. Upon receipt by the Company of this
Warrant and such notice of exercise, together with, if applicable, the Aggregate
Exercise Price, at the Company's principal office, or by the stock transfer
agent or warrant agent of the Company at its office, the Holder shall be deemed
to be the holder of record of the applicable Warrant Shares, notwithstanding
that the stock transfer books of the Company shall then be closed or that
certificates representing such Warrant Shares shall not then be actually
delivered to the Holder. The Company shall pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
the Warrant Shares.
4. Stock Fully Paid; Reservation of Warrant Shares. All shares of stock
which may be issued upon the exercise of the rights represented by this Warrant
will, upon issuance, be fully paid and nonassessable, and free from all taxes,
liens and charges with respect to the issue thereof. The Company shall at all
times have authorized and reserved for the purpose of issue upon exercise of the
purchase rights evidenced by this Warrant, a sufficient number of shares of its
stock to provide for the exercise of the rights represented by this Warrant.
5. Adjustment of Warrant Price and Number of Warrant Shares. The number
and kind of Warrant Shares purchasable upon the exercise of this Warrant and the
Warrant Price shall be subject to adjustment from time to time upon the
occurrence of certain events, as follows:
5.1 Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets or other
transaction, in each case which is effected in such a way that the holders of
Warrant Shares are entitled to receive (either directly or on subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Warrant Shares is referred to herein as "Organic Change." Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
(in form and substance satisfactory to the Holder) to ensure that the Holder
shall thereafter have the right to acquire and receive, in lieu of the Warrant
Shares, such shares of stock, securities or assets as may be issued or payable
with respect to or in exchange for the number of Warrant Shares immediately
theretofore acquirable and receivable upon exercise of this Warrant had such
Organic Change had not occurred. Furthermore, the Company shall, as condition
precedent to such Organic Change, execute a new Warrant providing that the
Holder shall have the right to exercise such new Warrant and upon such exercise
to receive, in lieu of each share of stock theretofore issuable upon exercise of
this Warrant, the kind and amount of shares of stock, other securities, money
and property receivable upon such Organic Change by a holder of one share of the
Warrant Shares immediately prior to such Organic Change. Such new Warrant shall
provide for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The provisions of
this Section 5.1 shall similarly apply to successive Organic Changes.
-5-
<PAGE> 6
5.2 Subdivision or Combination of Warrant Shares. If the
Company at any time while this Warrant remains outstanding and unexpired shall
subdivide or combine the class of stock defined herein as Warrant Shares, the
number of Warrant Shares issuable hereunder shall be proportionately increased
in the case of a subdivision or decreased in the case of a combination, in each
case to the nearest whole share.
5.3 Stock Dividends. If the Company at any time while this
Warrant is outstanding and unexpired shall pay a dividend with respect to stock
payable in, or make any other distribution with respect to stock (except any
distribution specifically provided for in the foregoing Sections 5.1 and 5.2)
of, stock, then the number of Warrant Shares issuable hereunder shall be
adjusted, to the nearest whole share, from and after the date of determination
of shareholders entitled to receive such dividend or distribution, to that
number determined by multiplying the number of Warrant Shares issuable hereunder
immediately prior to such date of determination by a fraction (i) the numerator
of which shall be the total number of shares of stock outstanding immediately
after such dividend or distribution, and (ii) the denominator of which shall be
the total number of shares of stock outstanding immediately prior to such
dividend or distribution.
5.4 Adjustment of Warrant Price. Upon each adjustment in the
number of Warrant Shares issuable hereunder pursuant to this Section 5, the
Warrant Price shall be adjusted to the product obtained by multiplying the
Warrant Price immediately prior to such adjustment by a fraction, the numerator
of which shall be the number of Warrant Shares issuable hereunder immediately
prior to such adjustment and the denominator of which shall be the number of
Warrant Shares issuable hereunder immediately thereafter.
6. Fractional Warrant Shares. No fractional Warrant Shares will be
issued in connection with any exercise hereunder, but in lieu of such fractional
shares the Company shall make a cash payment therefor upon the basis of the
difference between the Fair Market Value of one Warrant Share and the Warrant
Price then in effect.
7. Compliance with Securities Act; Non-transferability of Warrant;
Disposition of Shares of Stock.
7.1 Compliance with Securities Act. The Holder, by acceptance
hereof, agrees that this Warrant and the Warrant Shares are being acquired for
investment and that he will not offer, sell or otherwise dispose of this Warrant
or any Warrant Shares except under circumstances which will not result in a
violation of the Act. Upon exercise of this Warrant, the Holder hereof shall
confirm in writing, in a form of Attachment B, that the Warrant Shares so
purchased are being acquired for investment and not with a view toward
distribution or resale. In addition, the Holder shall provide such additional
information regarding such Holder's financial and investment background as the
Company may reasonably request. This Warrant and all Warrant Shares (unless
registered under the Act) shall be stamped or imprinted with a legend in
substantially the following form:
-6-
<PAGE> 7
"THE SECURITY REPRESENTED BY THIS CERTIFICATE WAS ORIGINALLY ISSUED ON
MARCH 10, 1998, AND HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. EXCEPT AS PROVIDED IN SECTION 7.2 HEREOF, NO SALE OR DISPOSITION
MAY BE EFFECTED WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMPANY OR
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN
OPINION OF COUNSEL FOR THE HOLDER, REASONABLY SATISFACTORY TO THE
COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT OR
RECEIPT OF A NO-ACTION LETTER FROM THE SECURITIES AND EXCHANGE
COMMISSION.
THE SALE OF THESE SECURITIES HAS NOT BEEN QUALIFIED WITH ANY STATE
SECURITIES AUTHORITIES. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE
EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION BEING OBTAINED UNLESS THE
SALE IS SO EXEMPT."
7.2 Transferability of Warrant. Neither this Warrant nor any
Warrant Shares may not be transferred or assigned without (i) the prior written
consent of the Company and (ii) compliance with applicable federal and state
securities laws; provided, however, that the Warrant and any Warrant Shares may
be transferred without the prior written consent of the Company (subject to any
other contractual restrictions affecting this Warrant and the Warrant Shares) in
the following transactions:
A transfer of the Warrant in whole or in part by a
Holder who is a natural person during such Holder's lifetime or on death by will
or intestacy to such Holder's Immediate Family or to any custodian or trustee
for the account of such Holder or such Holder's Immediate Family. "Immediate
Family" as used herein shall mean spouse, lineal descendant (including adopted
children), father, mother, brother, or sister of the Holder.
A transfer of the Warrant in whole or in part to the
Company or to any shareholder of the Company.
A transfer of the Warrant in whole or in part to a
person who, at the time of such transfer, is or is an affiliate of an officer or
director of the Company.
A transfer of the Warrant in whole or in part pursuant
to and in accordance with the terms of any merger, consolidation,
reclassification of shares or capital reorganization of a shareholder that is an
entity or pursuant to a sale of all or substantially all of the equity interests
of a shareholder that is an entity.
A transfer of the Warrant in whole or in part to a
parent, subsidiary or affiliate of a Holder.
-7-
<PAGE> 8
A transfer of the Warrant in whole or in part by a
Holder which is a limited or general partnership or a limited liability company
to any of its partners or former partners, or members or former members, or to
officers, directors, employees or managers of the partnership or limited
liability company.
7.3 Disposition of Warrant Shares. With respect to any offer,
sale or other disposition of any Warrant Shares prior to registration of such
shares (other than those permitted under Section 7.2), the Holder and each
subsequent Holder of this Warrant agrees to give written notice to the Company
prior thereto, describing briefly the manner thereof, together with a written
opinion of such Holder's counsel, if reasonably requested by the Company, to the
effect that such offer, sale or other disposition may be effected without
registration or qualification (under the Act as then in effect or any federal or
state law then in effect) of such Warrant Shares and indicating whether or not
under the Act certificates for such shares to be sold or otherwise disposed of
require any restrictive legend as to applicable restrictions on transferability
in order to ensure compliance with the Act; provided, however, that no such
opinion of counsel or no action letter shall be necessary for a transfer without
consideration by a Holder which is a partnership to a partner of such
partnership, so long as such transfer is made pursuant to the terms of the
partnership agreement, or to the transfer by gift, will or intestate succession
by the Holder to his or her spouse or lineal descendants or ancestors or any
trust for the benefit of any of the foregoing if the transferee agrees in
writing to be subject to the terms hereof to the same extent as if he/she were
an original Holder hereunder. Notwithstanding the foregoing, such Warrant Shares
may be offered, sold or otherwise disposed of in accordance with Rule 144.
8. Rights of Shareholders. No Holder of this Warrant shall be entitled
to vote or receive dividends or be deemed the holder of stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Holder of this Warrant, as such, any of the rights of a
shareholder of the Company or any right to vote for the election of directors or
upon any matter submitted to shareholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any recapitalization,
issuance of stock, reclassification of stock, change of par value or change of
stock to no par value, consolidation, merger, conveyance, or otherwise) or to
receive notice of meetings, or to receive dividends or subscription rights or
otherwise until this Warrant has been exercised and the Warrant Shares shall
have become deliverable, as provided herein.
9. Governing Law. The terms and conditions of this Warrant shall be
governed by and construed in accordance with California law.
-8-
<PAGE> 9
10. Miscellaneous. The headings in this Warrant are for purposes of
convenience and reference only, and shall not be deemed to constitute a part
hereof. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally, but only by an instrument in writing signed by
the Company and the registered Holder. All notices and other communications from
the Company to the Holder shall be delivered by hand or mailed by first-class
registered or certified mail, postage prepaid, to the address furnished to the
Company in writing by the Holder.
IN WITNESS WHEREOF, the Company has issued this Series D Preferred
Stock Purchase Warrant as of the date first above written.
THE LIGHTSPAN PARTNERSHIP, INC.
By: /s/ CARL ZEIGER
----------------------------------------
Carl Zeiger, President
-9-
<PAGE> 10
ATTACHMENT A
NOTICE OF EXERCISE
TO: The Lightspan Partnership, Inc.
1. The undersigned hereby elects to purchase shares of stock of The
Lightspan Partnership, Inc. pursuant to the terms of the attached Warrant, and
tenders herewith payment of the purchase price of such shares in full.
1. The undersigned hereby elects to convert the attached Warrant into
Warrant Shares in the manner specified in Section 3.2 of the Warrant.
[STRIKE PARAGRAPH ABOVE THAT DOES NOT APPLY.]
2. Please issue a certificate or certificates representing said shares
of stock in the name of the undersigned or in such other name as is specified
below:
Name:_________________________________
Address:______________________________
______________________________
______________________________
3. The undersigned represents that the aforesaid shares of stock are
being acquired for the account of the undersigned for investment and not with a
view to, or for resale in connection with, the distribution thereof and that the
undersigned has no present intention of distributing or reselling such shares.
In support thereof, the undersigned has executed an Investment Representation
Statement attached hereto as Attachment B.
______________________________________
WARRANTHOLDER
By:___________________________________
Title:________________________________
Date:___________________________
<PAGE> 11
ATTACHMENT B
INVESTMENT REPRESENTATION STATEMENT
PURCHASER :
COMPANY : THE LIGHTSPAN PARTNERSHIP, INC.
SECURITY :
AMOUNT :
DATE :
In connection with the purchase of the above-listed securities and underlying
stock (the "Securities"), I, the Purchaser, represent to the Company the
following:
(a) I am aware of the Company's business affairs and financial
condition, and have acquired sufficient information about the Company to reach
an informed and knowledgeable decision to acquire the Securities. I am
purchasing these Securities for my own account for investment purposes only and
not with a view to, or for the resale in connection with, any "distribution"
thereof for purposes of the Securities Act of 1933, as amended (the "Act").
(b)I understand that the Securities have not been registered
under the Securities Act in reliance upon a specific exemption therefrom, which
exemption depends upon, among other things, the bona fide nature of my
investment intent as expressed herein. In this connection, I understand that, in
the view of the Securities and Exchange Commission ("SEC"), the statutory basis
for such exemption may be unavailable if my representation was predicated solely
upon a present intention to hold these Securities for the minimum capital gains
period specified under tax statutes, for a deferred sale, for or until an
increase or decrease in the market price of the Securities, or for a period of
one year or any other fixed period in the future.
(c) I further understand that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from registration is otherwise available. Moreover, I understand
that the Company is under no obligation to register the Securities. In addition,
I understand that the certificate evidencing the Securities will be imprinted
with a legend which prohibits the transfer of the Securities unless they are
registered or such registration is not required in the opinion of counsel for
the Company.
(d) I am aware of the provisions of Rule 144, promulgated
under the Securities Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly
<PAGE> 12
or indirectly, from the issuer thereof (or from an affiliate of such issuer), in
a non-public offering subject to the satisfaction of certain conditions.
(e) I further understand that at the time I wish to sell the
Securities there may be no public market upon which to make such a sale.
(f) I further understand that in the event all of the
requirements of Rule 144 are not satisfied, registration under the Securities
Act, compliance with Regulation A, or some other registration exemption will be
required; and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
_____________________________________
WARRANTHOLDER
_____________________________________
(signature)
_____________________________________
(title)
Date:________________________,_______
<PAGE> 1
EXHIBIT 10.33
AMENDMENT AND WAIVER
This AMENDMENT AND WAIVER is entered into as of October 28, 1999 by and
between THE LIGHTSPAN PARTNERSHIP, INC. (the "COMPANY") and the undersigned
(each an "INVESTOR" and collectively the "INVESTORS"). All capitalized terms
used herein but not otherwise defined herein shall have the meaning set forth in
the IRA (as defined below).
RECITALS
WHEREAS, the Company desires to file a registration statement on Form
S-1 under the Securities Act of 1933, as amended, (the "REGISTRATION STATEMENT")
to register shares of its Common Stock for sale in a public offering (the
"IPO");
WHEREAS, as set forth in Section 1.6 of the Amended and Restated
Investor Rights Agreement dated as of July 8, 1999 by and among the Company and
the persons or entities listed on Exhibit A thereto (the "IRA"), the Company
must give notice (the "NOTICE") to the Holders if at any time the Company shall
determine to register its securities and include in such registration all of the
Registrable Securities that such Holders request that the Company include (the
"PIGGYBACK RIGHTS");
WHEREAS, Section 5.7 of the IRA provides that Holders of at least 50% of
the Registrable Securities shall have the ability to amend the IRA and to waive
any rights under the IRA;
WHEREAS, the Investors collectively represent (i) 50% of the Holders of
Registrable Securities;
WHEREAS, the Investors desire to waive their rights to receive Notice
and their Piggyback Rights to permit the Company to file the Registration
Statement without including Registrable Securities thereunder.
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. The right to receive Notice as set forth in Section 1.6(a)(i) of the
IRA and the Piggyback Rights set forth in Section 1.6 of the IRA are hereby
waived as to any Registration Statement approved by the Company's Board of
Directors on October 28, 1999.
<PAGE> 2
IN WITNESS WHEREOF, the parties have executed this WAIVER as of the date
first above written.
COMPANY:
THE LIGHTSPAN PARTNERSHIP, INC.
By:
------------------------------
Its:
------------------------------
[Signature Page to Waiver]
<PAGE> 3
INVESTOR:
- ---------------------------------
By:
------------------------------
Its:
------------------------------
[Signature Page to Waiver]
<PAGE> 1
EXHIBIT 21.1
Subsidiaries of Registrant
Academic Systems Corporation
CTV Networks
Lightspan Entertainment, Inc.
1.
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated March 25, 1999, with respect to the financial
statements of The Lightspan Partnership, Inc., and October 28, 1999, with
respect to the financial statements of Academic Systems Corporation, in the
Registration Statement (Form S-1) and the related prospectus of The Lightspan
Partnership, Inc. for the registration of shares of its common stock.
ERNST & YOUNG LLP
San Diego, California
October 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 6-MOS
<FISCAL-YEAR-END> JAN-31-1999 JAN-31-2000
<PERIOD-START> FEB-01-1998 FEB-01-1999
<PERIOD-END> JAN-31-1999 JUL-31-1999
<CASH> 7,142,938 25,569,628
<SECURITIES> 0 0
<RECEIVABLES> 7,794,981 11,253,006
<ALLOWANCES> 400,000 (649,995)
<INVENTORY> 1,267,237 463,734
<CURRENT-ASSETS> 17,251,153 38,030,133
<PP&E> 5,770,607 6,416,042
<DEPRECIATION> (4,132,721) 4,721,714
<TOTAL-ASSETS> 19,010,217 39,892,604
<CURRENT-LIABILITIES> 13,919,974 16,244,800
<BONDS> 0 0
35,527 40,821
0 0
<COMMON> 7,081 7,831
<OTHER-SE> 4,271,669 22,798,267
<TOTAL-LIABILITY-AND-EQUITY> 19,010,217 39,892,604
<SALES> 30,831,424 19,499,529
<TOTAL-REVENUES> 30,831,424 19,499,529
<CGS> 11,508,137 7,121,572
<TOTAL-COSTS> 47,777,972 28,397,394
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> (417,713) 70,297
<INCOME-PRETAX> (16,528,835) (8,968,162)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (16,528,835) (8,968,162)
<EPS-BASIC> (0.38) (1.21)
<EPS-DILUTED> (0.38) (1.21)
</TABLE>
