<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 13, 2000
REGISTRATION NO. 333-90103
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 2
TO
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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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.
ETHAN E. CHRISTENSEN, ESQ. CHRISTOPHER M. LAL, ESQ.
COOLEY GODWARD LLP O'MELVENY & MYERS LLP
4365 EXECUTIVE DRIVE, SUITE 1100 610 NEWPORT CENTER DRIVE, 17TH FLOOR
SAN DIEGO, CA 92121 NEWPORT BEACH, CA 92660-6429
(858) 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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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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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 JANUARY 13, 2000
7,500,000 Shares
LIGHTSPAN LOGO
Common Stock
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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 $10.00 and $12.00 per share. Our common stock has been approved for
listing upon notice of issuance on The Nasdaq Stock Market's National Market
under the symbol "LSPN."
The underwriters have an option to purchase a maximum of 1,125,000
additional shares to cover over-allotments of shares.
In connection with and conditioned upon the sale of the shares in the
initial public offering, we will sell to CINAR Corporation in a concurrent
private placement an additional $10 million of shares of common stock at the
initial public offering price. Also conditioned upon the sale of the shares in
the initial public offering and other requirements, we will sell to Cox
Communications Holdings, Inc. and Gateway Companies, Inc. in concurrent private
placements an additional $12.5 million and $3.0 million, respectively, of shares
of common stock at the initial public offering price.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
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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.
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[Photo of three smiling children with "How smart can a kid get?"]
[Photos of Lightspan Achieve Now products]
LIGHTSPAN ACHIEVE NOW
A series of media-rich, interactive software programs for K-8 students that
covers the core curriculum - language arts, reading and math. Used in
classrooms and at home, Lightspan Achieve Now 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 addresses
the needs of under-prepared college students. The courses are designed to adapt
to each student's academic needs and learning style. Faculty members orchestrate
the instruction and receive reports on student performance on the Internet or
the college's local area network.
[Photo of Academic Systems Web site home page]
LIGHTSPAN YOUR SCHOOL ONLINE
A free home page builder for schools. It integrates with Lightspan PageOne's
classroom home pages and includes the ability to organize Web links, a calendar
to keep students and families informed about school events, and Web usage
statistics.
THE LIGHTSPAN NETWORK(R)
The Lightspan Network is Lightspan's premier online classroom resource,
providing a rich array of K-8 curriculum-based content correlated to state
academic standards. A subscription service, TLN provides a commercial-free
environment that offers curriculum that can be customized by state, as well as
in-house customer support.
LIGHTSPAN PAGEONE
Lets teachers easily build a classroom home page with the online educational
resources they need: access to 115,000 reviewed Web sites, learning activities,
lesson plans, tools to post homework, online dictionary, thesaurus and
encyclopedias, and the ability to share these features with students' families.
[Photo of Lightspan.com home page]
LIGHTSPAN.COM
The portal for K-12 education. This site is the gateway to all the learning
services Lightspan provides: Lightspan PageOne, Global Schoolhouse, StudyWeb,
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. Global Schoolhouse facilitates 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. The Lightspan
Learning Store offers educational products to teachers and families.
STUDYWEB
An online "homework helper" categorized by subject matter and including grade
level recommendations and content descriptions. Study Web helps students easily
find research resources on the Web without encountering inappropriate materials.
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TABLE OF CONTENTS
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PAGE
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PROSPECTUS SUMMARY.................... 3
RISK FACTORS.......................... 7
FORWARD-LOOKING STATEMENTS............ 16
USE OF PROCEEDS....................... 17
DIVIDEND POLICY....................... 17
CAPITALIZATION........................ 18
DILUTION.............................. 20
SELECTED HISTORICAL AND PRO FORMA
FINANCIAL DATA...................... 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND OPERATING
RESULTS............................. 24
BUSINESS.............................. 37
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PAGE
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MANAGEMENT............................ 58
RELATED-PARTY TRANSACTIONS............ 66
PRINCIPAL STOCKHOLDERS................ 68
DESCRIPTION OF CAPITAL STOCK.......... 71
SHARES ELIGIBLE FOR FUTURE SALE....... 73
UNDERWRITING.......................... 75
NOTICE TO CANADIAN RESIDENTS.......... 78
LEGAL MATTERS......................... 79
EXPERTS............................... 79
ADDITIONAL INFORMATION................ 79
INDEX TO FINANCIAL STATEMENTS......... F-1
</TABLE>
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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.
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, Inc. provides 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
435 school districts in 46 states and implemented in over 2,250 schools and
11,075 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 materials in
kindergarten through college education. To achieve this objective, we expect to
draw on the educational technology and Internet experience of our management,
sales and marketing and Internet teams to pursue the following strategies:
- capitalize on our current market position;
- continue to develop and enhance Lightspan.com;
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- enhance our Lightspan Achieve Now curriculum with content delivery
available through new Internet and broadband technologies;
- create additional Internet-based revenue streams; 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.................... 7,500,000 shares
Common stock to be outstanding after the
offering................................ 41,631,431 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 December 31, 1999,
and giving effect to:
- the conversion of all of our outstanding preferred stock into 27,087,826
shares of common stock in connection with the offering;
- 909,091 shares, assuming an initial public offering price of $11 per
share, expected to be issued to CINAR Corporation in a private placement
concurrently with the closing of this offering;
- 1,136,364 shares, assuming an initial public offering price of $11 per
share, expected to be issued to Cox Communication Holdings, Inc. in a
private placement concurrently with the closing of this offering; and
- 272,727 shares, assuming an initial public offering price of $11 per
share, expected to be issued to Gateway Companies, Inc. in a private
placement concurrently with the closing of this offering.
However, it does not include, as of December 31, 1999:
- 5,140,272 shares of common stock reserved for issuance under our stock
benefit plans, 3,737,451 of which were covered by outstanding options
with a weighted average exercise price of $3.96 per share and 242,773 of
which were available for future grants;
- 1,250,000 and 500,000 additional shares of common stock that will be
reserved for issuance as of the closing of this offering under our 2000
Equity Incentive Plan and our 2000 Employee Stock Purchase Plan,
respectively;
- warrants to purchase 749,605 shares of preferred stock, which will become
warrants to purchase 403,591 shares of common stock at a weighted average
exercise price of $6.64 per share upon completion of this offering;
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- warrants to purchase approximately 517,059 shares of common stock,
assuming an initial public offering price of $11.00 per share, which will
be exercised for $0.02 per share upon completion of this offering;
- a warrant to purchase 750,000 shares of common stock scheduled to be
issued to Cox Communications Holdings, Inc. concurrently with the closing
of this offering; and
- a warrant to purchase 500,000 shares of Series E preferred stock issued
to CINAR Corporation.
RECENT DEVELOPMENTS
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 worldwide. CINAR is an international 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 2,500,000 shares of our Series E preferred stock, which will convert
into 1,250,000 shares of common stock at the close of this offering, 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 scheduled to occur
concurrently with our initial public offering. Thus, assuming an initial public
offering price of $11 per share, we will issue 909,091 shares to CINAR. We also
granted CINAR a warrant to purchase 500,000 shares of our Series E preferred
stock that will vest upon the achievement of various agreed-to strategic goals.
This warrant will become a warrant to purchase 250,000 shares of common stock at
the close of this offering.
In January 2000, we agreed to pursue strategic initiatives with Cox
Communications Holdings, Inc. Cox Communications is among the nation's largest
broadband communications companies, serving more than 3.8 million customers in
18 locations. Cox Communications also provides a wide variety of services to
schools in their cable communities through its "Cable in the Classroom"
initiative which provides public schools with free basic cable service and
learning guides. As part of our agreement, Cox Communications agreed to purchase
$12.5 million of our common stock, or 1,136,364 shares assuming an initial
public offering price of $11 per share, in a private placement scheduled to
occur concurrently with our initial public offering upon satisfaction of several
conditions. We also granted Cox Communications a warrant to purchase 750,000
shares of our common stock. The warrant will vest upon the achievement of
various agreed-to strategic goals related to the proposed use of Lightspan
Achieve Now and Lightspan.com products in trials by Cox Communications of cable
offerings over digital set-top boxes.
Also, in January 2000, Gateway Companies, Inc. agreed to purchase $3.0
million of our common stock, or 272,727 shares assuming an initial public
offering price of $11 per share, in a private placement that is scheduled to
occur concurrently with our initial public offering. This investment by Gateway
is subject to the satisfaction of several conditions, including our jointly
entering into an Internet sponsorship agreement whereby Gateway would become a
sponsor of Lightspan.com. Gateway, a manufacturer of personal computers, is
Lightspan's preferred provider of personal computers.
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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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YEAR ENDED NINE MONTH PERIOD ENDED
JANUARY 31, 1999 OCTOBER 31, 1999
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ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1)
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STATEMENT OF OPERATIONS DATA:
Revenues......................................... $ 30,831 $ 37,208 $ 31,051 $ 36,779
Gross profit..................................... 19,323 23,561 20,201 24,343
Loss from operations............................. (16,947) (36,762) (19,002) (29,255)
Net loss......................................... (16,529) (36,232) (18,771) (29,149)
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AT OCTOBER 31, 1999
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ACTUAL AS ADJUSTED(2)
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BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 22,672 $122,467
Working capital............................................. 10,967 110,762
Total assets................................................ 91,674 191,469
Capital lease obligations, less current portion............. 526 526
Total shareholders' equity.................................. 64,907 177,702
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(1) The pro forma statement of operations data for the year ended January 31,
1999 and the nine months ended October 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 collection of $13,000,000 in
stock subscriptions receivable in November 1999 and 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 sales of common stock to CINAR, Cox
Communications and Gateway and from this offering at an assumed initial
public offering price of $11.00 per share, after deducting estimated
underwriting discounts and commissions and estimated offering expenses.
-----------------------
Except as otherwise indicated, all information in this prospectus assumes:
- the underwriters' over-allotment option will not be exercised;
- a one-for-two reverse stock split of 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 an amended and restated certificate of incorporation.
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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 ranged between $6.6 million and $12.9 million and
our quarterly net loss ranged between $3.7 million and $9.8 million over the
four quarters ended October 31, 1999. We expect significant fluctuations in our
quarterly revenues and operating results 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 October 31,
1999, we had an accumulated deficit of $125.0 million. We incurred net losses of
$16.5 million for the fiscal year ended January 31, 1999 and $18.8 million for
the nine months ended October 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;
- acquisition of additional office space and other necessary facilities;
and
- amortization of intangible assets and goodwill recorded in connection
with our acquisitions of Academic Systems, Global Schoolhouse and
StudyWeb.
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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 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.
WE MAY NEED ADDITIONAL FINANCING TO MEET OUR STRATEGIC BUSINESS OBJECTIVES,
WHICH MAY NOT BE AVAILABLE AND, IF AVAILABLE, MIGHT HURT OUR EXISTING
STOCKHOLDERS.
As we enter into new areas of business, like Internet 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 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.
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 nine months ended October 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
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- 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.
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. Our ability to increase revenues from these
sources depends on:
- improvement of the accessibility and ease of use of our Web sites;
- development of Web sites that are sufficiently engaging to increase and
retain our number of teacher, student and parent visitors;
- purchase by parents and teachers of the products being offered at our
electronic commerce Web sites;
- initiation and growth of sponsorships and banner advertisement sales; and
- 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 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 GAME
CONSOLES COULD REDUCE OUR LIGHTSPAN ACHIEVE NOW SALES OR INCREASE RELATED
EXPENSES.
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, if the PlayStation game console loses popular appeal or
if we are unable to obtain an adequate supply of PlayStation game consoles on a
timely basis, our ability to sell our Lightspan Achieve Now curriculum will be
reduced and we could incur significant additional expenses or lose substantial
revenues.
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, 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.
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<PAGE> 12
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, WHICH COULD LEAD TO LOWER THAN EXPECTED REVENUES.
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, which could lead to lower than expected revenues.
CHANGES IN FUNDING FOR PUBLIC SCHOOL SYSTEMS COULD REDUCE OUR REVENUES AND
IMPEDE THE GROWTH OF OUR INTERNET BUSINESSES.
We derive a substantial portion of our revenues from public school funding,
which is heavily 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, in part
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
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<PAGE> 13
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.
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.
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.
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.
Our competitors include:
- software publishers that market educational curriculum products to
schools and homes;
- on-line education-related content and electronic commerce providers
(including Internet content providers that license education-oriented
content from third parties and Internet retailers that may enter the
education electronic commerce market); and
- programs that enable remote learning, assume management of schools, or
provide concentrated tutoring services.
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<PAGE> 14
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.
OUR ACQUISITIONS OF OTHER BUSINESSES AND INVOLVEMENT IN STRATEGIC RELATIONSHIPS
MAY NOT BE SUCCESSFUL, WHICH COULD DISTRACT OUR MANAGEMENT OR CAUSE US TO INCUR
ADDITIONAL EXPENSES.
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. Our integration of these acquisitions or any future
acquisitions could distract our management or cause us to incur additional
expenses, and could cause our business and operations to 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 hope to participate in a digital set-top box trial with Cox
Communications and we expect Gateway will become a sponsor on our Web site. We
cannot assure you that we will implement these initiatives and other activities
and arrangements, particularly because we still need to negotiate some terms of
the arrangements with each of them. If implemented, they, or any other strategic
relationships we may enter into, may increase our expenses or divert efforts of
our management and may not be successful.
THE OPERATIONS OF ACADEMIC SYSTEMS WILL BE SUBSTANTIALLY IMPACTED IF DATABASE
SOFTWARE WE LICENSE FROM ORACLE CORPORATION CEASES TO BE AVAILABLE TO ACADEMIC
SYSTEMS FOR ANY REASON.
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.
IF WE DO NOT SUCCESSFULLY ANTICIPATE AND ADAPT TO CHANGES IN COMPUTER PLATFORMS
AND OTHER EVOLVING TECHNOLOGIES, OUR OPERATING RESULTS RELATING TO SALES OF OUR
SOFTWARE PRODUCTS COULD SUFFER.
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 that may not be offset by additional revenues or
may delay our realization of revenues from these activities. Market acceptance
of our software products and our operating results relating to their sale could
also be worse than we expect 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
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<PAGE> 15
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.
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.
CLAIMS RELATING TO DATA COLLECTION FROM OUR USER BASE AND CONTENT AVAILABLE ON
OR ACCESSIBLE FROM OUR WEB SITES MAY SUBJECT US TO LIABILITIES AND ADDITIONAL
EXPENSE AND DECREASE TRAFFIC TO OUR WEB SITES.
We currently collect only the names of teachers who are registering for our
Internet products. However, we may in the future collect names and other
personal information relating to students, teachers and parents, and may sell
our user information on an aggregated, non-individual basis, though we do not
intend to sell information relating to children under 13. 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. The Federal Trade
Commission, for example, 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 could also be subject to liability based
on claims relating to content that is published on our Web sites or that is
accessible from our network through links to other Web sites. In addition to
subjecting us to potential liability, claims of this type could require us to
change our Web sites in a manner that could be less attractive to our customers
and divert our financial and development resources.
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<PAGE> 16
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 would disrupt operations in their respective departments and
could cause our overall financial results to suffer. 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.
YEAR 2000 PROBLEMS COULD LEAD TO MALFUNCTIONS OF OUR COMPUTER AND COMMUNICATIONS
SYSTEMS, AND PREVENT US FROM RUNNING OUR BUSINESS.
Some computer programs cannot tell the difference between the year 2000 and
the year 1900. If we or any third parties with whom we have a material
relationship suffer adverse effects of the change from 1999 to 2000, now or in
coming months, we may be temporarily prevented from operating any and all
aspects of our business in the ordinary course. In a worst case scenario, we may
be unable to make or receive phone calls at our facilities, process or ship
orders, make payments due to third parties and our employees, or operate our
Internet businesses.
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 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.
OUR EXECUTIVE OFFICERS, DIRECTORS AND MAJOR STOCKHOLDERS WILL CONTROL 58.2% OF
OUR COMMON STOCK AFTER THIS OFFERING.
After this offering and the private placements expected to occur at the
same time, executive officers, directors and holders of 5% or more of our
outstanding common stock will, in the aggregate, beneficially own 58.2% 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.
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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 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 $8.29 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 34.1 MILLION, OR 82.0%, OF OUR TOTAL OUTSTANDING SHARES ARE
RESTRICTED FROM IMMEDIATE RESALE BUT MAY BE SOLD INTO THE MARKET IN THE NEAR
FUTURE. WE WILL ALSO ISSUE ADDITIONAL STOCK FOLLOWING THIS OFFERING. THIS WILL
INCREASE THE SUPPLY OF COMMON STOCK AVAILABLE FOR RESALE, AND COULD INCREASE
TRADING ACTIVITY AND 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 this offering and our expected private sales of
common stock to CINAR, Cox Communications, and Gateway, assuming a public
offering price of $11.00 per share, we will have 41,631,431 shares of common
stock outstanding, based on the number of our outstanding shares on December 31,
1999. 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 34,131,431 shares of common
stock outstanding after this offering, 26,993,927 shares will be eligible for
sale in the public market beginning 181 days after the date of this prospectus.
The remaining 7,137,504 shares will become available at various
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times thereafter upon the expiration of one-year holding periods. We also intend
to register up to approximately 5,730,224 additional shares of our common stock
after this offering for issuance under our equity plans and may issue additional
stock in connection with acquisitions or strategic relationships and to some of
our existing stockholders.
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
$75.2 million, at an assumed initial public offering price of $11.00 per share,
after deducting the underwriting discount and commissions and estimated offering
expenses. Our net proceeds from the offering will be approximately $86.7 million
if the over-allotment option is exercised in full. We also expect to receive an
additional $10 million, $12.5 million and $3.0 million, for a total of
approximately $24.6 million after payment of financial advisory fees relating to
our agreements with Cox Communications and Gateway, as a result of our sales to
CINAR, Cox Communications and Gateway respectively, of common stock in private
placements concurrent with the closing of the initial public offering.
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 October 31, 1999:
- On an actual basis after giving effect to 2,600,000 shares of Series E
preferred stock subscribed to in October 1999 and issued in November
1999;
- On a pro forma basis after giving effect to the conversion of all of our
outstanding shares of preferred stock into 27,087,826 shares of common
stock upon the closing of the offering and the collection of $13.0
million in stock subscriptions receivable in November 1999; and
- On a pro forma as adjusted basis, giving effect to our issuance of common
stock in the offering at an assumed price of $11.00 per share and our
anticipated receipt of the proceeds from our private sales of common
stock to CINAR, Cox Communications, and Gateway.
This information should be read in conjunction with our financial
statements and related notes included elsewhere in this prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1999
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Capital lease obligations, less current portion... $ 526,458 $ 526,458 $ 526,458
Shareholders' equity(1):
Series A preferred stock, $.001 par value;
7,615,500 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;
22,000,000 shares authorized and 16,703,022
shares issued and outstanding, actual; 0 shares
authorized, none issued and outstanding, pro
forma and pro forma as adjusted................. 16,703 -- --
</TABLE>
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<TABLE>
<CAPTION>
OCTOBER 31, 1999
---------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------------- ------------- -------------
<S> <C> <C> <C>
Common Stock, $.001 par value; 75,000,000 shares
authorized and 4,625,389 shares issued and
outstanding, actual; 31,713,215 shares issued and
outstanding, pro forma (unaudited); 250,000,000
shares authorized, 41,258,670 shares issued and
outstanding, pro forma as adjusted................ 4,625 31,713 41,531
Additional paid-in capital........................ 209,464,854 209,489,996 309,275,178
Stock subscriptions receivable.................... (13,000,000) -- --
Deferred advertising expense...................... (400,000) (400,000) (400,000)
Deferred compensation............................. (6,236,490) (6,236,490) (6,236,490)
Accumulated deficit............................... (124,977,948) (124,977,948) (124,977,948)
------------- ------------- -------------
Total shareholders' equity.............. 64,907,271 77,907,271 177,702,271
------------- ------------- -------------
Total capitalization.................... $ 65,433,729 $ 78,433,729 $ 178,228,729
============= ============= =============
</TABLE>
- ---------------
(1) Other than as indicated in the introduction to the table, share numbers in
the table do not include issuances subsequent to October 31, 1999, or the
following shares:
- as of October 31, 1999, 5,153,941 shares of common stock reserved for
issuance under our stock benefit plans, of which 3,714,076 shares were
covered by outstanding options with a weighted average exercise price of
$3.64 per share and 366,361 shares remain available for grant;
- 517,059 shares of common stock (assuming a price of $11.00 per share in
this offering) issuable upon exercise of outstanding warrants at an
exercise price of $0.02 per share;
- 750,000 shares of common stock issuable at an exercise price of $10.00
per share upon exercise of a warrant scheduled to be issued concurrent
with the closing of this offering;
- 150,000 shares of Series A preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $1.00 per share (which will
become warrants to purchase 75,000 shares of common stock at an exercise
price of $2.00 per share upon the closing of this offering);
- 150,000 shares of Series B preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $3.00 per share (which will
become warrants to purchase 75,000 shares of common stock at an exercise
price of $6.00 per share upon the closing of this offering);
- 154,189 shares of Series C preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $3.76 per share (which will
become warrants to purchase 77,096 shares of common stock at an exercise
price of $7.52 per share upon the closing of this offering);
- 183,105 shares of Series D preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $3.76 per share (which will
become warrants to purchase 91,556 shares of common stock at an exercise
price of $7.52 per share upon the closing of this offering); and
- 127,659 shares of Series D preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $4.70 per share (which will
become warrants to purchase 63,830 shares of common stock at an exercise
price of $9.40 per share upon the closing of this offering).
- 42,216 shares of Series E preferred stock issuable upon exercise of
outstanding warrants at an exercise price of $5.00 per share (which will
become warrants to purchase 21,109 shares of common stock at an exercise
price of $10.00 per share upon the closing of this offering);
- 500,000 shares of Series E preferred stock issuable upon exercise of an
outstanding warrant at an exercise price of $5.00 per share (which will
become a warrant to purchase 250,000 shares of common stock at an
exercise price of $10.00 per share upon the closing of this offering).
19
<PAGE> 22
DILUTION
As of October 31, 1999, our pro forma net tangible book value, after giving
effect to conversion of all of our preferred stock then outstanding, was
approximately $12.8 million, or $.40 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 $11.00 per share, our expected
private sales of common stock to CINAR, Cox Communications, and Gateway and our
receipt of the estimated net proceeds from all of those transactions, our pro
forma net tangible book value as of October 31, 1999 would have been
approximately $112.6 million, or $2.71 per share. This represents an immediate
increase in net tangible book value of $2.31 per share to existing stockholders
and an immediate dilution of $8.29 per share to new investors. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $11.00
Pro forma net tangible book value per share before the
offering............................................... $ .40
Increase per share attributable to new investors.......... 2.31
-----
Pro forma net tangible book value per share after this
offering.................................................. 2.71
------
Dilution per share to new investors......................... $ 8.29
======
</TABLE>
The following table summarizes, on a pro forma basis as of October 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................. 31,713,215(1) 76% $158,648 59% $ 5.00
New investors......................... 9,818,182(2) 24% 108,000 41% $11.00
---------- --- -------- ----
Total............................... 41,531,397 100% $266,648 100% $ 6.42
========== === ======== ====
</TABLE>
- ---------------
(1) Gives effect to the conversion of all of our outstanding preferred stock
into 27,087,826 shares of common stock in connection with the offering, and
assumes no exercise of stock options or warrants outstanding as of October
31, 1999. As of October 31, 1999, there were options outstanding to purchase
a total of 3,714,076 shares of common stock, with a weighted average
exercise price of $3.64 per share. As of October 31, 1999, there were also
warrants outstanding to purchase a total of 749,605 shares of preferred
stock. These warrants will become warrants to purchase 403,591 shares of
common stock at a weighted average exercise price of $6.63 per share upon
completion of this offering. There were also warrants outstanding to
purchase a total of approximately 517,059 shares of common stock, assuming a
price of $11.00 per share in this offering, which will be exercised for
$0.02 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.
(2) Includes 909,091 shares, 1,136,364 shares, and 272,727 shares of common
stock, assuming an initial public offering price of $11.00 per share, that
CINAR, Cox Communications, and Gateway, respectively, have agreed to
purchase upon the close of this offering.
20
<PAGE> 23
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 nine
months ended October 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 nine
months ended October 31, 1999 and our balance sheet data as of October 31, 1999
are derived from our audited financial statements included elsewhere in this
prospectus. Our statement of operations data for the nine months ended October
31, 1998 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.
21
<PAGE> 24
THE LIGHTSPAN PARTNERSHIP, INC.
<TABLE>
<CAPTION>
YEAR ENDED JANUARY 31,
----------------------------------------------------------------
1995 1996 1997 1998 1999 1999
------- -------- -------- -------- -------- --------
PRO
ACTUAL FORMA
-------- --------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Licenses.................. $ -- $ -- $ 5,592 $ 15,042 $ 20,985 $ 27,362
Services.................. -- -- 554 1,973 3,742 3,742
Hardware.................. -- -- 2,419 5,294 6,104 6,104
------- -------- -------- -------- -------- --------
Total revenues...... -- -- 8,565 22,309 30,831 37,208
Cost of revenues:
Licenses.................. -- -- 2,964 6,409 4,150 6,289
Services.................. -- -- 563 1,753 2,385 2,385
Hardware.................. -- -- 2,315 4,745 4,973 4,973
------- -------- -------- -------- -------- --------
Total cost of
revenues.......... -- -- 5,842 12,907 11,508 13,647
------- -------- -------- -------- -------- --------
Gross profit............... -- -- 2,723 9,402 19,323 23,561
Operating expenses:
Technology and
development............. 4,907 12,152 18,953 14,816 10,594 13,876
Sales and marketing....... 2,177 6,831 13,773 20,296 22,066 28,814
General and
administrative.......... 1,231 1,460 2,473 2,715 3,590 5,780
Stock-based
compensation............ -- -- -- -- 20 20
Amortization of
intangibles............. -- -- -- -- -- 11,833
------- -------- -------- -------- -------- --------
Total operating
expenses.......... 8,315 20,443 35,199 37,827 36,270 60,323
------- -------- -------- -------- -------- --------
Loss from operations....... (8,315) (20,443) (32,476) (28,425) (16,947) (36,762)
Interest income (expense),
net....................... 86 876 (113) (528) 418 529
------- -------- -------- -------- -------- --------
Net loss................... $(8,229) $(19,567) $(32,589) $(28,953) $(16,529) $(36,233)
======= ======== ======== ======== ======== ========
Historical net loss per
share(1) -- basic and
diluted................... $ (2.72) $ (6.47) $ (10.72) $ (9.11) $ (4.88)
======= ======== ======== ======== ========
Historical weighted average
shares -- basic and
diluted................... 3,024 3,024 3,039 3,177 3,388
======= ======== ======== ======== ========
Pro forma net loss per
share -- basic and
diluted................... $ (0.76)(2) $ (1.40)(3)
======== ========
Pro forma weighted average
shares -- basic and
diluted................... 21,801(2) 25,968(3)
======== ========
<CAPTION>
NINE MONTH PERIOD
ENDED OCTOBER 31,
--------------------------------
1998 1999 1999
-------- -------- --------
PRO
ACTUAL FORMA
-------- --------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Licenses.................. $ 15,753 $ 21,504 $ 27,232
Services.................. 2,960 4,718 4,718
Hardware.................. 4,867 4,829 4,829
-------- -------- --------
Total revenues...... 23,580 31,051 36,779
Cost of revenues:
Licenses.................. 2,971 4,640 6,226
Services.................. 1,753 2,226 2,226
Hardware.................. 3,986 3,984 3,984
-------- -------- --------
Total cost of
revenues.......... 8,710 10,850 12,436
-------- -------- --------
Gross profit............... 14,871 20,201 24,343
Operating expenses:
Technology and
development............. 8,466 7,526 8,997
Sales and marketing....... 16,469 23,474 27,553
General and
administrative.......... 1,792 4,083 5,533
Stock-based
compensation............ -- 2,503 2,503
Amortization of
intangibles............. -- 1,615 9,012
-------- -------- --------
Total operating
expenses.......... 26,727 39,202 53,598
-------- -------- --------
Loss from operations....... (11,856) (19,002) (29,255)
Interest income (expense),
net....................... 350 231 106
-------- -------- --------
Net loss................... (11,506) (18,771) (29,149)
======== ======== ========
Historical net loss per
share(1) -- basic and
diluted................... $ (3.45) $ (4.82) $ (7.49)
======== ======== ========
Historical weighted average
shares -- basic and
diluted................... 3,331 3,892 3,892
======== ======== ========
Pro forma net loss per
share -- basic and
diluted................... $ (0.77) $ (1.04)(3)
======== ========
Pro forma weighted average
shares -- basic and
diluted................... 24,445 27,940(3)
======== ========
</TABLE>
<TABLE>
<CAPTION>
JANUARY 31,
----------------------------------------------- OCTOBER 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 $22,672
Working capital (deficit)................................... 15,795 14,037 (287) (1,020) 3,331 10,967
Total assets................................................ 19,824 18,259 12,852 14,080 19,010 91,674
Capital lease obligations, less current portion............. 1,379 1,460 1,702 775 393 526
Total shareholders' equity.................................. $16,379 $14,537 $ 1,614 $ 208 $ 4,314 $64,907
</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.
22
<PAGE> 25
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>
23
<PAGE> 26
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, revenues associated with
our Lightspan Achieve Now curriculum have represented approximately 97% of total
revenues.
In software arrangements that include multiple elements, such as those that
include rights to software products, customer support and product implementation
and training services, Lightspan allocates the total
24
<PAGE> 27
fee to each component of the arrangement based on objective evidence of its fair
value, which is specific to Lightspan. The objective evidence for each element
is based on the respective list prices of each element when sold or offered for
sale separately.
Historically, Lightspan has not experienced customer cancellations,
forfeitures or discontinuations of licenses.
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 October 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 October 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.
We believe that we can reasonably estimate the percentage of completion for
each as-yet uncompleted title based on its stage within a predefined development
and production process, and that this methodology best approximates progress to
completion. Lightspan develops its titles in seven separate and distinct phases.
Each phase has milestone criteria that must be met before the CD moves into the
next phase of development and production. Each phase has a specific
percentage-of-completion assigned to it, which is used to determine revenue
recognition and related cost of revenues for as-yet uncompleted titles.
The net impact to license revenues of the accounting change described in
the preceding paragraphs was a decrease in license revenues of $0.8 million
during the year ended January 31, 1999, and an increase in license revenues of
$0.3 million for the nine months ended October 31, 1999.
The ultimate composition of the complete collection of Lightspan Achieve
Now titles was evolving throughout fiscal 1997, 1998 and 1999, and changed
numerous times as a number of planned titles were dropped and as others were
modified, or, in a limited number of cases, added. Our decision to modify,
delete or add titles has not had an impact on our revenues; however, these
revisions have, from time to time, resulted in reductions to our recorded
liabilities for cost of sales on as-yet uncompleted titles.
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
25
<PAGE> 28
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.
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 nine months ended October 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
26
<PAGE> 29
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 October
31, 1999, there was approximately $6.2 million to be amortized in future
periods.
Amortization of Intangible Assets. In connection with the acquisitions of
Academic Systems, Global Schoolhouse and StudyWeb, we recorded intangible assets
totaling an aggregate of approximately $53.7 million, including goodwill of
$27.9 million. We amortize intangible assets over their respective useful lives,
ranging from three to ten years.
Operating Losses
We have incurred significant losses since our inception and, as of October
31, 1999, had an accumulated deficit of approximately $125.0 million. We expect
to continue to incur substantial operating losses for the foreseeable future.
COMPARISON OF NINE MONTHS ENDED OCTOBER 31, 1999 AND OCTOBER 31, 1998
Revenues
Our revenues increased to $31.1 million in the nine months ended October
31, 1999 from $23.6 million for the comparable period of 1998, an increase of
32%. No one customer accounted for more than 10% of total revenues for the nine
month periods ended October 31, 1999 or 1998.
License Revenues. Our license revenues grew to $21.5 million from $15.8
million, an increase of 37%.
Lightspan Achieve Now license revenues were $19.8 million compared to $15.1
million, an increase of 31%, and represented 92% and 96% of total license
revenues in the nine months ended October 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 nine
months ended October 31, 1999.
Our revenues from subscription fees for The Lightspan Network increased to
$1.2 million from $0.7 million, an increase of 95%. This increase was due
primarily to an increase in the number of subscribers to The Lightspan Network.
Academic Systems license revenues were $0.5 million from the date of
acquisition (September 20, 1999) through October 31, 1999.
Service Revenues. Our service revenues increased to $4.7 million from $3.0
million, an increase of 59%. 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.
27
<PAGE> 30
Hardware Revenues. Our hardware revenues declined to $4.8 million from $4.9
million, a decrease of 1%. 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 $10.9 million for the nine months ended
October 31, 1999 from $8.7 million for the comparable period in 1998, an
increase of 25%. Gross margin as a percentage of total revenues was 65% and 63%
for the nine months ended October 31, 1999 and 1998, respectively.
Cost of License Revenues. Our cost of license revenues increased to $4.6
million from $3.0 million, an increase of 56%. Gross margin as a percentage of
license revenues decreased to 78% from 81%.
Our cost of revenues for Lightspan Achieve Now licenses was $4.1 million
compared to $2.8 million, an increase of 48%. Gross margin as a percentage of
Lightspan Achieve Now license revenues decreased to 79% from 82%. In the nine
months ended October 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. We accrued the cost of revenues related to as-yet
uncompleted titles as the corresponding revenue on these titles was recognized.
The ultimate composition of the complete collection of Lightspan Achieve Now
titles was evolving throughout fiscal 1997, 1998 and 1999, and changed numerous
times as a number of planned titles were dropped and as others were modified,
or, in a limited number of cases, added. These revisions resulted in total
reductions to the liability of $0.5 million for cost of revenues on as-yet
uncompleted titles during the nine months ended October 31, 1998. In addition,
our cost of license revenues for the nine months ended October 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. As the development of Lightspan Achieve Now evolved, we determined
that, in order to remain competitive in the market, we would be required to
release our products in formats compatible with less expensive and more easily
transportable hardware. As a result, in fiscal 1998, we recorded a $1.5 million
liability for the estimated costs of converting our current customers to these
new formats. During the first nine months of fiscal 1999, we revised our cost
estimates of this conversion and reduced our liability by $0.3 million
accordingly. Our gross margin in the nine months ended October 31, 1999 was
favorably impacted by a reduction in material and packaging costs and third-
party royalty rates.
Our cost of revenues for subscriptions to The Lightspan Network increased
to $0.4 million from $0.2 million, an increase of 100%. 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 70% from 71%. 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.
Our cost of revenues for Academic Systems licenses was $0.1 million from
the date of acquisition (September 20, 1999) through October 31, 1999. Gross
margin as a percentage of license revenues was 70%.
Cost of Service Revenues. Our cost of service revenues increased to $2.2
million from $1.8 million, an increase of 27%. 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 53% from 41%. 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 remained steady at
$4.0 million. Gross margin as a percentage of hardware revenues remained
relatively constant. We expect that gross margins
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as a percentage of hardware revenue may fluctuate from period-to-period based on
variations in the product mix of hardware accessories.
Technology and Development
Our technology and development expenses decreased to $7.5 million for the
nine months ended October 31, 1999 from $8.5 million for the comparable period
of 1998, a decrease of 11%. 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 $23.5 million for the nine
months ended October 31, 1999 from $16.5 million for the comparable period in
1998, an increase of 43%. 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 $4.1 million for the
nine months ended October 31, 1999 from $1.8 million for the comparable period
in 1998, an increase of 128%. This increase was due primarily to increased
personnel and related costs, particularly in our finance and management
information systems departments. The increase was also due to additional legal
fees and settlement costs associated with a lawsuit brought by a former
employee, which was settled in August 1999, in addition to an increase in our
allowance for doubtful accounts.
Stock-Based Compensation
During the year ended January 31, 1999 and the nine months ended October
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 $2.5 million for the nine
months ended October 31, 1999.
Amortization of Intangible Assets
Our amortization of intangible assets totaled $1.6 million for the nine
months ended October 31, 1999 and represents amortization related to Academic
Systems since September 20, 1999, Global Schoolhouse since September 2, 1999,
and StudyWeb since October 28, 1999.
Interest Income (Expense)
Our net interest income decreased to $0.2 million for the nine months ended
October 31, 1999 from $0.4 million for the comparable period in 1998, a decrease
of 34%. This decrease was due to higher average cash balances in the prior
comparable period.
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.
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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 $1.5 million 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 by $0.5
million. Our cost of license revenues in fiscal 1999 was also favorably impacted
by a $0.6 million 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.
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.
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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 $1.1 million in legal and settlement costs
associated with a lawsuit brought by a former employee, which was settled in
August 1999, and 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 seven quarters ended October 31, 1999. This information has been
derived from our audited financial statements. 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 light of these factors, our
limited operating history and the rapidly evolving nature of
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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, OCT. 31,
1998 1998 1998 1999 1999 1999 1999
--------- -------- -------- -------- --------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues........................ $ 4,853 $11,186 $ 7,542 $ 7,250 $ 6,562 $12,938 $11,551
Cost of revenues................ 1,969 3,961 2,781 2,797 2,468 4,654 3,728
------- ------- ------- ------- ------- ------- -------
Gross profit.................... 2,884 7,225 4,761 4,453 4,094 8,284 7,823
Operating expenses.............. 9,252 9,081 8,394 9,543 9,328 12,026 17,848
------- ------- ------- ------- ------- ------- -------
Loss from operations............ (6,368) (1,856) (3,633) (5,090) (5,234) (3,742) (10,026)
Interest income (expense),
net........................... 93 150 108 67 4 3 224
------- ------- ------- ------- ------- ------- -------
Net loss........................ $(6,275) $(1,706) $(3,525) $(5,023) $(5,230) $(3,739) $(9,802)
======= ======= ======= ======= ======= ======= =======
</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 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 decreasing cost of materials and
improved utilization of support and operations staffs. Operating expenses
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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.
BUSINESS COMBINATIONS AND PURCHASE ACCOUNTING
The acquisition of Academic Systems, Global Schoolhouse and StudyWeb were
accounted for as purchases. During the nine months ended October 31, 1999, we
paid net cash of $4.3 million for these acquisitions.
The purchase price of Academic Systems 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. The purchase
prices of Global Schoolhouse and StudyWeb were allocated to the assets acquired,
primarily intangibles related to the Web sites acquired, which are being
amortized over useful lives of three years.
The assets and operations of Global Schoolhouse and Study Web are included
in the Internet K-12 segment. The assets, liabilities and operations of Academic
comprise the Higher Education segment. The results of operations for all three
acquired businesses, including the related amortization of intangible assets,
have been included in our consolidated results of operations from the dates of
acquisition.
Amortization of intangibles and goodwill for the nine months ended October
31, 1999 was $1.6 million. We expect to record annual amortization expense
related to these acquisitions of approximately $5.0 million for the year ending
January 31, 2000, $13.4 million for each of fiscal years 2001 and 2002, $12.8
million for fiscal 2003, $7.5 million for fiscal 2004, and approximately $0.3
million for each fiscal year from 2005 through 2009.
SPRINGING WARRANTS
Upon the sale of Lightspan's common stock as described in this prospectus
within 24 months of the second date on which Series D preferred stock was
issued, and subject to specified criteria being met, some of the outstanding,
unexercisable warrants to purchase up to 3,326,112 shares of Series D preferred
stock at $.01 per share could become exercisable. These "springing warrants"
will be issued only if on the closing date of a public offering like this one,
the fair market value of Lightspan's common stock is less than an amount defined
in the warrants as the "return benchmark." The return benchmark is calculated as
the number of Series D preferred shares multiplied by their liquidation
preference, adjusted for the number of years elapsed from the original warrant
date in a manner designed to ensure an agreed-upon rate of return on investment.
If the return benchmark exceeds the fair market value at the measurement date,
called the "wealth shortfall" under the terms of the warrants, shares will
become exercisable under the warrants. The number of shares issuable upon
exercise of the warrants will be equal to the wealth shortfall divided by the
measurement price.
If these springing warrants are exercised, Lightspan will account for the
springing warrants as a preferred stock dividend. As such, on the measurement
date we will account for the value of these warrants by charging retained
earnings and increasing the carrying amount of preferred stock by a
corresponding amount. The amount of this charge will increase the loss
applicable to common stockholders.
If the offering contemplated by this prospectus is completed under the
terms set forth on the cover, warrants to purchase approximately 517,059
additional shares of common stock would become exercisable and the loss
applicable to common stockholders would increase by approximately $5.7 million
as a result.
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OTHER RELATIONSHIPS
CINAR Corporation
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 markets and distributes its animated and live-action children's
and family programming 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 2,500,000 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 scheduled to 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, combining 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.
Cox Communications
In January 2000, we agreed to pursue strategic initiatives with Cox
Communications Holdings, Inc. Cox Communications is among the nation's largest
broadband communications companies, serving more than 3.8 million customers in
18 locations. Cox Communications also provides a wide variety of services to
schools in their cable communities through its "Cable in the Classroom"
initiative, which provides public schools with free basic cable service and
learning guides. As part of our agreement, Cox Communications agreed to purchase
$12.5 million of our common stock, or 1,136,364 shares assuming an initial
public offering price of $11 per share, in a private placement scheduled to
occur concurrently with our initial public offering upon satisfaction of several
conditions. We also agreed to grant to Cox Communications a warrant to purchase
750,000 shares of our common stock upon the closing of this offering. The
warrant will vest upon the achievement of various agreed-to strategic goals
related to the proposed use of Lightspan Achieve Now and Lightspan.com products
in trials by Cox Communications of cable offerings over digital set-top boxes.
As part of our agreement with Cox Communications Holdings, Inc., Thomas F.
Nagel, Cox Communications Inc.'s Vice President of Business Development, will
join our board as of the close of this offering.
Gateway
In January 2000, Gateway Companies, Inc. agreed to purchase $3.0 million of
our common stock, or 272,727 shares assuming an initial public offering price of
$11 per share, in a private placement that is scheduled to occur concurrently
with our initial public offering. This investment by Gateway is subject to the
satisfaction of several conditions, including our jointly entering into an
Internet sponsorship agreement
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whereby Gateway will become a sponsor of Lightspan.com. Gateway, a manufacturer
of personal computers, is Lightspan's preferred provider of personal computers.
LEGAL MATTERS
In July 1996, a former Lightspan employee commenced legal action against
us, alleging causes of action for fraud, breach of contract, negligent
misrepresentation and conversion. On August 26, 1999, we entered into a
settlement agreement and release with the former employee, the terms of which
are subject to confidentiality provisions set forth in the agreement.
During the year ended January 31, 1999, we recorded a charge of
approximately $1.1 million for anticipated settlement and legal costs related to
this case. During the quarter and nine months ended October 31, 1999, we
recorded an additional charge of approximately $467,000 to cover additional
costs related to the settlement.
As of October 31, 1999, we had paid approximately $950,000 in legal and
settlement costs related to this case. We anticipate that we will pay an
additional $617,000 shortly following the effective date of this offering.
LIQUIDITY AND CAPITAL RESOURCES
From inception through October 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 $158.6 million. At
October 31, 1999, we had $22.7 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. We expect our
operating losses to continue and increase for the foreseeable future.
Our working capital has fluctuated significantly since our inception. This
is due, in large part, to the timing of cash payments to vendors, cash
collections from customers, varying resources required for development efforts
on Lightspan Achieve Now, as well as receipt of cash from our preferred stock
and other financings. We expect that our working capital requirements and cash
position will fluctuate significantly from period to period for the foreseeable
future. These fluctuations may be caused by increased spending to support our
growth in operations, strategic investments, or acquisitions.
Net cash used in operating activities was $11.6 million for the nine months
ended October 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. We expect
our negative operating cash flow to continue and increase for the foreseeable
future.
Net cash used in investing activities was $5.9 million for the nine months
ended October 31, 1999, $0.7 million for fiscal 1999 and insignificant in fiscal
1998. The increase in cash used during this period relates primarily to net cash
paid for the acquisitions of Academic Systems, Global Schoolhouse and StudyWeb.
Net cash used during these periods was 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 $33.0 million for the nine
months ended October 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 the lesser of $10 million or 75% of eligible accounts
receivable, and is collateralized by substantially all of our assets.
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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 October 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.
In September 1999 we completed our acquisition of Academic Systems,
pursuant to which we issued 7,191,839 shares of our Series E preferred stock
pursuant to various exchange ratios applied to the various classes and series of
capital stock of Academic Systems. However, we believe a small number of former
Academic Systems stockholders may have rights to additional shares of our stock,
or other compensation in lieu of issuing such shares. As a result, we intend to
issue 1,068,015 shares of Series E preferred stock, subject to regulatory
approval, to those stockholders. Alternatively, we may pay them cash or some
other form of consideration.
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 October 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.
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BUSINESS
OVERVIEW
The Lightspan Partnership, Inc. provides 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 435 school
districts in 46 states have purchased our Lightspan Achieve Now curriculum and
implemented it in over 2,250 schools and 11,075 classrooms, representing a total
of 120,750 student and teacher licenses. Students in over 225 colleges and
universities across the United States are currently using Academic Systems'
products. Our Internet K-12 products and services are used in over 6,400
schools, of which over 1,100 schools are using the Lightspan Network.
Lightspan.com is currently being used by over 228,000 unique visitors monthly.
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 91 direct salespeople and 74 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.
Enhance our Lightspan Achieve Now Curriculum With Content Delivery
Available Through New Internet and Broadband Technologies. 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 on digital cable
television systems. We expect that, while we will continue to enable these
products and services to be used on Sony PlayStation game consoles and personal
computers, they will also be able to be used on digital set-top boxes and other
new broadband devices.
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.
Capitalize on 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 and $29.3 million for the nine months ended
October 31, 1999.
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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. The information
found on our Web site is not a part of this prospectus, except for the
information we have included in the prospectus. We intend to significantly
expand and enhance the products and services offered through Lightspan.com in
early 2000, including the addition of specific content for teachers, students
and parents.
[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. With
over 35,800 registered users, 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 28,900
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 and
correlated to state standards;
- 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.
As of October 31, 1999, we employed 73 direct salespeople for grades K-12.
As of that date, this sales force was supported by a 69 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 eight 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, as of
October 31, 1999 had resulted in the registration of over 35,800 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
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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 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.
As of October 31, 1999 Academic Systems employed 18 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.
As of October 31, 1999, we maintained a staff of 69 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.
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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;
- "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 31, 1999, we employed 413 persons, including 132 in
technology and development, 49 in general and administrative, 145 in sales and
marketing and 87 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
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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 January 13, 2000:
<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............... 45 Vice President of Finance, Chief Financial
Officer
John H. Brandon................... 43 Executive Vice President, President of
Academic Systems and Director
Winifred B. Wechsler.............. 43 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.................. 58 Vice President of School Marketing and
Evaluation
Dr. Larry R. Vaughn............... 61 Senior Vice President of School Reform
James W. Breyer................... 38 Director(1)
L. John Doerr..................... 48 Director(1)
Bradley P. Dusto.................. 46 Director
David D. Hiller................... 46 Director(2)
Thomas F. Nagel................... 36 Director(3)
Bruce W. Ravenel.................. 49 Director
Jeffrey P. Sanderson.............. 40 Director(2)
Barry J. Schiffman................ 54 Director(2)
Ronald A. Weinberg................ 48 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
(3) On January 11, 2000 the board of directors appointed Mr. Nagel as a member
of the board, effective as of the closing of this offering and the purchase
by Cox Communications Holdings, Inc. of $12.5 million of common stock at the
time of closing of this offering.
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,
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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. 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 co-founded Lightspan and 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.
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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 twenty companies
that have completed public offerings or successful mergers. Mr. Breyer currently
serves on the boards of directors of Actuate, a provider of electronic business
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.
Thomas F. Nagel is scheduled to become one of our directors upon the
closing of this offering and the purchase by Cox Communications Holdings, Inc.
of $12.5 million of common stock at the time of the closing of this offering.
Since July 1999 Mr. Nagel has served as Vice President of Business Development
for Cox Communications, Inc. Mr. Nagel joined Cox Communications in 1995 as
Director of Multimedia Applications. Previously, he served two years as Business
Development Manager in the New Media group of Cox Enterprises, Cox
Communications' majority shareholder. Mr. Nagel serves on the board of Liberate
Technologies, Inc., a company developing software and services for advanced
cable set-top boxes. Mr. Nagel holds a Bachelor of Science from Auburn
University and a Masters in Business Administration from the University of North
Carolina.
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
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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 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 COMPOSITION
Upon the closing of this offering, in accordance with the terms of our
restated certificate of incorporation, the terms of office of the board of
directors will be divided into three classes:
- Class I directors, whose term will expire at the annual meeting of
stockholders to be held in 2000;
- Class II directors, whose term will expire at the annual meeting of
stockholders to be held in 2001; and
- Class III directors, whose term will expire at the annual meeting of
stockholders to be held in 2002.
Our Class I directors will be Messrs. Brandon, Doerr, Schiffman and
Sanderson, our Class II directors will be Messrs. Hiller, Dusto, Ravenel and
Zeiger, and our Class III directors will be Messrs. Breyer, Kernan and Weinberg,
and Nagel provided he becomes a member of the board. At each annual meeting of
stockholders after the initial classification, the successors to directors whose
terms will then expire will be elected to serve from the time of election and
qualification until the third annual meeting following election. Any additional
directorships resulting from an increase in the number of directors will be
distributed among the three classes so that, as nearly as possible, each class
will consist of one-third of the directors. This classification of the board of
directors may have the effect of delaying or preventing changes in control or
management of our company.
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
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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.
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
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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
A total of 5,140,272 shares of common stock are currently reserved for
issuance pursuant to our 2000 Equity Incentive 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, employees, consultants and certain of our advisors. As of December 31,
1999, options to purchase 3,485,568 shares under the 2000 Plan were outstanding,
and 242,773 shares remained available for issuance pursuant to the 2000 Plan. We
have also reserved an additional 1,250,000 shares of common stock to become
available for grants beginning at the close of this offering.
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.
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.
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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 500,000 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.
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
263,669 shares of Lightspan common stock. As of December 31, 1999,
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options to purchase 251,883 shares of common stock were outstanding under the
1992 Stock Option Plan. We no longer grant options 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 for any
breach of the director's duty of loyalty to us or our stockholders; for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; under Section 174 of the Delaware General Corporation Law; or
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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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 in the chart below. Certain additional issuances are discussed
in more detail in the paragraphs below.
<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 (which will convert into 1.25 million shares of common
stock at the close of this offering) at $5.00 per share. CINAR also agreed to
purchase $10 million of our common stock (909,091 shares, assuming an initial
public offering price of $11.00 per share) in a private placement that is
scheduled to 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 (which will become a warrant to purchase 250,000
shares of common stock at the close of this offering) 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.
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In January 2000, we agreed to pursue strategic initiatives with Cox
Communications Holdings, Inc. As part of our agreement, Cox Communications
agreed to purchase $12.5 million of our common stock, or 1,136,364 shares
assuming an initial public offering price of $11 per share, in a private
placement that is scheduled to occur concurrently with our initial public
offering. We also agreed to grant to Cox Communications a warrant to purchase
750,000 shares of our Series E preferred stock at the close of this offering,
which will become a warrant to purchase 375,000 of common stock at the close of
this offering. As part of our agreement with Cox Communications Holdings, Inc.,
Thomas F. Nagel, Cox Communications Inc.'s Vice President of Business
Development, will join our board upon the close of this offering and the close
of the purchase by Cox Communications of our common stock.
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 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> 70
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 31,813,249 shares of common stock outstanding as of
December 31, 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 1,125,000 additional shares of our common stock, and up to
42,756,431 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)......................................... 1,302,715 4.1% 3.1%
Carl Zeiger............................................... 1,288,500 4.1% 3.1%
John H. Brandon(2)........................................ 196,963 * *
Michelle M. Hays(3)....................................... 25,000 * *
James W. Breyer(4)........................................ 3,117,442 9.8% 7.5%
Accel Partners
L. John Doerr(5).......................................... 2,994,559 9.4% 7.2%
Kleiner, Perkins, Caufield & Byers
Jeffrey P. Sanderson(6)................................... 2,798,862 8.8% 6.7%
Microsoft Corporation
David D. Hiller(7)........................................ 1,858,868 5.8% 4.5%
Tribune Company
Bradley P. Dusto(8)....................................... 2,404,130 7.6% 5.8%
Comcast Cable Corporation
Bruce W. Ravenel(9)....................................... 3,945,250 12.4% 9.5%
Liberty Digital, Inc.
Barry J. Schiffman(10).................................... 1,256,412 3.9% 3.0%
JAFCO America Ventures, Inc.
Ronald A. Weinberg(11).................................... 1,250,000 3.9% 5.2%
CINAR Corporation
Thomas F. Nagel(12)....................................... 0 * 2.7%
Cox Communications Holdings, Inc.
All directors and officers as a group (15 persons)(13).... 22,515,785 69.5% 58.2%
</TABLE>
- ---------------
(1) Includes 1,135 shares issuable under options exercisable by February 29,
2000.
(2) Includes 40,402 shares issuable under options exercisable by February 29,
2000.
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<PAGE> 71
(3) Michelle M. Hays resigned from Lightspan in September 1998.
(4) Mr. Breyer's business address is 428 University Avenue, Palo Alto, CA
94301.
Includes:
- 2,227,941 shares and 48,369 shares issuable under warrants exercisable
by February 29, 2000 held by Accel IV L.P., which represents 7.1% and
5.5%, respectively, of the total number of shares outstanding before and
after this offering;
- 89,993 shares and 1,953 shares issuable under warrants exercisable by
February 29, 2000 held by Accel Investors '93 L.P., which represents
less than 1% of the total number of shares outstanding before and after
this offering;
- 53,511 shares and 1,162 shares issuable under warrants exercisable by
February 29, 2000 held by Ellmore C. Patterson Partners, which
represents less than 1% of the total number of shares outstanding before
and after this offering;
- 46,213 shares and 1,003 shares issuable under warrants exercisable by
February 29, 2000 held by Accel Keiretsu L.P., which represents less
than 1% of the total number of shares outstanding before and after this
offering;
- 14,592 shares and 316 shares issuable under warrants exercisable by
February 29, 2000 held by Prosper Partners, which represents less than
1% of the total number of shares outstanding before and after this
offering;
- 540,713 shares and 3,142 shares issuable under warrants exercisable by
February 29, 2000 held by Accel III L.P., which represents 1.7% and
1.3%, respectively, of the total number of shares outstanding before and
after this offering;
- 37,724 shares and 219 shares issuable under warrants exercisable by
February 29, 2000 held by Accel Investors '92 L.P., which represents
less than 1% of the total number of shares outstanding before and after
this offering; and
- 50,299 shares and 292 shares issuable under warrants exercisable by
February 29, 2000 held by Accel Japan L.P., which represents less than
1% of the total number of shares outstanding before and after this
offering.
(5) Mr. Doerr's business address is 2750 Sand Hill Road, Menlo Park, CA 94025.
Includes:
- 2,662,653 shares and 51,477 shares issuable under warrants exercisable
by February 29, 2000 held by Kleiner, Perkins, Caufield & Byers VI,
which represents 8.5% and 6.5%, respectively, of the total number of
shares outstanding before and after this offering; and
- 275,449 shares and 4,980 shares issuable under warrants exercisable by
February 29, 2000 held by KPCB VI Founders Fund, which represents less
than 1% of the total number of shares outstanding before and after 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:
- 425,531 shares and 67,033 shares issuable under warrants exercisable by
February 29, 2000 held by U.S. Information Technology Investment
Enterprise Partnership, which represents 1.5% and 1.2%, respectively, of
the total number of shares outstanding before and after this offering;
- 445,531 shares and 67,033 shares issuable under warrants exercisable by
February 29, 2000 held by U.S. Information Technology #2 Investment
Enterprise Partnership, which represents 1.6% and 1.2%, respectively, of
the total number of shares outstanding before and after this offering;
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- 44,524 shares and 7,013 shares issuable under warrants exercisable by
February 29, 2000 held by JAFCO G-7 (B) Investment Enterprise
Partnership, which represents less than 1% of the total number of shares
outstanding before this offering;
- 44,524 shares and 7,013 shares issuable under warrants exercisable by
February 29, 2000 held by JAFCO G-7 (A) Investment Enterprise
Partnership, which represents less than 1% of the total number of shares
outstanding before this offering;
- 38,101 shares and 6,002 shares issuable under warrants exercisable by
February 29, 2000 held by JAFCO R-2 Investment Enterprise Partnership,
which represents less than 1% of the total number of shares outstanding
before this offering;
- 43,064 shares and 6,784 shares issuable under warrants exercisable by
February 29, 2000 held by JAFCO JS -2 Investment Enterprise Partnership,
which represents less than 1% of the total number of shares outstanding
before this offering; and
- 47,556 shares and 6,704 shares issuable under warrants exercisable by
February 29, 2000 held by Japan Associated Finance Co., Ltd., which
represents less than 1% of the total number of shares outstanding before
this offering.
(11) Mr. Weinberg's business address is: 1055, boul. Rene-Levesque Est,
Montreal, Quebec H2L 4S5, Canada. Percentage of shares beneficially owned
after the offering includes 909,091 shares of common stock, at an assumed
initial public offering price of $11 per share, that will be issued to
CINAR Corporation in a private placement concurrent with the closing of
this offering.
(12) Mr. Nagel is scheduled to become a director upon the closing of this
offering, contingent upon Cox Communications' purchase of our common stock
concurrently with the closing of this offering. Mr. Nagel's business
address is: 1400 Lake Hearn Drive, Atlanta, GA 30319. Percentage of shares
beneficially owned after the offering includes 1,136,364 shares of common
stock, at an assumed initial public offering price of $11 per share, that
is scheduled to be issued to Cox Communications Holdings, Inc. in a private
placement concurrent with the closing of this offering.
(13) Includes 143,621 shares issuable under options exercisable by February 29,
2000 and 418,248 shares issuable under warrants exercisable by February 29,
2000. Percentage of shares beneficially owned after the offering includes
909,091 and 1,136,364 shares of common stock, at an assumed initial public
offering price of $11 per share, that is scheduled to be issued to CINAR
Corporation and Cox Communications Holdings, Inc., respectively in a
private placement concurrent with the closing of this offering.
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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 December 31, 1999, and assuming the conversion of all outstanding preferred
stock into common stock upon the closing of this offering, there were
outstanding 31,813,249 shares of common stock held of record by 357
stockholders, options to purchase 3,737,451 shares of common stock and warrants
to purchase 1,403,591 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 December 31, 1999, assuming the closing of this offering, all
outstanding shares of preferred stock would have been converted into 27,087,826
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
27,087,826 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. In addition, Cox Communications and Gateway have registration
rights on the securities they are expected to hold as of the close of this
offering, beginning one year 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
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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 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
Our common stock has been approved for listing upon notice of issuance on
the Nasdaq Stock Market's National Market under the trading symbol "LSPN."
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<PAGE> 75
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 41,631,431
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 34,134,431 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;
- 26,993,927 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 416,314 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.
73
<PAGE> 76
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
27,087,826 shares of our common stock have rights to have their shares
registered under the Securities Act. Moreover, Cox Communications Holdings, Inc.
and Gateway Companies, Inc., upon purchase of shares as expected at the time of
the initial public offering, will have rights to have those shares registered
under the Securities Act, beginning one year after issuance. 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 and other Potential Share Issuances. 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. In
addition, we may issue additional securities in connection with acquisitions or
strategic relationships and to some of our existing stockholders.
74
<PAGE> 77
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 of
Underwriter Shares
----------- ----------
<S> <C>
Credit Suisse First Boston Corporation......................
Thomas Weisel Partners LLC..................................
U.S. Bancorp Piper Jaffray Inc..............................
----------
Total............................................. 7,500,000
==========
</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 1,125,000 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>
We will pay Credit Suisse First Boston Corporation financial advisory fees of
approximately $750,000 and $180,000 relating to our agreements with Cox
Communications and Gateway, respectively.
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
75
<PAGE> 78
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 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, less than 5% of the 7,500,000 shares of the common stock offered by the
underwriters in this offering 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.
Our common stock has been approved for listing upon notice of issuance 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.
76
<PAGE> 79
- 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.
- 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.
77
<PAGE> 80
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.
78
<PAGE> 81
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 35,000
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 October 31, 1999 and for the years ended January 31, 1997,
1998 and 1999 and the nine months ended October 31, 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.
The following are trademarks or service marks of The Lightspan Partnership,
Inc.:
- - 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
- - P.K's Place
All other trade names, trademarks and service marks appearing in this prospectus
are the property of their holders.
79
<PAGE> 82
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 October
31, 1999.................................................. F-3
Statements of Operations for the years ended January 31,
1997, 1998 and 1999 and the nine months ended October 31,
1998 (unaudited) and 1999................................. F-4
Statements of Shareholders' Equity for the years ended
January 31, 1997, 1998 and 1999 and the nine months ended
October 31, 1999.......................................... F-5
Statements of Cash Flows for the years ended January 31,
1997, 1998 and 1999 and the nine months ended October 31,
1998 (unaudited) and 1999................................. F-7
Notes to Financial Statements............................... F-8
ACADEMIC SYSTEMS CORPORATION
Report of Ernst & Young LLP, Independent Auditors........... F-25
Balance Sheets as of September 30, 1997 and 1998 and June
30, 1999 (unaudited)...................................... F-26
Statements of Operations for the years ended September 30,
1997 and 1998 and the nine months ended June 30, 1998 and
1999 (unaudited).......................................... F-27
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-28
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-29
Notes to Financial Statements............................... F-30
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Statement of
Operations for the year ended January 31, 1999............ F-38
Unaudited Pro Forma Combined Condensed Statement of
Operations for the nine months ended October 31, 1999..... F-39
Notes to Unaudited Pro Forma Combined Condensed Financial
Statements................................................ F-40
</TABLE>
F-1
<PAGE> 83
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 October 31, 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 and the nine months
ended October 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 auditing standards generally
accepted in the United States. 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 October 31, 1999 and the results of its
operations and its cash flows for each of the three years in the period ended
January 31, 1999 and the nine months ended October 31, 1999, in conformity with
accounting principles generally accepted in the United States.
ERNST & YOUNG LLP
San Diego, California
The foregoing report is in the form that will be signed upon the completion of
the stock split described in Note 5 to the financial statements.
San Diego, California
December 14, 1999, except for the
last paragraph of Note 5, as to which
the date is and Note 11, as to
which the date is January 12, 2000.
/s/ Ernst & Young LLP
F-2
<PAGE> 84
THE LIGHTSPAN PARTNERSHIP, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY 31, PRO FORMA
----------------------------- OCTOBER 31, SHAREHOLDERS'
1998 1999 1999 EQUITY
------------- ------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................... $ 4,421,617 $ 7,142,938 $ 22,671,611
Accounts receivable, less allowance for doubtful
accounts of $533,168, $400,000 and $827,472 at January
31, 1998 and 1999 and October 31, 1999,
respectively.......................................... 5,243,838 7,794,981 10,798,303
Finished goods inventory................................ 919,142 1,267,237 1,710,104
Other current assets.................................... 1,086,017 1,045,997 1,719,265
------------- ------------- -------------
Total current assets............................. 11,670,614 17,251,153 36,899,283
Property and equipment, net............................... 2,241,784 1,637,886 2,565,740
Deposits and other assets................................. 167,494 121,178 146,777
Intangible assets, less accumulated amortization of
$1,615,839.............................................. -- -- 52,062,682
------------- ------------- -------------
Total assets..................................... $ 14,079,892 $ 19,010,217 $ 91,674,482
============= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable........................................ $ 3,285,340 $ 3,069,280 $ 5,015,616
Accrued liabilities..................................... 5,677,311 5,721,065 8,219,349
Acquisition consideration payable....................... -- -- 5,341,609
Deferred revenue........................................ 2,494,072 4,199,589 6,500,531
Current portion of note payable......................... -- -- 224,086
Current portion of capital lease obligations............ 1,234,358 930,040 606,575
------------- ------------- -------------
Total current liabilities........................ 12,691,081 13,919,974 25,907,766
Deferred rent............................................. 406,281 382,486 332,987
Capital lease obligations, less current portion........... 774,889 393,480 526,458
Commitments
Shareholders' equity:
Convertible preferred stock, par value $0.001:
Authorized shares -- 61,793,074
Issued and outstanding shares -- 30,049,176 and
35,527,893 at January 31, 1998 and 1999,
respectively, and 52,230,915 at October 31, 1999; no
shares pro forma....................................
Aggregate liquidation preference -- $90,819,936 and
$111,419,912 at January 31, 1998 and 1999,
respectively, and $194,935,047 at October 31,
1999................................................ 30,049 35,527 52,230 $ --
Common stock, par value $0.001:
Authorized shares -- 75,000,000
Issued and outstanding shares -- 3,275,618 and
3,540,578 at January 31, 1998 and 1999,
respectively, and 4,625,389 at October 31, 1999;
31,713,214 shares pro forma......................... 3,276 3,541 4,625 31,713
Additional paid-in capital.............................. 89,852,909 110,674,833 209,464,854 209,489,996
Stock subscriptions receivable.......................... -- -- (13,000,000) --
Deferred advertising expense............................ -- -- (400,000) (400,000)
Deferred compensation................................... -- (192,196) (6,236,490) (6,236,490)
Accumulated deficit..................................... (89,678,593) (106,207,428) (124,977,948) (124,977,948)
------------- ------------- ------------- -------------
Total shareholders' equity....................... 207,641 4,314,277 64,907,271 $ 77,907,271
------------- ------------- ------------- =============
Total liabilities and shareholders' equity....... $ 14,079,892 $ 19,010,217 $ 91,674,482
============= ============= =============
</TABLE>
See accompanying notes.
F-3
<PAGE> 85
THE LIGHTSPAN PARTNERSHIP, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31, NINE MONTHS ENDED OCTOBER 31,
------------------------------------------ -----------------------------
1997 1998 1999 1998 1999
------------ ------------ ------------ ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Licenses............................ $ 5,591,769 $ 15,041,742 $ 20,985,230 $ 15,752,938 $ 21,503,992
Services.......................... 553,912 1,973,595 3,742,237 2,960,750 4,718,495
Hardware.......................... 2,419,360 5,293,671 6,103,957 4,866,768 4,828,535
------------ ------------ ------------ ------------ ------------
Total revenues............ 8,565,041 22,309,008 30,831,424 23,580,456 31,051,022
Cost of revenues:
Licenses.......................... 2,963,848 6,408,733 4,149,915 2,970,681 4,640,162
Services.......................... 563,403 1,753,808 2,385,056 1,753,404 2,226,190
Hardware.......................... 2,314,844 4,744,887 4,973,166 3,985,868 3,983,925
------------ ------------ ------------ ------------ ------------
Total cost of revenues.... 5,842,095 12,907,428 11,508,137 8,709,953 10,850,277
------------ ------------ ------------ ------------ ------------
Gross profit........................ 2,722,946 9,401,580 19,323,287 14,870,503 20,200,745
Operating expenses:
Technology and development........ 18,953,329 14,816,050 10,593,735 8,465,760 7,525,997
Sales and marketing............... 13,773,048 20,295,916 22,066,261 16,468,824 23,474,445
General and administrative........ 2,472,717 2,714,544 3,590,159 1,792,138 4,082,508
Stock-based compensation.......... -- -- 19,680 -- 2,503,458
Amortization of intangible
assets......................... -- -- -- -- 1,615,839
------------ ------------ ------------ ------------ ------------
35,199,094 37,826,510 36,269,835 26,726,722 39,202,247
------------ ------------ ------------ ------------ ------------
Loss from operations................ (32,476,148) (28,424,930) (16,946,548) (11,856,219) (19,001,502)
Interest income..................... 444,916 261,875 638,619 531,151 371,819
Interest expense.................... (557,475) (789,534) (220,906) (181,085) (140,837)
------------ ------------ ------------ ------------ ------------
Net loss............................ $(32,588,707) $(28,952,589) $(16,528,835) $(11,506,153) $(18,770,520)
============ ============ ============ ============ ============
Historical net loss per share:
Basic and diluted................. $ (10.72) $ (9.11) $ (4.88) $ (3.45) $ (4.82)
============ ============ ============ ============ ============
Weighted average shares -- basic
and diluted.................... 3,038,824 3,177,315 3,387,772 3,330,546 3,891,940
============ ============ ============ ============ ============
Pro forma net loss per share:
Basic and diluted................. $ (0.76) $ (0.77)
============ ============
Weighted average shares -- basic
and diluted.................... 21,801,339 24,445,397
============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE> 86
THE LIGHTSPAN PARTNERSHIP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
-------------------- ------------------ PAID-IN SUBSCRIPTION DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
---------- ------- --------- ------ ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 31, 1997........... 22,398,449 $22,398 3,068,864 $3,069 $ 62,315,020 $ -- $ --
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........... -- -- 244,775 245 83,024 -- --
Repurchase of common stock for
cash.............................. -- -- (38,021) (38) (1,468) -- --
Net loss............................ -- -- -- -- -- -- --
---------- ------- --------- ------ ------------ -------- -----------
Balance at January 31, 1998........... 30,049,176 30,049 3,275,618 3,276 89,852,909 -- --
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........... -- -- 264,960 265 142,684 -- --
Deferred compensation related to
stock options..................... -- -- -- -- 211,876 -- (211,876)
Amortization of deferred
compensation...................... -- -- -- -- -- -- 19,680
Net loss............................ -- -- -- -- -- -- --
---------- ------- --------- ------ ------------ -------- -----------
Balance at January 31, 1999........... 35,527,893 35,527 3,540,578 3,541 110,674,833 -- (192,196)
<CAPTION>
DEFERRED TOTAL
ADVERTISING ACCUMULATED SHAREHOLDERS'
EXPENSE DEFICIT EQUITY
----------- ------------- -------------
<S> <C> <C> <C>
Balance at January 31, 1997........... $ -- $ (60,726,004) $ 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) (28,952,589)
-------- ------------- ------------
Balance at January 31, 1998........... -- (89,678,593) 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) (16,528,835)
-------- ------------- ------------
Balance at January 31, 1999........... -- (106,207,428) 4,314,277
</TABLE>
F-5
<PAGE> 87
THE LIGHTSPAN PARTNERSHIP, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL STOCK
-------------------- ------------------ PAID-IN SUBSCRIPTION DEFERRED
SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
---------- ------- --------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of Series E convertible
preferred stock at $5.00 per
share, net of offering costs of
$45,559.......................... 6,614,183 $ 6,614 -- $ -- $ 33,018,742 $ -- $ --
Issuance of Series E
convertible preferred stock
in exchange for future
advertising.................. 80,000 80 -- -- 399,920 -- --
Series E convertible preferred
stock issued or issuable in
connection with the
acquisition of Academic
Systems...................... 7,191,839 7,192 -- -- 35,952,003 -- --
Series E convertible preferred
stock issued in connection
with the acquisition of
StudyWeb..................... 217,000 217 -- -- 1,084,783 -- --
Common stock issued in
connection with the
acquisition of Academic
Systems...................... -- -- 570,356 570 4,710,571 -- --
Options and warrants issued in
connection with the
acquisition of Academic
Systems...................... -- -- -- -- 1,817,707 -- --
Subscriptions to purchase
Series E convertible
preferred stock at $5.00 per
share........................ 2,600,000 2,600 -- -- 12,997,400 (13,000,000) --
Exercise of stock options...... -- -- 514,455 514 261,143 -- --
Deferred compensation related
to stock options............. -- -- -- -- 8,547,752 -- (8,547,752)
Amortization of deferred
compensation................. -- -- -- -- -- -- 2,503,458
Net loss....................... -- -- -- -- -- -- --
---------- ------- --------- ------ ------------ ------------ -----------
Balance at October 31, 1999...... 52,230,915 $52,230 4,625,389 $4,625 $209,464,854 $(13,000,000) $(6,236,490)
========== ======= ========= ====== ============ ============ ===========
<CAPTION>
DEFERRED TOTAL
ADVERTISING ACCUMULATED SHAREHOLDERS'
EXPENSE DEFICIT EQUITY
----------- ------------- ---------------
<S> <C> <C> <C>
Issuance of Series E convertible
preferred stock at $5.00 per
share, net of offering costs of
$45,559.......................... $ -- $ -- $ 33,025,356
Issuance of Series E
convertible preferred stock
in exchange for future
advertising.................. (400,000) -- --
Series E convertible preferred
stock issued or issuable in
connection with the
acquisition of Academic
Systems...................... -- -- 35,959,195
Series E convertible preferred
stock issued in connection
with the acquisition of
StudyWeb..................... -- -- 1,085,000
Common stock issued in
connection with the
acquisition of Academic
Systems...................... -- -- 4,711,141
Options and warrants issued in
connection with the
acquisition of Academic
Systems...................... -- -- 1,817,707
Subscriptions to purchase
Series E convertible
preferred stock at $5.00 per
share........................ -- -- --
Exercise of stock options...... -- -- 261,657
Deferred compensation related
to stock options............. -- -- --
Amortization of deferred
compensation................. -- -- 2,503,458
Net loss....................... -- (18,770,520) (18,770,520)
--------- ------------- ---------------
Balance at October 31, 1999...... $(400,000) $(124,977,948) $ 64,907,271
========= ============= ===============
</TABLE>
See accompanying notes.
F-6
<PAGE> 88
THE LIGHTSPAN PARTNERSHIP, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER
YEARS ENDED JANUARY 31, 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) $(11,506,153) $(18,770,520)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization...................... 982,665 1,637,485 1,310,498 1,005,836 865,116
(Gain) loss on disposal of assets.................. (64,827) 37,774 (5,060) 6,175 (1,219)
Provision for doubtful accounts.................... 235,991 297,177 (133,168) 15,776 363,748
Amortization of intangible assets.................. -- -- -- -- 1,615,839
Amortization of deferred stock-based
compensation..................................... -- -- 19,680 -- 2,503,458
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) (909,623) (1,391,488)
Inventory...................................... (284,871) 174,579 (348,095) (758,537) (160,032)
Deposits and other assets...................... 160,654 (288,659) 86,336 (76,110) (638,713)
Accounts payable............................... 2,136,259 (149,262) (216,060) (531,903) 1,556,782
Deferred revenue............................... 1,769,315 724,757 1,705,517 1,442,099 814,093
Accrued liabilities............................ 1,732,330 4,055,077 19,959 (1,584,288) 1,416,457
------------ ------------ ------------ ------------ ------------
Net cash flows used in operating activities............ (31,479,775) (22,480,423) (16,507,203) (12,896,728) (11,826,479)
INVESTING ACTIVITIES:
Decrease in short-term investments..................... 5,423,307 414,000 -- -- --
Purchase of property and equipment..................... (2,850,709) (422,808) (725,707) (620,234) (1,335,968)
Proceeds from sale of fixed assets..................... -- 30,816 24,167 -- 4,978
Net cash paid for purchase of Academic Systems......... -- -- -- -- (801,698)
Net cash paid for purchase of GlobalSchoolhouse........ -- -- -- -- (2,500,000)
Net cash paid for purchase of StudyWeb................. -- -- -- -- (1,000,000)
------------ ------------ ------------ ------------ ------------
Net cash flows provided by (used in) investing
activities........................................... 2,572,598 22,008 (701,540) (620,234) (5,632,688)
FINANCING ACTIVITIES:
Proceeds from issuance of preferred stock.............. 19,554,716 21,094,696 20,472,842 20,480,369 33,025,356
Proceeds from convertible bridge notes................. -- 6,266,752 -- -- --
Proceeds from lessor from capital leases............... 2,287,118 339,112 699,538 739,405 587,782
Principal repayments on capital leases................. (1,216,743) (1,527,864) (1,385,265) (1,071,032) (886,955)
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 88,863 261,657
Repurchase of common stock............................. -- (1,506) -- -- --
------------ ------------ ------------ ------------ ------------
Net cash flows provided by financing activities........ 21,481,948 25,409,611 19,930,064 20,237,605 32,987,840
Increase (decrease) in cash and cash equivalents....... (7,425,229) 2,951,196 2,721,321 6,720,643 15,528,673
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 $ 11,142,260 $ 22,671,611
============ ============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid.......................................... $ 495,966 $ 584,035 $ 193,058 $ 149,744 $ 140,428
============ ============ ============ ============ ============
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 $ -- $ 8,547,752
============ ============ ============ ============ ============
Series E preferred stock issued in connection with the
purchase of Academic Systems......................... $ -- $ -- $ -- $ -- $ 35,959,195
============ ============ ============ ============ ============
Common stock issued in connection with the purchase of
Academic Systems..................................... $ -- $ -- $ -- $ -- $ 4,711,141
============ ============ ============ ============ ============
Valuation of options and warrants issued in connection
with the purchase of Academic Systems................ $ -- $ -- $ -- $ -- $ 1,817,707
============ ============ ============ ============ ============
Additional consideration related to the acquisition of
Academic Systems..................................... $ -- $ -- $ -- $ -- $ 5,341,609
============ ============ ============ ============ ============
Series E preferred stock issued for future
advertising.......................................... $ -- $ -- $ -- $ -- $ 400,000
============ ============ ============ ============ ============
Series E preferred stock issued for subscriptions
receivable........................................... $ -- $ -- $ -- $ -- $ 13,000,000
============ ============ ============ ============ ============
Series E preferred stock issued in connection with
purchase of StudyWeb................................. $ -- $ -- $ -- $ -- $ 1,085,000
============ ============ ============ ============ ============
</TABLE>
See accompanying notes.
F-7
<PAGE> 89
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS
(INFORMATION FOR THE NINE MONTHS ENDED OCTOBER 31, 1998 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-8
<PAGE> 90
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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
Lightspan derives its revenues from the licensing of software, product
implementation and training services, customer support services, Internet
subscriptions and the sale of PlayStation game consoles and accessories.
In software arrangements that include multiple elements, such as those that
include rights to software products, customer support and product implementation
and training services, Lightspan allocates the total fee to each component of
the arrangement based on objective evidence of its fair value, which is specific
to Lightspan. The objective evidence for each element is based on the sale price
of each element when sold or offered for sale separately.
Historically, Lightspan has not experienced customer cancellations,
forfeitures or discontinuations of licenses.
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.
On February 1, 1998, Lightspan adopted the provisions of SOP 97-2,
"Software Revenue Recognition," as amended by SOP 98-4, "Deferral of the
Effective Date of Certain Provisions of SOP 97-2." Under SOP 97-2, Lightspan
recognizes software license revenue when (a) an agreement has been executed or a
definitive purchase order has been received; (b) the product has been shipped or
services have been performed; (c) the fee has become fixed and determinable; (d)
the collection of the fee is considered probable; and (e) the related hardware,
if applicable, has been shipped. 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.
Management believes that it can reasonably estimate the percentage of
completion for each as-yet uncompleted title based on each title's stage within
a predefined development/production process, and that this methodology best
approximates progress to completion. Lightspan develops its titles in seven
separate and distinct phases. Each phase has milestone criteria that must be met
before the CD moves into the next phase of development/production. Each phase
has a specific percentage-of-completion assigned to it, which is used to
determine revenue recognition and related cost of revenues for as-yet
uncompleted titles.
F-9
<PAGE> 91
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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).
PlayStation Game Consoles and Related Accessories
Revenue derived from the sale of PlayStation 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
F-10
<PAGE> 92
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 nine month periods ended October 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.
RECLASSIFICATIONS
Certain amounts in prior year financial statements have been reclassified
to conform with the current period presentation.
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>
NINE MONTHS ENDED
YEARS ENDED JANUARY 31, OCTOBER 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) $(11,506,153) $(18,770,520)
============ ============ ============ ============ ============
Denominator for
historical basic and
diluted calculations:
Weighted average
common shares
outstanding........ 3,038,824 3,177,315 3,387,772 3,330,546 3,891,940
============ ============ ============ ============ ============
Historical net loss per
share:
Basic and diluted..... $ (10.72) $ (9.11) $ (4.88) $ (3.45) $ (4.82)
============ ============ ============ ============ ============
</TABLE>
F-11
<PAGE> 93
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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 October 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 and cash equivalents consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- OCTOBER 31,
1998 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash............................................ $ 1,608,794 $ 723,190 $ 2,915,486
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 19,716,125
U.S. Government repurchase agreements........... 700,000 1,226,000 --
Certificates of deposit......................... -- -- 40,000
----------- ----------- -----------
$ 4,421,617 $ 7,142,938 $22,671,611
=========== =========== ===========
</TABLE>
Other current assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- OCTOBER 31,
1998 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Prepaid royalties............................... $ 594,883 $ 450,983 $ 427,919
Other receivables............................... 147,587 284,832 140,201
Short-term deposits............................. 221,946 235,578 372,113
Other current assets............................ 121,601 74,604 779,032
----------- ----------- -----------
$ 1,086,017 $ 1,045,997 $ 1,719,265
=========== =========== ===========
</TABLE>
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- OCTOBER 31,
1998 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Customer base................................... $ -- $ -- $16,200,000
Core technology................................. -- -- 5,600,000
Trademark and trade name........................ -- -- 3,000,000
Assembled workforce............................. -- -- 1,000,000
Goodwill........................................ -- -- 27,878,521
----------- ----------- -----------
-- -- 53,678,521
Less accumulated amortization................... -- -- (1,615,839)
----------- ----------- -----------
$ -- $ -- $52,062,682
=========== =========== ===========
</TABLE>
F-12
<PAGE> 94
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. BALANCE SHEET DETAILS (CONTINUED)
Property and equipment consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- OCTOBER 31,
1998 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Machinery and equipment......................... $ 3,978,385 $ 4,339,758 $ 5,370,702
Software........................................ 140,719 244,455 690,192
Office furniture and equipment.................. 1,163,078 1,186,394 1,453,391
----------- ----------- -----------
5,282,182 5,770,607 7,514,285
Less accumulated depreciation and
amortization.................................. (3,040,398) (4,132,721) (4,948,545)
----------- ----------- -----------
$ 2,241,784 $ 1,637,886 $ 2,565,740
=========== =========== ===========
</TABLE>
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
JANUARY 31,
------------------------- OCTOBER 31,
1998 1999 1999
----------- ----------- -----------
<S> <C> <C> <C>
Other accrued liabilities....................... $ 1,337,516 $ 2,341,934 $ 2,895,864
Accrued bonuses and commissions................. 1,130,438 1,669,737 3,351,611
Accrued vacation................................ 572,857 533,157 826,661
Accrued cost of revenues........................ 2,636,500 1,176,237 1,145,213
----------- ----------- -----------
$ 5,677,311 $ 5,721,065 $ 8,219,349
=========== =========== ===========
</TABLE>
3. LINE OF CREDIT AND LEASE FINANCING
Lightspan has a revolving 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. 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% (10.0% at October 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 October 31,
1999, there were no amounts outstanding under the line of credit.
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. At October 31, 1999, $499,039 was available for future
borrowing under this agreement.
In connection with the acquisition of Academic Systems, Lightspan assumed a
note payable under a loan agreement with a bank. The note bears interest at the
bank's prime rate plus 0.5%. The principal balance due under the agreement at
October 31, 1999 was $224,086, which Lightspan intends to pay in full within the
next twelve months.
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 $3,697,293 and
$1,634,993 (and accumulated amortization totaled $2,647,881 and $1,076,727) at
January 31, 1999 and October 31, 1999, respectively. Facilities rent and
operating lease expenses were $1,302,815 and $729,570 for the year ended January
31, 1999 and the nine months ended October 31, 1999, respectively.
F-13
<PAGE> 95
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. COMMITMENTS (CONTINUED)
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, $213,123 and $272,979 for the years ended January 31, 1997, 1998 and
1999, and the nine months ended October 31, 1999, respectively.
At October 31, 1999, future minimum lease payments for all leases with
initial terms of one year or more are as follows at for each fiscal year ending
January 31:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- ----------
<S> <C> <C>
2000........................................................ $ 417,387 $ 233,135
2001........................................................ 1,781,144 540,258
2002........................................................ 1,720,968 306,965
2003........................................................ 1,459,963 164,929
2004........................................................ 1,013,153 9,294
---------- ----------
Total minimum lease payments................................ $6,392,615 1,254,581
==========
Less amounts representing interest.......................... 121,548
----------
Present value of future minimum lease payments.............. 1,133,033
Less current portion of capital lease obligations........... 606,575
----------
Long-term capital lease obligations......................... $ 526,458
==========
</TABLE>
5. SHAREHOLDERS' EQUITY
CONVERTIBLE PREFERRED STOCK
At October 31, 1999, convertible preferred stock outstanding is as follows:
<TABLE>
<CAPTION>
DATE ISSUED SERIES PRICE PER SHARE NUMBER OF SHARES LIQUIDATION 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 5,294,183 26,470,915
September 1999........................ E $5.00 7,191,839 35,959,220
October 1999.......................... E $5.00 4,217,000 21,085,000
---------- ------------
52,230,915 $194,935,047
========== ============
</TABLE>
In March 1997, in connection with and prior to the Series D convertible
stock financing, Lightspan obtained $6,180,000 in convertible bridge notes from
certain investors. The notes bore interest at a rate of 9.25% per annum. In June
1997, the bridge notes and accrued interest of $86,752 converted into 1,666,689
shares of Series D convertible preferred stock.
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 October 31, 1999, the Series A, B, C, D and E preferred
stock are convertible, at the
F-14
<PAGE> 96
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
option of the holder, into 3,733,750, 5,833,332, 2,604,510, 6,564,722 and
8,351,511 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 $0.10, $0.30, $0.60, $0.376 and $0.50 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. 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 as described in this prospectus
within 24 months of the second date on which Series D preferred stock was
issued, and subject to certain criteria being met, some of the outstanding,
unexercisable warrants to purchase up to 3,326,112 shares of Series D preferred
stock at $.01 per share could become exercisable. These "springing warrants"
will be issued only if on the measurement date, which is defined as a) the
closing date of a qualified public offering; or b) the six month anniversary of
such offering (whichever is elected by Lightspan), the fair market value of
Lightspan's common stock (the "measurement price") is less than the defined
return benchmark. The return benchmark is calculated as the number of Series D
preferred shares multiplied by the liquidation preference of such shares, and
adjusted for the number of years elapsed from the original warrant date in a
manner designed to ensure an agreed-upon rate of return on investment. In the
event that the return benchmark exceeds the fair market value at the measurement
date (the "wealth shortfall"), warrants to purchase shares will become
exercisable. The number of shares issuable upon exercise of the warrants will be
equal to the wealth shortfall divided by the measurement price.
If these springing warrants are exercised Lightspan will account for the
intrinsic value of the "springing warrants" as a preferred stock dividend on the
measurement date as a dividend by charging retained earnings and increasing the
carrying amount of preferred stock by a corresponding amount. The amount of such
charge will increase the loss applicable to common stockholders.
If the offering contemplated by this prospectus is completed under the
terms set forth on the cover, warrants to purchase approximately 517,059
additional shares of common stock would become exercisable and the loss
applicable to common shareholders would increase by $5,682,478 as a result.
F-15
<PAGE> 97
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK OPTION PLAN
In 1993, Lightspan adopted its 1993 Stock Option Plan, which will be
renamed the 2000 Equity Incentive Plan upon the close of this offering (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.
At October 31, 1999, Lightspan was authorized to issue 5,153,941 shares of
common stock to eligible employees, officers, directors and consultants under
the Plan, of which options to purchase 366,361 shares were available for future
grant at October 31, 1999.
1992 STOCK OPTION PLAN
Upon the closing of its acquisition of Academic Systems, Lightspan assumed
Academic Systems' 1992 Stock Option Plan. All options outstanding under the 1992
Stock Option Plan at the date of acquisition were converted into options to
purchase shares of Lightspan common stock, and are included in the summary
below. Lightspan no longer grants options under this plan.
A summary of Lightspan's stock option activity and related information is
as follows:
<TABLE>
<CAPTION>
YEARS ENDED JANUARY 31,
---------------------------------------------------------------------- NINE MONTHS ENDED
1997 1998 1999 OCTOBER 31, 1999
---------------------- --------------------- --------------------- ---------------------
WEIGHTED WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of
year............................. 1,144,500 $ .36 1,858,750 $ .54 1,951,083 $ .60 1,782,687 $ .78
Granted........................ 893,000 $ .76 858,500 $ .86 517,438 $1.36 2,722,404 $5.00
Exercised...................... (44,427) $ .28 (244,775) $ .34 (264,960) $ .54 (514,455) $ .50
Forfeited...................... (134,323) $ .54 (521,392) $ .94 (420,874) $ .80 (276,560) $1.20
---------- ---------- ---------- ----------
Outstanding -- end of year....... 1,858,750 $ .54 1,951,083 $ .60 1,782,687 $ .78 3,714,076 $3.80
========== ========== ========== ==========
Exercisable at end of year....... 622,617 968,387 1,031,005 784,678
========== ========== ========== ==========
Weighted average fair value of
options granted during the
year........................... $ .14 $ .20 $ .30 $ 3.92
========== ========== ========== ==========
</TABLE>
F-16
<PAGE> 98
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
The following table summarizes information about stock options outstanding
as of October 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 - $ 1.0000 817,983 2.2 $ .7056 593,052 $ .6782
$1.0001 - $ 2.0000 976,130 3.8 $ 1.8902 133,715 $ 1.7312
$2.0001 - $ 3.0000 243,500 4.5 $ 3.0000 770 $ 3.0000
$3.0001 - $ 4.0000 893,580 6.8 $ 4.0000 5,391 $ 4.0000
$8.0001 - $ 9.0000 592,010 5.2 $ 8.2600 50,000 $ 8.2600
$9.0001 - $10.0000 190,873 5.6 $10.0000 1,750 $10.0000
--------- -------
3,714,076 4.6 $ 3.6416 784,678 $ 1.3866
========= =======
</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 each of the years ended
January 31, 1997, 1998 and 1999 and the nine months ended October 31, 1999,
respectively: risk-free interest rates of 6.00%, 5.13%, 5.00% and 5.19%,
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 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, NINE MONTHS ENDED
------------------------------------------ OCTOBER 31,
1997 1998 1999 1999
------------ ------------ ------------ -----------------
<S> <C> <C> <C> <C>
Pro forma net loss................. $(32,615,453) $(29,020,517) $(16,587,899) $(21,510,935)
============ ============ ============ ============
Pro forma historical net loss per
share, basic and diluted........... $ (10.73) $ (9.13) $ (4.90) $ (5.53)
------------ ------------ ------------ ------------
</TABLE>
WARRANTS
In connection with debt and equipment lease financing agreements entered
into at various dates, Lightspan issued a total of 749,605 warrants to purchase:
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, up to 183,105 shares and 127,659 shares of Series
D preferred stock at $3.76 and $4.70 per share, respectively, and up to 42,216
shares of Series E preferred stock at $5.00 per share. The warrants expire on
various dates commencing in 2002 through 2006.
F-17
<PAGE> 99
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
The warrants to purchase Series A through D preferred stock 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 financing 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 October 31, 1998 and 1999.
In connection with the acquisition of Academic Systems Corporation
("Academic") (see Note 9), Lightspan converted 50,000 warrants to purchase
Academic Series C preferred stock originally issued in connection with lease
financing into 8,000 warrants to purchase Lightspan Series E preferred stock;
and 34,216 warrants to purchase Academic Series F preferred stock originally
issued in connection with debt financing into 34,216 warrants to purchase
Lightspan Series E preferred stock. These warrants were valued at $1.25 per
share and $.33 per share, respectively, in accordance with APB 16, using the
minimum value method, and were accounted for as a part of the purchase price of
Academic.
AGREEMENT WITH CINAR CORPORATION
On October 29, 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 (convertible into 1.25 million shares of
common 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 a warrant to purchase 500,000 shares of
Lightspan's Series E Preferred Stock at an exercise price of $5.00 per share
(which will become a warrant to purchase 250,000 shares of common stock at an
exercise price of $10.00 per share) that will vest upon the achievement of
various agreed-to strategic goals.
Lightspan has accounted for the warrants in accordance with EITF 96-18,
Accounting for Equity Instruments That Are Issued to Other Than Employees for
Acquiring, or in Conjunction with Selling Goods or Services. Specifically, the
shares that could be issued pursuant to the warrant will be valued the earlier
of a) the date at which a commitment for performance is reached or b) the date
at which CINAR's performance is complete (the "measurement date").
Lightspan believes that it is unlikely that a performance commitment, as
described in EITF 96-18, will be reached until performance is complete.
Therefore, the measurement date will be the date of completion of performance
and accordingly no expense had been recorded through October 31, 1999.
DEFERRED ADVERTISING EXPENSE
On October 29, 1999, Lightspan issued 160,000 shares of Series E
convertible preferred stock to Liberty Digital Corporation in exchange for
$400,000 in cash and $800,000 in future Internet advertising credits. Lightspan
determined that the fair value of the shares issued ($5.00 per share) was more
readily determinable than the fair value of the advertising credits.
As a result, Lightspan recorded the 160,000 shares issued at $800,000 and
recorded deferred advertising expense of $400,000. Lightspan will remeasure, and
expense, such amount as the advertising credits are utilized, in accordance with
EITF 96-18.
F-18
<PAGE> 100
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. SHAREHOLDERS' EQUITY (CONTINUED)
STOCK-BASED COMPENSATION
Lightspan has recorded deferred compensation of $211,876 and $8,547,752 for
the year ended January 31, 1999 and the nine months ended October 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 $2,503,458 during the year ended January 31, 1999 and the nine
months ended October 31, 1999, respectively.
COMMON SHARES RESERVED FOR FUTURE ISSUANCE
The following table summarizes common shares reserved for future issuance:
<TABLE>
<CAPTION>
OCTOBER 31,
1999
-----------
<S> <C>
Convertible preferred stock................................. 27,087,825
Convertible preferred stock warrants........................ 403,591
Common stock options........................................ 3,714,076
----------
Total common shares reserved for issuance................... 31,205,492
==========
</TABLE>
REVERSE STOCK SPLIT
In January 2000, the Company approved a one for two reverse stock split of
its common stock. In addition, immediately following the closing of the initial
public offering, the certificate of incorporation will be amended to authorize
the issuance of up to 250,000,000 shares of common stock and 20,000,000 shares
of preferred stock. Consequently, the common stock and stock option data
throughout the financial statements and notes to the financial statements have
been restated to reflect the stock split.
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,
---------------------------- OCTOBER 31,
1998 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Deferred tax assets:
Net operating loss carryforwards......... $ 29,993,000 $ 35,586,000 $ 41,719,000
Capitalized research expenses.......... 2,111,000 2,119,000 2,514,000
Research and development credits....... 2,608,000 3,257,000 4,062,000
Other.................................. 1,989,000 1,467,000 1,119,000
------------ ------------ ------------
Total deferred tax assets................ 36,701,000 42,429,000 49,414,000
Valuation allowance for deferred tax
assets.............................. (36,701,000) (42,429,000) (39,207,000)
------------ ------------ ------------
Net deferred tax assets.................. -- -- 10,207,000
------------ ------------ ------------
Deferred tax liabilities:
Acquired intangibles................... -- -- 10,207,000
------------ ------------ ------------
Net deferred tax assets.................. $ -- $ -- $ --
============ ============ ============
</TABLE>
F-19
<PAGE> 101
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. INCOME TAXES (CONTINUED)
A reconciliation of income taxes at the statutory federal income tax rate
to the provision for income taxes is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEARS ENDED JANUARY 31, ENDED
---------------------------------------- OCTOBER 31,
1997 1998 1999 1999
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
U.S. federal taxes at statutory rate.... $(11,080,000) $(9,844,000) $(5,620,000) $(6,303,000)
State taxes, net of federal benefit..... (1,955,000) (1,737,000) (992,000) (1,112,000)
Change in valuation allowance........... 12,783,000 12,753,000 5,728,000 6,990,000
Other nondeductible expenses and
expiration of net operating loss
carryforwards, net.................... 252,000 (1,172,000) 884,000 425,000
------------ ----------- ----------- -----------
$ -- $ -- $ -- $ --
============ =========== =========== ===========
</TABLE>
A valuation allowance has been recognized to offset the deferred tax assets
because management cannot conclude that it is more likely than not that the
deferred tax assets will be realized.
At October 31, 1999, Lightspan had federal and California net operating
loss carryforwards of approximately $114,796,000 and $26,788,000, 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. Through
October 31, 1999, California tax loss carryforwards of $2,150,000 have 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 $3,077,000 and $1,515,000, 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 and $0
for the nine months ended October 31, 1999.
NOTE 8. BUSINESS COMBINATIONS
ACQUISITION OF ACADEMIC SYSTEMS CORPORATION
On May 10, 1999, Lightspan entered into a merger agreement with Academic,
which sells and supports interactive multimedia learning systems, principally to
colleges and universities. In connection with the merger agreement which was
consummated on September 20, 1999, Lightspan issued 7,191,839 shares of Series E
convertible preferred stock, 570,356 shares of common stock, options to purchase
263,404 shares of common stock, and warrants to purchase 42,216 shares of Series
E convertible preferred stock, and agreed to pay $1,735,840 cash, in exchange
for all of the outstanding common and preferred shares of Academic and all
outstanding Academic options and warrants. The acquisition was accounted for as
a purchase.
The Series E convertible preferred stock was valued at $5.00 per share (the
same price that such shares were sold for cash in July, September and October
1999). The merger agreement included a "put right" whereby Academic common
shareholders could elect to receive cash of $1.00 per Academic
F-20
<PAGE> 102
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. BUSINESS COMBINATIONS (CONTINUED)
common share ($8.26 per Lightspan common share on an as-converted basis) in lieu
of shares of Lightspan common stock. Shareholders approximating 21% of
Academic's common shares and outstanding options exercised the "put right,"
resulting in an aggregate cash payment of $1,734,306, with an additional $1,534
to be paid in the future. The remaining Academic common shares and options to
purchase common shares were converted to Lightspan common stock and options to
purchase common stock at a ratio of .12121-to-1. The 570,356 common shares to be
issued were valued at $8.26 share (the same price on an as-converted basis that
Academic common shareholders and optionholders were paid upon election of the
"put right."). The 263,404 options to purchase Lightspan common stock that were
issued to Academic optionholders were recorded at their fair value of $6.82 per
share in accordance with APB 16 with the fair value determined by the minimum
value method.
Subsequent to September 20, 1999, the date the acquisition was consummated,
Lightspan determined that it will issue additional consideration in the amount
of $5,340,075 in early 2000 to certain Academic stockholders. Lightspan intends
to issue 1,068,015 shares of Series E preferred stock, subject to regulatory
approval, to such stockholders. If regulatory approval is not obtained,
Lightspan intends to issue cash or some other form of additional consideration.
The aggregate purchase price totalled $49,933,078, as follows:
<TABLE>
<S> <C>
Valuation of Series E convertible preferred stock
issuable.................................................. $35,959,195
Valuation of common stock issued or issuable................ 4,711,141
Issuance of cash pursuant to exercise of "put right"........ 1,734,306
Valuation of options and warrants exchanged for Academic
options and warrants...................................... 1,817,707
Acquisition costs........................................... 369,120
Additional consideration issuable in Series E convertible
preferred stock or cash................................... 5,341,609
-----------
Aggregate purchase price.................................... $49,933,078
===========
</TABLE>
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 accompanying consolidated financial statements include the results of
operations of Academic since September 20, 1999, the date the acquisition was
consummated.
ACQUISITION OF GLOBAL SCHOOLHOUSE
On September 2, 1999, Lightspan acquired certain assets of The Global
SchoolNet Foundation, principally consisting of the Web site
GlobalSchoolhouse.com, an education Web site designed to help teachers develop
and manage collaborative learning projects online, and related intellectual
property, for $2.5 million in cash. The acquisition was accounted for as a
purchase. The purchase price was allocated to the assets acquired, principally
intangible assets related to the Web site, which are being amortized over a
three-year useful life.
The accompanying consolidated financial statements include the results of
operations of Global Schoolhouse since September 2, 1999.
ACQUISITION OF STUDYWEB
On October 28, 1999 Lightspan acquired certain assets of American Computer
Resource, principally consisting of the Web site StudyWeb.com, a research
website designed to help parents, teachers and students find online educational
resources, and related intellectual property, for consideration of $1,000,000 in
cash and 217,000 shares of Series E convertible preferred stock, valued at $5.00
per share. The
F-21
<PAGE> 103
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOTE 8. BUSINESS COMBINATIONS (CONTINUED)
aggregate purchase price was $2,085,000. The acquisition was accounted for as a
purchase. The purchase price was allocated to the assets acquired, principally
intangible assets related to the Web site, which are being amortized over a
three-year useful life.
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information assumes the
acquisitions of Academic, Global Schoolhouse and StudyWeb were consummated on
February 1, 1998 and 1999:
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
JANUARY 31, 1999 OCTOBER 31, 1999
---------------- -----------------
<S> <C> <C>
Revenues.................................................... $ 37,207,665 $ 36,778,640
Net loss.................................................... $(38,421,234) $(30,653,960)
Historical net loss per share, basic and diluted............ $ (11.34) $ (7.88)
============ ============
Pro forma net loss per share, basic and diluted............. $ (1.48) $ (1.09)
============ ============
</TABLE>
9. REPORTABLE SEGMENTS
DESCRIPTION OF THE TYPES OF PRODUCTS FROM WHICH EACH REPORTABLE SEGMENT DERIVES
ITS REVENUES
Lightspan has three reportable segments: Lightspan Achieve Now, K-12
Internet and Higher Education. Revenues derived from the Lightspan Achieve Now
segment typically include the sale of Lightspan Achieve Now software licenses,
Sony PlayStation 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.
FINANCIAL INFORMATION FOR LIGHTSPAN'S SEGMENTS
Upon the purchase of Academic, Lightspan created a new Higher Education
segment, which is comprised solely of Academic. The assets and results of
operations of Global Schoolhouse and Study Web, including the related
amortization of intangible assets, are included in the K-12 Internet segment.
F-22
<PAGE> 104
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. REPORTABLE SEGMENTS (CONTINUED)
The following information is for the Lightspan Achieve Now, K-12 Internet,
and Higher Education 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 loss from operations............... (30,925,268) (1,550,880) -- (32,476,148)
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 8,186 -- 1,637,485
Segment loss from operations............... (27,155,113) (1,269,817) -- (28,424,930)
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 loss from operations............... (14,591,248) (2,355,300) -- (16,946,548)
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 -- -- 19,680
</TABLE>
F-23
<PAGE> 105
THE LIGHTSPAN PARTNERSHIP, INC.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. REPORTABLE SEGMENTS (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31, 1999
----------------------------------------------------------------------
LIGHTSPAN
ACHIEVE K-12 HIGHER
NOW INTERNET EDUCATION ELIMINATIONS CONSOLIDATED
----------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues from external
customers..................... $29,316,124 $ 1,246,100 $ 488,798 $ -- $31,051,022
Inter segment revenues.......... -- -- -- -- --
Interest income (expense),
net........................... 217,905 16,769 (3,692) -- 230,982
Depreciation and amortization... 816,188 23,670 25,258 -- 865,116
Segment loss from operations.... (7,559,889) (9,288,756) (2,152,857) -- (19,001,502)
Segment assets.................. 39,904,458 766,096 51,003,928 -- 91,674,482
Other significant non cash
items:
Deferred stock compensation... 5,236,905 3,107,200 203,647 -- 8,547,752
Amortization of deferred stock
compensation............... 1,569,255 922,258 11,945 -- 2,503,458
Amortization of intangible
assets..................... -- 136,642 1,479,197 -- 1,615,839
</TABLE>
10. LEGAL MATTERS
In July 1996, a former employee (the "Plaintiff") commenced legal action
against Lightspan, alleging causes of action for fraud, breach of contract,
negligent misrepresentation and conversion. On August 26, 1999, the Plaintiff
and Lightspan entered into a settlement agreement and release, the terms of
which are subject to confidentiality provisions, as defined by the agreement.
During the year ended January 31, 1999, Lightspan recorded a charge of
approximately $1.1 million for anticipated settlement and legal costs related to
this case. During the nine months ended October 31, 1999, Lightspan recorded an
additional charge of approximately $467,000 to cover the remaining additional
costs pursuant to the settlement terms.
As of October 31, 1999, Lightspan had paid approximately $950,000 in cash
for legal and settlement costs related to this case. Lightspan anticipates that
it will pay the remaining $617,000 shortly following the effective date of the
offering contemplated by this Prospectus.
11. SUBSEQUENT EVENTS
In January 2000, Lightspan agreed to pursue strategic initiatives with Cox
Communications Holdings, Inc. Cox Communications is among the nation's largest
broadband communications companies, serving more than 3.8 million customers in
18 locations. Cox Communications also provides a wide variety of services to
schools in their cable communities through its "Cable in the Classroom"
initiative which provides public schools with free basic cable service and
learning guides. As part of the agreement, Cox Communications agreed to purchase
$12.5 million of Lightspan common stock, or 1,136,364 shares assuming an initial
public offering price of $11 per share, in a private placement scheduled to
occur concurrently with our initial public offering upon satisfaction of several
conditions. Lightspan also granted Cox Communications a warrant to purchase
750,000 shares of common stock. The warrant will vest upon the achievement of
various agreed-to strategic goals related to the proposed use of Lightspan
Achieve Now and Lightspan.com products in trials by Cox Communications of cable
offerings over digital set-top boxes.
Also, in January 2000, Gateway Companies, Inc. agreed to purchase $3.0
million of Lightspan common stock, or 272,727 shares assuming an initial public
offering price of $11 per share, in a private placement that is scheduled to
occur concurrently with the initial public offering. This investment by Gateway
is subject to the satisfaction of several conditions, including Lightspan
jointly entering into an Internet sponsorship agreement whereby Gateway will
become a sponsor of Lightspan.com. Gateway, a manufacturer of personal
computers, is Lightspan's preferred provider of personal computers.
F-24
<PAGE> 106
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-25
<PAGE> 107
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........................... 514,629 582,822 170,622
------------ ------------ ------------
Total current assets............................. 14,814,910 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 -- 54,000,000
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 -- 34,761,460
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-26
<PAGE> 108
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-27
<PAGE> 109
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-28
<PAGE> 110
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...................................... (192,839) (68,193) 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........... (8,868,726) (8,001,207) (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.......... 7,572 4,837 -- --
------------ ----------- ----------- -----------
Net cash flows used in investing activities........... (467,355) (469,495) (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-29
<PAGE> 111
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.
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
F-30
<PAGE> 112
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)
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 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
F-31
<PAGE> 113
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)
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-32
<PAGE> 114
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 $ 0.40 1,173,107 653,382 $ 261,353
February 1993.............................. B $ 0.75 435,000 217,500 163,125
February 1993.............................. C $ 0.80 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 $0.04, $0.075, $0.08, $0.2725, $0.30 and $0.108
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-33
<PAGE> 115
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-34
<PAGE> 116
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-35
<PAGE> 117
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 May 10, 1999, Academic entered into a merger agreement with The
Lightspan Partnership, Inc. ("Lightspan".) Under the merger agreement, which was
consummated on September 20, 1999, Lightspan acquired all of Academic's
outstanding shares of common and preferred stock in exchange for Lightspan
Series E convertible preferred stock, Lightspan common stock and cash.
F-36
<PAGE> 118
THE LIGHTSPAN PARTNERSHIP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
INTRODUCTION
On May 10, 1999, The Lightspan Partnership, Inc. ("Lightspan") entered into
a merger agreement with Academic Systems Corporation ("Academic"), which was
consummated on September 20, 1999.
The unaudited pro forma combined condensed statements of operations which
follow 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
includes the statements of operations of both Lightspan and Academic for the
year ended January 31, 1999 and the nine months ended October 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.
The unaudited pro forma combined condensed statements of operations for the
year ended January 31, 1999 and the nine months ended October 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.
F-37
<PAGE> 119
THE LIGHTSPAN PARTNERSHIP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE YEAR 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...... 3,590,159 2,189,785 5,779,944
Stock-based compensation........ 19,680 -- -- 19,680
Amortization of intangible
assets....................... -- -- 11,833,500(1) 11,833,500
------------ ----------- ------------- ------------
Total operating expenses.......... 36,269,835 12,219,251 11,833,500 60,322,586
------------ ----------- ------------- ------------
Loss from operations.............. (16,946,548) (7,981,795) (11,833,500) (36,761,843)
Other income (expense), net....... 417,713 163,747 (52,075)(2) 529,385
------------ ----------- ------------- ------------
Net loss.......................... $(16,528,835) $(7,818,048) $ (11,885,575) $(36,232,458)
============ =========== ============= ============
Historical net loss per share
basic and diluted............... $ 10.70
============
Shares used in the computation of
historical net loss per share,
basic and diluted............... 3,387,772
============
Pro forma net loss per share,
basic and diluted............... $ (1.40)
============
Shares used in the computation of
pro forma net loss per share,
basic and diluted............... 25,967,615(3)
============
</TABLE>
- ---------------
(1) Represents the amortization of intangible assets and goodwill over estimated
useful lives ranging from four to ten years, and the amortization of
goodwill over four years.
(2) Represents the forgone interest income on the cash paid to effect the
acquisition, based on an assumed 3% rate of return.
(3) 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 statements of
operations.
F-38
<PAGE> 120
THE LIGHTSPAN PARTNERSHIP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED OCTOBER 31, 1999
<TABLE>
<CAPTION>
PRO FORMA
THE LIGHTSPAN ACADEMIC ADJUSTMENTS COMBINED
PARTNERSHIP, INC. SYSTEMS (NOTE 5) PRO FORMA
----------------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Revenues............................ $ 31,051,022 $ 6,216,416 $ (488,798)(4) $ 36,778,640
Cost of revenues.................... 10,850,277 1,730,292 (145,057)(4) 12,435,512
------------ ----------- ------------- ------------
Gross profit........................ 20,200,745 4,486,124 (343,741) 24,343,128
Operating expenses:
Technology and development........ 7,525,997 1,705,034 (233,800)(4) 8,997,231
Sales and marketing............... 23,474,445 4,674,575 (596,602)(4) 27,552,418
General and administrative........ 4,082,508 1,625,850 (175,054)(4) 5,533,304
Stock-based compensation.......... 2,503,458 11,945 (11,945)(4) 2,503,458
Amortization of intangible
assets.......................... 1,615,839 1,479,197 7,395,921(1) 9,011,760
(1,479,197)(4)
------------ ----------- ------------- ------------
Total operating expenses............ 39,202,247 9,496,601 4,899,323 53,598,171
------------ ----------- ------------- ------------
Loss from operations................ (19,001,502) (5,010,477) (5,243,064) (29,255,043)
Other income (expense), net......... 230,982 (89,595) 3,692(4) 106,023
(39,056)(2)
------------ ----------- ------------- ------------
Net loss............................ $(18,770,520) $(5,100,072) $ (5,278,428) $(29,149,020)
============ =========== ============= ============
Historical net loss per share basic
and diluted $ (7.49)
============
Shares used in the computation of
historical net loss per share,
basic and diluted................. 3,891,940
============
Pro forma net loss per share, basic
and diluted....................... $ (1.04)
============
Shares used in the computation of
pro forma net loss per share,
basic and diluted................. 27,940,184(3)
============
</TABLE>
- ---------------
(1) Represents the amortization of intangible assets over estimated useful lives
ranging from four to ten years, and the amortization of goodwill over four
years, for the period February 1, 1999 through September 19, 1999.
(2) Represents the forgone interest income on the cash paid to effect the
acquisition, based on an assumed 3% rate of return.
(3) 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.
(4) Represents results of operations for Academic Systems from the acquisition
date through October 31, 1999, which are already included in the results of
operations of Lightspan.
See accompanying notes to unaudited pro forma combined condensed statements of
operations
F-39
<PAGE> 121
NOTE 1.
Pursuant to the merger agreement between Lightspan and Academic, the
following consideration was issued: (i) cash of $1,735,840; (ii) 570,356 shares
of Lightspan's common stock valued at $8.26 per share; (iii) 7,191,839 shares of
its Series E convertible preferred stock valued at $5.00 per share; (iv) options
to acquire 263,404 shares of the Lightspan's common stock, valued at $6.82 per
share; and (v) warrants to purchase 42,216 shares of Lightspan's Series E
convertible preferred stock, valued at $1.25 per share for 8,000 shares and
$0.33 per share for the remaining 34,216 shares. Subsequent to September 20,
1999, the date the acquisition was consummated, Lightspan determined that it
will issue additional consideration in the amount of $5,340,075 in early 2000 to
certain Academic stockholders. Lightspan intends to issue 1,068,015 shares of
Series E preferred stock, subject to regulatory approval, to such stockholders.
If regulatory approval is not obtained, Lightspan intends to issue cash or some
other form of consideration. As a result, the aggregate purchase price is
calculated to be $49,933,078, which includes acquisition costs of $369,121. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Current assets acquired..................................... $ 3,287,669
Property, equipment and other assets........................ 480,864
Goodwill.................................................... 23,333,966
Customer base............................................... 16,200,000
Core technology............................................. 5,600,000
Trademark and trade name.................................... 3,000,000
Assembled workforce......................................... 1,000,000
Deferred revenue............................................ (1,486,849)
Liabilities assumed......................................... (1,482,572)
-----------
$49,933,078
===========
</TABLE>
The Series E convertible preferred stock was valued at $5.00 per share (the
same price that such shares were sold for cash in July, September and October
1999). The merger agreement included a "put right" whereby Academic common
shareholders could elect to receive cash of $1.00 per Academic common share
($8.26 per Lightspan common share on an as-converted basis) in lieu of shares of
Lightspan common stock. Shareholders approximating 21% of Academic's common
shares and outstanding options exercised the "put right," resulting in an
aggregate cash payment of $1,734,306, with an additional $1,534 to be paid in
the future. The remaining Academic common shares and options to purchase common
shares were converted to Lightspan common stock and options to purchase common
stock at a ratio of .12121-to-1. The 570,356 common shares to be issued were
valued at $8.26 share (the same price on an as-converted basis that Academic
common shareholders and optionholders were paid upon election of the "put
right."). The 262,494 options to purchase Lightspan common stock that were
issued to Academic optionholders were recorded at their fair value of $6.82 per
share in accordance with APB 16, with the fair value determined by the minimum
value method.
Lightspan also converted 50,000 warrants to purchase Academic Series C
preferred stock originally issued in connection with lease financing into 8,000
warrants to purchase Lightspan Series E preferred stock and 34,216 warrants to
purchase Academic Series F preferred stock originally issued in connection with
debt financing into 34,216 warrants to purchase Lightspan Series E preferred
stock. These warrants were valued at $1.25 per share and $0.33 per share,
respectively, in accordance with APB 16, with the fair value determined by the
minimum value method.
F-40
<PAGE> 122
LIGHTSPANLOGO
<PAGE> 123
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.................... 5,000
Printing and engraving expenses............................. 275,000
Legal fees and expenses..................................... 450,000
Accounting fees and expenses................................ 550,000
Transfer agent and registrar fees........................... 10,000
Miscellaneous............................................... 71,030
----------
Total............................................. $1,500,000
==========
</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> 124
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. At the close of this
offering, this will become a warrant to purchase 21,243 shares of common
stock at an exercise price of $12.00 per share. 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
2,571,235 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 33,245 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. At the close of this
offering, this will become a warrant to purchase 55,850 shares of common
stock at an exercise price of $3.00 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. At the close
of this offering, these will become warrants to purchase an aggregate of
78,255 shares of common stock at an exercise price of $7.52 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 3,492,917 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 66,489 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.
II-2
<PAGE> 125
(h) On December 15, 1997, we issued and sold an aggregate of 531,915
shares of our Series D preferred stock (convertible into 265,958 shares of
common stock) to three accredited investors for an 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 2,739,359 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. Concurrently with the close of this
offering, these warrants will become warrants to purchase up to 1,663,056
shares of common stock. 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. At the close of this
offering, this will become a warrant to purchase 63,830 shares of common
stock at an exercise price of $9.40 per share. We relied on the exemption
provided by Section 4(2) of the Securities Act of 1933.
(l) On July 8, 1999 we issued and sold an aggregate of 4,294,183
shares of our Series E preferred stock (convertible into 2,147,092 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.
(m) On July 27, 1999, we issued and sold an aggregate of 1,000,000
shares of our Series E preferred stock (convertible into 500,000 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.
(n) On August 16, 1998, we issued and sold an aggregate of 1,150,000
shares of our Series E preferred stock (convertible into 575,000 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.
(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 (convertible into 125,000 shares of common 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 issued and sold 217,000 shares of our
Series E preferred stock (convertible into 108,500 shares of common 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.
(r) On November 1, 1999, we sold and issued 2,500,000 shares of our
Series E preferred stock (convertible into 1,250,000 shares of common
stock) and a warrant to purchase up to 500,000 shares of our Series E
preferred stock (convertible into 250,000 shares of common 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.
II-3
<PAGE> 126
(s) On November 15, 1999 we issued and sold 100,000 shares of our
Series E preferred stock (convertible into 50,000 shares of common stock)
to an accredited investor for an aggregate purchase price of $500,000. We
relied on the exemption provided by Section 4(2) of the Securities Act and
Regulation D promulgated thereunder.
(t) On January 11, 2000 we agreed to issue and sell $12.5 million of
common stock to Cox Communications Holdings, Inc., an accredited investor,
concurrently with the close of this offering. We also agreed to issue a
warrant to Cox Communications to purchase 750,000 shares of common stock at
an exercise price of $10.00 per share. We will rely on the exception
provided by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder.
(u) On January 12, 2000 we agreed to issue $3.0 million of common
stock to Gateway Companies, Inc., an accredited investor, concurrently with
the closing of this offering. We will rely on the exception 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-4
<PAGE> 127
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.
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.
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.
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.
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.
10.21*+ Letter Agreement by and between the Company and
SmarterKids.com, Inc. dated as of July 12, 1999.
10.22* Academic Systems Fulfillment Agreement by and between
Academic Systems Corporation and FGI Print Management dated
as of June 12, 1998.
</TABLE>
II-5
<PAGE> 128
<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.
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.
10.35* Form of Warrant to purchase Series E preferred stock.
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.
10.37* Oracle Reseller agreement, dated as of August 9, 1994,
including Addendums.
10.38 Form of Warrant to purchase common stock by and between the
Company and Cox Communications Holdings, Inc. to be issued
concurrent with the closing of this offering.
10.39 Stock Purchase Agreement by and between the Company and Cox
Communications Holdings, Inc. dated as of January 11, 2000.
10.40 Stock Purchase Agreement by and between the Company and
Gateway Companies, Inc. dated as of January 12, 2000.
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.
24.1 Power of Attorney. Reference is made to page II-5.
24.2 Power of Attorney.
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.
* Previously filed.
(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
II-6
<PAGE> 129
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.
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-7
<PAGE> 130
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Amendment No. 2 to 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 January 13, 2000.
By: /s/ CARL ZEIGER
------------------------------------
Carl Zeiger
President and Chief Operating
Officer
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer January 13, 2000
- --------------------------------------------------- and Chairman
John T. Kernan (Principal Executive Officer)
/s/ CARL ZEIGER President, Chief Operating January 13, 2000
- --------------------------------------------------- Officer and Director
Carl Zeiger
* Vice President of Finance January 13, 2000
- --------------------------------------------------- and Chief Financial Officer
Kathleen R. McElwee (Principal Financial and
Accounting Officer)
* Executive Vice President, January 13, 2000
- --------------------------------------------------- President of Academic Systems
John H. Brandon and Director
* Director January 13, 2000
- ---------------------------------------------------
James W. Breyer
* Director January 13, 2000
- ---------------------------------------------------
L. John Doerr
* Director January 13, 2000
- ---------------------------------------------------
Jeffrey P. Sanderson
* Director January 13, 2000
- ---------------------------------------------------
David D. Hiller
* Director January 13, 2000
- ---------------------------------------------------
Bradley P. Dusto
* Director January 13, 2000
- ---------------------------------------------------
Bruce W. Ravenel
* Director January 13, 2000
- ---------------------------------------------------
Barry J. Schiffman
* Director January 13, 2000
- ---------------------------------------------------
Ronald A. Weinberg
*By: /s/ CARL ZEIGER
- --------------------------------------------------
(Carl Zeiger)
(Attorney-in-Fact)
</TABLE>
II-8
<PAGE> 131
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.
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.
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.
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.
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.
10.21*+ Letter Agreement by and between the Company and
SmarterKids.com, Inc. dated as of July 12, 1999.
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> 132
<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.
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.
10.35* Form of Warrant to purchase Series E preferred stock.
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.
10.37* Oracle Reseller agreement, dated as of August 9, 1994,
including Addendums.
10.38 Form of Warrant to purchase common stock by and between the
Company and Cox Communications Holdings, Inc. to be issued
concurrent with the closing of this offering.
10.39 Stock Purchase Agreement by and between the Company and Cox
Communications Holdings, Inc. dated as of January 11, 2000.
10.40 Stock Purchase Agreement by and between the Company and
Gateway Companies, Inc. dated as of January 12, 2000.
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.
24.1 Power of Attorney. Reference is made to page II-5.
24.2 Power of Attorney.
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.
* Previously filed.
(1) To be filed by amendment.
<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 23, 1999
/s/ CARL E. ZEIGER
-----------------------------------
Carl E. Zeiger, President
and Chief Operating Officer
/s/ KATHLEEN R. MCELWEE
-----------------------------------
Kathleen R. McElwee, Vice President,
Finance, and Chief Financial Officer
<PAGE> 2
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 thirty-one million seven hundred
ninety-five thousand seventy-four (131,795,074) which is comprised of
seventy-five million (75,000,000) shares of Common Stock each with the par value
of $0.001 per share, and fifty-six million seven hundred ninety-five thousand
seventy-four (56,795,074) 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 seventeen million
(17,000,000) 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
-3-
<PAGE> 4
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.
-4-
<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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(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.
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<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
-5-
<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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<PAGE> 11
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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<PAGE> 12
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 six (6) 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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<PAGE> 13
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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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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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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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.
-22-
<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) she is the duly elected,
qualified and acting Secretary of The Lightspan Partnership, Inc. (the
"Company"); (ii) the foregoing Bylaws, comprising twenty (20) 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; (v) the Board of Directors
of the Company by written consent effective September 13, 1996 approved the
amendment of Section 3.2 of such duly adopted Bylaws; (vi) the Board of
Directors of the Company, effective as of June 24, 1997, approved the further
amendment of Section 3.2 of such duly adopted Bylaws; and (vii) the Board of
Directors of the Company on October 28, 1999 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 1st day of November, 1999.
/s/ KATHLEEN R. MCELWEE
-----------------------------------
Kathleen R. McElwee, Secretary
-23-
<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 $2.00, and
shall be subject to adjustment as provided herein. The initial Conversion Price
for the Series B Preferred Stock shall be $6.00, and shall be subject to
adjustment as provided herein. The initial Conversion Price for the Series C
Preferred Stock shall be $7.52, and shall be subject to adjustment as provided
herein. The initial Conversion Price for the Series D Preferred Stock shall be
$7.52, and shall be subject to adjustment as provided herein. The initial
Conversion Price for the Series E Preferred Stock shall be $10.00, 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 4.2
NUMBER SHARES
LIGHTSPAN
COMMON STOCK COMMON STOCK
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
CUSIP 532262 10 2
THIS CERTIFIES THAT SEE REVERSE FOR
STATEMENTS RELATING
TO RIGHTS, PREFERENCES,
PRIVILEGES AND
RESTRICTIONS, IF ANY
IS THE RECORD HOLDER OF
FULLY PAID AND NONASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, OF
THE LIGHTSPAN PARTNERSHIP, INC.
transferable on the books of the Corporation by the holder hereof in person or
by a duly authorized attorney upon surrender of this Certificate properly
endorsed. This Certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED:
/S/ KATHLEEN MCELWEE [SEAL] /S/CARL ZEIGER
SECRETARY PRESIDENT
COUNTERSIGNED AND REGISTERED:
HARRIS TRUST COMPANY OF CALIFORNIA
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED SIGNATURE
<PAGE> 2
A statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares and upon
the holders thereof as established by the Articles of Incorporation of the
Corporation and by any certificate of determination, and the number of shares
constituting each class or series and the designations thereof, may be obtained
by any shareholder of the Corporation upon written request and without charge
from the Secretary of the Corporation at its corporate headquarters.
KEEP THIS CERTIFICATE IN A SAFE PLACE. IF IT IS LOST, STOLEN, OR DESTROYED
THE CORPORATION WILL REQUIRE A BOND OF INDEMNITY AS A CONDITION TO THE ISSUANCE
OF A REPLACEMENT CERTIFICATE.
The following abbreviations, when used in the inscription the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
UNIF GIFT MIN ACT Custodian
-------- -------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
---------------------------
(State)
UNIF TRF MIN ACT Custodian until age
----------- ---
Under Uniform Transfers
-----------
(Minor)
to Minors Act
--------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED,_______________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNED
- --------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OR ASSIGNEE)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
- -------------------------------------------------------------------------
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
Attorney
- -----------------------------------------------------------------------
to transfer the said stock on the books of the within-named Corporation with
full power of substitution in the premises.
Dated
------------------------ .
X
-------------------------------------------
X
-------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATSOEVER.
Signature(s) Guaranteed
By
-----------------------------------------
THE SIGNATURE(S) MUST BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS,
STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN
APPROVED SIGNATURE GUARANTEE MEDALLION
PROGRAM). PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.38
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
THE LIGHTSPAN PARTNERSHIP, INC.
WARRANT TO PURCHASE COMMON STOCK
750,000 SHARES
JANUARY __, 2000
THIS CERTIFIES THAT, for value received, COX COMMUNICATIONS HOLDINGS,
INC., a Delaware corporation, with its principal office at _____ ("COX"), or
assigns (the "HOLDER"), is entitled to subscribe for and purchase at the
Exercise Price (defined below) from THE LIGHTSPAN PARTNERSHIP, INC., a
California corporation, with its principal office at 10140 Campus Point Drive,
San Diego, CA 92121 ("LIGHTSPAN" or the "CORPORATION") up to 750,000 (on a
post-split basis, assuming the Reverse Stock Split, defined below) shares of the
common stock of the Corporation (the "COMMON STOCK").
1. DEFINITIONS. As used herein, the following terms shall have the following
respective meanings:
(a) "EXERCISE PERIOD" shall mean, as to particular Exercise Shares, the
period beginning on the date such Exercise Shares become exercisable pursuant to
Section 2(c), and ending on the date 18 months from the date of the closing of
the IPO (defined below).
(b) "EXERCISE PRICE" shall initially mean $10.00 per share (on a
post-split basis, assuming the Reverse Stock Split, defined below), subject to
adjustment pursuant to Section 6 hereof.
(c) "EXERCISE SHARES" shall mean the shares of the Corporation's Common
Stock issuable upon exercise of this Warrant.
(d) "IPO" shall mean a firmly underwritten initial public offering of
Lightspan's Common Stock.
2. EXERCISE OF WARRANT.
(a) GENERAL. The rights represented by this Warrant may be exercised in
whole or in part at any time during the Exercise Period to the extent
exercisable by delivery of the following to the Corporation at its address set
forth above (or at such other address as it may designate by notice in writing
to the Holder):
1.
<PAGE> 2
(i) An executed Notice of Exercise in the form attached hereto;
(ii) payment of the Exercise Price in cash, by check or wire
transfer, or other immediately available funds acceptable to the Corporation;
and
(iii) this Warrant.
Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the name of
the Holder or persons affiliated with the Holder, if the Holder so designates,
shall be issued and delivered to the Holder within a reasonable time after the
rights represented by this Warrant shall have been so exercised.
The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Corporation are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
(b) NET EXERCISE. Notwithstanding any provisions herein to the contrary,
if the fair market value of one share of the Corporation's Common Stock is
greater than the Exercise Price (at the date of exercise), in lieu of exercising
this Warrant by payment of cash, the Holder may elect to receive shares equal to
the value (as determined below) of this Warrant (or the portion thereof being
exercised) by surrender of this Warrant at the principal office of the
Corporation together with the properly endorsed Notice of Exercise in which
event the Corporation shall issue to the Holder a number of shares of Common
Stock computed on the date of such exercise using the following formula;
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = The number of shares underlying the Warrant as to which the
Warrant is being exercised.
A = the fair market value of one share of the Corporation's
Common Stock (at the date of such exercise)
B = Exercise Price (as adjusted to the date of such exercise)
For purposes of the above calculation, the fair market value of one share
of Common Stock shall be determined as follows:
(i) If the Common Stock is traded on a national securities exchange
or admitted to unlisted trading privileges on such an exchange, or is listed on
the National Market
2.
<PAGE> 3
System (the "National Market System") of the National Association of Securities
Dealers Automated Quotations System (the "NASDAQ"), the fair market value shall
be the average of the last reported sale prices of the Common Stock on such
exchange or on the National Market System on the last ten (10) trading days (or
all such trading days such Common Stock has been traded if fewer than 10 trading
days) before the effective date of exercise of the Conversion Right or if no
such sale is made on any such day, the mean of the closing bid and asked prices
for such day on such exchange or on the National Market System;
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the fair market value shall be the average of the means of
the last bid and asked prices reported on the last ten (10) trading days (or all
such trading days such Common Stock has been traded if fewer than 10 trading
days) before the date of the election (1) by the NASDAQ or (2) if reports are
unavailable under clause (1) above, by the National Quotation Bureau
Incorporated; and
(iii) If the Common Stock is not so listed or admitted to listed
trading privileges and bid and ask prices are not reported, the fair market
value shall be the price per share which the Corporation could obtain from a
willing buyer for shares sold by the Corporation from authorized but unissued
shares, as such price shall be determined by mutual agreement of the Corporation
and the holder of this Warrant.
(c) REVERSE STOCK SPLIT; EXERCISABILITY AND VESTING.
(i) This Warrant assumes the occurrence of a 1-for-2 reverse stock
split (the "Reverse Stock Split") of the Common Stock prior to the time any
Exercise Shares become exercisable. Consequently, if the Reverse Stock Split
does not occur, the number of Exercise Shares and the Exercise Price shall be
1,500,000 and $5.00, subject to further adjustment pursuant to Section 6 hereof;
and in the event a stock split or reverse stock split occurs but at other than a
1:2 ratio (reverse split), then the number of Exercise Shares and the Exercise
Price shall be appropriately fixed consistent with Section 6, subject to further
adjustment pursuant to Section 6.
(ii) The Exercise Shares shall vest, and the Warrant shall be
exercisable for such Exercise Shares, only if the IPO occurs and upon the
occurrence of the conditions as set forth in the vesting schedule in Exhibit A
("VESTING SCHEDULE"). Each of Cox and Lightspan understands and agrees that the
respective rights and obligations of Cox and Lightspan as to the arrangement
described in the Vesting Schedule remain to be defined in the agreement referred
to therein (the terms and provisions of which will be subject to approval by Cox
and Lightspan). Holder and the Corporation acknowledge that neither party is
bound or obligated by this Warrant to enter into any Trial Agreement except as
provided in Section 4 hereto.
3. COVENANTS OF THE CORPORATION.
(a) COVENANTS AS TO EXERCISE SHARES. The Corporation covenants and agrees
that all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free
3.
<PAGE> 4
from all taxes, liens and charges with respect to the issuance thereof. The
Corporation further covenants and agrees that the Corporation will at all times
during the Exercise Period, have authorized and reserved, free from preemptive
rights, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant. If at any time during the
Exercise Period the number of authorized but unissued shares of Common Stock
shall not be sufficient to permit exercise of this Warrant, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(b) NO IMPAIRMENT. Except and to the extent as waived or consented to by
the Holder, the Corporation will not, by amendment of its Articles of
Incorporation or through any 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 hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder against impairment.
(c) NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to the Holder, at
least ten (10) days prior to the date specified herein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend or
distribution.
4. COVENANTS OF THE CORPORATION AND COX.
(a) NEGOTIATION OF TRIAL AGREEMENT. Each of Lightspan and Cox shall use
good faith efforts to negotiate and enter into, on or before January __, 2001, a
written agreement requiring Cox to undertake and complete a one-school trial
(involving at least 300 students) involving Lightspan Achieve Now and
Lightspan.com products (a "Trial") in a school within a geographic area
appropriately serviced by Cox and specifying, among other things, the scope,
intended objectives, timing and duration of the trial, the Lightspan products to
be used, and the remedies available to each party in case of non-performance
thereunder (the "TRIAL AGREEMENT"). Holder and the Corporation acknowledge that
neither party is bound or obligated by this Warrant to enter into any Trial
Agreement other than the good faith standard described above.
(b) HART-SCOTT-RODINO. As soon as practicable after the date hereof, the
Corporation and the Holder shall prepare and file the appropriate notifications,
if any, as may be required to be filed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, (the "HSR ACT") with respect to this
Warrant and the transactions contemplated hereby, and after consultation with
the Corporation, the Investor and the Corporation shall promptly make any
additional filing required to be made under the HSR Act and promptly furnish the
appropriate governmental body such additional information as may be requested
under the HSR Act. All fees and expenses incurred by either the Holder or the
Corporation in connection with this section shall be paid by the Holder.
4.
<PAGE> 5
5. REPRESENTATIONS OF HOLDER.
(a) ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and
warrants that it is acquiring the Warrant solely for its account for investment
and not with a view to or for sale or distribution of said Warrant or any part
thereof in violation of any applicable securities laws. The Holder also
represents that the entire legal and beneficial interests of the Warrant and
Exercise Shares the Holder is acquiring is being acquired for, and will be held
for, its account only.
(b) SECURITIES ARE NOT REGISTERED.
(i) The Holder understands that the Warrant and the Exercise Shares
have not been registered under the Securities Act of 1933, as amended (the
"ACT") on the basis that no distribution or public offering of the stock of the
Corporation is to be effected. The Holder realizes that the basis for the
exemption may not be present if, notwithstanding its representations, the Holder
has a present intention of acquiring the securities for a fixed or determinable
period in the future, selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the securities. The
Holder has no such present intention.
(ii) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the Act
or an exemption from such registration is available.
(c) DISPOSITION OF WARRANT AND EXERCISE SHARES.
(i) The Holder further agrees not to make any disposition of all or
any part of the Warrant or Exercise Shares in any event unless and until:
(1) The Corporation shall have received a letter secured by
the Holder from the Securities and Exchange Commission stating that no action
will be recommended to the Commission with respect to the proposed disposition;
or
(2) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(3) The Holder shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, and if
reasonably requested by the Corporation, the Holder shall have furnished the
Corporation with an opinion of counsel, reasonably satisfactory to the
Corporation, for the Holder to the effect that such disposition will not require
registration of such Warrant or Exercise Shares under the Act or any applicable
state securities laws.
5.
<PAGE> 6
(ii) The Holder understands and agrees that all certificates
evidencing the shares to be issued to the Holder may bear the following
legend(s):
(1) "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 CORPORATION RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE CORPORATION) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT."
(2) any other legend reasonably determined by the corporation.
(iii) The Holder hereby agrees not to sell or otherwise transfer or
dispose of all or any part of this Warrant or the Exercise Shares during a
period specified by the representative of the underwriters of Common Stock (not
to exceed one hundred eighty (180) days) following the effective date of the
registration statement of the Corporation filed under the Act. Holder further
agrees that the Corporation may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such
period. Notwithstanding the above, if permitted in writing by the underwriters,
the Holder may transfer such shares to any corporation or other entity which
controls, is controlled by, or is under common control with the Holder, all as
defined in the following sentence. 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.
6. ADJUSTMENT OF EXERCISE SHARES AND EXERCISE PRICE. The number of Exercise
Shares and the Exercise Price stated in this Warrant assume the Reverse Stock
Split. Neither the number of Exercise Shares nor the Exercise Price shall be
adjusted as a result of the Reverse Stock Split (but adjustments shall be made
if the Reverse Stock Split does not occur or if a stock split or reverse stock
split is effected at other than a 1:2 ratio (reverse split), as described in
Section 2(c)). In the event of changes in the outstanding Common Stock of the
Corporation other than the Reverse Stock Split, whether by reason of conversion,
stock dividends, split-ups, recapitalizations, reclassifications, combinations
or exchanges of shares, whether in a merger or otherwise, separations,
reorganizations, liquidations, or the like, the number and class of shares
available under the Warrant in the aggregate and the Exercise Price shall be
correspondingly adjusted to give the Holder of the Warrant, on exercise for the
same aggregate Exercise Price, the total number, class, and kind of shares as
the Holder would have owned had the Warrant been exercised prior to the event
and had the Holder continued to hold such shares until after the event requiring
adjustment. The form of this Warrant need not be changed because of any
adjustment in the Exercise Price or in the number or class of Exercise Shares
subject to this Warrant.
7. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of
this Warrant as a consequence of any adjustment pursuant hereto. All Exercise
Shares (including fractions) issuable upon exercise of this Warrant may be
aggregated for purposes of determining whether the exercise would result in the
issuance of any fractional share. If, after aggregation,
6.
<PAGE> 7
the exercise would result in the issuance of a fractional share, the Corporation
shall, in lieu of issuance of any fractional share, pay the Holder otherwise
entitled to such fraction a sum in cash equal to the product resulting from
multiplying the then current fair market value of an Exercise Share by such
fraction.
8. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the
Holder to any voting rights or other rights as a stockholder of the Corporation.
9. TRANSFER OF WARRANT. This Warrant and all rights hereunder are transferable
only with the written consent of the Corporation, which consent shall not be
unreasonably withheld; provided, however, that the Holder may transfer this
Warrant to an affiliate of the Holder without such consent on the condition that
the transferee agrees to be bound by all of the restrictions contained herein;
provided further that in all events Cox shall remain obligated pursuant to
Section 4 hereof, and vesting shall be determined thereby, no matter who is the
Holder, unless otherwise agreed by Lightspan and Cox.
10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may reasonably impose (which shall, in the case of
a mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.
11. NOTICES, ETC. All notices and other communications required or permitted
hereunder shall be in writing and shall be sent by telex, telegram, express mail
or other form of rapid communications, if possible, and if not then such notice
or communication shall be mailed by first-class mail, postage prepaid, addressed
in each case to the party entitled thereto at the following addresses: (a) if to
the Corporation, to The Lightspan Partnership, Inc., Attention: President, at
the address shown on the first page hereof and (b) if to the Holder, to
President, at the address shown on the first page hereof, or at such other
address as one party may furnish to the other in writing. Notice shall be deemed
effective on the date dispatched if by personal delivery, telecopy, telex or
telegram, two days after mailing if by express mail, or three days after mailing
if by first-class mail.
12. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.
13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities
hereunder shall be governed by the laws of the State of California.
7.
<PAGE> 8
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officer as of January __, 2000.
THE LIGHTSPAN PARTNERSHIP, INC.
By:
----------------------------------
Title:
----------------------------------
COX ________________
By:
----------------------------------
Title:
----------------------------------
8.
<PAGE> 9
NOTICE OF EXERCISE
TO: THE LIGHTSPAN PARTNERSHIP, INC.
(1) [ ] The undersigned hereby elects to purchase ________ shareS of the
Common Stock of The Lightspan Partnership, Inc. (the "CORPORATION") pursuant to
the terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
[ ] The undersigned hereby elects to purchase ________ shareS of the
Common Stock of The Lightspan Partnership, Inc. (the "CORPORATION") pursuant to
the terms of the net exercise provisions set forth in Section 2(b) of the
attached Warrant, and shall tender payment of all applicable transfer taxes, if
any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
(3) The undersigned represents that (i) the aforesaid shares of Common
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 except in compliance with all applicable securities laws; (ii) the
undersigned is aware of the Corporation's business affairs and financial
condition and has acquired sufficient information about the Corporation to reach
an informed and knowledgeable decision regarding its investment in the
Corporation; (iii) the undersigned is experienced in making investments of this
type and has such knowledge and background in financial and business matters
that the undersigned is capable of evaluating the merits and risks of this
investment and protecting the undersigned's own interests; (iv) the undersigned
understands that the shares of Common Stock issuable upon exercise of this
Warrant have not been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), by reason of a specific exemption from the registration
provisions of the Securities Act, which exemption depends upon, among other
things, the bona fide nature of the investment intent as expressed herein, and,
because such securities have not been registered under the Securities Act, they
must be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available; and (v) the undersigned
agrees not to make any disposition of all or any part of the aforesaid shares of
Common Stock unless and until there is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with said registration statement, or the undersigned has
provided the Corporation with an opinion of counsel satisfactory to the
Corporation, stating that such registration is not required.
- ----------------------- -----------------------------------------
(Date) (Signature)
-----------------------------------------
(Print name)
<PAGE> 10
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and
supply required information. Do not use this form to
purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
Name:
-----------------------------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------------------------
(Please Print)
Dated:
--------------------------------
Holder's
Signature:
--------------------------------
Holder's
Address:
--------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, 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.
<PAGE> 11
EXHIBIT A
100% of the Exercise Shares shall vest upon either of the following dates:
(a) the date that Cox and Lightspan enter into the Trial Agreement;
provided that, such date is on or before January __, 2001 and that prior to such
date each of the following conditions shall have been satisfied:
(i) The waiting period applicable to the exercise of the Warrant
under the HSR Act shall have expired or been terminated; and
(ii) Cox shall have negotiated and entered into the Trial Agreement
in good faith in compliance with Section 4 of the Warrant; it being agreed by
the parties that Cox would not be deemed to be acting in good faith if Cox
agrees to terms in the Trial Agreement that, given Cox's technology and
infrastructure position and other facts and circumstances, are not reasonably
expected to be able to be performed by Cox in a timely manner consistent with
industry standards.
OR
(b) On January __, 2001 if the IPO and the reincorporation of Lightspan
into the State of Delaware shall have occurred and the waiting period applicable
to the exercise of the Warrant under the HSR Act shall have expired or been
terminated and Lightspan and Cox have not entered into the Trial Agreement
because Cox reasonably determines that it cannot conduct a Trial in a manner
acceptable to the parties due to the fact that delays or other problems with the
development and production of Lightspan's products have resulted in Lightspan's
products not being suitable for such a Trial.
<PAGE> 1
EXHIBIT 10.39
STOCK PURCHASE AGREEMENT
THE LIGHTSPAN PARTNERSHIP, INC.
JANUARY 11, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. PURCHASE AND SALE OF STOCK........................................................... 1
1.1 Sale and Issuance of Common Stock............................................. 1
1.2 Closing....................................................................... 1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................ 2
2.1 Organization, Good Standing and Qualification................................. 2
2.2 Capitalization................................................................ 2
2.3 Subsidiaries.................................................................. 3
2.4 Authorization................................................................. 3
2.5 Valid Issuance of Common Stock................................................ 3
2.6 Governmental Consents......................................................... 4
2.7 Litigation.................................................................... 4
2.8 Employees..................................................................... 4
2.9 Intellectual Property......................................................... 5
2.10 Compliance with Law and Other Instruments..................................... 5
2.11 Permits....................................................................... 6
2.12 Environmental and Safety Laws................................................. 6
2.13 Disclosure.................................................................... 6
2.14 Registration Rights........................................................... 6
2.15 Title to Property and Assets.................................................. 6
2.16 Financial Statements.......................................................... 7
2.17 Outstanding Indebtedness; Material Liabilities................................ 7
2.18 Agreements; Action............................................................ 8
2.19 Tax Returns and Audits........................................................ 9
2.20 Insurance..................................................................... 9
2.21 Shareholder Agreements........................................................ 9
2.22 Certain Transactions.......................................................... 9
2.23 Brokers or Finders............................................................ 9
2.24 Corporate Documents........................................................... 9
2.25 Other......................................................................... 10
2.26 Qualified Small Business...................................................... 10
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.27 Year 2000.................................................................... 10
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR...................................... 10
3.1 Accredited Investor.......................................................... 10
3.2 Experience................................................................... 10
3.3 Investment................................................................... 10
3.4 Rule 144..................................................................... 10
3.5 Access to Data............................................................... 11
3.6 Authorization................................................................ 11
3.7 Principal Address............................................................ 11
3.8 Legends...................................................................... 11
3.9 No Assurances................................................................ 11
3A. PRE CLOSING COVENANTS OF COMPANY.................................................... 11
3A.1 Reincorporation.............................................................. 11
3A.2 Post-IPO Capitalization...................................................... 12
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING..................................... 12
4.1 Representations and Warranties............................................... 12
4.2 Performance.................................................................. 12
4.3 Blue Sky..................................................................... 12
4.4 Proceedings and Documents.................................................... 12
4.5 Reincorporation.............................................................. 12
4.6 Capitalization............................................................... 12
4.7 Form S-1..................................................................... 12
4.8 Compliance Certificate....................................................... 12
4.9 Legal Opinion................................................................ 13
4.10 Board of Directors........................................................... 13
4.11 Warrant...................................................................... 13
4.12 Claims....................................................................... 13
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.................................. 13
5.1 Representations and Warranties............................................... 13
5.2 Blue Sky..................................................................... 13
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.3 Proceedings and Documents.................................................... 13
5.4 Form S-1..................................................................... 13
5.5 Compliance Certificate....................................................... 13
6. TERMINATION......................................................................... 13
7. MISCELLANEOUS....................................................................... 14
7.1 Governing Law................................................................ 14
7.2 Survival..................................................................... 14
7.3 Successors and Assigns....................................................... 14
7.4 Entire Agreement; Amendment.................................................. 14
7.5 Notices, Etc................................................................. 14
7.6 Delays or Omissions.......................................................... 14
7.7 Expenses..................................................................... 15
7.8 Finder's Fee................................................................. 15
7.9 Counterparts................................................................. 15
7.10 Severability................................................................. 15
7.11 Closing Conditions........................................................... 15
7.12 Market Standoff.............................................................. 15
7.13 Board of Directors........................................................... 16
7.14 Registration Rights.......................................................... 16
</TABLE>
iii.
<PAGE> 5
THE LIGHTSPAN PARTNERSHIP, INC.
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made as of January 11, 2000, by and among
THE LIGHTSPAN PARTNERSHIP, INC., a California corporation ("LIGHTSPAN
CALIFORNIA"), THE LIGHTSPAN PARTNERSHIP, INC., a Delaware corporation
wholly-owned by Lightspan California ("LIGHTSPAN DELAWARE"), each with its
principal office at 10140 Campus Point Drive, San Diego, California, 92008, and
COX COMMUNICATIONS HOLDINGS, INC., a Delaware corporation (the "Investor.") As
used herein the term "COMPANY" shall refer to Lightspan California before the
reincorporation of Lightspan California into Delaware (the "REINCORPORATION")
and to Lightspan Delaware after the Reincorporation.
RECITALS
WHEREAS, the Company desires to sell and issue, and the Investor desires
to purchase shares of the common stock of the Company (the "SHARES") for an
aggregate purchase price of $12,500,000 in a private placement concurrent with
an initial public offering of the common stock of the Company pursuant to an
effective registration statement on Form S-1 (the "REGISTRATION STATEMENT")
under the Securities Act of 1933, as amended, covering the offer and sale of
shares of the Company's common stock (the "IPO"), at a price per share equal to
the price per share paid by purchasers in such IPO; and
WHEREAS, the company desires to grant, and the Investor desires to acquire
a warrant to purchase 750,000 shares (on a post-split basis, assuming a 1:2
reverse stock split) of the Company's common stock (the "WARRANT"), which
Warrant shall be exercisable upon the satisfaction of the conditions and
otherwise subject to terms specified therein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, at the Closing (as defined below) the Company
shall issue to the Investor and the Investor shall purchase from the Company in
a private placement that number of shares of the Company's common stock (rounded
to the nearest whole share) equal to $12,500,000 divided by the per share price
at which the common stock is offered to the public in the IPO, at a price per
share equal to the price per share at which the common stock is offered to the
public in the IPO;
1.2 CLOSING. The closing of the purchase and sale of the Shares
shall take place at the offices of Cooley Godward LLP, 4365 Executive Drive,
Suite 1100, San Diego, California, on the closing date of the IPO (such time and
place are referred to herein as the "CLOSING"). At the Closing, the Company
shall deliver to the Investor a certificate or certificates representing the
Shares against payment of the purchase price therefor by check or wire transfer.
1.
<PAGE> 6
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedule of Exceptions provided to the investor
contemporaneously with the execution hereof, the Company hereby represents and
warrants as follows:
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the State of California or the
laws or the State of Delaware, as appropriate, and has all requisite corporate
power and authority to own and operate its properties and assets, to execute and
deliver this Agreement, to issue and sell the Shares, to carry out the
provisions of this Agreement and to carry on its business as currently conducted
and as it is currently planned to be conducted. Each of the Company and each of
its subsidiaries is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure to so qualify would have a material
adverse effect on its business or properties. True and accurate copies of the
Company's Articles of Incorporation and Bylaws, each as amended and in effect at
the Closing, have been attached hereto as EXHIBIT A and EXHIBIT B, respectively.
2.2 CAPITALIZATION. As of the date hereof, the authorized capital
stock of Lightspan California consists of Eighty-Seven Million (87,000,000)
shares of common stock, of which Nine Million Four Hundred Fifty-Four Thousand
Five Hundred Forty-Two (9,454,542) shares are issued and outstanding on the date
of this Agreement and Sixty-One Million Seven Hundred Ninety-Five Thousand
Seventy-Four (61,795,074) shares of Preferred Stock, which are designated as
follows: (i) 7,617,500 shares of Series A Preferred Stock, 7,467,500 of which
are issued and outstanding, (ii) 11,816,664 shares of Series B Preferred Stock,
11,666,664 of which are issued and outstanding, (iii) 3,360,910 shares of Series
C Preferred, 3,264,285 of which are issued and outstanding, (iv) 17,000,000
shares of Series D Preferred, 13,129,443 of which are issued and outstanding and
(v) 22,000,000 shares of Series E Preferred, 16,703,023 of which are issued and
outstanding. All such issued and outstanding shares have been duly authorized
and validly issued and are fully paid and non-assessable. Lightspan California
has reserved 9,780,544 shares of its common stock for issuance under Lightspan
California's 1993 Stock Option Plan (the "1993 OPTION PLAN") to employees,
officers, directors and consultants of Lightspan California as may be determined
by Lightspan California's Board of Directors from time to time, of which options
to purchase 7,513,503 shares are presently outstanding and options to purchase
442,764 are presently available for grants. The Board of Directors of Lightspan
California has approved an amendment to the 1993 Option Plan, which will become
effective concurrently with the IPO, that, among other things, (i) changes the
name of the plan to the 2000 Equity Incentive Plan and (ii) increases the number
of shares reserved for issuance by an additional 2,500,000 shares. Lightspan
California has reserved 526,808 shares of its common stock for issuance under
Lightspan California's 1992 Stock Option Plan (the "1992 OPTION PLAN") to
employees, officers, directors and consultants of Lightspan California as may be
determined by Lightspan California's Board of Directors from time to time, of
which options to purchase 503,728 shares are presently outstanding and options
to purchase no shares are presently available for grants. There are no other
outstanding rights, options, warrants, preemptive rights, rights of first
refusal or similar rights for the purchase or acquisition from Lightspan
California (or any of its subsidiaries) of any securities of Lightspan Delaware
(or any of its subsidiaries) nor are there any commitments to issue or execute
any such rights, options,
2.
<PAGE> 7
warrants, preemptive rights or rights of first refusal. All outstanding shares
have been issued in compliance with state and federal securities laws. The fully
diluted capitalization of Lightspan California as of the date hereof is as set
forth in EXHIBIT C. Except as specifically set forth in the several stock
purchase agreements pursuant to which Lightspan California has issued and sold
shares of its preferred stock and which are listed on EXHIBIT D (copies of which
have been provided to or made available to Investor), the Agreement and Plan of
Reorganization dated as of May 10, 1999 by and between Lightspan California and
Academic Systems Corporation, this Agreement, Lightspan California's Certificate
of Amendment of Restated Articles of Incorporation and Amended and Restated
Articles of Incorporation, the Amended Investor Rights Agreement by and among
certain investors and Lightspan California dated as of October 29, 1999 (the
"INVESTOR RIGHTS AGREEMENT"), the Voting Agreement among certain investors and
Lightspan California dated as of February 7, 1995 (the "SERIES B VOTING
AGREEMENT"), the Voting Agreement among certain investors and Lightspan
California dated as of September 20, 1996 (the "SERIES C VOTING AGREEMENT") and
the Voting Agreement among certain investors and Lightspan California dated as
of June 24, 1997 (the "SERIES D VOTING AGREEMENT"), there are no agreements,
understandings or other arrangements existing between Lightspan California, on
the one hand, and any investor or any other holder of Lightspan California's
preferred stock, on the other hand, governing the rights or privileges of any
such investor or any such holder in respect of its equity interests in Lightspan
California. As of Closing, the Series B, C, and D Voting Agreement shall be
terminated and all sections of the Investor Rights Agreement (other than
registration rights provisions of Section 1) shall terminate.
2.3 SUBSIDIARIES. Except as set forth on Schedule 2.3, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, association, or other business entity. The entities listed on
Schedule 2.3 are wholly owned by the Company. The Company is not a participant
in any joint venture, partnership, or similar arrangement.
2.4 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, the performance of all obligations of
the Company hereunder, and the authorization, issuance (or reservation for
issuance), sale and delivery of the Shares being sold hereunder has been taken
and this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its 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 any relevant indemnification provisions.
2.5 VALID ISSUANCE OF COMMON STOCK. The Shares, 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, will be free of any liens or encumbrances, will not be subject to
any preemptive rights or rights of first refusal and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws. Except as set
forth in Schedule 2.5, and except for any rights or arrangements that shall have
been terminated prior to the Closing, no stock plan, stock purchase, stock
option or other agreement or understanding between the Company and any holder of
any equity securities or rights to purchase equity securities provides for
acceleration or
3.
<PAGE> 8
other changes in the vesting provisions or other terms of such agreement or
understanding (including drag-along and tag-along rights) as the result of any
merger, consolidated sale of stock or assets, change in control or any other
transaction(s) by the Company.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the offer, sale or issuance of the
Shares, the execution of this Agreement or the consummation of any other
transaction contemplated hereby, except for the following: (i) the completion of
the Reincorporation, which shall be completed by the Company prior to the
Closing; and (ii) the compliance with applicable state securities laws, which
compliance will have occurred within the appropriate time periods therefor.
Assuming the accuracy of the representations of the Investor set forth in
Section 3 below, the offer, sale and issuance of the Shares in conformity with
the terms of this Agreement are exempt from the registration requirements of
Section 5 of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and
from the qualification requirements of Section 25110 of the California
Securities Law.
2.7 LITIGATION. Except as set forth on Schedule 2.7, there is no
action, suit, proceeding or investigation pending or, to the best of the
Company's knowledge, currently threatened before any arbitrator, court,
administrative agency or other governmental body (nor, to best of the Company's
knowledge, is there any basis for any such action, suit, proceeding or
investigation). The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened (or any basis therefor known
to the Company) involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers or the
issuance of securities by the Company or the breach of any agreement made by the
Company relating to the issuance of such securities. Neither the Company nor any
of its subsidiaries is a party or subject to, and none of the assets of the
Company or any of its subsidiaries is bound by, the provisions of any order,
writ, injunction, judgment or decree of any arbitrator, court or government
agency or instrumentality.
2.8 EMPLOYEES. Each founder of the Company and each employee of the
Company who has access to the Company's confidential or proprietary information
has executed a proprietary information agreement, in substantially the form that
will be delivered to the Investor upon request. No officer or key employee is in
violation of any prior employee contract or proprietary information or
noncompetition agreement. Each holder of Common Stock of the Company has entered
into a Restricted Stock Purchase Agreement in the form delivered to the
Investor. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
agreement or arrangement with any collective bargaining agent, other than the
1993 Stock Option Plan and the 1992 Stock Option Plan. No employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement. There is no pending or, to the best of the Company's
knowledge, threatened labor dispute involving the Company and any group of its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate his, her or their employment
with the Company, nor does the Company have
4.
<PAGE> 9
a present intention to terminate the employment of any officer, key employee or
group of key employees.
2.9 INTELLECTUAL PROPERTY. The Company has good title and ownership
of all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, proprietary rights and processes necessary for
its business as now conducted and as proposed to be conducted without any
conflict with or infringement of the rights of others. There are no outstanding
options, licenses, or agreements of any kind relating to the foregoing, nor is
the Company bound by or a party to any options, licenses or agreements of any
kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights and
processes of any other person or entity. To the best knowledge of the Company,
the Company has not violated and, by conducting its business as proposed, will
not violate any of the patents, trademarks, service marks, trade names,
copyrights or trade secrets or other proprietary rights of any other person or
entity nor have any claims been asserted, threatened or pending regarding any
such alleged violation. None of the Company's employees are obligated under any
contract (including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business as proposed to be conducted. Neither the execution nor the
delivery of this Agreement, nor the carrying on of the Company's business by the
employees of the Company, nor the conduct of the Company's business as proposed,
will conflict with or result in a breach of the terms, conditions or provisions
of, or constitute a default under, any contract, covenant or instrument under
which any of such employees is now obligated. The Company does not, and does not
intend to, utilize any inventions of any of its employees (or people it
currently intends to hire) made prior to their employment by the Company. None
of the Company's current employees is, by virtue of such employee's activities
in connection with the Company's business, violating, infringing or
appropriating any patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, proprietary rights or processes of any
former employer of such employee. All consultants of the Company with access to
material confidential information of the Company are parties to a written
agreement pursuant to which, among other things, each such consultant is
obligated to maintain the confidentiality of confidential information of the
Company. The Company is not aware that any of its consultants are in violation
thereof, and the Company will use best efforts to prevent any such violation.
2.10 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. Neither the Company
nor any of its subsidiaries is in violation or default of any provision of its
Articles of Incorporation, Certificate of Incorporation, as appropriate, or
Bylaws, each as amended and in effect on and as of the Closing. To the Company's
knowledge, except as set forth in Schedule 2.10, neither the Company nor any of
its subsidiaries are in violation in any material respect of any material
statute, rule, regulation, order or restriction of any state, local or federal
government or any instrumentality or agency thereof in respect of the conduct of
its business or the ownership of its properties. Neither the Company nor any of
its subsidiaries is in material violation or default of any provision of any
instrument, mortgage, deed of trust, loan, contract, commitment, judgment,
decree, order or obligation to which it is a party or by which it or any of its
properties or assets are bound which would materially adversely affect the
condition (financial or otherwise), business, property, assets or liabilities of
the Company or any of its
5.
<PAGE> 10
subsidiaries. The execution, delivery and performance of and compliance with
this Agreement, and the issuance and sale of the Shares, will not result in any
such violation, be in conflict with or constitute, with or without the passage
of time or giving of notice, a default under any such provision, require any
consent or waiver under any such provision (other than any consents or waivers
that have been obtained), or result in the creation of any mortgage, pledge,
lien, encumbrance or charge upon any of the properties or assets of the Company
or any of its subsidiaries pursuant to any such provision.
2.11 PERMITS. The Company and each of its subsidiaries have all
franchises, permits, licenses, and any similar authority necessary for the
conduct of their respective businesses as presently being conducted, the lack of
which could materially and adversely affect the business, properties, prospects,
or financial condition of the Company and its subsidiaries, taken as a whole,
and the Company believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.
The Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
2.12 ENVIRONMENTAL AND SAFETY LAWS. To the best of the Company's
knowledge, neither the Company nor any of its subsidiaries is in violation, or
has engaged in activities that would result in a violation, of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to the best of the Company's knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. There has been no complaint, notice of violation, investigation
or report received by the Company or its subsidiaries relating to any alleged
violation of any such applicable statute, law or regulation and there is no such
complaint, notice of violation, investigation or report pending or threatened.
2.13 DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement, or in any written statement, exhibit or certificate
furnished to the Investor pursuant to this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact or, when
taken together, omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
2.14 REGISTRATION RIGHTS. Except as provided in the Investor Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.15 TITLE TO PROPERTY AND ASSETS. The Company and each of its
subsidiaries have good and marketable title to all of their properties and
assets free and clear of all mortgages, liens and encumbrances, except liens for
current taxes and assessments not yet due and possible minor liens and
encumbrances which do not, in any case, in the aggregate, materially detract
from the value of the property subject thereto or materially impair the
operations of the Company or any of its subsidiaries. With respect to the
property and assets they lease, the Company and each of its subsidiaries are in
compliance with such leases and hold a valid leasehold interest free of all
liens, claims or encumbrances. The Company's properties and assets are in good
condition
6.
<PAGE> 11
and repair in all material respects. Neither the Company nor any of its
subsidiaries owns any real property.
2.16 FINANCIAL STATEMENTS. The Company has delivered or made
available to the Investor its audited balance sheet at January 31, 1999, and its
audited statement of operations for the fiscal period then ended (the "AUDITED
FINANCIAL STATEMENTS"), and its unaudited balance sheet at October 31, 1999 and
its unaudited statement of operations for the fiscal period then ended (the
"UNAUDITED FINANCIAL STATEMENTS," and, together with the Audited Financial
Statements, the "FINANCIAL STATEMENTS"). The Financial Statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods indicated (except that the Unaudited
Financial Statements do not contain footnotes). The Financial Statements fairly
and accurately present the consolidated financial condition of the Company as of
the date of the balance sheet, and the statements of operations contained
therein accurately present the operating results of the Company during the
period indicated therein. Since October 31, 1999, there has been no (i) material
adverse change in the assets, liabilities, condition (financial or otherwise),
result of operations or business of the Company, (ii) damage, destruction or
loss to any material asset of the Company or any of its subsidiaries (whether or
not covered by insurance), (iii) sale, waiver or other disposition of any
rights, debt owed to it, title or interest in or to any asset or property of the
Company or any subsidiary or any revenues derived therefrom, other than in the
ordinary course of business consistent with past practice, (iv) approval or
action to put in effect any increase in the compensation or benefits payable to
any class or group of employees of the Company or any subsidiary or any increase
in the compensation or benefits payable or to become payable by the Company or
any subsidiary to any of its directors, officers or employees whose total
compensation after such increase would exceed $60,000, (v) adoption or amendment
of any employee benefit plan compensation commitment or any severance agreement
or employment contract to which any director, officer or employee of the Company
or any subsidiary is a party, (vi) resignation or termination, or impending
resignation or termination of employment of any director, officer or key
employee of the Company, or any subsidiary, (vii) any material change in any
accounting principle or method or election for federal income tax purposes used
by the Company or any subsidiary, or (viii) arrangement or commitment by the
Company or any of its subsidiaries to do any of the acts described in (i)
through (vii) above.
2.17 OUTSTANDING INDEBTEDNESS; MATERIAL LIABILITIES. Neither the
Company nor any of its subsidiaries have any material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in the Financial Statements, (ii)
liabilities and obligations which have been incurred subsequent to October 31,
1999 in the ordinary course of business of the same character as those set forth
in the Financial Statements which are not, considered together with theretofore
existing liabilities set forth in the Financial Statements which remain
outstanding, materially in excess of like liabilities and obligations set forth
in the Financial Statements, (iii) liabilities and obligations under a lease for
its principal offices and leases for equipment, and (iv) liabilities and
obligations under sales, procurement and other contracts and arrangements
entered into in the normal course of business, which liabilities and obligations
do not exceed $100,000 in the aggregate.
7.
<PAGE> 12
2.18 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby, by
the Investor Rights Agreement, by the Series B Voting Agreement, by the Series C
Voting Agreement and by the Series D Voting Agreement, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates, or any affiliate thereof.
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company or any of its subsidiaries is a party or by which it is bound that
may involve (i) obligations (contingent or otherwise) of, or payments to the
Company in excess of, $10,000, or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or from the Company, or
(iii) provisions restricting or adversely affecting the development, manufacture
or distribution of the Company's products or services or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
(c) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities individually in excess
of $10,000 or, in the case of indebtedness and/or liabilities individually less
than $5,000, in excess of $25,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) Neither the Company nor any of its subsidiaries is a party
to or is bound by any contract, agreement or instrument, or subject to any
restriction under its Articles of Incorporation or Bylaws that adversely affects
its business as now conducted, its properties or its financial condition.
(f) The Company has not engaged in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of the Company with or into any such corporation or corporations, (ii)
with any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of the Company or a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.
8.
<PAGE> 13
2.19 TAX RETURNS AND AUDITS. The Company has accurately prepared and
filed all Federal, state and municipal tax returns and tax reports required to
be filed by it, has paid all taxes (including, but not limited to, all income,
profits, franchise, sales, use, property, excise and withholding taxes),
assessments, fees and charges when and as due under such returns and has made
adequate provision for the payment of all taxes, assessments, fees and charges
shown on such returns or on assessments received by the Company. No audit,
deficiency assessment or proposed adjustment of any of the Company's tax returns
is pending, or to the best knowledge of the Company, threatened.
2.20 INSURANCE. EXHIBIT E lists the insurance policies maintained by
the Company. 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. The Company has in full
force and effect insurance policies on the lives of John T. Kernan and Carl E.
Zeiger.
2.21 SHAREHOLDER AGREEMENTS. Except as contemplated by this
Agreement, the Investor Rights Agreement, the Series B Voting Agreement, the
Series C Voting Agreement and the Series D Voting Agreement, there are no
agreements between the Company and any of the Company's shareholders, or to the
best knowledge of the Company, among any of the Company's shareholders, which in
any way affect any shareholder's ability or right freely to alienate or vote
such shares (except restrictions designed to provide compliance with securities
laws).
2.22 CERTAIN TRANSACTIONS. Neither the Company nor any of its
subsidiaries is indebted, either directly or indirectly, to any of its officers,
directors or 5% stockholders, other than current liabilities for payment of
salary for services rendered and reasonable expenses; none of such officers, or
directors or 5% stockholders, or to the knowledge of the Company, any members of
their immediate families is indebted to the Company or any of its subsidiaries
or has any direct or indirect ownership interest in any firm or corporation with
which the Company is in competition, with which the Company is affiliated or
with which the Company has a business relationship which is material to the
Company. To the best of the Company's knowledge, no officer or director or 5%
stockholder is directly or indirectly interested in any contract with the
Company or any of its subsidiaries which is material to the Company. Except as
may be disclosed in the Financial Statements, neither the Company nor any of its
subsidiaries is a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
2.23 BROKERS OR FINDERS. The Company has not utilized the services
of any person as a broker, nor agreed to incur, directly or indirectly, any
liability for, brokerage or finders' fees, agents' commissions or other similar
charges in connection with this Agreement or any of the transactions
contemplated hereby.
2.24 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investor), the Articles of Incorporation and
Bylaws of the Company are in the forms attached hereto as EXHIBIT A and EXHIBIT
B. The minute books of the Company
9.
<PAGE> 14
made available to the Investor contain a complete summary of all meetings of
directors and stockholders since the time of incorporation.
2.25 OTHER. Except as disclosed in Section 2.2, there are no
outstanding rights, options, warrants, preemptive rights, rights of first
refusal or similar rights for the purchase or acquisition from Lightspan
Delaware of any securities of Lightspan Delaware, nor are there any commitments
to issue or execute any such rights, options, warrants, preemptive rights or
rights of first refusal.
2.26 QUALIFIED SMALL BUSINESS. To its knowledge, the Company
qualifies as a "Qualified Small Business" as defined in Section 1202(d) of the
Internal Revenue Code of 1986, as amended.
2.27 YEAR 2000. The Company has established a Year 2000 remediation
program pursuant to which the computer and other systems of the Company and its
subsidiaries will be Year 2000 ready.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby represents and warrants that:
3.1 ACCREDITED INVESTOR. The Investor is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act.
3.2 EXPERIENCE. The Investor is experienced in evaluating start-up
companies such as the Company, and has either individually or through its
current officers such knowledge and experience in financial and business matters
that Investor is capable of evaluating the merits and risks of Investor's
prospective investment in the Company, and has the ability to bear the economic
risks of the investment. It being understood that the foregoing shall have no
affect on the Investor being entitled to rely on the representations, warranties
and other agreements of the Company made herein.
3.3 INVESTMENT. The Investor is acquiring the Shares for investment
for Investor's own account (whether held directly by Investor or indirectly
through affiliates of Investor) and not with the view to, or for resale in
connection with, any distribution thereof to any third party not affiliated with
such Investor. Investor understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein. Investor further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to any
third person not affiliated with Investor with respect to any of the Shares.
Investor understands and acknowledges that the offering of the Shares pursuant
to this Agreement will not be registered under the Securities Act.
3.4 RULE 144. Investor acknowledges that the Shares must be held
until subsequently registered under the Securities Act or an exemption from such
registration is available. Investor is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction
10.
<PAGE> 15
of certain conditions. Investor covenants that, in the absence of an effective
registration statement covering the stock in question, Investor will sell,
transfer, or otherwise dispose of the Shares only in a manner consistent with
Investor's representations and covenants set forth in this Section 3 or as is
otherwise permitted by law. In connection therewith, Investor acknowledges that
the Company will make a notation on its stock books regarding the restrictions
on transfers set forth in this Section 3 and will transfer securities on the
books of the Company only to the extent not inconsistent therewith.
3.5 ACCESS TO DATA. Investor has received and reviewed information
about the Company and has had an opportunity to discuss the Company's business,
management and financial affairs with its management and to review the Company's
facilities. Investor understands that such discussions, as well as any written
information issued by the Company, were intended to describe the aspects of the
Company's business and prospects which the Company believes to be material, but
were not necessarily an exhaustive description.
3.6 AUTHORIZATION. This Agreement when executed and delivered by
such Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or 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 incorporated herein by reference by Section 7.14
hereof.
3.7 PRINCIPAL ADDRESS. For state securities law purposes, the
principal address of the Investor is as set forth on the signature page hereto.
3.8 LEGENDS. The Investor understands that the certificates
evidencing the IPO Shares may bear the following legend:
"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
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER OR PLEDGE IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT."
3.9 NO ASSURANCES. The Investor acknowledges and agrees that there
can be no assurance that the Company will be able to successfully complete an
IPO in the near future or at any time.
3A. PRE CLOSING COVENANTS OF COMPANY.
3A.1. REINCORPORATION. Lightspan California shall use its best
efforts to ensure that (i) prior to the Closing, its state of incorporation is
changed to Delaware by merging into its
11.
<PAGE> 16
wholly-owned subsidiary, Lightspan Delaware, and Lightspan Delaware shall
survive the merger, and (ii) as of the Closing, the Certificate of Incorporation
and Bylaws of Lightspan Delaware shall be substantially as attached hereto as
EXHIBIT F and EXHIBIT G, respectively.
3A.2 POST-IPO CAPITALIZATION. Immediately prior to the Closing,
which shall take place concurrently with the closing of the IPO, the authorized
capitalization of Lightspan Delaware shall be as set forth on EXHIBIT H.
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.
The obligation of the Investor to purchase Shares at the Closing is
subject to the fulfillment on or before the Closing of each of the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing (other than representations and
warranties that speak of a specific date or of the date of the signing of this
agreement, which only need to be correct as of such date).
4.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 BLUE SKY. The Company shall have obtained all necessary permits
and qualifications, if any, or secured an exemption therefrom, required by any
state or country prior to the offer and sale of the Shares.
4.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing hereby, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to the Investor and its counsel.
4.5 REINCORPORATION. The Company shall have effected the
Reincorporation.
4.6 CAPITALIZATION. Lightspan Delaware shall have authorized and
reserved for issuance shares sufficient to allow issuance of the Shares as
provided herein.
4.7 FORM S-1. The United States Securities and Exchange Commission
("SEC") shall have declared the Registration Statement effective and the IPO
shall have been consummated, or shall be consummated substantially concurrent
with the Closing.
4.8 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investor a Compliance Certificate, executed by the President of the Company,
dated the date of the Closing, to the effect that the conditions specified in
Sections 4.1, 4.2, 4.5, 4.6 and 4.7 have been satisfied.
12.
<PAGE> 17
4.9 LEGAL OPINION. the Investor shall have received from legal
counsel to the Company an opinion addressed to the Investor, dated as of the
date of the Closing, in substantially the form attached hereto as EXHIBIT I.
4.10 BOARD OF DIRECTORS. A nominee chosen by the Investor shall have
been appointed as a Class III Director as contemplated in Section 7.13.
4.11 WARRANT. The Warrant in the Form of EXHIBIT J shall have been
executed.
4.12 CLAIMS. To the Company's knowledge, no former holders of Series
D or Series E Preferred Stock of Academic System Corporation shall have asserted
claims for consideration related to the merger between the Company and Academic
Systems Corporation in excess of the value of approximately 1.1 million shares
(valued at $5.00 per share) of the Series E Preferred Stock of the Company, or
other consideration of similar value.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by the Investor:
5.1 REPRESENTATIONS AND WARRANTIES. Except as otherwise referenced
herein, the representations and warranties of the Investor contained in Section
3 shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing (other
than representations and warranties that speak of a specific date, which only
need to be correct as of such date).
5.2 BLUE SKY. The Company shall have obtained all necessary permits
and qualifications, if any, or secured an exemption therefrom, required by any
state or country for the offer and sale of the Shares.
5.3 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing hereby, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to the Company and its counsel.
5.4 FORM S-1. The SEC shall have declared the Registration Statement
effective.
5.5 COMPLIANCE CERTIFICATE. The Investor shall have delivered to the
Company a Compliance Certificate, executed by the an authorized representative
of the Investor, dated the date of the Closing, to the effect that the
conditions specified in Section 2.1 has been satisfied.
6. TERMINATION.
This agreement shall immediately terminate if the conditions specified in
Sections 4.7 and 5.4 relating to the effectiveness of the Registration Statement
shall not have been satisfied on
13.
<PAGE> 18
or before the date six months from the date hereof. Upon such termination, all
further obligations of the parties under this Agreement shall terminate;
provided, however, that no party shall be relieved of any obligation or
liability arising from any prior breach by such party of any provision of this
agreement.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California.
7.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investor and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit delivered by or on
behalf of the Company pursuant hereto shall be deemed to be the representations
and warranties of the Company hereunder as of such date of such certificate or
exhibit, and as of the date of the Closing.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
provided, however, that the rights of Investor to purchase Shares shall not be
assignable, except to an affiliate of Investor, without the consent of the
Company.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
7.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, return receipt requested, or otherwise
delivered by hand or by messenger, addressed (a) if to the Investor, at the
Investor's address set forth on the signature page hereof, or at such other
address as the Investor shall have furnished to the Company in writing, or (b)
if to the Company, at its address set forth on the first page of this Agreement
addressed to the attention of the Corporate Secretary, or at such other address
as the Company shall have furnished to the Investor. If notice is provided by
mail, notice shall be deemed to be given upon proper deposit in a mailbox.
7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such 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
14.
<PAGE> 19
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing or as provided in this
Agreement. All remedies, either under this Agreement or by law or otherwise
afforded to any holder, shall be cumulative and not alternative.
7.7 EXPENSES. The Company and the Investor shall each bear their own
expenses and legal fees incurred on their behalf with respect to this Agreement
and the transactions contemplated hereby.
7.8 FINDER'S FEE. The Company shall indemnify and hold the Investor
harmless from any liability for any commission or compensation in the nature of
a finder's fee (including the costs, expenses and legal fees of defending
against such liability) for which the Company, or any of its partners,
employees, or representatives, as the case may be, is responsible. The Investor
acknowledges that it shall be solely liable for any commission or compensation
in the nature of a finder's fee (including the costs, expenses and legal fees of
defending against such liability) for which Investor may be responsible.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.11 CLOSING CONDITIONS. Each party will use its reasonable best
efforts to satisfy the applicable conditions to Closing.
7.12 MARKET STANDOFF. The Investor agrees that the Company (or a
representative of the underwriters) may, in connection with the IPO, require
that it 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 of, any shares of Common Stock or other
securities of the Company held by it, 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. The Investor further agrees to execute and deliver such other
agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Investor's
common stock until the end of such period. Notwithstanding the above, if
permitted in writing by the underwriters, the Investor may transfer such shares
to any corporation or other entity which controls, is controlled by, or is under
common control with the Investor, all as defined in the following sentence. 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.
15.
<PAGE> 20
7.13 BOARD OF DIRECTORS. The Company shall use its best efforts to
ensure that a nominee chosen by Investor is appointed as a member of the
Company's Board of Directors as of the Closing, and that, as of the IPO, such
nominee will serve as member of Class III of the Board of Directors, with a term
scheduled to run until the third annual meeting of stockholders following the
IPO. If, prior to the IPO, the Company shall enter into any agreement, or if the
Company's Series E preferred shareholders shall enter into any agreement,
providing for the nomination or election of any one or more of the Company's
directors to be elected by the holders of the Company's Series E preferred
shareholders, the Company shall use its best efforts to ensure that such
agreement also calls for the nomination of and, if applicable, the election of,
the nominee chosen by the Investor.
7.14 REGISTRATION RIGHTS. From and after the date that is one year
from the Closing, the Investor shall be entitled to all of the rights and
subject to all of the obligations set forth in Section 1 of that Investor Rights
Agreement, a copy of which is attached hereto as EXHIBIT K and Section 1 of
which is incorporated herein by reference (the "IRA") such that Investor shall
have such rights set forth in such Section 1 as if the Investor were a "Holder"
(as defined therein) thereunder and the Shares and the shares of common stock to
be issued upon exercise of the Warrant (the "WARRANT SHARES") were "Registrable
Securities" (as defined therein) thereunder (including, without limitation,
provisions in such Section 1 relating to termination and transfer of such
rights, Rule 144 reporting and indemnification and excepting only Section 1.15
relating to a standoff agreement, to which Investor shall not be subject but
shall be similarly bound pursuant to Section 17.12 hereof). The Investor shall
be entitled to exercise such rights on a pari passu basis with the holders of
such rights under the IRA. This Section 7.14 does not conflict with or violate
the Investor Rights Agreement.
[THIS SPACE LEFT BLANK INTENTIONALLY]
16.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this STOCK PURCHASE
AGREEMENT as of the date first above written.
COMPANY:
THE LIGHTSPAN PARTNERSHIP, INC.
By:
-------------------------------
Title:
-------------------------------
INVESTOR:
COX COMMUNICATIONS HOLDINGS, INC.
By:
-------------------------------
Title:
-------------------------------
Address:
17.
<PAGE> 22
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 23
CERTIFICATE OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION
OF THE LIGHTSPAN PARTNERSHIP, INC.
John T. Kernan hereby certifies that:
I. He is the duly elected and acting Chief Executive Officer of the Lightspan
Partnership, Inc., a California corporation.
II. Section A. of the Article Third of the Amended and Restated Articles of
Incorporation of this corporation is amended to read as follows:
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.
III. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the board of directors.
IV. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the required vote of shareholders
in accordance with Section 902, California Corporations Code. The total
number of outstanding shares of the corporation is 9,142,723 shares of
Common Stock, 7,467,500 shares of Series A Preferred Stock, 11,666,664
shares of Series B Preferred Stock, 3,264,285 shares of Series C Preferred
Stock, 13,129,444 shares of Series D Preferred Stock and 7,575,529 shares
of Series E Preferred Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The vote required was not
less than a majority of the outstanding shares of Common Stock and not less
than a majority of the outstanding shares of Preferred Stock considered
together for such purpose as a single class.
V. I 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 our own knowledge.
Date: October 26, 1999 /s/ JOHN T. KERNAN
--------------------------------------
John T. Kernan, Chief Executive Officer
<PAGE> 24
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 23, 1999
/s/ CARL E. ZEIGER
-----------------------------------
Carl E. Zeiger, President
and Chief Operating Officer
/s/ KATHLEEN R. MCELWEE
-----------------------------------
Kathleen R. McElwee, Vice President,
Finance, and Chief Financial Officer
<PAGE> 25
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 thirty-one million seven hundred
ninety-five thousand seventy-four (131,795,074) which is comprised of
seventy-five million (75,000,000) shares of Common Stock each with the par value
of $0.001 per share, and fifty-six million seven hundred ninety-five thousand
seventy-four (56,795,074) 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 seventeen million
(17,000,000) 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> 26
(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
-3-
<PAGE> 27
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.
-4-
<PAGE> 28
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"):
-5-
<PAGE> 29
(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> 30
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.
(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;
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<PAGE> 31
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> 32
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> 33
(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> 34
(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> 35
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> 36
(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> 37
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> 38
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> 39
(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> 40
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.
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<PAGE> 41
EXHIBIT B
BYLAWS
<PAGE> 42
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
<PAGE> 43
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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TABLE OF CONTENTS
(Continued)
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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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TABLE OF CONTENTS
(Continued)
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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> 46
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> 47
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
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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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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.
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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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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 six (6) 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.
- --------------------------
* 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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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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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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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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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) she is the duly elected,
qualified and acting Secretary of The Lightspan Partnership, Inc. (the
"Company"); (ii) the foregoing Bylaws, comprising twenty (20) 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; (v) the Board of Directors
of the Company by written consent effective September 13, 1996 approved the
amendment of Section 3.2 of such duly adopted Bylaws; (vi) the Board of
Directors of the Company, effective as of June 24, 1997, approved the further
amendment of Section 3.2 of such duly adopted Bylaws; and (vii) the Board of
Directors of the Company on October 28, 1999 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 1st day of November, 1999.
/s/ KATHLEEN R. MCELWEE
-----------------------------------
Kathleen R. McElwee, Secretary
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EXHIBIT E
SCHEDULE OF INSURANCE COVERAGE
<PAGE> 70
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 1 of 9 Binder
PROPERTY COVERAGE - INCLUDING
BOILER & MACHINERY
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999-February 1, 2000
LIMITS OF INSURANCE & PROPERTY COVERED
* Blanket Business Personal Property including Stock $5,575,000
* Blanket Business Income with Extra Expense $9,000,000
* Blanket Electronic Data Processing Equipment and Media $6,525,000
Property at Exhibition $ 60,000
Property in Transit $ 100,000
Salesperson's Samples $ 10,000
Unscheduled Locations $ 10,000
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------------- -----------
Underwriter's Signature Title Date
<PAGE> 71
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 2 of 9 Binder
PROPERTY COVERAGE - INCLUDING
BOILER & MACHINERY
DEDUCTIBLE
All Perils Except $1,000
Boiler & Machinery Business Income with Extra Expense 24 Hours
ANNUAL PREMIUM $15,000
COVERAGE EXTENSIONS AND CONDITIONS
* Per Chubb "Customarq" Form 80-02-1000
* Cancellation Notice - 60 Days (10 days for Non-Payment)
* California Cancellation/Non-Renewal Endorsement
* Agreed Amount - Business Personal Property, Electronic Data
Processing Equipment, and Business Income with Extra Expense
* Earthquake Sprinkler Leakage
* Replacement Cost Coverage
* Selling Price Valuation on Stock
* $250,000 Blanket Limit of Insurance (per Chubb Form 80-02-0006)
EXCLUSIONS
* Per Policy Form
* Earthquake
* Flood
* Date Recognition (Y2K)**
* Blanket limits per Statement of Values on file with the company.
** New exclusion applies to direct loss, but damage from ensuing perils
covered.
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------------- -----------
Underwriter's Signature Title Date
<PAGE> 72
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 3 of 9 Binder
COMMERCIAL GENERAL LIABILITY
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
10:01 am, November 1, 1999-February 1, 2000
POLICY FORM
"New" Occurrence; Defense Costs in Addition to Policy Limits
<TABLE>
<CAPTION>
LIMITS OF INSURANCE
<S> <C>
General Aggregate $2,000,000
Products -- Completed Operations Aggregate $2,000,000
Personal Injury $1,000,000
Advertising Injury $1,000,000
Each Occurrence $1,000,000
Fire Damage -- Any One Fire Included
Medical Expense -- Any One Person $ 10,000
</TABLE>
It is agreed that insurance and premium arrangements subsequently shall
conform to this binder.
[Signature Illegible] 10-29-99
- --------------------------- -------------------------- --------
Underwriter's Signature Title Date
<PAGE> 73
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 4 of 9 Binder
COMMERCIAL GENERAL LIABILITY
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PREMIUM
<S> <C>
Adjustable or Audit, Based on 72,100,000 $23,091
Estimated Annual Sales + 200
-------
$23,291
</TABLE>
COVERAGE EXTENSIONS AND CONDITIONS
- Per Chubb Customary Form 80-02-0010
- Cancellation Notice -- 60 Days (10 Days for Non-Payment)
- California Cancellation/Non-Renewal Endorsement
- Cumis Counsel Endorsement
- Employee Benefit Administration Liability*
Claims Made; Retroactive Date November 1, 1997;
Limit -- $1,000,000 Each Wrongful Act
$1,000,000 Aggregate; Deductible - $1,000
- Stop Gap Liability -- West Virginia and Puerto Rico
EXCLUSIONS
- Per Policy Form
- Employment Related Practices
- Pollution (except as a result of Hostile Fire)
- Professional Liability
- Benefits Due**
- Millennium Date Change**
* This coverage is written on a Claims-Made basis. Claims under
this coverage must be submitted by the insured to the carrier
during the policy period or within 60 days after expiration
of the policy for coverage to apply. Be aware that late
reporting could result in a disclaimer of coverage letter
from the insurer. This coverage also makes available an
Extended Reporting Period which can be exercised per the
conditions of the policy.
** New -- These Y2K exclusions apply to Employee Benefit
Administration Liability only.
It is agreed that insurance contracts and premiums agreements
subsequently issued shall conform to this binder.
[Signature Illegible] 10-29-99
- --------------------------- -------------------------- --------
Underwriter's Signature Title Date
<PAGE> 74
L I G H T S P A N
- -------------------------------------------------------------------------------
Page 5 of 9 Binder
NON-OWNED AND HIRED AUTOMOBILE
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Carupus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
7323-48-63
POLICY PERIOD
12:01 am, November 1, 1999 - November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999 - February 1, 2000
LIMITS OF INSURANCE
Non-Owned and Hired Automobile Liability $1,000,000
Hired Auto Physical Damage; $500 Deductible $ 50,000
ANNUAL PREMIUM 5,789
COVERAGE EXTENSIONS AND CONDITIONS
* Per ISO Form CA 0001 (12/93)
* Cancellation Notice - 60 Days (10 Days for Non-Payment)
* California Changes - Cancellation and Non-Renewal
EXCLUSIONS
* Per Policy Form
It is agreed that Insurance contracts and premium agreements subsequently
issued shall confirm to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------- ---------------
Underwriter's Signature Title Date
<PAGE> 75
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 6 of 9 Binder
CRIME
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999-February 1, 2000
LIMITS OF INSURANCE
Blanket Employee Dishonesty $250,000
ERISA - Welfare & Pension Plan Coverage $500,000
Premises Coverage (Money and Securities - Inside) $ 10,000
Transit Coverage (Money and Securities - Outside) $ 10,000
DEDUCTIBLE 1,000 Each Claim
PREMIUM $3,404
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------- ---------------
Underwriter's Signature Title Date
<PAGE> 76
L I G H T S P A N
- --------------------------------------------------------------------------------
PAGE 7 OF 9 Binder
CRIME
COVERAGE EXTENSIONS AND CONDITIONS
* Per Chubb Customary Form 80-02-3000
* Cancellation Notice - 60 days (10 days for Non-Payment)
* Employee Benefit Plans per Schedule on file with the company
EXCLUSIONS
* Per Policy Form
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- -------------------------------- ------------------------ ----------------
Underwriter's Signature Title Date
<PAGE> 77
LIGHTSPAN
- --------------------------------------------------------------------------------
PAGE 9 OF 9 Binder
UMBRELLA LIABILITY
EXCESS OF PRIMARY
o Commercial General Liability
o Employer's Liability
o Non-Owned & Hired Automobile Liability
o Employee Benefit Liability
ANNUAL PREMIUM $8,280
POLICY FORM
o Umbrella Form
COVERAGE EXTENSIONS AND CONDITIONS
o Per Chubb Commercial Umbrella Form 07-02-0815
o Cancellation Notice - 60 Days (10 Days for Non-Payment)
o Duties in the Event of Occurrence, Claim or Suit
o Following Form Foreign Liability
Exclusions
o Per Policy
o Care, Custody or control - Real and Personal Property
o Electronic Errors & Omissions
o Intellectual Property
o Pollution (except as a result of Hostile Fire)
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- -------------------------------- ------------------------ ----------------
Underwriter's Signature Title Date
<PAGE> 78
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 1 of 2 Binder
WORKER'S COMPENSATION AND EMPLOYERS LIABILITY
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Fremont Industrial Indemnity Company
POLICY NUMBER
TBA JY 531118-1
JY 531117-1
POLICY PERIOD
12:01 am, November 1, 1999--November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999--February 1, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
COVERAGE AND LIMITS OF INSURANCE
Coverage A - Worker's Compensation - Statutory
Coverage B - Employers Liability
Bodily Injury by Accident $1,000,000 Each Accident
Bodily Injury by Disease $1,000,000 Each Employee
Bodily Injury by Disease $1,000,000 Policy Limit
</TABLE>
RATES
Per $100 Payroll; Standard Rates Filed with Each State
It is agreed that insurance contracts and premium agreements subsequently issued
shall conform to this binder.
/s/ [SIGNATURE ILLEGIBLE] Sr. Underwriter 10-29-99
- ---------------------------- ------------------------------- ---------------
Underwriter's Signature Title Date
<PAGE> 79
LIGHTSPAN
- --------------------------------------------------------------------------------
Page 2 of 2 Binder
WORKER'S COMPENSATION AND EMPLOYERS LIABILITY
ESTIMATED ANNUAL PREMIUM
Adjustable at Audit $108,118
EXPERIENCE MODIFICATIONS
California (adjustment rating to reflect
inclusion of Academic Systems) 131%
Interest 90%
COVERAGE EXTENSIONS AND CONDITIONS
- Per Policy Form WC 0000 00
- Cancellation Notice - 30 days (10 Days for Non-Payment)
- Longshore and Harbor Workers Compensation Act Coverage
- Other States Coverage
- Stop Gap Liability - All Monopolistic States except
West Virginia and Puerto Rico
- Voluntary Compensation
- Nevada coverage to be written on separate policy - JY-531117-1
EXCLUSIONS
- Per Policy Form
- Employment Related Practices
- Monopolistic States: North Dakota, Ohio, Washington, West
Virginia, Wyoming, Puerto Rico
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [SIGNATURE ILLEGIBLE] Sr. Underwriter 10/29/95
- ----------------------------- ----------------------- --------------------
Underwriter's Signature Title Date
<PAGE> 80
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 1 of 2 Binder
EDP ERRORS & OMISSIONS COVERAGE
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999-November 1, 2000
POLICY FORM
Claims Made (Defense Costs Within the Limit of Liability)
RETROACTIVE DATE
August 27, 1999
<TABLE>
<CAPTION>
LIMITS OF LIABILITY
<S> <C>
Each Claim $1,000,000
Aggregate $1,000,000
</TABLE>
It is agreed that insurance contracts and premium agreements
subsequently issued shall conform to this binder.
/s/ [Signature Illegible] 11-22-99
- --------------------------- -------------------------- --------
Underwriters' Signature Title Date
<PAGE> 81
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 2 of 2 Binder
EDP ERRORS & OMISSIONS COVERAGE
<TABLE>
<CAPTION>
DEDUCTIBLE
<S> <C>
Each Claim $25,000
ESTIMATED ANNUAL PREMIUM
Adjustable at Audit, Based on $72,100,000 Annual Sales $12,979
</TABLE>
COVERAGE EXTENSIONS, CONDITIONS, AND EXCLUSIONS
- Per Policy Form
COVERAGE TERRITORY
- Worldwide
This coverage is written on a Claims-Made basis. Claims under
this coverage must be submitted by the insured to the carrier
during the policy period for coverage to apply. Be aware that
late reporting could result in a disclaimer of coverage letter
from the insurer. This coverage also makes available on Extended
Reporting Period which can be exercised per the conditions of
the policy.
It is agreed that insurance contracts and premium agreements
subsequently issued shall conform to this binder.
/s/ [Signature Illegible] 11-22-99
- --------------------------- -------------------------- --------
Underwriters' Signature Title Date
<PAGE> 82
INSURANCE BINDER 20405 FRANK CRYSTAL & CO., INC.
INSURANCE
40 BROAD STREET * NEW YORK, NY 10004
(212) 344-2444 * (800) 221-5830
TELEX: 222792 * CABLE: CRYSTINSCOS
TELECOPIER: (212) 425-7017
<TABLE>
<CAPTION>
<S> <C> <C>
California Non-Resident License Number 0198376
- ------------------------------------------------------------------------------------------------------------------------------------
Insured's The Lightspan Partnership, Inc. Date Typed 11/01/99
Mailing 10140 Campus Point Drive By: jsm/20405
Address San Diego, CA 92121-1520 A/E: JSM
insured's No.
Telephone Confirmation [X]
- ---------------------------------------------------------------------------------------
Company Underwriters at Lloyds of London Date
of c/o E Risk Services, LLC With Whom
Agency 227 Route 206
Flanders, NJ 08736
- ------------------------------------------------------------------------------------------------------------------------------------
New Order [ ] Endorsement [ ] Renewal [X] Rewrite [ ] Information Only [ ] Inception or Effective Date 11/01/99
- ---------------------------------------------------------------------------------------
Name (if different from mailing address) Expiration 11/01/00
Policy No. TBD
Company Lloyds of London
- ---------------------------------------------------------------------------------------
Location(s) (if different from mailing address) Prepaid [ ]
Installment [ ]
Premium $39,000
- ------------------------------------------------------------------------------------------------------------------------------------
Type of Coverage - Directors and Officers Liability/Employment Practices Liability
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIFICATIONS -
It is hereby understood and agreed that coverage is bound, effective November 1, 1999
to November 1, 2000, as follows:
Limit of Liability Retention Premium*
(Inclusive of Defense Costs) (Each Loss) (One Year)
$5,000,000 $5,000(EPL)/$50,000(D&O) $39,000
*Premium is not inclusive of applicable surplus lines taxes and fees.
Please see the attached Addendum.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage [ ] Loss Payee [ ] Additional Insured [ ] Other [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Enclosure [ ]
- --------------------------------------------------------------------
Remarks [ ]
- --------------------------------------------------------------------
For Frank Crystal & Co., Inc.
Refer to: Jennifer S. Moran
- --------------------------------------------------------------------
Admitted [ ] Non-Admitted [X]
- --------------------------------------------------------------------
The undersigned company agrees, for its respective interests
only and to the extent respectively indicated to effect
insurance or changes as set forth. This agreement is binding
for account of the Assured until acceptance of satisfactory
policy and/or endorsement and/or term agreed to by Frank
Crystal & Co., Inc. This Binder is issued for a period of 60
days and automatically will be extended for additional
consecutive periods of 60 days until acceptance of the
Policy, Bond, and/or Endorsement by the Assured.
- --------------------------------------------------------------------
Name of Underwriter:
(Print or Type) Michael J. Bigger
Signature Original signature is on file with Frank Crystal & Co., Inc.
- --------------------------------------------------------------------
For (Insurance Company) E Risk Services, LLC
Date Signed
- --------------------------------------------------------------------
</TABLE>
<PAGE> 83
[FRANK CRYSTAL FINANCIAL SERVICES LETTERHEAD]
ADDENDUM TO INSURANCE BINDER 20405
Coverage will be provided under the E Risk Services, LLC Business and
Management Indemnity Insurance Policy, inclusive of the following terms and
conditions:
- - Continuity Date - Employment Practices Liability Coverage: November 1, 1997
Directors & Officers and Assured Organization Coverage:
November 1, 1997
1. Breach of Contract Exclusion (Applies to D&O Coverage Only)
2. Professional Liability Exclusion (Applies to D&O Coverage Only)
3. Employment Contract Exclusion (Applies to EPL Coverage Only)
Coverage is bound subject to the Underwriter's receipt, review and acceptance
of E Risk Services, LLC. Directors' and Officers' and Company Reimbursement
Indemnity Insurance Application and E Risk Services, LLC Year 2000 Compliance
Addendum.
<PAGE> 84
INSURANCE BINDER 20406 FRANK CRYSTAL & CO., INC.
INSURANCE
40 BROAD STREET o NEW YORK, NY 10004
(212) 364-2444 o (800) 221-5830
TELEX: 222792 o CABLE: CRYSTINSCOS
TELECOPIER: (212) 425-7017
<TABLE>
<CAPTION>
<S> <C> <C>
Insured's The Lightspan Partnership, Inc. Date Typed 11/01/99
Mailing 10140 Campus Point Drive By: mb/20406
Address San Diego, CA 92121 A/E: RD
Insured's No.
Telephone Confirmation [X]
- ---------------------------------------------------------------------------------- Date
Company Executive Risk Indemnity, Inc. With Whom
of 82 Hopmeadow Street
Agency Simsbury, CT 06070
- ------------------------------------------------------------------------------------------------------------------------------------
New Order [X] Endorsement [ ] Renewal [ ] Rewrite [ ] Information Only [ ] Inception or Effective Date 11/01/99
- ---------------------------------------------------------------------------------- Expiration 11/01/00
Name (if different from mailing address) Policy No. TBD
Company Executive Risk
Prepaid [X]
- ---------------------------------------------------------------------------------- Installment [ ]
Location(s) (if different from mailing address) Premium $15,000
- ------------------------------------------------------------------------------------------------------------------------------------
Type of Coverage - Miscellaneous Professional Liability
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIFICATIONS-
It is hereby understood and agreed that coverage is bound, effective November 1, 1999
to November 1, 2000, as follows:
Limit of Liability Retention Premium
(Inclusive of Defense Costs) (Each Loss) (One Year)
$1,000,000 $10,000 $15,000
Please see the attached Addendum.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgagee [ ] Loss Payee [ ] Additional Insured [ ] Other [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Enclosure [ ] The undersigned company agrees, for its respective interests only and to the extent respectively
indicated to effect insurance or changes as set forth. This agreement is binding for account of the
Assured until acceptance of satisfactory policy and/or endorsement and/or term agreed to by Frank
Crystal & Co., Inc. This Binder is issued for a period of 60 days and automatically will be extended
- ----------------------------- for additional consecutive periods of 60 days until acceptance of the Policy, Bond, and/or
Remarks [ ] Endorsement by the Assured.
- ------------------------------------------------------------------------------------------------------------------------------------
For Frank Crystal & Co., Inc. Name of Underwriter:
Refer to: Robert Duran (Print or Type) Sean P. Murray
Signature Original signature is on file with Frank Crystal & Co., Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Admitted [X] Non-Admitted [ ] For (Insurance Company) Executive Risk
Date Signed
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 85
[FRANK CRYSTAL FINANCIAL SERVICES LETTERHEAD]
ADDENDUM TO INSURANCE BINDER 20406
Coverage will be provided under the Executive Risk Indemnity, Inc. Miscellaneous
Professional Liability Policy, inclusive of the following terms and conditions:
* Retroactive Date - November 1, 1999
1. Internet/Media Coverage Endorsement
2. Computer Services Endorsement
3. Expanded Territory Endorsement
4. 90 Day Cancellation Notice Endorsement
5. 60 Day Post Policy Window to Report Claims
6. Amended Defense Expenses Endorsement
7. Anti-Trust Exclusion
8. Dishonest/Fraudulent Acts Exclusion
9. Unauthorized Access Exclusion (may be deleted upon the Underwriter's
receipt, review and acceptance of the Executive Risk Internet Security
Supplemental Application)
10. Year 2000 Exclusion
11. California State Amendatory Endorsement
Coverage is bound subject to the Underwriter's receipt, review and acceptance of
the Executive Risk Miscellaneous Professional Liability Application and
Intellectual Property Questionnaire.
<PAGE> 86
EXHIBIT F
DELAWARE CERTIFICATE OF INCORPORATION
<PAGE> 87
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> 88
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> 89
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> 90
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.
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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 $2.00, and
shall be subject to adjustment as provided herein. The initial Conversion Price
for the Series B Preferred Stock shall be $6.00, and shall be subject to
adjustment as provided herein. The initial Conversion Price for the Series C
Preferred Stock shall be $7.52, and shall be subject to adjustment as provided
herein. The initial Conversion Price for the Series D Preferred Stock shall be
$7.52, and shall be subject to adjustment as provided herein. The initial
Conversion Price for the Series E Preferred Stock shall be $10.00, 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.
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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.
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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.
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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> 95
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;
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<PAGE> 96
(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
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<PAGE> 97
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.
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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
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<PAGE> 99
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.
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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;
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(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
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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
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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.
* * * *
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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> 105
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> 106
EXHIBIT G
DELAWARE BYLAWS
<PAGE> 107
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
(A DELAWARE CORPORATION)
<PAGE> 108
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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.
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TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<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> 110
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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<PAGE> 113
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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<PAGE> 114
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.
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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.
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EXHIBIT H
POST-CLOSING CAPITALIZATION
The following table sets forth the post-closing capitalization of the Company,
assuming:
1. A $11 per share (post-split) price to the public in the IPO;
2. The conversion of all outstanding shares of preferred stock to
common stock;
3. No exercise of stock options after December 31, 1999;
4. No exercise of warrants after December 31, 1999;
5. The sale of 7,500,000 (post-split) shares in the IPO;
6. The sale of 909,091 (post-split) shares to CINAR Corporation
concurrent with the IPO;
7. The sale of 1,136,363 (post-split) shares to Cox concurrent with the
IPO; and
8. The sale of 272,727 (post-split) shares to Gateway concurrent with
the IPO.
All share numbers in the table are post-split.
<TABLE>
<S> <C>
TOTAL AUTHORIZED: 270,000,000
COMMON STOCK AUTHORIZED: 250,000,000
COMMON STOCK OUTSTANDING: 41,631,431
PREFERRED STOCK AUTHORIZED: 20,000,000
PREFERRED STOCK OUTSTANDING: 0
</TABLE>
<PAGE> 134
EXHIBIT I
FORM OF OPINION
<PAGE> 135
[COOLEY GODWARD LLP LETTERHEAD]
____________, 2000
Cox Communications Holdings, Inc.
_________________________________
_________________________________
_________________________________
Ladies and Gentlemen:
We have acted as counsel for The Lightspan Partnership, Inc., a Delaware
corporation (the "COMPANY"), in connection with the issuance and sale of
__________ shares of the Company's Common Stock (the "COMMON SHARES") and a
warrant (the "WARRANT") to purchase 750,000 shares of the Company's Common Stock
(the "WARRANT SHARES") to Cox Communications Holdings, Inc. (the "INVESTOR")
pursuant to that certain Stock Purchase Agreement dated ____________, 2000 (the
"AGREEMENT"). The Common Shares and the Warrant Shares are collectively referred
to herein as the "SHARES." We are rendering this opinion pursuant to Section 4.9
of the Agreement. Except as otherwise defined herein, capitalized terms used but
not defined herein have the respective meanings given to them in the Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement and the Warrant), where authorization, execution
and delivery are prerequisites to the effectiveness of such documents. We have
also assumed: that all individuals executing and delivering documents had the
legal capacity to so execute and deliver; that you have received all documents
you were to receive under the Agreement; that the Agreement and the Warrant are
obligations binding upon you; that you have filed any required California
franchise or income tax returns and have paid any required California franchise
or income taxes; and that
<PAGE> 136
[COOLEY GODWARD LLP LOGO]
Cox Communications Holdings, Inc.
____________, 2000
Page Two
there are no extrinsic agreements or understandings among the parties to the
Agreement and the Warrant that would modify or interpret the terms thereof or
the respective rights or obligations of the parties thereunder. We have also
assumed that the sale and issuance of the Shares will not be integrated with the
Company's previous sales and issuances of its Series E Preferred Stock.
Our opinion in paragraph 4 is subject to (a) the due reservation for issuance of
the Common Shares by the board of directors of the Company, (b) the
establishment of the price per share by the pricing committee of the board of
directors of the Company at a price per share greater than the par value of the
Company's Common Stock and (c) payment of the purchase price so established.
The Company's Amended and Restated Articles of Incorporation filed July 1, 1999
together with the Certificate of Amendment of the Articles of Incorporation
filed on October 29, 1999 are collectively referred to hereinafter as the
"AMENDED ARTICLES."
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the state of California and the corporate laws
of the state of Delaware. We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the subject
matter hereof. We are not rendering any opinion as to compliance with any
antifraud law, rule or regulation relating to securities, or, except as
expressly provided herein, to the sale or issuance thereof or any antitrust
laws, rule or regulation.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own or lease its property
and assets and to conduct its business as it is currently being conducted.
3. Each of the Agreement and the Warrant has been duly and validly
authorized, executed and delivered by the Company and constitutes a valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, except as rights to indemnity under section
7.14 of the Agreement may be limited by applicable laws and except as
enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, arrangement, moratorium or other similar laws affecting
creditors' rights, and subject to general equity principles and to
limitations on availability of equitable relief, including specific
performance.
<PAGE> 137
[COOLEY GODWARD LLP LOGO]
Cox Communications Holdings, Inc.
____________, 2000
Page Three
4. The Common Shares have been duly authorized, and, upon issuance and
delivery against payment therefor in accordance with the terms of the
Agreement, will be validly issued, outstanding, fully paid and
nonassessable. The Warrant Shares have been duly authorized and reserved
and, upon the issuance and delivery upon exercise of the Warrant and
payment therefore under the terms of the Warrant, will be validly issued,
fully paid and nonassessable.
5. The execution and delivery and performance of the Agreement by the Company
and the issuance of the Shares pursuant thereto do not violate any
provision of the Amended Articles or the Company's Bylaws and do not
constitute a material default under provisions of, and do not violate or
contravene (a) any governmental statute, rule or regulation applicable to
the Company or (b) any order, writ, judgment, injunction, decree,
determination or award which has been entered against the Company and of
which we are aware, the violation or contravention of which would
materially and adversely affect the Company, its assets, financial
condition or operations.
6. To the best of our knowledge, there is no action, proceeding or
investigation pending or overtly threatened against the Company before any
court or administrative agency that questions the validity of the
Agreement or that might result, either individually or in the aggregate,
in any material adverse change in the assets, financial condition, or
operations of the Company.
7. All consents, approvals, authorizations or orders of, and filings,
registrations and qualifications with, any regulatory authority or
governmental body in the United States required for the consummation at
the Closing by the Company of the transactions contemplated by the
Agreement, have been made or obtained, except (a) for the filing of a
Notice of Transaction Pursuant To Section 25102(f) of the California
Corporate Securities Law of 1968 and (b) for the filing of a Form D
pursuant to Securities and Exchange Commission Regulation D.
8. The offer and sale of the Shares and the Warrant are exempt from the
registration requirements of the Securities Act of 1933, as amended,
subject to the timely filing of a Form D pursuant to Securities and
Exchange Commission Regulation D.
This opinion is intended solely for your benefit and is not to be relied upon by
any other person, firm, or entity without our prior written consent.
<PAGE> 138
[COOLEY GODWARD LLP LOGO]
Cox Communications Holdings, Inc.
____________, 2000
Page Four
Very truly yours,
COOLEY GODWARD LLP
M. Wainwright Fishburn, Jr.
<PAGE> 139
EXHIBIT J
FORM OF WARRANT
<PAGE> 140
THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE ACT OR AN OPINION OF
COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED.
THE LIGHTSPAN PARTNERSHIP, INC.
WARRANT TO PURCHASE COMMON STOCK
750,000 SHARES
JANUARY __, 2000
THIS CERTIFIES THAT, for value received, COX COMMUNICATIONS HOLDINGS,
INC., a Delaware corporation, with its principal office at _____ ("COX"), or
assigns (the "HOLDER"), is entitled to subscribe for and purchase at the
Exercise Price (defined below) from THE LIGHTSPAN PARTNERSHIP, INC., a
California corporation, with its principal office at 10140 Campus Point Drive,
San Diego, CA 92121 ("LIGHTSPAN" or the "CORPORATION") up to 750,000 (on a
post-split basis, assuming the Reverse Stock Split, defined below) shares of the
common stock of the Corporation (the "COMMON STOCK").
1. DEFINITIONS. As used herein, the following terms shall have the following
respective meanings:
(a) "EXERCISE PERIOD" shall mean, as to particular Exercise Shares, the
period beginning on the date such Exercise Shares become exercisable pursuant to
Section 2(c), and ending on the date 18 months from the date of the closing of
the IPO (defined below).
(b) "EXERCISE PRICE" shall initially mean $10.00 per share (on a
post-split basis, assuming the Reverse Stock Split, defined below), subject to
adjustment pursuant to Section 6 hereof.
(c) "EXERCISE SHARES" shall mean the shares of the Corporation's Common
Stock issuable upon exercise of this Warrant.
(d) "IPO" shall mean a firmly underwritten initial public offering of
Lightspan's Common Stock.
2. EXERCISE OF WARRANT.
(a) GENERAL. The rights represented by this Warrant may be exercised in
whole or in part at any time during the Exercise Period to the extent
exercisable by delivery of the following to the Corporation at its address set
forth above (or at such other address as it may designate by notice in writing
to the Holder):
1.
<PAGE> 141
(i) An executed Notice of Exercise in the form attached hereto;
(ii) payment of the Exercise Price in cash, by check or wire
transfer, or other immediately available funds acceptable to the Corporation;
and
(iii) this Warrant.
Upon the exercise of the rights represented by this Warrant, a certificate
or certificates for the Exercise Shares so purchased, registered in the name of
the Holder or persons affiliated with the Holder, if the Holder so designates,
shall be issued and delivered to the Holder within a reasonable time after the
rights represented by this Warrant shall have been so exercised.
The person in whose name any certificate or certificates for Exercise
Shares are to be issued upon exercise of this Warrant shall be deemed to have
become the holder of record of such shares on the date on which this Warrant was
surrendered and payment of the Exercise Price was made, irrespective of the date
of delivery of such certificate or certificates, except that, if the date of
such surrender and payment is a date when the stock transfer books of the
Corporation are closed, such person shall be deemed to have become the holder of
such shares at the close of business on the next succeeding date on which the
stock transfer books are open.
(b) NET EXERCISE. Notwithstanding any provisions herein to the contrary,
if the fair market value of one share of the Corporation's Common Stock is
greater than the Exercise Price (at the date of exercise), in lieu of exercising
this Warrant by payment of cash, the Holder may elect to receive shares equal to
the value (as determined below) of this Warrant (or the portion thereof being
exercised) by surrender of this Warrant at the principal office of the
Corporation together with the properly endorsed Notice of Exercise in which
event the Corporation shall issue to the Holder a number of shares of Common
Stock computed on the date of such exercise using the following formula;
X = Y (A-B)
-------
A
Where X = the number of shares of Common Stock to be issued to the Holder
Y = The number of shares underlying the Warrant as to which the
Warrant is being exercised.
A = the fair market value of one share of the Corporation's
Common Stock (at the date of such exercise)
B = Exercise Price (as adjusted to the date of such exercise)
For purposes of the above calculation, the fair market value of one share
of Common Stock shall be determined as follows:
(i) If the Common Stock is traded on a national securities exchange
or admitted to unlisted trading privileges on such an exchange, or is listed on
the National Market
2.
<PAGE> 142
System (the "National Market System") of the National Association of Securities
Dealers Automated Quotations System (the "NASDAQ"), the fair market value shall
be the average of the last reported sale prices of the Common Stock on such
exchange or on the National Market System on the last ten (10) trading days (or
all such trading days such Common Stock has been traded if fewer than 10 trading
days) before the effective date of exercise of the Conversion Right or if no
such sale is made on any such day, the mean of the closing bid and asked prices
for such day on such exchange or on the National Market System;
(ii) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the fair market value shall be the average of the means of
the last bid and asked prices reported on the last ten (10) trading days (or all
such trading days such Common Stock has been traded if fewer than 10 trading
days) before the date of the election (1) by the NASDAQ or (2) if reports are
unavailable under clause (1) above, by the National Quotation Bureau
Incorporated; and
(iii) If the Common Stock is not so listed or admitted to listed
trading privileges and bid and ask prices are not reported, the fair market
value shall be the price per share which the Corporation could obtain from a
willing buyer for shares sold by the Corporation from authorized but unissued
shares, as such price shall be determined by mutual agreement of the Corporation
and the holder of this Warrant.
(c) REVERSE STOCK SPLIT; EXERCISABILITY AND VESTING.
(i) This Warrant assumes the occurrence of a 1-for-2 reverse stock
split (the "Reverse Stock Split") of the Common Stock prior to the time any
Exercise Shares become exercisable. Consequently, if the Reverse Stock Split
does not occur, the number of Exercise Shares and the Exercise Price shall be
1,500,000 and $5.00, subject to further adjustment pursuant to Section 6 hereof;
and in the event a stock split or reverse stock split occurs but at other than a
1:2 ratio (reverse split), then the number of Exercise Shares and the Exercise
Price shall be appropriately fixed consistent with Section 6, subject to further
adjustment pursuant to Section 6.
(ii) The Exercise Shares shall vest, and the Warrant shall be
exercisable for such Exercise Shares, only if the IPO occurs and upon the
occurrence of the conditions as set forth in the vesting schedule in Exhibit A
("VESTING SCHEDULE"). Each of Cox and Lightspan understands and agrees that the
respective rights and obligations of Cox and Lightspan as to the arrangement
described in the Vesting Schedule remain to be defined in the agreement referred
to therein (the terms and provisions of which will be subject to approval by Cox
and Lightspan). Holder and the Corporation acknowledge that neither party is
bound or obligated by this Warrant to enter into any Trial Agreement except as
provided in Section 4 hereto.
3. COVENANTS OF THE CORPORATION.
(a) COVENANTS AS TO EXERCISE SHARES. The Corporation covenants and agrees
that all Exercise Shares that may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be validly issued and
outstanding, fully paid and nonassessable, and free
3.
<PAGE> 143
from all taxes, liens and charges with respect to the issuance thereof. The
Corporation further covenants and agrees that the Corporation will at all times
during the Exercise Period, have authorized and reserved, free from preemptive
rights, a sufficient number of shares of its Common Stock to provide for the
exercise of the rights represented by this Warrant. If at any time during the
Exercise Period the number of authorized but unissued shares of Common Stock
shall not be sufficient to permit exercise of this Warrant, the Corporation will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
(b) NO IMPAIRMENT. Except and to the extent as waived or consented to by
the Holder, the Corporation will not, by amendment of its Articles of
Incorporation or through any 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 hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may be necessary or appropriate in order to
protect the exercise rights of the Holder against impairment.
(c) NOTICES OF RECORD DATE. In the event of any taking by the Corporation
of a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend which is the same as cash dividends paid in previous
quarters) or other distribution, the Corporation shall mail to the Holder, at
least ten (10) days prior to the date specified herein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend or
distribution.
4. COVENANTS OF THE CORPORATION AND COX.
(a) NEGOTIATION OF TRIAL AGREEMENT. Each of Lightspan and Cox shall use
good faith efforts to negotiate and enter into, on or before January __, 2001, a
written agreement requiring Cox to undertake and complete a one-school trial
(involving at least 300 students) involving Lightspan Achieve Now and
Lightspan.com products (a "Trial") in a school within a geographic area
appropriately serviced by Cox and specifying, among other things, the scope,
intended objectives, timing and duration of the trial, the Lightspan products to
be used, and the remedies available to each party in case of non-performance
thereunder (the "TRIAL AGREEMENT"). Holder and the Corporation acknowledge that
neither party is bound or obligated by this Warrant to enter into any Trial
Agreement other than the good faith standard described above.
(b) HART-SCOTT-RODINO. As soon as practicable after the date hereof, the
Corporation and the Holder shall prepare and file the appropriate notifications,
if any, as may be required to be filed under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, (the "HSR ACT") with respect to this
Warrant and the transactions contemplated hereby, and after consultation with
the Corporation, the Investor and the Corporation shall promptly make any
additional filing required to be made under the HSR Act and promptly furnish the
appropriate governmental body such additional information as may be requested
under the HSR Act. All fees and expenses incurred by either the Holder or the
Corporation in connection with this section shall be paid by the Holder.
4.
<PAGE> 144
5. REPRESENTATIONS OF HOLDER.
(a) ACQUISITION OF WARRANT FOR PERSONAL ACCOUNT. The Holder represents and
warrants that it is acquiring the Warrant solely for its account for investment
and not with a view to or for sale or distribution of said Warrant or any part
thereof in violation of any applicable securities laws. The Holder also
represents that the entire legal and beneficial interests of the Warrant and
Exercise Shares the Holder is acquiring is being acquired for, and will be held
for, its account only.
(b) SECURITIES ARE NOT REGISTERED.
(i) The Holder understands that the Warrant and the Exercise Shares
have not been registered under the Securities Act of 1933, as amended (the
"ACT") on the basis that no distribution or public offering of the stock of the
Corporation is to be effected. The Holder realizes that the basis for the
exemption may not be present if, notwithstanding its representations, the Holder
has a present intention of acquiring the securities for a fixed or determinable
period in the future, selling (in connection with a distribution or otherwise),
granting any participation in, or otherwise distributing the securities. The
Holder has no such present intention.
(ii) The Holder recognizes that the Warrant and the Exercise Shares
must be held indefinitely unless they are subsequently registered under the Act
or an exemption from such registration is available.
(c) DISPOSITION OF WARRANT AND EXERCISE SHARES.
(i) The Holder further agrees not to make any disposition of all or
any part of the Warrant or Exercise Shares in any event unless and until:
(1) The Corporation shall have received a letter secured by
the Holder from the Securities and Exchange Commission stating that no action
will be recommended to the Commission with respect to the proposed disposition;
or
(2) There is then in effect a registration statement under the
Act covering such proposed disposition and such disposition is made in
accordance with said registration statement; or
(3) The Holder shall have notified the Corporation of the
proposed disposition and shall have furnished the Corporation with a detailed
statement of the circumstances surrounding the proposed disposition, and if
reasonably requested by the Corporation, the Holder shall have furnished the
Corporation with an opinion of counsel, reasonably satisfactory to the
Corporation, for the Holder to the effect that such disposition will not require
registration of such Warrant or Exercise Shares under the Act or any applicable
state securities laws.
5.
<PAGE> 145
(ii) The Holder understands and agrees that all certificates
evidencing the shares to be issued to the Holder may bear the following
legend(s):
(1) "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 CORPORATION RECEIVES AN OPINION OF COUNSEL (WHICH MAY
BE COUNSEL FOR THE CORPORATION) REASONABLY ACCEPTABLE TO IT STATING THAT SUCH
SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SAID ACT."
(2) any other legend reasonably determined by the corporation.
(iii) The Holder hereby agrees not to sell or otherwise transfer or
dispose of all or any part of this Warrant or the Exercise Shares during a
period specified by the representative of the underwriters of Common Stock (not
to exceed one hundred eighty (180) days) following the effective date of the
registration statement of the Corporation filed under the Act. Holder further
agrees that the Corporation may impose stop-transfer instructions with respect
to securities subject to the foregoing restrictions until the end of such
period. Notwithstanding the above, if permitted in writing by the underwriters,
the Holder may transfer such shares to any corporation or other entity which
controls, is controlled by, or is under common control with the Holder, all as
defined in the following sentence. 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.
6. ADJUSTMENT OF EXERCISE SHARES AND EXERCISE PRICE. The number of Exercise
Shares and the Exercise Price stated in this Warrant assume the Reverse Stock
Split. Neither the number of Exercise Shares nor the Exercise Price shall be
adjusted as a result of the Reverse Stock Split (but adjustments shall be made
if the Reverse Stock Split does not occur or if a stock split or reverse stock
split is effected at other than a 1:2 ratio (reverse split), as described in
Section 2(c)). In the event of changes in the outstanding Common Stock of the
Corporation other than the Reverse Stock Split, whether by reason of conversion,
stock dividends, split-ups, recapitalizations, reclassifications, combinations
or exchanges of shares, whether in a merger or otherwise, separations,
reorganizations, liquidations, or the like, the number and class of shares
available under the Warrant in the aggregate and the Exercise Price shall be
correspondingly adjusted to give the Holder of the Warrant, on exercise for the
same aggregate Exercise Price, the total number, class, and kind of shares as
the Holder would have owned had the Warrant been exercised prior to the event
and had the Holder continued to hold such shares until after the event requiring
adjustment. The form of this Warrant need not be changed because of any
adjustment in the Exercise Price or in the number or class of Exercise Shares
subject to this Warrant.
7. FRACTIONAL SHARES. No fractional shares shall be issued upon the exercise of
this Warrant as a consequence of any adjustment pursuant hereto. All Exercise
Shares (including fractions) issuable upon exercise of this Warrant may be
aggregated for purposes of determining whether the exercise would result in the
issuance of any fractional share. If, after aggregation,
6.
<PAGE> 146
the exercise would result in the issuance of a fractional share, the Corporation
shall, in lieu of issuance of any fractional share, pay the Holder otherwise
entitled to such fraction a sum in cash equal to the product resulting from
multiplying the then current fair market value of an Exercise Share by such
fraction.
8. NO STOCKHOLDER RIGHTS. This Warrant in and of itself shall not entitle the
Holder to any voting rights or other rights as a stockholder of the Corporation.
9. TRANSFER OF WARRANT. This Warrant and all rights hereunder are transferable
only with the written consent of the Corporation, which consent shall not be
unreasonably withheld; provided, however, that the Holder may transfer this
Warrant to an affiliate of the Holder without such consent on the condition that
the transferee agrees to be bound by all of the restrictions contained herein;
provided further that in all events Cox shall remain obligated pursuant to
Section 4 hereof, and vesting shall be determined thereby, no matter who is the
Holder, unless otherwise agreed by Lightspan and Cox.
10. LOST, STOLEN, MUTILATED OR DESTROYED WARRANT. If this Warrant is lost,
stolen, mutilated or destroyed, the Corporation may, on such terms as to
indemnity or otherwise as it may reasonably impose (which shall, in the case of
a mutilated Warrant, include the surrender thereof), issue a new Warrant of like
denomination and tenor as the Warrant so lost, stolen, mutilated or destroyed.
Any such new Warrant shall constitute an original contractual obligation of the
Corporation, whether or not the allegedly lost, stolen, mutilated or destroyed
Warrant shall be at any time enforceable by anyone.
11. NOTICES, ETC. All notices and other communications required or permitted
hereunder shall be in writing and shall be sent by telex, telegram, express mail
or other form of rapid communications, if possible, and if not then such notice
or communication shall be mailed by first-class mail, postage prepaid, addressed
in each case to the party entitled thereto at the following addresses: (a) if to
the Corporation, to The Lightspan Partnership, Inc., Attention: President, at
the address shown on the first page hereof and (b) if to the Holder, to
President, at the address shown on the first page hereof, or at such other
address as one party may furnish to the other in writing. Notice shall be deemed
effective on the date dispatched if by personal delivery, telecopy, telex or
telegram, two days after mailing if by express mail, or three days after mailing
if by first-class mail.
12. ACCEPTANCE. Receipt of this Warrant by the Holder shall constitute
acceptance of and agreement to all of the terms and conditions contained herein.
13. GOVERNING LAW. This Warrant and all rights, obligations and liabilities
hereunder shall be governed by the laws of the State of California.
7.
<PAGE> 147
IN WITNESS WHEREOF, the Corporation has caused this Warrant to be executed
by its duly authorized officer as of January __, 2000.
THE LIGHTSPAN PARTNERSHIP, INC.
By:
----------------------------------
Title:
----------------------------------
COX ________________
By:
----------------------------------
Title:
----------------------------------
8.
<PAGE> 148
NOTICE OF EXERCISE
TO: THE LIGHTSPAN PARTNERSHIP, INC.
(1) [ ] The undersigned hereby elects to purchase ________ shareS of the
Common Stock of The Lightspan Partnership, Inc. (the "CORPORATION") pursuant to
the terms of the attached Warrant, and tenders herewith payment of the exercise
price in full, together with all applicable transfer taxes, if any.
[ ] The undersigned hereby elects to purchase ________ shareS of the
Common Stock of The Lightspan Partnership, Inc. (the "CORPORATION") pursuant to
the terms of the net exercise provisions set forth in Section 2(b) of the
attached Warrant, and shall tender payment of all applicable transfer taxes, if
any.
(2) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
-------------------------------
(Name)
-------------------------------
-------------------------------
(Address)
(3) The undersigned represents that (i) the aforesaid shares of Common
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 except in compliance with all applicable securities laws; (ii) the
undersigned is aware of the Corporation's business affairs and financial
condition and has acquired sufficient information about the Corporation to reach
an informed and knowledgeable decision regarding its investment in the
Corporation; (iii) the undersigned is experienced in making investments of this
type and has such knowledge and background in financial and business matters
that the undersigned is capable of evaluating the merits and risks of this
investment and protecting the undersigned's own interests; (iv) the undersigned
understands that the shares of Common Stock issuable upon exercise of this
Warrant have not been registered under the Securities Act of 1933, as amended
(the "SECURITIES ACT"), by reason of a specific exemption from the registration
provisions of the Securities Act, which exemption depends upon, among other
things, the bona fide nature of the investment intent as expressed herein, and,
because such securities have not been registered under the Securities Act, they
must be held indefinitely unless subsequently registered under the Securities
Act or an exemption from such registration is available; and (v) the undersigned
agrees not to make any disposition of all or any part of the aforesaid shares of
Common Stock unless and until there is then in effect a registration statement
under the Securities Act covering such proposed disposition and such disposition
is made in accordance with said registration statement, or the undersigned has
provided the Corporation with an opinion of counsel satisfactory to the
Corporation, stating that such registration is not required.
- ----------------------- -----------------------------------------
(Date) (Signature)
-----------------------------------------
(Print name)
<PAGE> 149
ASSIGNMENT FORM
(To assign the foregoing Warrant, execute this form and
supply required information. Do not use this form to
purchase shares.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced
thereby are hereby assigned to
Name:
-----------------------------------------------------------------------
(Please Print)
Address:
-----------------------------------------------------------------------
(Please Print)
Dated:
--------------------------------
Holder's
Signature:
--------------------------------
Holder's
Address:
--------------------------------
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, 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.
<PAGE> 150
EXHIBIT A
100% of the Exercise Shares shall vest upon either of the following dates:
(a) the date that Cox and Lightspan enter into the Trial Agreement;
provided that, such date is on or before January __, 2001 and that prior to such
date each of the following conditions shall have been satisfied:
(i) The waiting period applicable to the exercise of the Warrant
under the HSR Act shall have expired or been terminated; and
(ii) Cox shall have negotiated and entered into the Trial Agreement
in good faith in compliance with Section 4 of the Warrant; it being agreed by
the parties that Cox would not be deemed to be acting in good faith if Cox
agrees to terms in the Trial Agreement that, given Cox's technology and
infrastructure position and other facts and circumstances, are not reasonably
expected to be able to be performed by Cox in a timely manner consistent with
industry standards.
OR
(b) On January __, 2001 if the IPO and the reincorporation of Lightspan
into the State of Delaware shall have occurred and the waiting period applicable
to the exercise of the Warrant under the HSR Act shall have expired or been
terminated and Lightspan and Cox have not entered into the Trial Agreement
because Cox reasonably determines that it cannot conduct a Trial in a manner
acceptable to the parties due to the fact that delays or other problems with the
development and production of Lightspan's products have resulted in Lightspan's
products not being suitable for such a Trial.
<PAGE> 151
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2 of
the Stock Purchase Agreement dated as of January 11, 2000 (the "Agreement"), by
and between The Lightspan Partnership, Inc. (the "COMPANY") and the Investor
named therein. Unless the context otherwise requires, all capitalized terms are
used herein as defined in the Agreement. The numbers below correspond to the
section numbers of representations and warranties in the Agreement most directly
modified by the exceptions, but such exceptions are intended to modify all of
the Company's representations and warranties.
2.2 CAPITALIZATION. The Company has granted Comdisco Venture Leasing a
warrant to purchase 150,000 shares of Series A Preferred Stock at an exercise
price of $1.00 per share, warrants to purchase an aggregate of 150,000 shares of
Series B Preferred Stock at $3.00 per share and a warrant to purchase 26,625
shares of Series C Preferred Stock at $6.00 per share. The Company has also
granted Silicon Valley Bank a warrant to purchase 70,000 shares of Series C
Preferred Stock at $6.00 per share. In connection with that certain Loan
Agreement and related agreements dated March 26, 1997 (the "March Bridge Loan"),
May 9, 1997 (the "May Bridge Loan"), and June 6, 1997 (the "June Bridge Loan"),
the Company granted warrants to purchase Series D Preferred Stock, to each of
Accel IV L.P., Accel Investors `93 L.P., Ellmore C. Patterson Partners, Accel
Keiretsu L.P., Prosper Partners, Kleiner Perkins Caulfield & Byers VI, KPCB VI
Founders Fund, Institutional Venture Partners V, Institutional Venture
Management V, Microsoft Corporation, Tribune Company, TCI Lightspan Holdings,
and SZ Investments, LLC. These warrants grant the recipients rights to purchase
an aggregate of 183,105 shares of Series D Preferred Stock at an exercise price
of $3.76. The Company has granted Montgomery Securities a warrant to purchase
127,659 shares of Series D Preferred Stock at an exercise price of $4.70 per
share. The Company has granted warrants to purchase an aggregate of 42,216
shares of Series E Preferred Stock in connection with its merger with Academic
Systems Corporation. The pre-closing fully-diluted capitalization of the Company
is as set forth on EXHIBIT C attached to the Agreement.
Not included in the fully-diluted capitalization of the Company as set
forth on EXHIBIT C are the springing warrants issued as part of the Series D
Preferred Stock financing. Warrants to purchase up to 3,326,112 shares of the
Company's Common Stock (a maximum of approximately 1,131,012 shares of Common
Stock at an IPO price of $11 per share) at $0.01 per share could be issued upon
the earliest to occur of the following events: (i) a change of control of the
Company, (ii) the sale of the Company's Common Stock in an initial firm
commitment underwritten public offering, provided that the public offering price
per share is not less than $10.00 (subject to 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 on either (x) the closing
date of the offering or (y) the six month anniversary of the closing date of the
offering, or (iii) September 10, 2000.
The Company has committed to sell shares of its common stock to Cox
Communications Holdings, Inc. ($12.5 million at the IPO price), CINAR
Corporation ($10 million at the IPO price) and Gateway Companies, Inc. ($3
million at the IPO price) concurrent with the closing of
1.
<PAGE> 152
the IPO. The Company has also issued a warrant to CINAR Corporation to purchase
500,000 shares of the Company's Series E Preferred Stock that will vest upon the
achievement of various agreed-to strategic goals. The Company has committed to
issue a warrant to Cox Communications Holdings, Inc. to purchase 750,000 shares
(post-split) of the Company's Common Stock that will vest upon the achievement
of various agreed-to strategic goals.
The Company believes that a small number of former Academic Systems
Corporation shareholders may have rights to additional shares of its stock, or
other compensation in lieu of such shares. As a result, the Company intends to
issue 1,068,015 shares of its Series E Preferred Stock (which would covert into
534,008 shares of common stock upon the close of the IPO), subject to regulatory
approval, to these shareholders. Alternatively, the Company may pay them cash or
some other form of consideration.
2.3 SUBSIDIARIES
The Company has three wholly owned subsidiaries, each of which is a
California corporation: CTV Networks, Lightspan Entertainment, Inc. and Academic
Systems Corporation.
2.5 VALID ISSUANCE OF COMMON STOCK.
The Company's 2000 Equity Incentive Plan (the "2000 PLAN"), and the form
of Stock Option Agreement approved for use with the 2000 Plan, provide for
acceleration of vesting in certain circumstances as set forth in Section 11 of
the 2000 Plan and Section 13 of the form of Stock Option Agreement. None of the
Company's outstanding options are currently subject to the terms of the 2000
Plan or related Stock Option Agreement.
2.7 LITIGATION
No exception.
2.8 EMPLOYEES
Incentive compensation plans for sales people include commissions,
quarterly performance bonuses, annual bonuses, and Millenium stay bonuses for a
subset of the sales organization. Selected management personnel have bonus plans
which are based on the Company's and individual performance.
2.9 INTELLECTUAL PROPERTY
Certain entities have opposed registration applications of the Company.
They are as follows:
1. Time Warner opposed "Chaos in KazMania" and "KazMania." The
Company abandoned its application for these marks.
2. UC Regents opposed "Trail of Gems." The Company abandoned its
application for this mark.
2.
<PAGE> 153
2.10 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS
No Exception.
2.14 REGISTRATION RIGHTS
The Company has granted registration rights to Cox Communications
Holdings, Inc. and to Gateway Companies, Inc. as set forth in their respective
Stock Purchase Agreements.
2.15 TITLE TO PROPERTY AND ASSETS
Title to certain assets of the Company is held by Comdisco, TransAmerica
and Technology Credit Corporation and Pentech Financial Services under various
equipment leasing agreements. The Company has entered into a revolving credit
facility with Silicon Valley Bank ("SVB"). The Company's indebtedness to SVB is
secured by a security interest in substantially all of the Company's assets.
Copies of the agreements relating to these transactions have been provided to
the Investor.
Certain of Academic's equipment is subject to a security interest upon
default pursuant to the terms and conditions of Loan and Security Agreement at
Silicon Valley bank dated as of November 11, 1996.
Academic has entered into a Master Equipment Lease #9968 with Phoenix
Leasing dated as of April 10, 1995.
2.16 FINANCIAL STATEMENTS
The Company has delivered or made available to the Investor its audited
financial statements as of and for the fiscal year ended January 31, 1999 and as
of and for the nine-month period ended October 31, 1999. Since October 31, 1999,
the following employees received raises: Victoria Bers, Jennifer Broadhead,
Becky Bordelon, Dwight Lada, Dennis Murphy, Muriel Ollivierre, Mark Seaman,
Sylvia Tamashiro and Lauren Wood. Following such raises, each such employee
earns more than $60,000 per year.
2.17 OUTSTANDING INDEBTEDNESS; MATERIAL LIABILITIES
The Company has liabilities and obligations under procurement contracts
entered into in the normal course of business which exceed $100,000 in the
aggregate as follows: (i) Commitments to Sony for approximately $350,000 for
PlayStations(R) and (ii) $1,000,000 for CD's over the next nine months.
2.18 AGREEMENTS; ACTION
(b)(i) CONTRACTS
Line of credit with Silicon Valley Bank extension dated March
26, 1999.
Comdisco Agreements:
3.
<PAGE> 154
Master lease dated February 1, 1994
Lease 18SL32154-00 dated July 1, 1996 (new term 7/1/99)
Lease 18SL32154-01 dated October 1, 1996 (new term
7/1/99)
Lease 18SL32154-02 dated January 1, 1996 (new term
7/1/99)
Lease 18SL32154-03 dated April 1, 1997 (new term 7/1/99)
Technology Credit Corporation:
Master Lease Agreement 3585 dated 2/23/94
Schedule #10 dated 11/8/96
Schedule #11 dated 11/4/96
Transamerica:
Master Lease Agreement dated August 14, 1997
Schedule #1 dated November 1, 1997
Schedule #2 dated April 1, 1998
Schedule #3 dated April 1, 1998
Schedule #4 dated November 1, 1998
Schedule #5 dated April 1, 1999
Pentech Financial Services:
Master lease dated April 19, 1999
Schedule #300261 dated 4/19/99
Schedule #300261 Supplement 1 dated 6/25/99
Schedule #300261 Supplement 2 dated 9/1/99
Schedule #300261 Supplement 3 dated 7/1/99
Schedule #300261 Supplement 4 dated 12/1/99
Facilities Leases:
5245/5635 Avenida Encinitas, Carlsbad, CA
10140 Campus Point Drive, San Diego, CA
10140 Campus Point Drive, San Diego, CA (Qualcomm sub-
lease)
2001 Wilshire Blvd., Santa Monica, CA
444 Castro Street. Suite 1120, Mountain View, CA
Operating Leases:
Tokai Financial Services - Mailing Equipment
IOS - Canon NP6060 Copier
IOS - Canon NP6060 Copier
IOS - Canon 7500 Fax Machine
IOS - OCE 2475 Copier
NMAC - Forklift
Pitney Bowes - Mailing Equipment
Santa Monica operating leases for furniture and office
equipment
Manufacturing or Joint Development Agreements:
Sony Developer Agreement dated January 26, 1996
Sony PlayStation Development Tools letter dated 6/12/97
4.
<PAGE> 155
Digex Server Contract dated June 30, 1997
Fulfillment Agreement between Academic and FGI
Management dated as of June 12, 1998, and purchase
order dated May 5, 1999.
License Agreements or Royalty Agreements:
Sony Sale and License Agreement dated January 26, 1996
Highlights for Children Agreement dated July 1997
Lycos Electronic Mail and Web Director Services
Agreement
The Learning Company Distribution Agreement dated April
1997
Agency for Institutional Technology Agreement dated
October 21, 1994
Multi-Active Education, Inc. (Brainium) License
Agreement dated September 28, 1999
Education World, Inc. Term Sheet dated July 13, 1999
Reseller Agreement between Academic and Oracle
Corporation dated as of October 8, 1998.
Other:
Blackboard / Academic Systems Corporation OEM Agreement
dates as of 17 December, 1999
Yahoo! co-branded distribution agreement dated January
13, 1999
SmarterKids.com Co-branded Development Agreement dated
July 12, 1999
Consulting Agreements (amounts accrued between February 1,
1999 and December 31, 1999):
Sales Consultants:
Robert Galloway ($17,851)
Hap's Training and Consulting ($10,765)
Max Messer ($35,032)
Raymond Fontenot ($20,156)
Carol Staats ($10,084)
Mo Sanders ($25,809)
Michael Byer ($40,277)
Sales Training:
Marc Daniels ($47,500
Professional Development Management:
Quality Leadership Resources ($260,000)
Marketing:
DNA Studio ($36,000)
Flying Dutchgirl Communications ($24,020)
Launch Pad ($40,711)
MS&L ($10,429)
5.
<PAGE> 156
Wambach & Company ($28,738)
Interactive, Inc. ($16,000)
Miriam Alexander ($12,000)
New Image Media ($36,725)
Sally McLaughlin ($27,218)
Grants & Funding:
CRF and Associates ($23,177)
Program Evaluation:
Jay Blanchard ($20,634)
Christian Cherau ($55,463)
Marcie Cherau ($49,627)
Larry Gwaltney ($77,550)
William Stock ($30,990)
Product Development:
Commuwerks, Inc ($12,250)
Paul Dipasquale ($11,445)
Pacific Fusion Technology ($96,146)
Laures Bouras ($20,800)
Jim Flood ($10,300)
Margy Hillman ($45,821)
Diane Lapp ($10,825)
Joanne Odenthal ($197,050)
Artisan Creative ($28,785)
Linda Bussell ($10,612)
David Callaway ($11,400)
Nat Fast ($13,550)
Mutation Labs ($12,500)
Jodi Willnow ($45,793)
Ray Ferro ($11,135)
Data Processing:
FMT ($10,412)
Al Lowenheim ($19,300)
Tax Preparation:
Gatto & Pope ($28,000)
Auditors:
Ernst & Young ($361,248)
(c)(ii) The Company has entered into a Loan and Security Agreement
with Silicon Valley Bank and is not currently borrowing against it.
6.
<PAGE> 1
EXHIBIT 10.40
STOCK PURCHASE AGREEMENT
THE LIGHTSPAN PARTNERSHIP, INC.
JANUARY 12, 2000
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
1. PURCHASE AND SALE OF STOCK........................................................ 1
1.1 Sale and Issuance of Common Stock.......................................... 1
1.2 Closing.................................................................... 1
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..................................... 1
2.1 Organization, Good Standing and Qualification.............................. 2
2.2 Capitalization............................................................. 2
2.3 Subsidiaries............................................................... 3
2.4 Authorization.............................................................. 3
2.5 Valid Issuance of Common Stock............................................. 3
2.6 Governmental Consents...................................................... 3
2.7 Litigation................................................................. 4
2.8 Employees.................................................................. 4
2.9 Intellectual Property...................................................... 4
2.10 Compliance with Law and Other Instruments.................................. 5
2.11 Permits.................................................................... 6
2.12 Environmental and Safety Laws.............................................. 6
2.13 Disclosure................................................................. 6
2.14 Registration Rights........................................................ 6
2.15 Title to Property and Assets............................................... 6
2.16 Financial Statements....................................................... 6
2.17 Outstanding Indebtedness; Material Liabilities............................. 7
2.18 Agreements; Action......................................................... 7
2.19 Tax Returns and Audits..................................................... 8
2.20 Insurance.................................................................. 9
2.21 Shareholder Agreements..................................................... 9
2.22 Certain Transactions....................................................... 9
2.23 Brokers or Finders......................................................... 9
2.24 Corporate Documents........................................................ 9
2.25 Other...................................................................... 9
2.26 Qualified Small Business................................................... 10
</TABLE>
i.
<PAGE> 3
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
2.27 Year 2000.................................................................. 10
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.................................... 10
3.1 Accredited Investor........................................................ 10
3.2 Experience................................................................. 10
3.3 Investment................................................................. 10
3.4 Rule 144................................................................... 10
3.5 Access to Data............................................................. 11
3.6 Authorization.............................................................. 11
3.7 Principal Address.......................................................... 11
3.8 Legends.................................................................... 11
3.9 No Assurances.............................................................. 11
3A. PRE CLOSING COVENANTS OF COMPANY.................................................. 11
3A.1. Reincorporation............................................................ 11
3A.2 Post-IPO Capitalization.................................................... 11
3A.3 Sponsorship Agreement...................................................... 12
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING................................... 12
4.1 Representations and Warranties............................................. 12
4.2 Performance................................................................ 12
4.3 Blue Sky................................................................... 12
4.4 Proceedings and Documents.................................................. 12
4.5 Reincorporation............................................................ 12
4.6 Capitalization............................................................. 12
4.7 Form S-1................................................................... 12
4.8 Compliance Certificate..................................................... 12
4.9 Legal Opinion.............................................................. 12
4.10 Sponsorship Agreement...................................................... 12
4.11 Claims..................................................................... 13
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING................................ 13
5.1 Representations and Warranties............................................. 13
5.2 Blue Sky................................................................... 13
</TABLE>
ii.
<PAGE> 4
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
5.3 Proceedings and Documents.................................................. 13
5.4 Form S-1................................................................... 13
5.5 Compliance Certificate..................................................... 13
6. TERMINATION....................................................................... 13
7. MISCELLANEOUS..................................................................... 13
7.1 Governing Law.............................................................. 13
7.2 Survival................................................................... 14
7.3 Successors and Assigns..................................................... 14
7.4 Entire Agreement; Amendment................................................ 14
7.5 Notices, Etc............................................................... 14
7.6 Delays or Omissions........................................................ 14
7.7 Expenses................................................................... 14
7.8 Finder's Fee............................................................... 15
7.9 Counterparts............................................................... 15
7.10 Severability............................................................... 15
7.11 Closing Conditions......................................................... 15
7.12 Market Standoff............................................................ 15
7.13 Registration Rights........................................................ 15
</TABLE>
iii.
<PAGE> 5
THE LIGHTSPAN PARTNERSHIP, INC.
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT is made as of January 12, 2000, by and among
THE LIGHTSPAN PARTNERSHIP, INC., a California corporation ("LIGHTSPAN
CALIFORNIA"), THE LIGHTSPAN PARTNERSHIP, INC., a Delaware corporation
wholly-owned by Lightspan California ("LIGHTSPAN DELAWARE"), each with its
principal office at 10140 Campus Point Drive, San Diego, California, 92008, and
GATEWAY COMPANIES, INC., a Delaware corporation (the "INVESTOR.") As used herein
the term "COMPANY" shall refer to Lightspan California before the
reincorporation of Lightspan California into Delaware (the "REINCORPORATION")
and to Lightspan Delaware after the Reincorporation.
RECITALS
WHEREAS, the Company desires to sell and issue, and the Investor desires
to purchase shares of the common stock of the Company (the "SHARES") for an
aggregate purchase price of $3,000,000 in a private placement concurrent with an
initial public offering of the common stock of the Company pursuant to an
effective registration statement on Form S-1 (the "REGISTRATION STATEMENT")
under the Securities Act of 1933, as amended, covering the offer and sale of
shares of the Company's common stock (the "IPO"), at a price per share equal to
the price per share paid by purchasers in such IPO.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. PURCHASE AND SALE OF STOCK.
1.1 SALE AND ISSUANCE OF COMMON STOCK. Subject to the terms and
conditions of this Agreement, at the Closing (as defined below) the Company
shall issue to the Investor and the Investor shall purchase from the Company in
a private placement that number of shares of the Company's common stock (rounded
to the nearest whole share) equal to $3,000,000 divided by the per share price
at which the common stock is offered to the public in the IPO, at a price per
share equal to the price per share at which the common stock is offered to the
public in the IPO;
1.2 CLOSING. The closing of the purchase and sale of the Shares
shall take place at the offices of Cooley Godward LLP, 4365 Executive Drive,
Suite 1100, San Diego, California, on the closing date of the IPO (such time and
place are referred to herein as the "CLOSING"). At the Closing, the Company
shall deliver to the Investor a certificate or certificates representing the
Shares against payment of the purchase price therefor by check or wire transfer.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth in the Schedule of Exceptions provided to the investor
contemporaneously with the execution hereof, the Company hereby represents and
warrants as follows:
1.
<PAGE> 6
2.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the State of California or the
laws or the State of Delaware, as appropriate, and has all requisite corporate
power and authority to own and operate its properties and assets, to execute and
deliver this Agreement, to issue and sell the Shares, to carry out the
provisions of this Agreement and to carry on its business as currently conducted
and as it is currently planned to be conducted. Each of the Company and each of
its subsidiaries is duly qualified to transact business and is in good standing
in each jurisdiction in which the failure to so qualify would have a material
adverse effect on its business or properties. True and accurate copies of the
Company's Articles of Incorporation and Bylaws, each as amended and in effect at
the Closing, have been attached hereto as EXHIBIT A and EXHIBIT B, respectively.
2.2 CAPITALIZATION. As of the date hereof, the authorized capital
stock of Lightspan California consists of Eighty-Seven Million (87,000,000)
shares of common stock, of which Nine Million Four Hundred Fifty-Four Thousand
Five Hundred Forty-Two (9,454,542) shares are issued and outstanding on the date
of this Agreement and Sixty-One Million Seven Hundred Ninety-Five Thousand
Seventy-Four (61,795,074) shares of Preferred Stock, which are designated as
follows: (i) 7,617,500 shares of Series A Preferred Stock, 7,467,500 of which
are issued and outstanding, (ii) 11,816,664 shares of Series B Preferred Stock,
11,666,664 of which are issued and outstanding, (iii) 3,360,910 shares of Series
C Preferred, 3,264,285 of which are issued and outstanding, (iv) 17,000,000
shares of Series D Preferred, 13,129,443 of which are issued and outstanding and
(v) 22,000,000 shares of Series E Preferred, 16,703,023 of which are issued and
outstanding. All such issued and outstanding shares have been duly authorized
and validly issued and are fully paid and non-assessable. Lightspan California
has reserved 9,780,544 shares of its common stock for issuance under Lightspan
California's 1993 Stock Option Plan (the "1993 OPTION PLAN") to employees,
officers, directors and consultants of Lightspan California as may be determined
by Lightspan California's Board of Directors from time to time, of which options
to purchase 7,513,503 shares are presently outstanding and options to purchase
442,764 are presently available for grants. The Board of Directors of Lightspan
California has approved an amendment to the 1993 Option Plan, which will become
effective concurrently with the IPO, that, among other things, (i) changes the
name of the plan to the 2000 Equity Incentive Plan and (ii) increases the number
of shares reserved for issuance by an additional 2,500,000 shares. Lightspan
California has reserved 526,808 shares of its common stock for issuance under
Lightspan California's 1992 Stock Option Plan (the "1992 OPTION PLAN") to
employees, officers, directors and consultants of Lightspan California as may be
determined by Lightspan California's Board of Directors from time to time, of
which options to purchase 503,728 shares are presently outstanding and options
to purchase no shares are presently available for grants. There are no other
outstanding rights, options, warrants, preemptive rights, rights of first
refusal or similar rights for the purchase or acquisition from Lightspan
California (or any of its subsidiaries) of any securities of Lightspan Delaware
(or any of its subsidiaries) nor are there any commitments to issue or execute
any such rights, options, warrants, preemptive rights or rights of first
refusal. All outstanding shares have been issued in compliance with state and
federal securities laws. The fully diluted capitalization of Lightspan
California as of the date hereof is as set forth in EXHIBIT C. Except as
specifically set forth in the several stock purchase agreements pursuant to
which Lightspan California has issued and sold shares of its preferred stock and
which are listed on EXHIBIT D (copies of which have been provided to or made
available to Investor), the Agreement and Plan of Reorganization dated as of
2.
<PAGE> 7
May 10, 1999 by and between Lightspan California and Academic Systems
Corporation, this Agreement, Lightspan California's Certificate of Amendment of
Restated Articles of Incorporation and Amended and Restated Articles of
Incorporation, the Amended Investor Rights Agreement by and among certain
investors and Lightspan California dated as of October 29, 1999 (the "INVESTOR
RIGHTS AGREEMENT"), the Voting Agreement among certain investors and Lightspan
California dated as of February 7, 1995 (the "SERIES B VOTING AGREEMENT"), the
Voting Agreement among certain investors and Lightspan California dated as of
September 20, 1996 (the "SERIES C VOTING AGREEMENT") and the Voting Agreement
among certain investors and Lightspan California dated as of June 24, 1997 (the
"SERIES D VOTING AGREEMENT"), there are no agreements, understandings or other
arrangements existing between Lightspan California, on the one hand, and any
investor or any other holder of Lightspan California's preferred stock, on the
other hand, governing the rights or privileges of any such investor or any such
holder in respect of its equity interests in Lightspan California. As of
Closing, the Series B, C, and D Voting Agreement shall be terminated and all
sections of the Investor Rights Agreement (other than registration rights
provisions of Section 1) shall terminate.
2.3 SUBSIDIARIES. Except as set forth on Schedule 2.3, the Company
does not presently own or control, directly or indirectly, any interest in any
other corporation, association, or other business entity. The entities listed on
Schedule 2.3 are wholly owned by the Company. The Company is not a participant
in any joint venture, partnership, or similar arrangement.
2.4 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, the performance of all obligations of
the Company hereunder, and the authorization, issuance (or reservation for
issuance), sale and delivery of the Shares being sold hereunder has been taken
and this Agreement constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its 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 any relevant indemnification provisions.
2.5 VALID ISSUANCE OF COMMON STOCK. The Shares, 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, will be free of any liens or encumbrances, will not be subject to
any preemptive rights or rights of first refusal and will be free of
restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable state and federal securities laws. Except as set
forth in Schedule 2.5, and except for any rights or arrangements that shall have
been terminated prior to the Closing, no stock plan, stock purchase, stock
option or other agreement or understanding between the Company and any holder of
any equity securities or rights to purchase equity securities provides for
acceleration or other changes in the vesting provisions or other terms of such
agreement or understanding (including drag-along and tag-along rights) as the
result of any merger, consolidated sale of stock or assets, change in control or
any other transaction(s) by the Company.
2.6 GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local
3.
<PAGE> 8
governmental authority on the part of the Company is required in connection with
the offer, sale or issuance of the Shares, the execution of this Agreement or
the consummation of any other transaction contemplated hereby, except for the
following: (i) the completion of the Reincorporation, which shall be completed
by the Company prior to the Closing; and (ii) the compliance with applicable
state securities laws, which compliance will have occurred within the
appropriate time periods therefor. Assuming the accuracy of the representations
of the Investor set forth in Section 3 below, the offer, sale and issuance of
the Shares in conformity with the terms of this Agreement are exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as amended
(the "SECURITIES ACT"), and from the qualification requirements of Section 25110
of the California Securities Law.
2.7 LITIGATION. Except as set forth on Schedule 2.7, there is no
action, suit, proceeding or investigation pending or, to the best of the
Company's knowledge, currently threatened before any arbitrator, court,
administrative agency or other governmental body (nor, to best of the Company's
knowledge, is there any basis for any such action, suit, proceeding or
investigation). The foregoing includes, without limitation, actions, suits,
proceedings or investigations pending or threatened (or any basis therefor known
to the Company) involving the prior employment of any of the Company's
employees, their use in connection with the Company's business of any
information or techniques allegedly proprietary to any of their former
employers, or their obligations under any agreements with prior employers or the
issuance of securities by the Company or the breach of any agreement made by the
Company relating to the issuance of such securities. Neither the Company nor any
of its subsidiaries is a party or subject to, and none of the assets of the
Company or any of its subsidiaries is bound by, the provisions of any order,
writ, injunction, judgment or decree of any arbitrator, court or government
agency or instrumentality.
2.8 EMPLOYEES. Each founder of the Company and each employee of the
Company who has access to the Company's confidential or proprietary information
has executed a proprietary information agreement, in substantially the form that
will be delivered to the Investor upon request. No officer or key employee is in
violation of any prior employee contract or proprietary information or
noncompetition agreement. Each holder of Common Stock of the Company has entered
into a Restricted Stock Purchase Agreement in the form delivered to the
Investor. The Company is not a party to or bound by any currently effective
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement or other employee compensation
agreement or arrangement with any collective bargaining agent, other than the
1993 Stock Option Plan and the 1992 Stock Option Plan. No employees of the
Company are represented by any labor union or covered by any collective
bargaining agreement. There is no pending or, to the best of the Company's
knowledge, threatened labor dispute involving the Company and any group of its
employees. The Company is not aware that any officer or key employee, or that
any group of key employees, intends to terminate his, her or their employment
with the Company, nor does the Company have a present intention to terminate the
employment of any officer, key employee or group of key employees.
2.9 INTELLECTUAL PROPERTY. The Company has good title and ownership
of all patents, trademarks, service marks, trade names, copyrights, trade
secrets, licenses, information, proprietary rights and processes necessary for
its business as now conducted and as proposed to
4.
<PAGE> 9
be conducted without any conflict with or infringement of the rights of others.
There are no outstanding options, licenses, or agreements of any kind relating
to the foregoing, nor is the Company bound by or a party to any options,
licenses or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information,
proprietary rights and processes of any other person or entity. To the best
knowledge of the Company, the Company has not violated and, by conducting its
business as proposed, will not violate any of the patents, trademarks, service
marks, trade names, copyrights or trade secrets or other proprietary rights of
any other person or entity nor have any claims been asserted, threatened or
pending regarding any such alleged violation. None of the Company's employees
are obligated under any contract (including licenses, covenants or commitments
of any nature) or other agreement, or subject to any judgment, decree or order
of any court or administrative agency, that would interfere with the use of his
or her best efforts to promote the interests of the Company or that would
conflict with the Company's business as proposed to be conducted. Neither the
execution nor the delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company, nor the conduct of the
Company's business as proposed, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any contract,
covenant or instrument under which any of such employees is now obligated. The
Company does not, and does not intend to, utilize any inventions of any of its
employees (or people it currently intends to hire) made prior to their
employment by the Company. None of the Company's current employees is, by virtue
of such employee's activities in connection with the Company's business,
violating, infringing or appropriating any patents, trademarks, service marks,
trade names, copyrights, trade secrets, licenses, information, proprietary
rights or processes of any former employer of such employee. All consultants of
the Company with access to material confidential information of the Company are
parties to a written agreement pursuant to which, among other things, each such
consultant is obligated to maintain the confidentiality of confidential
information of the Company. The Company is not aware that any of its consultants
are in violation thereof, and the Company will use best efforts to prevent any
such violation.
2.10 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS. Neither the Company
nor any of its subsidiaries is in violation or default of any provision of its
Articles of Incorporation, Certificate of Incorporation, as appropriate, or
Bylaws, each as amended and in effect on and as of the Closing. To the Company's
knowledge, except as set forth in Schedule 2.10, neither the Company nor any of
its subsidiaries are in violation in any material respect of any material
statute, rule, regulation, order or restriction of any state, local or federal
government or any instrumentality or agency thereof in respect of the conduct of
its business or the ownership of its properties. Neither the Company nor any of
its subsidiaries is in material violation or default of any provision of any
instrument, mortgage, deed of trust, loan, contract, commitment, judgment,
decree, order or obligation to which it is a party or by which it or any of its
properties or assets are bound which would materially adversely affect the
condition (financial or otherwise), business, property, assets or liabilities of
the Company or any of its subsidiaries. The execution, delivery and performance
of and compliance with this Agreement, and the issuance and sale of the Shares,
will not result in any such violation, be in conflict with or constitute, with
or without the passage of time or giving of notice, a default under any such
provision, require any consent or waiver under any such provision (other than
any consents or waivers that have been obtained), or result in the creation of
any mortgage, pledge, lien,
5.
<PAGE> 10
encumbrance or charge upon any of the properties or assets of the Company or any
of its subsidiaries pursuant to any such provision.
2.11 PERMITS. The Company and each of its subsidiaries have all
franchises, permits, licenses, and any similar authority necessary for the
conduct of their respective businesses as presently being conducted, the lack of
which could materially and adversely affect the business, properties, prospects,
or financial condition of the Company and its subsidiaries, taken as a whole,
and the Company believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be conducted.
The Company is not in default in any material respect under any of such
franchises, permits, licenses, or other similar authority.
2.12 ENVIRONMENTAL AND SAFETY LAWS. To the best of the Company's
knowledge, neither the Company nor any of its subsidiaries is in violation, or
has engaged in activities that would result in a violation, of any applicable
statute, law or regulation relating to the environment or occupational health
and safety, and to the best of the Company's knowledge, no material expenditures
are or will be required in order to comply with any such existing statute, law
or regulation. There has been no complaint, notice of violation, investigation
or report received by the Company or its subsidiaries relating to any alleged
violation of any such applicable statute, law or regulation and there is no such
complaint, notice of violation, investigation or report pending or threatened.
2.13 DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement, or in any written statement, exhibit or certificate
furnished to the Investor pursuant to this Agreement or the transactions
contemplated hereby, contains any untrue statement of a material fact or, when
taken together, omits to state a material fact necessary to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading.
2.14 REGISTRATION RIGHTS. Except as provided in the Investor Rights
Agreement, the Company has not granted or agreed to grant any registration
rights, including piggyback rights, to any person or entity.
2.15 TITLE TO PROPERTY AND ASSETS. The Company and each of its
subsidiaries have good and marketable title to all of their properties and
assets free and clear of all mortgages, liens and encumbrances, except liens for
current taxes and assessments not yet due and possible minor liens and
encumbrances which do not, in any case, in the aggregate, materially detract
from the value of the property subject thereto or materially impair the
operations of the Company or any of its subsidiaries. With respect to the
property and assets they lease, the Company and each of its subsidiaries are in
compliance with such leases and hold a valid leasehold interest free of all
liens, claims or encumbrances. The Company's properties and assets are in good
condition and repair in all material respects. Neither the Company nor any of
its subsidiaries owns any real property.
2.16 FINANCIAL STATEMENTS. The Company has delivered or made
available to the Investor its audited balance sheet at January 31, 1999, and its
audited statement of operations for the fiscal period then ended (the "AUDITED
FINANCIAL STATEMENTS"), and its unaudited balance
6.
<PAGE> 11
sheet at October 31, 1999 and its unaudited statement of operations for the
fiscal period then ended (the "UNAUDITED FINANCIAL STATEMENTS," and, together
with the Audited Financial Statements, the "FINANCIAL STATEMENTS"). The
Financial Statements have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
indicated (except that the Unaudited Financial Statements do not contain
footnotes). The Financial Statements fairly and accurately present the
consolidated financial condition of the Company as of the date of the balance
sheet, and the statements of operations contained therein accurately present the
operating results of the Company during the period indicated therein. Since
October 31, 1999, there has been no (i) material adverse change in the assets,
liabilities, condition (financial or otherwise), result of operations or
business of the Company, (ii) damage, destruction or loss to any material asset
of the Company or any of its subsidiaries (whether or not covered by insurance),
(iii) sale, waiver or other disposition of any rights, debt owed to it, title or
interest in or to any asset or property of the Company or any subsidiary or any
revenues derived therefrom, other than in the ordinary course of business
consistent with past practice, (iv) approval or action to put in effect any
increase in the compensation or benefits payable to any class or group of
employees of the Company or any subsidiary or any increase in the compensation
or benefits payable or to become payable by the Company or any subsidiary to any
of its directors, officers or employees whose total compensation after such
increase would exceed $60,000, (v) adoption or amendment of any employee benefit
plan compensation commitment or any severance agreement or employment contract
to which any director, officer or employee of the Company or any subsidiary is a
party, (vi) resignation or termination, or impending resignation or termination
of employment of any director, officer or key employee of the Company, or any
subsidiary, (vii) any material change in any accounting principle or method or
election for federal income tax purposes used by the Company or any subsidiary,
or (viii) arrangement or commitment by the Company or any of its subsidiaries to
do any of the acts described in (i) through (vii) above.
2.17 OUTSTANDING INDEBTEDNESS; MATERIAL LIABILITIES. Neither the
Company nor any of its subsidiaries have any material liabilities or
obligations, absolute or contingent (individually or in the aggregate), except
(i) the liabilities and obligations set forth in the Financial Statements, (ii)
liabilities and obligations which have been incurred subsequent to October 31,
1999 in the ordinary course of business of the same character as those set forth
in the Financial Statements which are not, considered together with theretofore
existing liabilities set forth in the Financial Statements which remain
outstanding, materially in excess of like liabilities and obligations set forth
in the Financial Statements, (iii) liabilities and obligations under a lease for
its principal offices and leases for equipment, and (iv) liabilities and
obligations under sales, procurement and other contracts and arrangements
entered into in the normal course of business, which liabilities and obligations
do not exceed $100,000 in the aggregate.
2.18 AGREEMENTS; ACTION.
(a) Except for agreements explicitly contemplated hereby, by
the Investor Rights Agreement, by the Series B Voting Agreement, by the Series C
Voting Agreement and by the Series D Voting Agreement, there are no agreements,
understandings or proposed transactions between the Company and any of its
officers, directors, affiliates, or any affiliate thereof.
7.
<PAGE> 12
(b) There are no agreements, understandings, instruments,
contracts, proposed transactions, judgments, orders, writs or decrees to which
the Company or any of its subsidiaries is a party or by which it is bound that
may involve (i) obligations (contingent or otherwise) of, or payments to the
Company in excess of, $10,000, or (ii) the transfer or license of any patent,
copyright, trade secret or other proprietary right to or from the Company, or
(iii) provisions restricting or adversely affecting the development, manufacture
or distribution of the Company's products or services or (iv) indemnification by
the Company with respect to infringements of proprietary rights.
(c) Neither the Company nor any of its subsidiaries has (i)
declared or paid any dividends or authorized or made any distribution upon or
with respect to any class or series of its capital stock, (ii) incurred any
indebtedness for money borrowed or any other liabilities individually in excess
of $10,000 or, in the case of indebtedness and/or liabilities individually less
than $5,000, in excess of $25,000 in the aggregate, (iii) made any loans or
advances to any person, other than ordinary advances for travel expenses, or
(iv) sold, exchanged or otherwise disposed of any of its assets or rights, other
than the sale of its inventory in the ordinary course of business.
(d) For the purposes of subsections (b) and (c) above, all
indebtedness, liabilities, agreements, understandings, instruments, contracts
and proposed transactions involving the same person or entity (including persons
or entities the Company has reason to believe are affiliated therewith) shall be
aggregated for the purpose of meeting the individual minimum dollar amounts of
such subsections.
(e) Neither the Company nor any of its subsidiaries is a party
to or is bound by any contract, agreement or instrument, or subject to any
restriction under its Articles of Incorporation or Bylaws that adversely affects
its business as now conducted, its properties or its financial condition.
(f) The Company has not engaged in any discussion (i) with any
representative of any corporation or corporations regarding the consolidation or
merger of the Company with or into any such corporation or corporations, (ii)
with any corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or substantially
all of the assets of the Company or a transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Company is disposed of, or (iii) regarding any other form of acquisition,
liquidation, dissolution or winding up of the Company.
2.19 TAX RETURNS AND AUDITS. The Company has accurately prepared and
filed all Federal, state and municipal tax returns and tax reports required to
be filed by it, has paid all taxes (including, but not limited to, all income,
profits, franchise, sales, use, property, excise and withholding taxes),
assessments, fees and charges when and as due under such returns and has made
adequate provision for the payment of all taxes, assessments, fees and charges
shown on such returns or on assessments received by the Company. No audit,
deficiency assessment or proposed adjustment of any of the Company's tax returns
is pending, or to the best knowledge of the Company, threatened.
8.
<PAGE> 13
2.20 INSURANCE. EXHIBIT E lists the insurance policies maintained by
the Company. 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. The Company has in full
force and effect insurance policies on the lives of John T. Kernan and Carl E.
Zeiger.
2.21 SHAREHOLDER AGREEMENTS. Except as contemplated by this
Agreement, the Investor Rights Agreement, the Series B Voting Agreement, the
Series C Voting Agreement and the Series D Voting Agreement, there are no
agreements between the Company and any of the Company's shareholders, or to the
best knowledge of the Company, among any of the Company's shareholders, which in
any way affect any shareholder's ability or right freely to alienate or vote
such shares (except restrictions designed to provide compliance with securities
laws).
2.22 CERTAIN TRANSACTIONS. Neither the Company nor any of its
subsidiaries is indebted, either directly or indirectly, to any of its officers,
directors or 5% stockholders, other than current liabilities for payment of
salary for services rendered and reasonable expenses; none of such officers, or
directors or 5% stockholders, or to the knowledge of the Company, any members of
their immediate families is indebted to the Company or any of its subsidiaries
or has any direct or indirect ownership interest in any firm or corporation with
which the Company is in competition, with which the Company is affiliated or
with which the Company has a business relationship which is material to the
Company. To the best of the Company's knowledge, no officer or director or 5%
stockholder is directly or indirectly interested in any contract with the
Company or any of its subsidiaries which is material to the Company. Except as
may be disclosed in the Financial Statements, neither the Company nor any of its
subsidiaries is a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
2.23 BROKERS OR FINDERS. The Company has not utilized the services
of any person as a broker, nor agreed to incur, directly or indirectly, any
liability for, brokerage or finders' fees, agents' commissions or other similar
charges in connection with this Agreement or any of the transactions
contemplated hereby.
2.24 CORPORATE DOCUMENTS. Except for amendments necessary to satisfy
representations and warranties or conditions contained herein (the form of which
amendments has been approved by the Investor), the Articles of Incorporation and
Bylaws of the Company are in the forms attached hereto as EXHIBIT A and EXHIBIT
B. The minute books of the Company made available to the Investor contain a
complete summary of all meetings of directors and stockholders since the time of
incorporation.
2.25 OTHER. Except as disclosed in Section 2.2, there are no
outstanding rights, options, warrants, preemptive rights, rights of first
refusal or similar rights for the purchase or acquisition from Lightspan
Delaware of any securities of Lightspan Delaware, nor are there any commitments
to issue or execute any such rights, options, warrants, preemptive rights or
rights of first refusal.
9.
<PAGE> 14
2.26 QUALIFIED SMALL BUSINESS. To its knowledge, the Company
qualifies as a "Qualified Small Business" as defined in Section 1202(d) of the
Internal Revenue Code of 1986, as amended.
2.27 YEAR 2000. The Company has established a Year 2000 remediation
program pursuant to which the computer and other systems of the Company and its
subsidiaries will be Year 2000 ready.
3. REPRESENTATIONS AND WARRANTIES OF THE INVESTOR.
The Investor hereby represents and warrants that:
3.1 ACCREDITED INVESTOR. The Investor is an "accredited investor" as
such term is defined in Rule 501 under the Securities Act.
3.2 EXPERIENCE. The Investor is experienced in evaluating start-up
companies such as the Company, and has either individually or through its
current officers such knowledge and experience in financial and business matters
that Investor is capable of evaluating the merits and risks of Investor's
prospective investment in the Company, and has the ability to bear the economic
risks of the investment. It being understood that the foregoing shall have no
affect on the Investor being entitled to rely on the representations, warranties
and other agreements of the Company made herein.
3.3 INVESTMENT. The Investor is acquiring the Shares for investment
for Investor's own account (whether held directly by Investor or indirectly
through affiliates of Investor) and not with the view to, or for resale in
connection with, any distribution thereof to any third party not affiliated with
such Investor. Investor understands that the Shares have not been registered
under the Securities Act by reason of a specific exemption from the registration
provisions of the Securities Act which depends upon, among other things, the
bona fide nature of the investment intent as expressed herein. Investor further
represents that it does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participation to any
third person not affiliated with Investor with respect to any of the Shares.
Investor understands and acknowledges that the offering of the Shares pursuant
to this Agreement will not be registered under the Securities Act.
3.4 RULE 144. Investor acknowledges that the Shares must be held
until subsequently registered under the Securities Act or an exemption from such
registration is available. Investor is aware of the provisions of Rule 144
promulgated under the Securities Act which permit limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions. Investor covenants that, in the absence of an effective registration
statement covering the stock in question, Investor will sell, transfer, or
otherwise dispose of the Shares only in a manner consistent with Investor's
representations and covenants set forth in this Section 3 or as is otherwise
permitted by law. In connection therewith, Investor acknowledges that the
Company will make a notation on its stock books regarding the restrictions on
transfers set forth in this Section 3 and will transfer securities on the books
of the Company only to the extent not inconsistent therewith.
10.
<PAGE> 15
3.5 ACCESS TO DATA. Investor has received and reviewed information
about the Company and has had an opportunity to discuss the Company's business,
management and financial affairs with its management and to review the Company's
facilities. Investor understands that such discussions, as well as any written
information issued by the Company, were intended to describe the aspects of the
Company's business and prospects which the Company believes to be material, but
were not necessarily an exhaustive description.
3.6 AUTHORIZATION. This Agreement when executed and delivered by
such Investor will constitute a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject to: (i) judicial
principles respecting election of remedies or 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 incorporated herein by reference by Section 7.13
hereof.
3.7 PRINCIPAL ADDRESS. For state securities law purposes, the
principal address of the Investor is as set forth on the signature page hereto.
3.8 LEGENDS. The Investor understands that the certificates
evidencing the IPO Shares may bear the following legend:
"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
ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER OR PLEDGE IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT."
3.9 NO ASSURANCES. The Investor acknowledges and agrees that there
can be no assurance that the Company will be able to successfully complete an
IPO in the near future or at any time.
3A. PRE CLOSING COVENANTS OF COMPANY.
3A.1. REINCORPORATION. Lightspan California shall use its best
efforts to ensure that (i) prior to the Closing, its state of incorporation is
changed to Delaware by merging into its wholly-owned subsidiary, Lightspan
Delaware, and Lightspan Delaware shall survive the merger, and (ii) as of the
Closing, the Certificate of Incorporation and Bylaws of Lightspan Delaware shall
be substantially as attached hereto as EXHIBIT F and EXHIBIT G, respectively.
3A.2 POST-IPO CAPITALIZATION. Immediately prior to the Closing,
which shall take place concurrently with the closing of the IPO, the authorized
capitalization of Lightspan Delaware shall be as set forth on EXHIBIT H.
11.
<PAGE> 16
3A.3 SPONSORSHIP AGREEMENT. The Company shall use good faith efforts
to negotiate and enter into an internet sponsorship agreement containing
substantially the terms set forth on EXHIBIT I hereto (the "SPONSORSHIP
AGREEMENT").
4. CONDITIONS OF INVESTOR'S OBLIGATIONS AT CLOSING.
The obligation of the Investor to purchase Shares at the Closing is
subject to the fulfillment on or before the Closing of each of the following
conditions:
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in Section 2 shall be true on and as of the
Closing with the same effect as though such representations and warranties had
been made on and as of the date of such Closing (other than representations and
warranties that speak of a specific date or of the date of the signing of this
agreement, which only need to be correct as of such date).
4.2 PERFORMANCE. The Company shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
4.3 BLUE SKY. The Company shall have obtained all necessary permits
and qualifications, if any, or secured an exemption therefrom, required by any
state or country prior to the offer and sale of the Shares.
4.4 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing hereby, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to the Investor and its counsel.
4.5 REINCORPORATION. The Company shall have effected the
Reincorporation.
4.6 CAPITALIZATION. Lightspan Delaware shall have authorized and
reserved for issuance shares sufficient to allow issuance of the Shares as
provided herein.
4.7 FORM S-1. The United States Securities and Exchange Commission
("SEC") shall have declared the Registration Statement effective and the IPO
shall have been consummated, or shall be consummated substantially concurrent
with the Closing.
4.8 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Investor a Compliance Certificate, executed by the President of the Company,
dated the date of the Closing, to the effect that the conditions specified in
Sections 4.1, 4.2, 4.5, 4.6 and 4.7 have been satisfied.
4.9 LEGAL OPINION. The Investor shall have received from legal
counsel to the Company an opinion addressed to the Investor, dated as of the
date of the Closing, in substantially the form attached hereto as EXHIBIT J.
4.10 SPONSORSHIP AGREEMENT. The Company and the Investor shall have
entered into the Sponsorship Agreement.
12.
<PAGE> 17
4.11 CLAIMS. To the Company's knowledge, no former holders of Series
D or Series E Preferred Stock of Academic System Corporation shall have asserted
claims for consideration related to the merger between the Company and Academic
Systems Corporation in excess of the value of approximately 1.1 million shares
(valued at $5.00 per share) of the Series E Preferred Stock of the Company, or
other consideration of similar value.
5. CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING.
The obligations of the Company to the Investor under this Agreement are
subject to the fulfillment on or before the Closing of each of the following
conditions by the Investor:
5.1 REPRESENTATIONS AND WARRANTIES. Except as otherwise referenced
herein, the representations and warranties of the Investor contained in Section
3 shall be true on and as of the Closing with the same effect as though such
representations and warranties had been made on and as of the Closing (other
than representations and warranties that speak of a specific date, which only
need to be correct as of such date).
5.2 BLUE SKY. The Company shall have obtained all necessary permits
and qualifications, if any, or secured an exemption therefrom, required by any
state or country for the offer and sale of the Shares.
5.3 PROCEEDINGS AND DOCUMENTS. All corporate and other proceedings
in connection with the transactions contemplated at the Closing hereby, and all
documents and instruments incident to these transactions, shall be reasonably
satisfactory in substance to the Company and its counsel.
5.4 FORM S-1. The SEC shall have declared the Registration Statement
effective.
5.5 COMPLIANCE CERTIFICATE. The Investor shall have delivered to the
Company a Compliance Certificate, executed by the an authorized representative
of the Investor, dated the date of the Closing, to the effect that the
conditions specified in Section 2.1 has been satisfied.
6. TERMINATION.
This agreement shall immediately terminate if the conditions specified in
Sections 4.7 and 5.4 relating to the effectiveness of the Registration Statement
shall not have been satisfied on or before the date six months from the date
hereof. Upon such termination, all further obligations of the parties under this
Agreement shall terminate; provided, however, that no party shall be relieved of
any obligation or liability arising from any prior breach by such party of any
provision of this agreement.
7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of California.
13.
<PAGE> 18
7.2 SURVIVAL. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investor and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit delivered by or on
behalf of the Company pursuant hereto shall be deemed to be the representations
and warranties of the Company hereunder as of such date of such certificate or
exhibit, and as of the date of the Closing.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto;
provided, however, that the rights of Investor to purchase Shares shall not be
assignable, except to an affiliate of Investor, without the consent of the
Company.
7.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
7.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, return receipt requested, or otherwise
delivered by hand or by messenger, addressed (a) if to the Investor, at the
Investor's address set forth on the signature page hereof, or at such other
address as the Investor shall have furnished to the Company in writing, or (b)
if to the Company, at its address set forth on the first page of this Agreement
addressed to the attention of the Corporate Secretary, or at such other address
as the Company shall have furnished to the Investor. If notice is provided by
mail, notice shall be deemed to be given upon proper deposit in a mailbox.
7.6 DELAYS OR OMISSIONS. No delay or omission to exercise any right,
power or remedy accruing to any party hereto upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such 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 in writing and shall be effective only to the extent
specifically set forth in such writing or as provided in this Agreement. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
7.7 EXPENSES. The Company and the Investor shall each bear their own
expenses and legal fees incurred on their behalf with respect to this Agreement
and the transactions contemplated hereby.
14.
<PAGE> 19
7.8 FINDER'S FEE. The Company shall indemnify and hold the Investor
harmless from any liability for any commission or compensation in the nature of
a finder's fee (including the costs, expenses and legal fees of defending
against such liability) for which the Company, or any of its partners,
employees, or representatives, as the case may be, is responsible. The Investor
acknowledges that it shall be solely liable for any commission or compensation
in the nature of a finder's fee (including the costs, expenses and legal fees of
defending against such liability) for which Investor may be responsible.
7.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
7.10 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
7.11 CLOSING CONDITIONS. Each party will use its reasonable best
efforts to satisfy the applicable conditions to Closing.
7.12 MARKET STANDOFF. The Investor agrees that the Company (or a
representative of the underwriters) may, in connection with the IPO, require
that it 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 of, any shares of Common Stock or other
securities of the Company held by it, 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. The Investor further agrees to execute and deliver such other
agreements as may be reasonably requested by the Company and/or the
underwriter(s) which are consistent with the foregoing or which are necessary to
give further effect thereto. In order to enforce the foregoing covenant, the
Company may impose stop-transfer instructions with respect to the Investor's
common stock until the end of such period. Notwithstanding the above, if
permitted in writing by the underwriters, the Investor may transfer such shares
to any corporation or other entity which controls, is controlled by, or is under
common control with the Investor, all as defined in the following sentence. 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.
7.13 REGISTRATION RIGHTS. From and after the date that is one year
from the Closing, the Investor shall be entitled to all of the rights and
subject to all of the obligations set forth in Section 1 of that Investor Rights
Agreement, a copy of which is attached hereto as EXHIBIT K and Section 1 of
which is incorporated herein by reference (the "IRA") such that Investor shall
have such rights set forth in such Section 1 as if the Investor were a "Holder"
(as defined therein) thereunder and the Shares were "Registrable Securities" (as
defined therein) thereunder (including, without limitation, provisions in such
Section 1 relating to termination and transfer of such rights, Rule 144
reporting and indemnification and excepting only Section 1.15
15.
<PAGE> 20
relating to a standoff agreement, to which Investor shall not be subject but
shall be similarly bound pursuant to Section 17.12 hereof). The Investor shall
be entitled to exercise such rights on a pari passu basis with the holders of
such rights under the IRA. This Section 7.13 does not conflict with or violate
the Investor Rights Agreement.
[THIS SPACE LEFT BLANK INTENTIONALLY]
16.
<PAGE> 21
IN WITNESS WHEREOF, the parties have executed this STOCK PURCHASE
AGREEMENT as of the date first above written.
COMPANY:
THE LIGHTSPAN PARTNERSHIP, INC.
By:
-----------------------------
Title:
-----------------------------
INVESTOR:
GATEWAY COMPANIES, INC.
By:
-----------------------------
Its:
-----------------------------
Address: 4545 Towne Centre Court
San Diego, CA 92121
17.
<PAGE> 22
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
<PAGE> 23
CERTIFICATE OF AMENDMENT
OF RESTATED ARTICLES OF INCORPORATION
OF THE LIGHTSPAN PARTNERSHIP, INC.
John T. Kernan hereby certifies that:
I. He is the duly elected and acting Chief Executive Officer of the Lightspan
Partnership, Inc., a California corporation.
II. Section A. of the Article Third of the Amended and Restated Articles of
Incorporation of this corporation is amended to read as follows:
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.
III. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the board of directors.
IV. The foregoing amendment of the Amended and Restated Articles of
Incorporation has been duly approved by the required vote of shareholders
in accordance with Section 902, California Corporations Code. The total
number of outstanding shares of the corporation is 9,142,723 shares of
Common Stock, 7,467,500 shares of Series A Preferred Stock, 11,666,664
shares of Series B Preferred Stock, 3,264,285 shares of Series C Preferred
Stock, 13,129,444 shares of Series D Preferred Stock and 7,575,529 shares
of Series E Preferred Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The vote required was not
less than a majority of the outstanding shares of Common Stock and not less
than a majority of the outstanding shares of Preferred Stock considered
together for such purpose as a single class.
V. I 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 our own knowledge.
Date: October 26, 1999 /s/ JOHN T. KERNAN
--------------------------------------
John T. Kernan, Chief Executive Officer
<PAGE> 24
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 23, 1999
/s/ CARL E. ZEIGER
-----------------------------------
Carl E. Zeiger, President
and Chief Operating Officer
/s/ KATHLEEN R. MCELWEE
-----------------------------------
Kathleen R. McElwee, Vice President,
Finance, and Chief Financial Officer
<PAGE> 25
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 thirty-one million seven hundred
ninety-five thousand seventy-four (131,795,074) which is comprised of
seventy-five million (75,000,000) shares of Common Stock each with the par value
of $0.001 per share, and fifty-six million seven hundred ninety-five thousand
seventy-four (56,795,074) 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 seventeen million
(17,000,000) 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.
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(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> 28
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> 29
(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> 30
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> 31
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> 32
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> 33
(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> 34
(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> 35
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> 36
(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> 37
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> 38
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> 39
(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> 40
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.
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<PAGE> 41
EXHIBIT B
BYLAWS
<PAGE> 42
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
<PAGE> 43
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> 44
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> 45
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> 46
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> 47
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> 48
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> 49
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.
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<PAGE> 50
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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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 six (6) 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.
-18-
<PAGE> 64
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.
-19-
<PAGE> 65
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
-20-
<PAGE> 66
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.
-21-
<PAGE> 67
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.
-22-
<PAGE> 68
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) she is the duly elected,
qualified and acting Secretary of The Lightspan Partnership, Inc. (the
"Company"); (ii) the foregoing Bylaws, comprising twenty (20) 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; (v) the Board of Directors
of the Company by written consent effective September 13, 1996 approved the
amendment of Section 3.2 of such duly adopted Bylaws; (vi) the Board of
Directors of the Company, effective as of June 24, 1997, approved the further
amendment of Section 3.2 of such duly adopted Bylaws; and (vii) the Board of
Directors of the Company on October 28, 1999 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 1st day of November, 1999.
/s/ KATHLEEN R. MCELWEE
-----------------------------------
Kathleen R. McElwee, Secretary
-23-
<PAGE> 69
EXHIBIT E
SCHEDULE OF INSURANCE COVERAGE
<PAGE> 70
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 1 of 9 Binder
PROPERTY COVERAGE - INCLUDING
BOILER & MACHINERY
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999-February 1, 2000
LIMITS OF INSURANCE & PROPERTY COVERED
* Blanket Business Personal Property including Stock $5,575,000
* Blanket Business Income with Extra Expense $9,000,000
* Blanket Electronic Data Processing Equipment and Media $6,525,000
Property at Exhibition $ 60,000
Property in Transit $ 100,000
Salesperson's Samples $ 10,000
Unscheduled Locations $ 10,000
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------------- -----------
Underwriter's Signature Title Date
<PAGE> 71
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 2 of 9 Binder
PROPERTY COVERAGE - INCLUDING
BOILER & MACHINERY
DEDUCTIBLE
All Perils Except $1,000
Boiler & Machinery Business Income with Extra Expense 24 Hours
ANNUAL PREMIUM $15,000
COVERAGE EXTENSIONS AND CONDITIONS
* Per Chubb "Customarq" Form 80-02-1000
* Cancellation Notice - 60 Days (10 days for Non-Payment)
* California Cancellation/Non-Renewal Endorsement
* Agreed Amount - Business Personal Property, Electronic Data
Processing Equipment, and Business Income with Extra Expense
* Earthquake Sprinkler Leakage
* Replacement Cost Coverage
* Selling Price Valuation on Stock
* $250,000 Blanket Limit of Insurance (per Chubb Form 80-02-0006)
EXCLUSIONS
* Per Policy Form
* Earthquake
* Flood
* Date Recognition (Y2K)**
* Blanket limits per Statement of Values on file with the company.
** New exclusion applies to direct loss, but damage from ensuing perils
covered.
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------------- -----------
Underwriter's Signature Title Date
<PAGE> 72
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 3 of 9 Binder
COMMERCIAL GENERAL LIABILITY
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
10:01 am, November 1, 1999-February 1, 2000
POLICY FORM
"New" Occurrence; Defense Costs in Addition to Policy Limits
<TABLE>
<CAPTION>
LIMITS OF INSURANCE
<S> <C>
General Aggregate $2,000,000
Products -- Completed Operations Aggregate $2,000,000
Personal Injury $1,000,000
Advertising Injury $1,000,000
Each Occurrence $1,000,000
Fire Damage -- Any One Fire Included
Medical Expense -- Any One Person $ 10,000
</TABLE>
It is agreed that insurance and premium arrangements subsequently shall
conform to this binder.
[Signature Illegible] 10-29-99
- --------------------------- -------------------------- --------
Underwriter's Signature Title Date
<PAGE> 73
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 4 of 9 Binder
COMMERCIAL GENERAL LIABILITY
<TABLE>
<CAPTION>
ESTIMATED ANNUAL PREMIUM
<S> <C>
Adjustable or Audit, Based on 72,100,000 $23,091
Estimated Annual Sales + 200
-------
$23,291
</TABLE>
COVERAGE EXTENSIONS AND CONDITIONS
- Per Chubb Customary Form 80-02-0010
- Cancellation Notice -- 60 Days (10 Days for Non-Payment)
- California Cancellation/Non-Renewal Endorsement
- Cumis Counsel Endorsement
- Employee Benefit Administration Liability*
Claims Made; Retroactive Date November 1, 1997;
Limit -- $1,000,000 Each Wrongful Act
$1,000,000 Aggregate; Deductible - $1,000
- Stop Gap Liability -- West Virginia and Puerto Rico
EXCLUSIONS
- Per Policy Form
- Employment Related Practices
- Pollution (except as a result of Hostile Fire)
- Professional Liability
- Benefits Due**
- Millennium Date Change**
* This coverage is written on a Claims-Made basis. Claims under
this coverage must be submitted by the insured to the carrier
during the policy period or within 60 days after expiration
of the policy for coverage to apply. Be aware that late
reporting could result in a disclaimer of coverage letter
from the insurer. This coverage also makes available an
Extended Reporting Period which can be exercised per the
conditions of the policy.
** New -- These Y2K exclusions apply to Employee Benefit
Administration Liability only.
It is agreed that insurance contracts and premiums agreements
subsequently issued shall conform to this binder.
[Signature Illegible] 10-29-99
- --------------------------- -------------------------- --------
Underwriter's Signature Title Date
<PAGE> 74
L I G H T S P A N
- -------------------------------------------------------------------------------
Page 5 of 9 Binder
NON-OWNED AND HIRED AUTOMOBILE
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Carupus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
7323-48-63
POLICY PERIOD
12:01 am, November 1, 1999 - November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999 - February 1, 2000
LIMITS OF INSURANCE
Non-Owned and Hired Automobile Liability $1,000,000
Hired Auto Physical Damage; $500 Deductible $ 50,000
ANNUAL PREMIUM 5,789
COVERAGE EXTENSIONS AND CONDITIONS
* Per ISO Form CA 0001 (12/93)
* Cancellation Notice - 60 Days (10 Days for Non-Payment)
* California Changes - Cancellation and Non-Renewal
EXCLUSIONS
* Per Policy Form
It is agreed that Insurance contracts and premium agreements subsequently
issued shall confirm to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------- ---------------
Underwriter's Signature Title Date
<PAGE> 75
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 6 of 9 Binder
CRIME
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999-February 1, 2000
LIMITS OF INSURANCE
Blanket Employee Dishonesty $250,000
ERISA - Welfare & Pension Plan Coverage $500,000
Premises Coverage (Money and Securities - Inside) $ 10,000
Transit Coverage (Money and Securities - Outside) $ 10,000
DEDUCTIBLE 1,000 Each Claim
PREMIUM $3,404
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- ---------------------------- ------------------------------- ---------------
Underwriter's Signature Title Date
<PAGE> 76
L I G H T S P A N
- --------------------------------------------------------------------------------
PAGE 7 OF 9 Binder
CRIME
COVERAGE EXTENSIONS AND CONDITIONS
* Per Chubb Customary Form 80-02-3000
* Cancellation Notice - 60 days (10 days for Non-Payment)
* Employee Benefit Plans per Schedule on file with the company
EXCLUSIONS
* Per Policy Form
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- -------------------------------- ------------------------ ----------------
Underwriter's Signature Title Date
<PAGE> 77
LIGHTSPAN
- --------------------------------------------------------------------------------
PAGE 9 OF 9 Binder
UMBRELLA LIABILITY
EXCESS OF PRIMARY
o Commercial General Liability
o Employer's Liability
o Non-Owned & Hired Automobile Liability
o Employee Benefit Liability
ANNUAL PREMIUM $8,280
POLICY FORM
o Umbrella Form
COVERAGE EXTENSIONS AND CONDITIONS
o Per Chubb Commercial Umbrella Form 07-02-0815
o Cancellation Notice - 60 Days (10 Days for Non-Payment)
o Duties in the Event of Occurrence, Claim or Suit
o Following Form Foreign Liability
Exclusions
o Per Policy
o Care, Custody or control - Real and Personal Property
o Electronic Errors & Omissions
o Intellectual Property
o Pollution (except as a result of Hostile Fire)
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [Signature Illegible] 10-29-99
- -------------------------------- ------------------------ ----------------
Underwriter's Signature Title Date
<PAGE> 78
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 1 of 2 Binder
WORKER'S COMPENSATION AND EMPLOYERS LIABILITY
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Fremont Industrial Indemnity Company
POLICY NUMBER
TBA JY 531118-1
JY 531117-1
POLICY PERIOD
12:01 am, November 1, 1999--November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999--February 1, 2000
<TABLE>
<CAPTION>
<S> <C> <C>
COVERAGE AND LIMITS OF INSURANCE
Coverage A - Worker's Compensation - Statutory
Coverage B - Employers Liability
Bodily Injury by Accident $1,000,000 Each Accident
Bodily Injury by Disease $1,000,000 Each Employee
Bodily Injury by Disease $1,000,000 Policy Limit
</TABLE>
RATES
Per $100 Payroll; Standard Rates Filed with Each State
It is agreed that insurance contracts and premium agreements subsequently issued
shall conform to this binder.
/s/ [SIGNATURE ILLEGIBLE] Sr. Underwriter 10-29-99
- ---------------------------- ------------------------------- ---------------
Underwriter's Signature Title Date
<PAGE> 79
LIGHTSPAN
- --------------------------------------------------------------------------------
Page 2 of 2 Binder
WORKER'S COMPENSATION AND EMPLOYERS LIABILITY
ESTIMATED ANNUAL PREMIUM
Adjustable at Audit $108,118
EXPERIENCE MODIFICATIONS
California (adjustment rating to reflect
inclusion of Academic Systems) 131%
Interest 90%
COVERAGE EXTENSIONS AND CONDITIONS
- Per Policy Form WC 0000 00
- Cancellation Notice - 30 days (10 Days for Non-Payment)
- Longshore and Harbor Workers Compensation Act Coverage
- Other States Coverage
- Stop Gap Liability - All Monopolistic States except
West Virginia and Puerto Rico
- Voluntary Compensation
- Nevada coverage to be written on separate policy - JY-531117-1
EXCLUSIONS
- Per Policy Form
- Employment Related Practices
- Monopolistic States: North Dakota, Ohio, Washington, West
Virginia, Wyoming, Puerto Rico
It is agreed that insurance contracts and premium agreements subsequently
issued shall conform to this binder.
/s/ [SIGNATURE ILLEGIBLE] Sr. Underwriter 10/29/95
- ----------------------------- ----------------------- --------------------
Underwriter's Signature Title Date
<PAGE> 80
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 1 of 2 Binder
EDP ERRORS & OMISSIONS COVERAGE
NAMED INSURED
The Lightspan Partnership, Inc.
Academic Systems Corporation
ADDRESS
10140 Campus Point Drive
San Diego, CA 92121
INSURING COMPANY
Federal Insurance Company (Chubb)
POLICY NUMBER
3535-93-19
POLICY PERIOD
12:01 am, November 1, 1999-November 1, 2000
BINDER PERIOD
12:01 am, November 1, 1999-November 1, 2000
POLICY FORM
Claims Made (Defense Costs Within the Limit of Liability)
RETROACTIVE DATE
August 27, 1999
<TABLE>
<CAPTION>
LIMITS OF LIABILITY
<S> <C>
Each Claim $1,000,000
Aggregate $1,000,000
</TABLE>
It is agreed that insurance contracts and premium agreements
subsequently issued shall conform to this binder.
/s/ [Signature Illegible] 11-22-99
- --------------------------- -------------------------- --------
Underwriters' Signature Title Date
<PAGE> 81
L I G H T S P A N
- --------------------------------------------------------------------------------
Page 2 of 2 Binder
EDP ERRORS & OMISSIONS COVERAGE
<TABLE>
<CAPTION>
DEDUCTIBLE
<S> <C>
Each Claim $25,000
ESTIMATED ANNUAL PREMIUM
Adjustable at Audit, Based on $72,100,000 Annual Sales $12,979
</TABLE>
COVERAGE EXTENSIONS, CONDITIONS, AND EXCLUSIONS
- Per Policy Form
COVERAGE TERRITORY
- Worldwide
This coverage is written on a Claims-Made basis. Claims under
this coverage must be submitted by the insured to the carrier
during the policy period for coverage to apply. Be aware that
late reporting could result in a disclaimer of coverage letter
from the insurer. This coverage also makes available on Extended
Reporting Period which can be exercised per the conditions of
the policy.
It is agreed that insurance contracts and premium agreements
subsequently issued shall conform to this binder.
/s/ [Signature Illegible] 11-22-99
- --------------------------- -------------------------- --------
Underwriters' Signature Title Date
<PAGE> 82
INSURANCE BINDER 20405 FRANK CRYSTAL & CO., INC.
INSURANCE
40 BROAD STREET * NEW YORK, NY 10004
(212) 344-2444 * (800) 221-5830
TELEX: 222792 * CABLE: CRYSTINSCOS
TELECOPIER: (212) 425-7017
<TABLE>
<CAPTION>
<S> <C> <C>
California Non-Resident License Number 0198376
- ------------------------------------------------------------------------------------------------------------------------------------
Insured's The Lightspan Partnership, Inc. Date Typed 11/01/99
Mailing 10140 Campus Point Drive By: jsm/20405
Address San Diego, CA 92121-1520 A/E: JSM
insured's No.
Telephone Confirmation [X]
- ---------------------------------------------------------------------------------------
Company Underwriters at Lloyds of London Date
of c/o E Risk Services, LLC With Whom
Agency 227 Route 206
Flanders, NJ 08736
- ------------------------------------------------------------------------------------------------------------------------------------
New Order [ ] Endorsement [ ] Renewal [X] Rewrite [ ] Information Only [ ] Inception or Effective Date 11/01/99
- ---------------------------------------------------------------------------------------
Name (if different from mailing address) Expiration 11/01/00
Policy No. TBD
Company Lloyds of London
- ---------------------------------------------------------------------------------------
Location(s) (if different from mailing address) Prepaid [ ]
Installment [ ]
Premium $39,000
- ------------------------------------------------------------------------------------------------------------------------------------
Type of Coverage - Directors and Officers Liability/Employment Practices Liability
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIFICATIONS -
It is hereby understood and agreed that coverage is bound, effective November 1, 1999
to November 1, 2000, as follows:
Limit of Liability Retention Premium*
(Inclusive of Defense Costs) (Each Loss) (One Year)
$5,000,000 $5,000(EPL)/$50,000(D&O) $39,000
*Premium is not inclusive of applicable surplus lines taxes and fees.
Please see the attached Addendum.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage [ ] Loss Payee [ ] Additional Insured [ ] Other [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Enclosure [ ]
- --------------------------------------------------------------------
Remarks [ ]
- --------------------------------------------------------------------
For Frank Crystal & Co., Inc.
Refer to: Jennifer S. Moran
- --------------------------------------------------------------------
Admitted [ ] Non-Admitted [X]
- --------------------------------------------------------------------
The undersigned company agrees, for its respective interests
only and to the extent respectively indicated to effect
insurance or changes as set forth. This agreement is binding
for account of the Assured until acceptance of satisfactory
policy and/or endorsement and/or term agreed to by Frank
Crystal & Co., Inc. This Binder is issued for a period of 60
days and automatically will be extended for additional
consecutive periods of 60 days until acceptance of the
Policy, Bond, and/or Endorsement by the Assured.
- --------------------------------------------------------------------
Name of Underwriter:
(Print or Type) Michael J. Bigger
Signature Original signature is on file with Frank Crystal & Co., Inc.
- --------------------------------------------------------------------
For (Insurance Company) E Risk Services, LLC
Date Signed
- --------------------------------------------------------------------
</TABLE>
<PAGE> 83
[FRANK CRYSTAL FINANCIAL SERVICES LETTERHEAD]
ADDENDUM TO INSURANCE BINDER 20405
Coverage will be provided under the E Risk Services, LLC Business and
Management Indemnity Insurance Policy, inclusive of the following terms and
conditions:
- - Continuity Date - Employment Practices Liability Coverage: November 1, 1997
Directors & Officers and Assured Organization Coverage:
November 1, 1997
1. Breach of Contract Exclusion (Applies to D&O Coverage Only)
2. Professional Liability Exclusion (Applies to D&O Coverage Only)
3. Employment Contract Exclusion (Applies to EPL Coverage Only)
Coverage is bound subject to the Underwriter's receipt, review and acceptance
of E Risk Services, LLC. Directors' and Officers' and Company Reimbursement
Indemnity Insurance Application and E Risk Services, LLC Year 2000 Compliance
Addendum.
<PAGE> 84
INSURANCE BINDER 20406 FRANK CRYSTAL & CO., INC.
INSURANCE
40 BROAD STREET o NEW YORK, NY 10004
(212) 364-2444 o (800) 221-5830
TELEX: 222792 o CABLE: CRYSTINSCOS
TELECOPIER: (212) 425-7017
<TABLE>
<CAPTION>
<S> <C> <C>
Insured's The Lightspan Partnership, Inc. Date Typed 11/01/99
Mailing 10140 Campus Point Drive By: mb/20406
Address San Diego, CA 92121 A/E: RD
Insured's No.
Telephone Confirmation [X]
- ---------------------------------------------------------------------------------- Date
Company Executive Risk Indemnity, Inc. With Whom
of 82 Hopmeadow Street
Agency Simsbury, CT 06070
- ------------------------------------------------------------------------------------------------------------------------------------
New Order [X] Endorsement [ ] Renewal [ ] Rewrite [ ] Information Only [ ] Inception or Effective Date 11/01/99
- ---------------------------------------------------------------------------------- Expiration 11/01/00
Name (if different from mailing address) Policy No. TBD
Company Executive Risk
Prepaid [X]
- ---------------------------------------------------------------------------------- Installment [ ]
Location(s) (if different from mailing address) Premium $15,000
- ------------------------------------------------------------------------------------------------------------------------------------
Type of Coverage - Miscellaneous Professional Liability
- ------------------------------------------------------------------------------------------------------------------------------------
SPECIFICATIONS-
It is hereby understood and agreed that coverage is bound, effective November 1, 1999
to November 1, 2000, as follows:
Limit of Liability Retention Premium
(Inclusive of Defense Costs) (Each Loss) (One Year)
$1,000,000 $10,000 $15,000
Please see the attached Addendum.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgagee [ ] Loss Payee [ ] Additional Insured [ ] Other [ ]
- ------------------------------------------------------------------------------------------------------------------------------------
Enclosure [ ] The undersigned company agrees, for its respective interests only and to the extent respectively
indicated to effect insurance or changes as set forth. This agreement is binding for account of the
Assured until acceptance of satisfactory policy and/or endorsement and/or term agreed to by Frank
Crystal & Co., Inc. This Binder is issued for a period of 60 days and automatically will be extended
- ----------------------------- for additional consecutive periods of 60 days until acceptance of the Policy, Bond, and/or
Remarks [ ] Endorsement by the Assured.
- ------------------------------------------------------------------------------------------------------------------------------------
For Frank Crystal & Co., Inc. Name of Underwriter:
Refer to: Robert Duran (Print or Type) Sean P. Murray
Signature Original signature is on file with Frank Crystal & Co., Inc.
- ------------------------------------------------------------------------------------------------------------------------------------
Admitted [X] Non-Admitted [ ] For (Insurance Company) Executive Risk
Date Signed
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 85
[FRANK CRYSTAL FINANCIAL SERVICES LETTERHEAD]
ADDENDUM TO INSURANCE BINDER 20406
Coverage will be provided under the Executive Risk Indemnity, Inc. Miscellaneous
Professional Liability Policy, inclusive of the following terms and conditions:
* Retroactive Date - November 1, 1999
1. Internet/Media Coverage Endorsement
2. Computer Services Endorsement
3. Expanded Territory Endorsement
4. 90 Day Cancellation Notice Endorsement
5. 60 Day Post Policy Window to Report Claims
6. Amended Defense Expenses Endorsement
7. Anti-Trust Exclusion
8. Dishonest/Fraudulent Acts Exclusion
9. Unauthorized Access Exclusion (may be deleted upon the Underwriter's
receipt, review and acceptance of the Executive Risk Internet Security
Supplemental Application)
10. Year 2000 Exclusion
11. California State Amendatory Endorsement
Coverage is bound subject to the Underwriter's receipt, review and acceptance of
the Executive Risk Miscellaneous Professional Liability Application and
Intellectual Property Questionnaire.
<PAGE> 86
EXHIBIT F
DELAWARE CERTIFICATE OF INCORPORATION
<PAGE> 87
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> 88
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> 89
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> 90
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> 91
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 $2.00, and
shall be subject to adjustment as provided herein. The initial Conversion Price
for the Series B Preferred Stock shall be $6.00, and shall be subject to
adjustment as provided herein. The initial Conversion Price for the Series C
Preferred Stock shall be $7.52, and shall be subject to adjustment as provided
herein. The initial Conversion Price for the Series D Preferred Stock shall be
$7.52, and shall be subject to adjustment as provided herein. The initial
Conversion Price for the Series E Preferred Stock shall be $10.00, 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> 92
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> 93
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> 94
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> 95
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> 96
(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.
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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> 98
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> 99
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> 100
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> 101
(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> 102
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> 103
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> 104
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> 105
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> 106
EXHIBIT G
DELAWARE BYLAWS
<PAGE> 107
BYLAWS
OF
THE LIGHTSPAN PARTNERSHIP, INC.
(A DELAWARE CORPORATION)
<PAGE> 108
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<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> 109
TABLE OF CONTENTS
(CONTINUED)
<TABLE>
<CAPTION>
PAGE
----
<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> 110
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,
1.
<PAGE> 111
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> 132
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> 133
EXHIBIT H
POST-CLOSING CAPITALIZATION
The following table sets forth the post-closing capitalization of the Company,
assuming:
1. A $11 per share (post-split) price to the public in the IPO;
2. The conversion of all outstanding shares of preferred stock to common
stock;
3. No exercise of stock options after December 31, 1999;
4. No exercise of warrants after December 31, 1999;
5. The sale of 7,500,000 (post-split) shares in the IPO;
6. The sale of 909,091 (post-split) shares to CINAR Corporation
concurrent with the IPO;
7. The sale of 1,136,363 (post-split) shares to Cox concurrent with the
IPO; and
8. The sale of 272,727 (post-split) shares to Gateway concurrent with
the IPO.
All share numbers in the table are post-split.
<TABLE>
<S> <C>
TOTAL AUTHORIZED: 270,000,000
COMMON STOCK AUTHORIZED: 250,000,000
COMMON STOCK OUTSTANDING: 41,631,431
PREFERRED STOCK AUTHORIZED: 20,000,000
PREFERRED STOCK OUTSTANDING: 0
</TABLE>
<PAGE> 134
EXHIBIT I
TERMS OF INTERNET SPONSORSHIP AGREEMENT
<PAGE> 135
TERMS OF INTERNET SPONSORSHIP AGREEMENT
1. Term. The term of the agreement is one year beginning February 15, 2000,
with a right for Gateway to renew at the same price for a second year.
2. Cost: $500,000 net to be paid in four equal payments with the first
payment due in 30 days of this agreement with the remaining payments due
in 90 day intervals thereafter.
1.
<PAGE> 136
EXHIBIT J
FORM OF OPINION
<PAGE> 137
[COOLEY GOODWARD LLP LETTERHEAD]
January _, 2000
Gateway Companies, Inc.
4545 Towne Centre Court
San Diego, CA 92121
Ladies and Gentlemen:
We have acted as counsel for The Lightspan Partnership, Inc., a Delaware
corporation (the "COMPANY"), in connection with the issuance and sale of
__________ shares of the Company's Common Stock (the "COMMON SHARES" or
"SHARES") to Gateway Companies, Inc., a Delaware Corporation (the "INVESTOR")
pursuant to that certain Stock Purchase Agreement dated ____________, 2000 (the
"AGREEMENT"). We are rendering this opinion pursuant to Section 4.9 of the
Agreement. Except as otherwise defined herein, capitalized terms used but not
defined herein have the respective meanings given to them in the Agreement.
In connection with this opinion, we have examined and relied upon the
representations and warranties as to factual matters contained in and made
pursuant to the Agreement by the various parties and originals or copies
certified to our satisfaction, of such records, documents, certificates,
opinions, memoranda and other instruments as in our judgment are necessary or
appropriate to enable us to render the opinion expressed below. Where we render
an opinion "to the best of our knowledge" or concerning an item "known to us" or
our opinion otherwise refers to our knowledge, it is based solely upon (i) an
inquiry of attorneys within this firm who perform legal services for the
Company, (ii) receipt of a certificate executed by an officer of the Company
covering such matters, and (iii) such other investigation, if any, that we
specifically set forth herein.
In rendering this opinion, we have assumed: the genuineness and authenticity of
all signatures on original documents; the authenticity of all documents
submitted to us as originals; the conformity to originals of all documents
submitted to us as copies; the accuracy, completeness and authenticity of
certificates of public officials; and the due authorization, execution and
delivery of all documents (except the due authorization, execution and delivery
by the Company of the Agreement), where authorization, execution and delivery
are prerequisites to the effectiveness of such documents. We have also assumed:
that all individuals executing and delivering documents had the legal capacity
to so execute and deliver; that you have received all documents you were to
receive under the Agreement; that the Agreement is an obligation binding upon
you; that you have filed any required California franchise or income tax returns
and have paid any required California franchise or income taxes; and that there
are no extrinsic agreements or understandings among the parties to the Agreement
that would modify or interpret the terms thereof or the respective rights or
obligations of the parties thereunder. We have also assumed that the sale and
issuance of the Shares will not be integrated with the Company's previous sales
and issuances of its Series E Preferred Stock.
<PAGE> 138
Gateway Companies, Inc.
January _, 2000
Page Two
Our opinion in paragraph 4 is subject to (a) the due reservation for issuance of
the Common Shares by the board of directors of the Company, (b) the
establishment of the price per share by the pricing committee of the board of
directors of the Company at a price per share greater than the par value of the
Company's Common Stock and (c) payment of the purchase price so established.
The Company's Amended and Restated Articles of Incorporation filed July 1, 1999
together with the Certificate of Amendment of the Articles of Incorporation
filed on October 29, 1999 are collectively referred to hereinafter as the
"AMENDED ARTICLES."
Our opinion is expressed only with respect to the federal laws of the United
States of America and the laws of the state of California and the corporate laws
of the state of Delaware. We express no opinion as to whether the laws of any
particular jurisdiction apply, and no opinion to the extent that the laws of any
jurisdiction other than those identified above are applicable to the subject
matter hereof. We are not rendering any opinion as to compliance with any
antifraud law, rule or regulation relating to securities, or, except as
expressly provided herein, to the sale or issuance thereof or any antitrust
laws, rule or regulation.
On the basis of the foregoing, in reliance thereon and with the foregoing
qualifications, we are of the opinion that:
1. The Company has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Delaware.
2. The Company has the requisite corporate power to own or lease its
property and assets and to conduct its business as it is currently being
conducted.
3. The Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement
of the Company enforceable against the Company in accordance with its
terms, except as rights to indemnity under section 7.13 of the Agreement
may be limited by applicable laws and except as enforcement may be
limited by applicable bankruptcy, insolvency, reorganization,
arrangement, moratorium or other similar laws affecting creditors'
rights, and subject to general equity principles and to limitations on
availability of equitable relief, including specific performance.
4. The Common Shares have been duly authorized, and, upon issuance and
delivery against payment therefor in accordance with the terms of the
Agreement, will be validly issued, outstanding, fully paid and
nonassessable.
5. The execution and delivery and performance of the Agreement by the
Company and the issuance of the Shares pursuant thereto do not violate
any provision of the Amended
<PAGE> 139
Gateway Companies, Inc.
January _, 2000
Page Three
Articles or the Company's Bylaws and do not constitute a material
default under provisions of, and do not violate or contravene (a) any
governmental statute, rule or regulation applicable to the Company or
(b) any order, writ, judgment, injunction, decree, determination or
award which has been entered against the Company and of which we are
aware, the violation or contravention of which would materially and
adversely affect the Company, its assets, financial condition or
operations.
6. To the best of our knowledge, there is no action, proceeding or
investigation pending or overtly threatened against the Company before
any court or administrative agency that questions the validity of the
Agreement or that might result, either individually or in the aggregate,
in any material adverse change in the assets, financial condition, or
operations of the Company.
7. All consents, approvals, authorizations or orders of, and filings,
registrations and qualifications with, any regulatory authority or
governmental body in the United States required for the consummation at
the Closing by the Company of the transactions contemplated by the
Agreement, have been made or obtained, except (a) for the filing of a
Notice of Transaction Pursuant To Section 25102(f) of the California
Corporate Securities Law of 1968 and (b) for the filing of a Form D
pursuant to Securities and Exchange Commission Regulation D.
8. The offer and sale of the Shares is exempt from the registration
requirements of the Securities Act of 1933, as amended, subject to the
timely filing of a Form D pursuant to Securities and Exchange Commission
Regulation D.
This opinion is intended solely for your benefit and is not to be relied upon by
any other person, firm, or entity without our prior written consent.
Very truly yours,
COOLEY GODWARD LLP
M. Wainwright Fishburn, Jr.
<PAGE> 140
SCHEDULE OF EXCEPTIONS
This disclosure of exceptions is made and given pursuant to Section 2 of
the Stock Purchase Agreement dated as of January 11, 2000 (the "AGREEMENT"), by
and between The Lightspan Partnership, Inc. (the "COMPANY") and the Investor
named therein. Unless the context otherwise requires, all capitalized terms are
used herein as defined in the Agreement. The numbers below correspond to the
section numbers of representations and warranties in the Agreement most directly
modified by the exceptions, but such exceptions are intended to modify all of
the Company's representations and warranties.
2.2 CAPITALIZATION. The Company has granted Comdisco Venture Leasing a
warrant to purchase 150,000 shares of Series A Preferred Stock at an exercise
price of $1.00 per share, warrants to purchase an aggregate of 150,000 shares of
Series B Preferred Stock at $3.00 per share and a warrant to purchase 26,625
shares of Series C Preferred Stock at $6.00 per share. The Company has also
granted Silicon Valley Bank a warrant to purchase 70,000 shares of Series C
Preferred Stock at $6.00 per share. In connection with that certain Loan
Agreement and related agreements dated March 26, 1997 (the "March Bridge Loan"),
May 9, 1997 (the "May Bridge Loan"), and June 6, 1997 (the "June Bridge Loan"),
the Company granted warrants to purchase Series D Preferred Stock, to each of
Accel IV L.P., Accel Investors '93 L.P., Ellmore C. Patterson Partners, Accel
Keiretsu L.P., Prosper Partners, Kleiner Perkins Caulfield & Byers VI, KPCB VI
Founders Fund, Institutional Venture Partners V, Institutional Venture
Management V, Microsoft Corporation, Tribune Company, TCI Lightspan Holdings,
and SZ Investments, LLC. These warrants grant the recipients rights to purchase
an aggregate of 183,105 shares of Series D Preferred Stock at an exercise price
of $3.76. The Company has granted Montgomery Securities a warrant to purchase
127,659 shares of Series D Preferred Stock at an exercise price of $4.70 per
share. The Company has granted warrants to purchase an aggregate of 42,216
shares of Series E Preferred Stock in connection with its merger with Academic
Systems Corporation. The pre-closing fully-diluted capitalization of the Company
is as set forth on EXHIBIT C attached to the Agreement.
Not included in the fully-diluted capitalization of the Company as set
forth on EXHIBIT C are the springing warrants issued as part of the Series D
Preferred Stock financing. Warrants to purchase up to 3,326,112 shares of the
Company's Common Stock (a maximum of approximately 1,131,012 shares of Common
Stock at an IPO price of $11 per share) at $0.01 per share could be issued upon
the earliest to occur of the following events: (i) a change of control of the
Company, (ii) the sale of the Company's Common Stock in an initial firm
commitment underwritten public offering, provided that the public offering price
per share is not less than $10.00 (subject to 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 on either (x) the closing
date of the offering or (y) the six month anniversary of the closing date of the
offering, or (iii) September 10, 2000.
The Company has committed to sell shares of its common stock to Cox
Communications Holdings, Inc. ($12.5 million at the IPO price), CINAR
Corporation ($10 million at the IPO price) and Gateway Companies, Inc. ($3
million at the IPO price) concurrent with the closing of
1.
<PAGE> 141
the IPO. The Company has also issued a warrant to CINAR Corporation to purchase
500,000 shares of the Company's Series E Preferred Stock that will vest upon the
achievement of various agreed-to strategic goals. The Company has committed to
issue a warrant to Cox Communications Holdings, Inc. to purchase 750,000 shares
(post-split) of the Company's Common Stock that will vest upon the achievement
of various agreed-to strategic goals.
The Company believes that a small number of former Academic Systems
Corporation shareholders may have rights to additional shares of its stock, or
other compensation in lieu of such shares. As a result, the Company intends to
issue 1,068,015 shares of its Series E Preferred Stock (which would covert into
534,008 shares of common stock upon the close of the IPO), subject to regulatory
approval, to these shareholders. Alternatively, the Company may pay them cash or
some other form of consideration.
2.3 SUBSIDIARIES
The Company has three wholly owned subsidiaries, each of which is a
California corporation: CTV Networks, Lightspan Entertainment, Inc. and Academic
Systems Corporation.
2.5 VALID ISSUANCE OF COMMON STOCK
The Company's 2000 Equity Incentive Plan (the "2000 PLAN"), and the form
of Stock Option Agreement approved for use with the 2000 Plan, provide for
acceleration of vesting in certain circumstances as set forth in Section 11 of
the 2000 Plan and Section 13 of the form of Stock Option Agreement. None of the
Company's outstanding options are currently subject to the terms of the 2000
Plan or related Stock Option Agreement.
2.7 LITIGATION
No exception.
2.8 EMPLOYEES
Incentive compensation plans for sales people include commissions,
quarterly performance bonuses, annual bonuses, and Millennium stay bonuses for a
subset of the sales organization. Selected management personnel have bonus plans
which are based on the Company's and individual performance.
2.9 INTELLECTUAL PROPERTY
Certain entities have opposed registration applications of the Company.
They are as follows:
1. Time Warner opposed "Chaos in KazMania" and "KazMania." The
Company abandoned its application for these marks.
2. UC Regents opposed "Trail of Gems." The Company abandoned its
application for this mark.
2.
<PAGE> 142
2.10 COMPLIANCE WITH LAW AND OTHER INSTRUMENTS.
No Exception.
2.14 REGISTRATION RIGHTS
The Company has granted registration rights to Cox Communications
Holdings, Inc. and to Gateway Companies, Inc. as set forth in their respective
Stock Purchase Agreements.
2.15 TITLE TO PROPERTY AND ASSETS
Title to certain assets of the Company is held by Comdisco, TransAmerica
and Technology Credit Corporation and Pentech Financial Services under various
equipment leasing agreements. The Company has entered into a revolving credit
facility with Silicon Valley Bank ("SVB"). The Company's indebtedness to SVB is
secured by a security interest in substantially all of the Company's assets.
Copies of the agreements relating to these transactions have been provided to
the Investor.
Certain of Academic's equipment is subject to a security interest upon
default pursuant to the terms and conditions of Loan and Security Agreement at
Silicon Valley bank dated as of November 11, 1996.
Academic has entered into a Master Equipment Lease #9968 with Phoenix
Leasing dated as of April 10, 1995.
2.16 FINANCIAL STATEMENTS
The Company has delivered or made available to the Investor its audited
financial statements as of and for the fiscal year ended January 31, 1999 and as
of and for the nine-month period ended October 31, 1999. Since October 31, 1999,
the following employees received raises: Victoria Bers, Jennifer Broadhead,
Becky Bordelon, Dwight Lada, Dennis Murphy, Muriel Ollivierre, Mark Seaman,
Sylvia Tamashiro and Lauren Wood. Following such raises, each such employee
earns more than $60,000 per year.
2.17 OUTSTANDING INDEBTEDNESS; MATERIAL LIABILITIES
The Company has liabilities and obligations under procurement contracts
entered into in the normal course of business which exceed $100,000 in the
aggregate as follows: (i) Commitments to Sony for approximately $350,000 for
PlayStations(R) and (ii) $1,000,000 for CD's over the next nine months.
2.18 AGREEMENTS; ACTION
(b)(i) CONTRACTS
Line of credit with Silicon Valley Bank extension dated
March 26, 1999.
Comdisco Agreements:
3.
<PAGE> 143
Master lease dated February 1, 1994
Lease 18SL32154-00 dated July 1, 1996
(new term 7/1/99)
Lease 18SL32154-01 dated October 1, 1996
(new term 7/1/99)
Lease 18SL32154-02 dated January 1, 1996
(new term 7/1/99)
Lease 18SL32154-03 dated April 1, 1997
(new term 7/1/99)
Technology Credit Corporation:
Master Lease Agreement 3585 dated 2/23/94
Schedule #10 dated 11/8/96
Schedule #11 dated 11/4/96
Transamerica
Master Lease Agreement dated August 14, 1997
Schedule #1 dated November 1, 1997
Schedule #2 dated April 1, 1998
Schedule #3 dated April 1, 1998
Schedule #4 dated November 1, 1998
Schedule #5 dated April 1, 1999
Pentech Financial Services:
Master lease dated April 19, 1999
Schedule #300261 dated 4/19/99
Schedule #300261 Supplement 1 dated 6/25/99
Schedule #300261 Supplement 2 dated 9/1/99
Schedule #300261 Supplement 3 dated 7/1/99
Schedule #300261 Supplement 4 dated 12/1/99
Facilities Leases:
5245/5635 Avenida Encinitas, Carlsbad, CA
10140 Campus Point Drive, San Diego, CA
10140 Campus Point Drive, San Diego, CA
(Qualcomm sub-lease)
2001 Wilshire Blvd., Santa Monica, CA
444 Castro Street. Suite 1120, Mountain View, CA
Operating Leases:
Tokai Financial Services - Mailing Equipment
IOS - Canon NP6060 Copier
IOS - Canon NP6060 Copier
IOS - Canon 7500 Fax Machine
IOS - OCE 2475 Copier
NMAC - Forklift
Pitney Bowes - Mailing Equipment
Santa Monica operating leases for furniture and
office equipment
Manufacturing or Joint Development Agreements:
Sony Developer Agreement dated January 26, 1996
Sony PlayStation Development Tools letter
dated 6/12/97
4.
<PAGE> 144
Digex Server Contract dated June 30, 1997
Fulfillment Agreement between Academic and FGI
Management dated as of June 12, 1998, and
purchase order dated May 5, 1999.
License Agreements or Royalty Agreements
Sony Sale and License Agreement dated
January 26, 1996
Highlights for Children Agreement dated July 1997
Lycos Electronic Mail and Web Director Services
Agreement
The Learning Company Distribution Agreement dated
April 1997
Agency for Institutional Technology Agreement dated
October 21, 1994
Multi-Active Education, Inc. (Brainium) License
Agreement dated September 28, 1999
Education World, Inc. Term Sheet dated
July 13, 1999
Reseller Agreement between Academic and Oracle
Corporation dated as of October 8, 1998.
Other:
Blackboard / Academic Systems Corporation OEM
Agreement dates as of 17 December, 1999
Yahoo! co-branded distribution agreement dated
January 13, 1999
SmarterKids.com Co-branded Development Agreement
dated July 12, 1999
Consulting Agreements (amounts accrued between February 1,
1999 and December 31, 1999):
Sales Consultants:
Robert Galloway ($17,851)
Hap's Training and Consulting ($10,765)
Max Messer ($35,032)
Raymond Fontenot ($20,156)
Carol Staats ($10,084)
Mo Sanders ($25,809)
Michael Byer ($40,277)
Sales Training:
Marc Daniels ($47,500
Professional Development Management:
Quality Leadership Resources ($260,000)
Marketing:
DNA Studio ($36,000)
Flying Dutchgirl Communications ($24,020)
Launch Pad ($40,711)
MS&L ($10,429)
5.
<PAGE> 145
Wambach & Company ($28,738)
Interactive, Inc. ($16,000)
Miriam Alexander ($12,000)
New Image Media ($36,725)
Sally McLaughlin ($27,218)
Grants & Funding:
CRF and Associates ($23,177)
Program Evaluation:
Jay Blanchard ($20,634)
Christian Cherau ($55,463)
Marcie Cherau ($49,627)
Larry Gwaltney ($77,550)
William Stock ($30,990)
Product Development:
Commuwerks, Inc ($12,250)
Paul Dipasquale ($11,445)
Pacific Fusion Technology ($96,146)
Laures Bouras ($20,800)
Jim Flood ($10,300)
Margy Hillman ($45,821)
Diane Lapp ($10,825)
Joanne Odenthal ($197,050)
Artisan Creative ($28,785)
Linda Bussell ($10,612)
David Callaway ($11,400)
Nat Fast ($13,550)
Mutation Labs ($12,500)
Jodi Willnow ($45,793)
Ray Ferro ($11,135)
Data Processing:
FMT ($10,412)
Al Lowenheim ($19,300)
Tax Preparation:
Gatto & Pope ($28,000)
Auditors:
Ernst & Young ($361,248)
(c)(ii)The Company has entered into a Loan and Security Agreement
with Silicon Valley Bank and is not currently borrowing against it.
6.
<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 December 14, 1999, except for the last paragraph of
Note 5, as to which the date is _________ and Note 11, as to which the date is
January 12, 2000. 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 Amendment No. 2 to the
Registration Statement (Form S-1 No. 333-90103) and the related prospectus of
The Lightspan Partnership, Inc. for the registration of shares of its common
stock.
ERNST & YOUNG LLP
San Diego, California
The foregoing consent is in the form that will be signed upon the completion of
the stock split described in Note 5 to the financial statements.
/S/ ERNST & YOUNG LLP
San Diego, California
January 12, 2000
<PAGE> 1
EXHIBIT 24.2
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/S/ RONALD A. WEINBERG Director December , 1999
- ---------------------------------------------------
Ronald A. Weinberg
</TABLE>
