<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 7, 2000
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ISKY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 7389 52-1347069
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
------------------------------
6740 ALEXANDER BELL DRIVE, SUITE 300
COLUMBIA, MARYLAND 21046
410-312-1515
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
RICHARD T. HEBERT
CHIEF EXECUTIVE OFFICER
ISKY, INC.
6740 ALEXANDER BELL DRIVE, SUITE 300
COLUMBIA, MARYLAND 21046
410-312-1515
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
ANTHONY H. RICKERT, ESQUIRE STEPHEN A. RIDDICK, ESQUIRE
Piper Marbury Rudnick & Wolfe LLP Brobeck, Phleger & Harrison LLP
1200 Nineteenth Street, NW 701 Pennsylvania Avenue, N.W., Suite 220
Washington, D.C. 20036-2412 Washington, D.C. 20004
(202) 861-3900 (202) 220-6000
Fax: (202) 223-2085 Fax: (202) 220-5200
</TABLE>
------------------------------
Approximate date of commencement of proposed sale to the public: as soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 shares $ $69,000,000 $18,216
</TABLE>
(1) Includes shares which the Underwriters have the option to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of determining the registration fee
pursuant to Rule 457(c) under the Securities Act.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
<PAGE>
PROSPECTUS
SUBJECT TO COMPLETION DATED FEBRUARY 7, 2000 SHARES
[LOGO]
COMMON STOCK
This is the initial public offering of common stock by iSKY, Inc. We are
selling shares of common stock.
------------------------
There is currently no public market for the common stock. We have applied to
have our common stock designated for trading on the Nasdaq National Market under
the symbol "ISKY."
------------------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before offering expenses, to iSKY................. $ $
</TABLE>
The underwriters may also purchase up to additional shares of common
stock from us at the public offering price, less the underwriting discount,
within 30 days from the date of this prospectus to cover over-allotments.
Delivery of the shares of common stock will be made on or about
, 2000.
------------------------
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 4.
---------------------
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.
CHASE H&Q DEUTSCHE BANC ALEX. BROWN
WILLIAM BLAIR & COMPANY
, 2000
<PAGE>
[Inside Front Cover]
[A picture showing a customer relationship associate linked by arrows to a
picture of a customer through icons depicting our multi-channel communications
tools including: text chat, e-mail, frequently asked questions, web screen
synchronization, telephone and facsimile. The customer relationship associate is
also connected by arrows to an icon representing the iSKY database and customer
relationship tools]
[A picture showing the iSKY Bell with the logos of the following companies on
the picture of the iSKY Bell: OneSoft, OrderTrust, Peppers & Rogers,
MarketSwitch.]
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 1
Risk Factors................................................ 4
Use of Proceeds............................................. 13
Dividend Policy............................................. 13
Capitalization.............................................. 14
Dilution.................................................... 15
Selected Historical Financial Data.......................... 16
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 17
Business.................................................... 22
Management.................................................. 36
Certain Transactions........................................ 45
Principal Stockholders...................................... 46
Description of Capital Stock................................ 48
Shares Eligible for Future Sale............................. 50
Underwriting................................................ 52
Legal Matters............................................... 55
Experts..................................................... 55
Where You Can Find More Information......................... 55
Index to Financial Statements............................... F-1
</TABLE>
- ------------------------
Unless otherwise indicated, all references to "iSKY," "we," "us" and "our"
refer to iSky, Inc., a Maryland corporation.
ii
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU SHOULD
CONSIDER BEFORE INVESTING IN OUR COMMON STOCK. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY, INCLUDING THE INFORMATION UNDER "RISK FACTORS" BEGINNING
ON PAGE 4 AND THE FINANCIAL STATEMENTS BEGINNING ON PAGE F-1, BEFORE MAKING AN
INVESTMENT DECISION.
OUR BUSINESS
iSKY provides a complete outsourced customer loyalty management solution to
both electronic businesses and traditional companies seeking to enhance their
customers' on-line and off-line experience before, during and after a purchase.
Our customer loyalty management services use interactive one-to-one
communications, enhanced by real-time, personalized data collection and
management, to find, win, keep and enhance profitable customer relationships. We
offer our clients a customized, fully integrated, Web-enabled solution for
interacting with their customers through a variety of media including real-time
text chat, e-mail, voice over Internet protocol, telephone and facsimile.
OUR MARKET OPPORTUNITY
Providing high quality customer care and establishing long-term
relationships with customers is critical to the ability of on-line and off-line
businesses to maintain their competitive positions. With the emergence of
electronic commerce and communication over the Internet, managing customer
relationships has become more complex. Customers around the world expect to be
able to access information and communicate with a company about its products or
services at any time of day through a variety of communications tools such as
telephone, e-mail and the Internet. However, many companies are not able to
provide this range of options to their customers. Both off-line and on-line
businesses often lack the expertise, resources and infrastructure necessary to
appropriately and efficiently provide top quality customer support, and as a
result may look for an outsourced solution to fulfill this need.
OUR SOLUTION
We believe that we offer the only integrated "Customer Loyalty Management"
solution which allows us to capitalize on the opportunities arising from current
electronic commerce and outsourcing trends. Our multi-channel solution supports
communication via text chat, e-mail, voice over Internet protocol, telephone and
facsimile through a single representative at a single workstation. We also have
the capability, through Web screen synchronization, to see the same Web page a
customer is viewing and more effectively assist the customer in real time. This
multi-channel capability, combined with our proprietary data mining, research
and analysis tools uniquely positions iSKY to create effective customer loyalty
management solutions. The data mining capabilities enable us to collect valuable
customer data which provides insights into buying behavior, responses to
different sales channels, the effectiveness of promotions and trends in customer
service issues.
OUR COMPETITIVE ADVANTAGES
We believe our competitive advantages will enable us to achieve our goal of
becoming the leading provider of real-time customer care services. These
competitive advantages include:
- THE INTEGRATED REAL-TIME CUSTOMER LOYALTY MANAGEMENT SOLUTION. We believe
we are the only company offering an integrated solution including
multi-channel communication capabilities linked with our data management
tools and expertise.
- UNIQUE DATA MANAGEMENT AND WEB-BASED REPORTING CAPABILITIES. Web-based
reporting, database query, and analytic tools enable our clients to have
virtually instant access to customer information collected from the
ongoing interactions between their customers and iSKY customer
relationship associates.
1
<PAGE>
- FLEXIBLE AND SCALABLE INFRASTRUCTURE. Our customer loyalty management
solutions are designed for flexibility, and can easily and
cost-effectively be adapted for both small and large companies. In
addition, we have designed our systems and infrastructure to be able to
scale quickly and effectively to handle additional demand.
- DIVERSE AND LONG-TERM CLIENT RELATIONSHIPS. We have over 40 clients
ranging from electronic commerce start-up companies to Fortune 50
companies across numerous vertical markets. From 1995 to 1999, we have
retained 92% of the clients who have engaged us, providing a recurring
revenue stream and a receptive, existing client base to which we sell our
multi-channel communications capabilities.
- EXPERIENCED MANAGEMENT TEAM. Our senior management team has an average of
14 years of experience, including our chief executive officer who has
10 years of experience solely focused on customer loyalty management.
OUR GROWTH STRATEGY
The key elements of our growth strategy include the following:
- Rapidly expand and enhance existing client relationships.
- Expand client base in key vertical markets.
- Promote the iSKY brand.
- Pursue acquisitions and strategic partnerships.
- Expand our presence abroad.
OUR SALES AND DISTRIBUTION
We sell through direct sales and strategic distribution partners. We
currently have 20 direct sales people in 9 locations. In addition, we have
numerous strategic distribution partners including Cirqit, OneSoft, OrderTrust
and Peppers & Rogers.
OUR HISTORY
iSKY was incorporated in Maryland as Original Research Corporation on
May 8, 1984, changed its name to Sky Alland Research, Inc. on May 5, 1989, and
changed its name to iSKY on February 4, 2000. Our principal executive offices
are located at 6740 Alexander Bell Drive, Suite 300, Columbia, Maryland 21046.
Our telephone number is (410) 312-1515. Our website is located at www.isky.com.
Information contained in this website does not constitute part of this
prospectus and is not incorporated into this prospectus by reference.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by us.................................. shares
Common stock to be outstanding after the offering........... shares
Use of proceeds............................................. General corporate purposes, working
capital needs and payment of debt
and accrued preferred stock
dividends.
Proposed Nasdaq National Market Symbol...................... "ISKY"
</TABLE>
UNLESS OTHERWISE NOTED, THE INFORMATION IN THIS PROSPECTUS ASSUMES THE
UNDERWRITERS DO NOT EXERCISE THEIR OPTION TO PURCHASE AN ADDITIONAL
SHARES OF COMMON STOCK FROM US TO COVER OVER-ALLOTMENTS. THE NUMBER
OF OUTSTANDING SHARES USED IN THIS PROSPECTUS IS AND EXCLUDES
SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE OF OUTSTANDING OPTIONS
AND SHARES OF COMMON STOCK AVAILABLE FOR THE FUTURE GRANT OF STOCK
OPTIONS UNDER OUR STOCK OPTION PLANS.
2
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table presents summary financial data for iSKY. This data
should be read in conjunction with the financial statements and related notes
included elsewhere in this prospectus and with "Management's Discussion and
Analysis of Financial Condition and Results of Operations." The pro forma
balance sheet data reflects the net proceeds from the sale of 1,260,775 shares
of convertible preferred stock in a private offering after deducting offering
expenses. The pro forma as adjusted column reflects the net proceeds from the
sale of shares of common stock offered by us after deducting the estimated
underwriting discounts and offering expenses and the automatic conversion of all
outstanding shares of preferred stock into common stock upon the closing of this
offering. Our historical financial information may not necessarily reflect our
results of operations or financial position in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1997 1998 1999
--------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................................... $18,912 $19,652 $24,011
Income (loss) from operations............................... 545 (1,163) (1,407)
Net income (loss)........................................... 255 (1,593) (1,564)
Preferred stock dividend requirements....................... (986) (681) (1,349)
Net income (loss) applicable to common stockholders......... (731) (2,274) (2,913)
======= ======= =======
Basic and diluted net income (loss) per share applicable to
common stockholders....................................... $ (1.02) $ (3.10) $ (3.81)
======= ======= =======
Shares used to compute basic and diluted net income (loss)
per share applicable to common stockholders............... 718 733 765
======= ======= =======
OTHER DATA:
Number of interactions.................................... 7,213 9,016 11,270
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................... $ 1,612 $29,912 $
Working capital............................................. 2,010 30,310
Total assets................................................ 14,482 42,782
Long-term obligations, net of current portion............... 586 586
Convertible redeemable preferred stock...................... 1,421 1,421
Stockholders' equity........................................ 7,044 35,344
</TABLE>
3
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
BEFORE MAKING AN INVESTMENT DECISION. OUR BUSINESS, FINANCIAL CONDITION AND
OPERATING RESULTS COULD BE ADVERSELY AFFECTED BY ANY OF THE FOLLOWING FACTORS,
IN WHICH EVENT THE TRADING PRICE OF OUR COMMON STOCK COULD DECLINE AND YOU COULD
LOSE PART OR ALL OF YOUR INVESTMENT. THE RISKS AND UNCERTAINTIES DESCRIBED BELOW
ARE NOT THE ONLY ONES THAT WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT
PRESENTLY KNOWN TO US, OR THAT WE CURRENTLY THINK ARE IMMATERIAL, MAY ALSO
IMPAIR OUR BUSINESS OPERATIONS.
RISKS RELATED TO OUR BUSINESS
OUR HISTORICAL FINANCIAL INFORMATION MAY NOT BE REPRESENTATIVE OF OUR FUTURE
RESULTS.
Although we were formed in 1984, we introduced our integrated on-line
programs in September 1999 and recorded our first revenue from these services in
November 1999. To date, we have generated only limited amounts of revenue from
the sale of these services. Accordingly, you have limited information about our
company with which to evaluate our business and prospects. Before buying our
common stock, you should consider the risks and difficulties frequently
encountered by companies in new and rapidly evolving markets, particularly those
companies whose business depends on the Internet.
WE ANTICIPATE INCURRING SIGNIFICANT EXPENSES IN THE FORESEEABLE FUTURE WHICH MAY
INCREASE OUR LOSSES.
In order to reach our business growth objectives, we expect to incur
significant operating and marketing expenses, as well as capital expenditures,
during the next several years. In order to offset these expenses, we will need
to generate significant additional revenue. If our revenue grows more slowly
than we anticipate or if our operating and marketing expenses exceed our
expectations, we may not generate sufficient revenue to be profitable or be able
to sustain or increase profitability on a quarterly or an annual basis in the
future.
OUR CLIENTS ARE CONCENTRATED IN A FEW INDUSTRIES; IF THESE INDUSTRIES EXPERIENCE
DOWNTURNS, WE MAY LOSE SIGNIFICANT REVENUE.
Many of our clients are in the automotive, health care and financial
services industries. In 1999, clients in the automotive industry represented
more than 50% of our revenue. A significant downturn in any of these industries
or a trend in any of these industries not to use or to reduce their use of
outsourced customer care services could result in lower revenue. In the future
we expect many of our clients will be technology and electronic commerce
companies and the failure of these markets to grow will reduce our revenues.
IF WE LOSE OR FAIL TO CONTINUE TO GENERATE REVENUE FROM OUR EXISTING CLIENTS,
OUR BUSINESS WILL BE SERIOUSLY HARMED.
Our failure to continue to sell services to our existing clients could
seriously harm our business. In 1999, we derived approximately 91% of our total
revenue from sales of services to clients that had made purchases from us before
1999. In 1999, our two largest clients accounted for 36% of revenues, our five
largest clients accounted for 56% of our revenue and our 10 largest clients
accounted for 78% of our revenue. The loss of one or more of these clients could
significantly decrease our revenue. We expect to continue to derive a
significant portion of our revenue from our existing clients. Our ability to
retain our clients will depend on a variety of factors, including the analytic
capabilities, scalability, openness, reliability and cost-effectiveness of our
services as well as our ability to effectively market our products and services.
4
<PAGE>
IF WE DO NOT SUCCESSFULLY COMPETE IN OUR INDUSTRY, WE MAY NOT BECOME PROFITABLE.
Competition in the customer service and marketing services industry is
intense. We expect competition to persist and intensify in the future. We
compete against firms that provide outsourced teleservices and direct marketing
services including marketing research firms and database marketing companies. We
also compete against companies selling Internet and electronic commerce software
and services. In addition, we compete against the in-house customer service
initiatives that some companies are establishing on their own. New on-line
interaction and electronic customer service solutions providers include Brigade
Solutions, LivePerson, Computer Science Corporation and PeopleSupport.
Established large call center outsourcers that have announced on-line
capabilities include APAC, ICT Group, Precision Response Corp. and TeleSpectrum.
We expect that more call center outsourcers will develop and announce
interactive capabilities in the next year. In addition, current and potential
competitors have established, or may establish, cooperative relationships among
themselves or with vendors. Accordingly, new competitors or alliances among
competitors may emerge and rapidly acquire significant market share. We cannot
assure you that we will be able to compete successfully against current or
future competitors.
Some of our current competitors have longer operating histories than we.
Some of our competitors have larger client bases, larger professional staffs,
greater brand recognition and greater financial, technical, marketing and other
resources than us. Many of our competitors also have well-established
relationships with our current and potential clients and vendors and may be able
to respond more quickly to changes in customer requirements. Each of these
factors may place us at a disadvantage in responding to our competitors' pricing
strategies, technological advances, marketing campaigns, strategic partnerships
and other initiatives.
IF WE ARE NOT ABLE TO SUCCESSFULLY DEVELOP BRAND AWARENESS OF OUR SERVICES, WE
MAY NOT BE ABLE TO ATTRACT NEW CLIENTS.
Developing and maintaining widespread awareness of the "iSKY" brand name is
an important element of our business strategy. If we do not successfully promote
and maintain widespread recognition of our brand name, our operating margins and
growth may decline. Successfully promoting our brand will depend largely on the
effectiveness of our marketing efforts. In addition, our brand reputation may
depend upon the success or failure of our clients. We plan to increase our
marketing expenses to promote our brand name, which may reduce our operating
margins.
OUR REVENUE IS DIFFICULT TO PREDICT AND WE MAY NOT BE ABLE TO REDUCE EXPENSES IF
REVENUE DECLINES.
Our operating expenses are relatively fixed and we incur costs based on our
expectation of future revenues. We cannot completely reduce our expenses on
short notice to compensate for unanticipated variations in the number of clients
we are servicing. As a result, our failure to accurately predict our revenues
may result in unnecessary expenses and adversely affect our financial condition.
In addition, a number of factors unrelated to our performance, such as general
business conditions or the client's operations and financial state, could cause
cancellations or delays.
DELAYS IN OUR SALES CYCLES MAY CAUSE OUR REVENUES TO DECREASE.
The sales cycle for our services varies from one to six months from initial
contact with a potential client to the delivery of services. Occasionally sales
require more time. Delays in executing a client agreement or purchase order may
reduce our revenue for a period and may cause our operating results to vary. We
believe that a potential client's decision to purchase our services is
influenced by internal and external pricing comparisons as well as budgetary
constraints. We may also need to explain and demonstrate the benefits of our
services to our potential clients, which may require additional time and
resources. In addition, the time required to implement our services can range
from several weeks to several months and may depend on factors specific to each
client. Delays in delivering services to new clients may affect our revenue and
operating results.
5
<PAGE>
IF WE ARE NOT ABLE TO INCREASE OUR CAPACITY QUICKLY, WE MAY NOT BE ABLE TO
ACCOMMODATE SIGNIFICANT GROWTH IN THE NUMBER OF OUR CLIENTS.
Our success depends on our ability to accommodate many different clients
with several different services. We expect that the volume of interactions will
increase significantly as we expand our operations. If this occurs, additional
stress will be placed upon the hardware and software that manage our operations.
We cannot assure you of our ability to efficiently manage a large number of
customer interactions. If we are not able to maintain an appropriate level of
operating performance, we may develop a negative reputation and our business
would be materially adversely affected.
IF WE ARE NOT ABLE TO HIRE, TRAIN AND RETAIN SKILLED ASSOCIATES, WE MAY NOT BE
ABLE TO SUSTAIN OUR BUSINESS.
As a customer care services company, our future profitability and growth
depends in large part on our ability to hire, train and retain skilled customer
relationship associates. If we cannot hire, train and retain a sufficient number
of qualified associates, we may not be able to provide top level customer care
services requested by our clients, our expenses could increase and we may be
unable to expand our business as quickly as we would like. Skilled personnel are
in short supply and competition for these people is intense. In addition, to
maintain our competitive position and to grow our business, we must make sure
our associates maintain and develop their technical and business skills to
become adept in our increasingly sophisticated technology and services. This
process could be time consuming and expensive and may not be successful. We
cannot assure you that we will be able to attract and retain the personnel
necessary for the continuing growth of our business.
UNDERUTILIZATION OF OUR EMPLOYEE RESOURCES MAY ADVERSELY AFFECT OUR OPERATING
REVENUES.
We generally establish our personnel levels based on our expectations of
client demand. If we hire more associates than our services to clients require,
or if we are unable to effectively redeploy our employees to new services that
are in demand, our operating margins may decline and we may continue to suffer
losses. We have hired a large number of administrative and support personnel to
support our anticipated growth. These personnel costs and expenses constitute a
majority of our operating expenses.
THE EXPANSION OF OUR BUSINESS HAS PLACED, AND CONTINUES TO PLACE, A SIGNIFICANT
STRAIN ON OUR MANAGEMENT, OPERATING INFRASTRUCTURE AND RESOURCES.
Our failure to properly manage the expansion of our business could seriously
harm us. We have recently experienced a period of significant and rapid
expansion of our business that has placed, and continues to place, a significant
strain on our management, operating infrastructure and resources. For example,
several members of our management team joined us in 1999. The number of our
corporate associates grew from 59 to 147 in 1999, and we plan to continue to
expand our business by hiring additional personnel. To the extent that our
business continues to grow rapidly, we must, among other measures, implement and
improve on a timely basis our operating infrastructure, including our
administrative, financial, customer service and operational systems, procedures
and controls. In the near future, we plan to implement new software systems for
enterprise resource planning and human resources management, including payroll
and benefits. We could be seriously harmed if our current and anticipated
personnel, systems, procedures and controls are inadequate to support our future
operations, or if we are unable to complete the necessary improvements to our
systems, procedures and controls on a timely basis.
IF WE ARE NOT ABLE TO ROLL OUT OUR SERVICE OFFERINGS QUICKLY AND EFFICIENTLY, WE
MAY LOSE REVENUE.
To be competitive we must be able to provide our full range of services to
clients quickly. If we experience delays in developing the infrastructure
necessary for delivering our services we may face customer dissatisfaction, loss
of revenues and slower market acceptance. In addition, our new
6
<PAGE>
technology supporting these services is relatively untested and we may
experience problems or failures with our technical systems. We may incur
additional expenses in order to ensure that we can provide services to
additional clients in a timely manner. If we overestimate the facilities and
resources we need, we may incur expenses that exceed our revenue. In addition,
we will need to continue to develop new services as technology develops. Delays
in offering new services or enhancements could impair our ability to compete for
clients.
ACQUISITIONS MAY DISRUPT OR OTHERWISE HAVE A NEGATIVE IMPACT ON OUR BUSINESS.
We intend to acquire or make investments in complementary businesses,
products, services or technologies on an opportunistic basis when they will
assist us in carrying out our business strategy. We may also enter into joint
ventures or strategic alliances to meet these goals. If we acquire or make an
investment in a company, or enter into a strategic relationship or joint
venture, then we could have difficulty in assimilating that company's personnel
and operations. In addition, the key personnel of the company may decide not to
work for us. If we acquire or enter into a strategic agreement for the provision
of services or technologies, we could have difficulty in assimilating them into
our operations. These difficulties could disrupt our ongoing business, distract
our management and employees and increase our expenses. We may also have to
incur debt or issue equity securities to pay for any future acquisitions, the
issuance of which could be dilutive to our existing stockholders.
In addition, our ability to compete effectively and support our intended
growth may be adversely affected if we are not able to identify suitable
acquisition candidates or acquire companies on acceptable terms. We expect to
face competition from other companies for acquisition candidates which will make
it more difficult for us to acquire suitable companies on favorable terms. If we
pay too much for these acquisitions our revenues will suffer and we may not
become profitable.
IF WE ARE NOT ABLE TO EXPAND OUR SALES FORCE, WE MAY NOT BE ABLE TO INCREASE OUR
REVENUE.
If we are unable to significantly expand our sales force, we may not
increase our market share or revenue, which could seriously harm our business.
Competition for qualified sales personnel is intense, and we may not be able to
hire a sufficient number of sales people with the skills we need. Moreover, the
complex nature of our services lengthens the time it takes for our new sales
people to become productive, typically two months. This lag in productivity may
make it more difficult to meet our sales growth targets. We also may not
generate sufficient sales to offset the increased expense resulting from growing
our sales force, and we may be unable to manage a larger sales force.
WE INTEND TO EXPAND OUR INTERNATIONAL SALES EFFORTS BUT DO NOT HAVE SUBSTANTIAL
EXPERIENCE IN INTERNATIONAL MARKETS.
We intend to expand our international sales efforts in the future. We have
very limited experience in marketing, selling, and supporting our customer
loyalty management services abroad. Expansion of our international operations
will require a significant amount of attention from our management and
substantial financial resources. If we are unable to grow our international
operations successfully and in a timely manner, our business could suffer. Doing
business internationally involves additional risks, particularly:
- unexpected changes in regulatory requirements, taxes, trade laws, and
tariffs;
- restrictions on repatriation of earnings;
- differing intellectual property rights and protections;
- differing labor regulations;
- political and economic uncertainty or instability in some regions;
- greater difficulty in staffing and managing foreign operations; and
- fluctuating currency exchange rates.
7
<PAGE>
WE ARE UNCERTAIN ABOUT OUR NEED FOR AND THE AVAILABILITY OF ADDITIONAL FUNDS
BEYOND THE FUNDS RAISED IN THIS OFFERING.
Our future capital needs are difficult to predict. We may require additional
capital in order to take advantage of unanticipated opportunities, including
strategic alliances and acquisitions, or to respond to changing business
conditions and unanticipated competitive pressures. Additionally, funds from
operations may be less than anticipated. Should these circumstances arise, we
may need to raise additional funds either by borrowing money or issuing
additional equity. We cannot assure you that we will be able to raise such funds
on favorable terms or at all. If we are unable to obtain additional funds, we
may be unable to take advantage of new opportunities or take other actions that
otherwise might be important to our business.
IF THIRD-PARTY SOFTWARE THAT WE USE IN OUR PRODUCTS CEASES TO BE AVAILABLE, OUR
BUSINESS COULD BE SERIOUSLY HARMED.
We integrate third-party software to provide some of the functions of our
services. If we cannot maintain licenses to key third-party software, delivery
of our services could be delayed until we can develop or license equivalent
software and integrate it into our services, which could seriously harm our
business. Some of our license agreements with the vendors of this software have
a short term, and the vendors may choose not to renew our licenses. In addition,
if any of the vendors of our software cease to provide support for software we
use, we may need to find alternative software providers.
OUR BUSINESS COULD BE ADVERSELY AFFECTED BY A SYSTEMS OR EQUIPMENT FAILURE
WHETHER OUR OWN OR OUR CLIENTS'.
Our operations are dependent upon our ability to protect our communications
and data centers, computer and telecommunications equipment and software systems
against damage and failures. Damage or failures could result from fire, power
loss, equipment malfunctions, system failures, natural disasters and other
causes. If our business or the operations of our clients are interrupted either
from accidents or the intentional acts of others, we may lose revenues and incur
significant unanticipated expenses which our insurance may not cover. In
addition, in the event of widespread damage or failures at our facilities, our
short-term disaster recovery and contingency plans and insurance coverage may
not be sufficient.
Our business is also significantly dependent on service provided by various
local and long distance telephone companies, as well as Internet service
providers. A significant increase in the cost of telephone service that is not
recoverable through an increase in the price of our services, or any significant
interruption in telephone services, could negatively impact our earnings.
CONTROLLING AND MANAGING OUR CLIENTS' INFORMATION AND PROPERTY EXPOSES US TO
ADDITIONAL BUSINESS RISKS.
As part of our customer care services, we manage a broad range of our
clients' confidential customer and operational information. If our clients'
information or property is misused, damaged or lost, or perceived to be misused,
it could expose us to liability and could have a material impact on our ability
to continue to do business with those clients or attract new business.
OUR RIGHT TO USE OUR TECHNOLOGY MAY BE CHALLENGED OR INFRINGED ON BY OTHERS.
We have developed technology that facilitates many of the services we offer
our clients and their customers. The steps we have taken to protect our
proprietary intellectual property rights may not prevent or deter someone else
from using or claiming rights to our intellectual property. Existing trade
secret, copyright and trademark laws offer only limited protection. In addition,
the laws of some foreign countries where we market our services do not protect
intellectual property rights to the same extent as
8
<PAGE>
do the laws of the United States. If our right to use this technology is
challenged, or if others use it improperly, we may incur substantial expenses in
protecting our rights. In addition, if others are successful in preventing our
use of the technology we deploy to provide our services, our business will be
adversely affected. We also cannot assure you that we will be able to prevent
the unauthorized disclosure or use of our proprietary knowledge, practices and
procedures if our senior managers or other key personnel leave us.
In addition, although we believe that our proprietary rights do not infringe
on the intellectual property rights of others, other parties may claim that we
have violated their intellectual property rights. These claims, even if not
true, could result in significant legal and other costs and may distract our
management.
IF WE LOSE MEMBERS OF OUR SENIOR MANAGEMENT, OUR ABILITY TO GROW OUR BUSINESS
MAY BE IMPAIRED.
Our performance is highly dependent on the continued services of our
executive officers and other key personnel, the loss of whom could materially
adversely affect our business. We believe that our ability to effectively serve
our clients and expand our business in the future will depend on our continued
employment of senior management and key strategic, creative and technical
personnel. Competition for qualified management personnel and other key
personnel is intense. In addition, personal relationships are critical in
obtaining and maintaining client engagements in our industry. Our personnel
could join with a competitor or start a new business and compete with us, which
may result in the loss of client relationships or business opportunities.
IF OUR KEY PERSONNEL DO NOT WORK TOGETHER SUCCESSFULLY, WE MAY NOT BE ABLE TO
GROW OUR BUSINESS.
A number of people on our management team and sales force have joined iSKY
in the last 12 months. Our management team has limited experience with our
company and working together. Our future performance will depend, in part, on
our ability to integrate successfully our newly-hired executive officers into
our management team. These individuals must spend a significant amount of time
learning our business in addition to performing their responsibilities. In
addition, our performance will depend on our ability to develop an effective
working relationship among management. Any disaffection or disaccord among
executive officers, or between our officers and our board of directors, could
affect our ability to make strategic decisions.
RISKS RELATED TO OUR INDUSTRY
IF DEMAND FOR OUR INTERNET-BASED SERVICES DOES NOT GROW, WE MAY NOT BECOME
PROFITABLE.
Most businesses have little or no experience using the Internet for
personalized customer service and marketing. We cannot predict the amount of
spending on the types of Internet-based customer care services that we offer.
Demand for our services is subject to a high level of uncertainty and is
dependent upon many factors, including:
- the acceptance of personalized on-line customer care programs;
- increasing the number of clients our on-line programs attract; and
- the results our clients achieve both as a result of our services and their
own electronic commerce efforts.
The market for on-line services may not continue to grow or be sustainable.
If on-line services do not achieve market acceptance, we may not become
profitable. The demand for on-line services will also depend on the acceptance
by consumers and businesses of the Internet or electronic commerce as
9
<PAGE>
viable commercial mediums. Consumers or businesses may reject electronic
commerce for a number of reasons, including:
- inadequate network infrastructure; insufficiency of telecommunications
services to support electronic commerce and the Internet;
- delays in the development of technologies that facilitate use, and improve
the security, of the Internet and electronic commerce;
- delays in the development of new conventions to handle increased levels of
Internet activity;
- increased governmental regulation; and
- changes in sales tax laws.
BREACHES OF SECURITY ON THE INTERNET MAY SLOW THE GROWTH OF INTERNET COMMERCE
AND LIMIT OUR GROWTH.
A significant barrier to market acceptance of Internet commerce and
communication is the concern regarding the secure exchange of valuable and
confidential information over public networks. Anyone who is able to circumvent
security measures could misappropriate proprietary, confidential customer
information or cause interruptions in our clients' operations. Our clients may
be required to incur significant costs to protect against security breaches or
to alleviate problems caused by breaches, reducing their demand for our
services. A well-publicized breach of security could deter consumers and
businesses from using the Internet to conduct transactions that involve
transmitting confidential information. The failure of the security features of
our services to prevent security breaches, or well-publicized security breaches
affecting the Web in general, could significantly harm our business.
WE MAY BE VULNERABLE TO COMPUTER VIRUSES AND OTHER DISRUPTIONS CAUSED BY
UNAUTHORIZED OR ILLEGAL ACCESS TO OUR SYSTEMS THAT COULD NEGATIVELY AFFECT THE
QUALITY OF OUR SERVICES AND REQUIRE SIGNIFICANT EXPENDITURES TO ADDRESS.
Our systems may be vulnerable to computer viruses and other disruptions
caused by unauthorized or illegal access to our systems which could require us
to spend significant resources to protect against or correct. In addition,
eliminating computer viruses and alleviating other disruptive problems may
require interruptions, delays or changes in our delivery of services to our
clients. On-line service providers have in the past experienced, and in the
future experience, interruptions of service as a result of the accidental or
intentional actions of Internet users and current and former employees. We
cannot be certain that measures we take to prevent these problems will continue
to be protective in the future.
NEW LAWS OR REGULATIONS AFFECTING THE INTERNET, ELECTRONIC COMMERCE OR COMMERCE
IN GENERAL COULD REDUCE OUR REVENUES AND ADVERSELY AFFECT OUR GROWTH.
Congress and other domestic and foreign governmental authorities have
adopted and are considering legislation affecting use of the Internet, including
laws relating to the use of the Internet for commerce and distribution. The
adoption or interpretation of laws regulating the Internet, or of existing laws
governing such things as consumer protection, libel, property rights and
personal privacy, could hamper the growth of the Internet and its use as a
communications and commercial medium. If this occurs, companies may decide not
to use our services and our business and operating results would suffer.
GOVERNMENT REGULATION OF THE COLLECTION AND USE OF PERSONAL DATA COULD REDUCE
DEMAND FOR OUR SERVICES.
We collect and analyze data from various applications, including Internet
applications, which enable us to capture and use information about our clients'
customers. Government regulation that limits our clients' use of this
information could reduce the demand for our services. A number of jurisdictions
have adopted, or are considering adopting, laws that restrict the use of
customer
10
<PAGE>
information from Internet applications. The European Union has required that its
member states adopt legislation that imposes restrictions on the collection and
use of personal data on the Internet. They also must adopt legislation limiting
the transfer of personally-identifiable data to countries that do not impose
equivalent restrictions. The United States Department of Commerce and the
European Union are negotiating safe-harbor regulations for U.S.-based Internet
commerce companies, but have not yet reached agreement. In the United States,
the Children's Online Privacy Protection Act was enacted in October 1998. The
Federal Trade Commission has enacted rules implementing this legislation
imposing disclosure obligations on Internet sites collecting
personally-identifiable data from children under 13. These rules become
effective in April. In addition, the Federal Trade Commission is investigating
privacy practices of businesses that collect information on the Internet. These
and other privacy-related initiatives could reduce demand for some of the
features of our iSKY programs.
RESIDUAL YEAR 2000 ISSUES MAY DISRUPT OUR OPERATIONS AND AFFECT OUR REVENUES.
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer controlled
systems using two digits rather than four to define the applicable year. For
example, software programs that have time-sensitive components may recognize a
date represented as "00" as the year 1900 instead of the year 2000. In addition,
programs may fail to recognize February 29, 2000 as a leap year date as a result
of an exception to the calculation of leap years that will occur in the year
2000 and occurs only once every 400 years. This problem could result in
miscalculations, data corruption, system failures or disruptions of operations.
Because we integrate third-party software to provide some of the functions of
our services, residual Year 2000 problems affecting this software could cause
our systems to fail. If residual Year 2000 problems cause the failure of any of
the technology, software or systems necessary to provide our services or operate
our business, we could lose customers, suffer significant disruptions in our
business, lose revenues or incur substantial liabilities and expenses. We could
also become involved in costly litigation which would materially affect our
operating results and financial condition.
RISKS RELATED TO THIS OFFERING
OUR STOCK PRICE AFTER THIS OFFERING MAY BE VOLATILE.
Prior to this offering, our common stock has not been sold in a public
market. You will pay a price that we negotiated with the representatives of the
underwriters based on a number of factors, which may be different from a price
established in a competitive market. After this offering, an active trading
market in our stock might not develop. If an active trading market does develop,
it may not continue. Also, if an active trading market does develop, the trading
price of our common stock may fluctuate widely as a result of a number of
factors, many of which are outside our control. In addition, the stock market
has experienced extreme price and volume fluctuations that have affected the
market prices of many technology companies and electronic commerce companies,
which have often been unrelated to the operating performance of these companies.
Our stock price could fluctuate as a result of these market fluctuations.
THE SALE OF A SUBSTANTIAL NUMBER OF SHARES OF OUR COMMON STOCK AFTER THIS
OFFERING MAY AFFECT OUR STOCK PRICE.
The market price of our common stock could drop as a result of sales of
substantial amounts of common stock in the public market after the closing of
this offering or the perception that substantial sales could occur. We cannot
predict whether substantial amounts of our common stock will be sold in the open
market. Immediately after this offering, we will have outstanding shares
of our common stock. of these shares will be available for sale in
the public market immediately and an additional of these shares will
be freely tradable 180 days after the date of this prospectus. In addition
holders of shares of our common stock have the right to require us to
11
<PAGE>
register their shares with the Securities and Exchange Commission. We also
intend to register all shares of our common stock that we may issue under our
stock option plans. Once we register these shares, they can be freely sold in
the public market. If any of the holders just described cause a large number of
shares of our common stock to be sold in the public market, the price of our
common stock could decrease.
PURCHASERS OF OUR COMMON STOCK IN THIS OFFERING WILL EXPERIENCE IMMEDIATE AND
SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the net
tangible book value per share of our outstanding common stock immediately after
this offering. The net tangible book value per share represents the amount of
our total tangible assets less our total liabilities divided by the total number
of shares of common stock outstanding prior to this offering. Accordingly,
purchasers of common stock will experience immediate and substantial net
tangible book value dilution of approximately $ per share, or approximately
% of the offering price of $ per share.
OUR ARTICLES OF INCORPORATION, OUR BYLAWS AND MARYLAND LAW MAKE IT DIFFICULT FOR
A THIRD PARTY TO ACQUIRE US, DESPITE THE POSSIBLE BENEFIT TO OUR STOCKHOLDERS.
Provisions of our articles of incorporation, our bylaws and Maryland law
could make it more difficult for a third party to acquire us, even if doing so
would be beneficial to our stockholders. For example, our bylaws provide for a
classified board of directors, meaning that only approximately one-third of our
directors will be subject to re-election at each annual stockholder meeting. Our
articles of incorporation also permit our board of directors to issue one or
more series of preferred stock which may have rights and preferences superior to
those of the common stock. The ability to issue preferred stock could have the
effect of delaying or preventing a third party from acquiring us. These
provisions could discourage takeover attempts and could materially adversely
affect the price of our stock.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS WHICH MAY NOT PROVE TO BE
ACCURATE OR COMPLETE.
Some of the statements under "Summary," "Risk Factors," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this document constitute forward-looking statements.
These statements involve known and unknown risks, uncertainties and other
factors that may cause our or our industry's actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. These forward-looking statements relate to future
events or our future financial performance. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "intends," "anticipates," "believes," "estimates,"
"predicts," "potential" or "continue" or the negative of such terms or other
comparable terminology. These statements are only predictions.
12
<PAGE>
USE OF PROCEEDS
Assuming an initial public offering price of $ per share, we will
receive net proceeds of approximately $ million from the sale of
shares of common stock in this offering, or $ million if the
underwriters exercise their over-allotment option in full. We intend to use the
net proceeds of this offering to fund general corporate purposes and working
capital needs, including capital expenditures to support information technology
initiatives and increase sales and marketing efforts. We also consider
acquisitions from time to time and may use a portion of the net proceeds of this
offering to fund all or a portion of the purchase price of acquisitions. We also
expect to use a portion of these proceeds to pay outstanding debt of $645,000
and accrued preferred stock dividends of approximately $1.2 million. Pending
these uses, we intend to invest the net proceeds of this offering in
investment-grade, interest-bearing securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our common stock. We
currently intend to retain any future earnings to fund the development and
growth of our business, and we do not currently anticipate paying any cash
dividends in the foreseeable future.
13
<PAGE>
CAPITALIZATION
The following table shows the total capitalization of iSKY as of
December 31, 1999, on (i) an actual basis, (ii) pro forma to show the sale of
1,260,775 shares of Series BB preferred stock as if the sale had occurred on
December 31, 1999 and (iii) pro forma as adjusted to give effect to the offering
of common stock as described in the "Use of Proceeds" section and the conversion
of the shares of preferred stock into common stock on the closing of this
offering. The number of shares of common stock excludes 1,121,674 shares of
common stock issuable upon the exercise of stock options granted under our stock
option plan and an additional 225,000 shares reserved for issuance under the
plan. See "Description of Securities."
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
----------- ----------- ------------
<S> <C> <C> <C>
Cash and cash equivalents............................ $ 1,611,951 $29,911,951 $
=========== =========== ============
Line of credit....................................... $ 645,000 $ 645,000 $
Total obligations under capital leases............... 1,530,886 1,530,886
Convertible redeemable preferred stock............... 1,421,154 1,421,154
Stockholders' equity:
Series C convertible preferred stock, $0.01 par
value, 127,000 shares authorized, 127,000 shares
issued and outstanding............................. 1,270 1,270
Series D convertible preferred stock, $0.01 par
value, 855,400 shares authorized, 855,400 shares
issued and outstanding............................. 8,554 8,554
Series G convertible preferred stock (voting), $4.50
par value, 600,000 shares authorized, 523,809
shares issued and outstanding...................... 2,357,140 2,357,140
Series H convertible preferred stock (voting), $6.00
par value, 600,000 shares authorized, 523,809
shares issued and outstanding...................... 3,142,854 3,142,854
Series AA convertible preferred stock (voting), $0.01
par value, 1,100,000 shares authorized, 1,000,000
shares issued and outstanding...................... 10,000 10,000
Series BB convertible preferred stock (voting), $0.01
par value, 1,260,775 shares authorized, 1,260,775
shares issued and outstanding...................... -- 12,608
Common stock, $0.01 par value, 20,000,000 shares
authorized, 796,349 shares issued and
outstanding........................................ 7,963 7,963
Additional paid in capital........................... 8,289,215 36,576,607
Accumulated deficit.................................. (6,772,608) (6,772,608)
----------- ----------- ------------
Total stockholders' equity........................... 7,044,388 35,344,388
----------- ----------- ------------
Total capitalization................................. $12,253,379 $68,853,379 $
=========== =========== ============
</TABLE>
14
<PAGE>
DILUTION
The net tangible book value of our common stock as of December 31, 1999 was
$ million, or $ per share of common stock. Net tangible book value per
share represents the amount of our total tangible assets less our total
liabilities, divided by the total number of shares of common stock outstanding
prior to this offering.
After giving effect to this offering and the receipt of $ million of
net proceeds from this offering, based on an assumed initial public offering
price of $ per share, the pro forma net tangible book value of the common
stock as of December 31, 1999 would have been approximately $ million, or
$ per share. This amount represents an immediate increase in net tangible
book value of $ per share to our existing stockholders, and an immediate
dilution in net tangible book value of $ per share to purchasers of common
stock in this offering. Dilution is determined by subtracting pro forma net
tangible book value per share after this offering from the amount of cash paid
by a new investor for a share of common stock. The following table illustrates
the dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share at December 31, 1999.... $
Increase in pro forma net tangible book value per share
attributable to new investors...........................
----------
Pro forma net tangible book value per share after this
Offering..................................................
----------
Dilution per share to new investors......................... $
==========
</TABLE>
The following table shows, as of December 31, 1999, on the pro forma basis
described above, the number of shares of common stock purchased from us, the
total consideration paid to us and the average price per share paid by the
existing stockholders and by new investors who purchase shares of common stock
in this offering, before deducting the estimated underwriting discounts and
commissions and offering expenses. The table does not reflect outstanding stock
options to purchase an aggregate of shares of common stock at a weighted
average exercise price of $ per share.
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C>
Existing Stockholders............................ % $ % $
New Investors....................................
--- --- ------ ---
Total............................................ % $ %
=== === ====== ===
</TABLE>
If the Underwriters' over-allotment option is exercised in full, sales in
this offering will reduce the number of shares of common stock held by existing
stockholders to approximately % of the total shares of common stock
outstanding after the offering and will increase the number of shares held by
new investors to , or approximately % of the total shares of common
stock outstanding after the offering.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The selected historical statement of operations and balance sheet data for
each of the fiscal years ended December 31, 1995 through 1999, have been derived
from our audited financial statements. This data should be read in conjunction
with the financial statements and related notes included elsewhere in this
prospectus and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations." The financial information contained herein may not
necessarily reflect our results of operations, financial position and cash flows
in the future.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------
1995 1996 1997 1998 1999
--------- --------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................................... $11,542 $14,049 $18,912 $19,652 $24,011
Direct employee expenses.................... 3,113 4,147 4,882 6,838 8,177
Other direct expenses....................... 1,499 1,969 2,507 3,085 3,431
Indirect expenses:
Account services.......................... 1,999 2,053 2,491 1,951 2,283
Information services...................... 2,158 2,409 2,870 3,457 5,117
------- ------- ------- ------- -------
Total indirect expenses............... 4,157 4,462 5,361 5,408 7,400
------- ------- ------- ------- -------
General and administrative.................. 2,206 3,736 3,484 3,946 3,804
Sales and marketing......................... 1,588 1,595 2,133 1,538 2,606
------- ------- ------- ------- -------
Income (loss) from operations............... (1,021) (1,860) 545 (1,163) (1,407)
Interest expense, net....................... (272) (195) (290) (430) (157)
------- ------- ------- ------- -------
Income (loss) before income taxes........... (1,293) (2,055) 255 (1,593) (1,564)
Provision (benefit) for income taxes........ -- -- -- -- --
------- ------- ------- ------- -------
Net income (loss)........................... (1,293) (2,055) 255 (1,593) (1,564)
Preferred stock dividend requirements....... -- -- (986) (681) (1,349)
------- ------- ------- ------- -------
Net income (loss) applicable to common
stockholders.............................. $(1,293) $(2,055) $ (731) $(2,274) $(2,913)
======= ======= ======= ======= =======
Basic and diluted net income (loss) per
share applicable to common stockholders... $ (1.92) $ (2.98) $ (1.02) $ (3.10) $ (3.81)
======= ======= ======= ======= =======
Shares used to compute basic and diluted net
income (loss) per share applicable to
common stockholders)...................... 673 689 718 733 765
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........................ $ 205 $1,864 $ 1,866 $ 4,926 $ 1,612
Working capital.................................. (692) 2,081 1,636 5,378 2,010
Total assets..................................... 5,301 8,814 10,919 15,119 14,482
Long-term obligations, net of current portion.... 936 1,542 1,110 1,054 586
Convertible redeemable preferred stock........... 1,441 1,441 1,441 1,421 1,421
Stockholders' equity............................. 547 3,882 4,309 8,566 7,044
</TABLE>
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS OF OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION SHOULD BE READ IN CONJUNCTION WITH THE COMBINED FINANCIAL
STATEMENTS AND RELATED NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
iSKY provides a complete outsourced customer loyalty management solution to
companies seeking to enhance their customers' on-line and off-line experience
before, during and after a purchase. We offer our services as an integrated
solution, which enables our clients to outsource their complete customer loyalty
management needs. We currently provide customer care services to over 40
businesses in a range of industries including automotive, health care,
electronic commerce, technology and financial services. We have a number of
long-term client relationships and from January 1, 1995 through December 31,
1999, we have retained 92% of the clients who have engaged us.
We derive our revenues from a broad range of services involving inbound and
outbound telephonic and Internet-based communications which are customized
according to the client's needs. Revenues are generally recognized at
contractual rates as services are provided. Revenues are generated based on the
number and type of interactions with clients' customers through various
communication channels, including text chat, e-mail, telephone and facsimile.
Typically for each contract we establish a rate for inbound contacts, based on
the number of minutes of interaction. We establish a rate for outbound contacts
based on the number of interactions. In addition, we earn fees related to
program set up costs and reporting and additional services. Historically, we
have seen our first quarter results remain at the same level or slightly lower
than our fourth quarter results of the prior year due to beginning of the year
new program ramp-ups and early year lows in client transaction activity.
Our expenses are comprised of:
- direct employee expense, which consist of payroll, taxes and benefits for
our customer relationship associates and database warehouse associates;
- other direct expenses, which consist of all expenses, excluding employee
expenses, for our communication centers and database warehouse operations
directly related to providing services under the terms of our contracts,
including certain occupancy and information technology costs and
depreciation and amortization expenses;
- indirect expenses consist of the following:
-- account services, which consist primarily of compensation and related
expenses for account services associates, and other overhead including
program materials and supplies;
-- information services, which consist primarily of compensation and
related expenses for information services associates, and other
overhead including computer equipment, hardware and software
maintenance and depreciation;
- general and administrative, consist primarily of compensation and related
expenses for executive, management and administrative personnel and other
overhead costs, including certain occupancy and depreciation and
amortization expenses; and
- sales and marketing, consist primarily of compensation and related
expenses for sales and marketing staff, marketing programs and materials
and advertising costs.
17
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain historical financial information from
our audited statements of operations expressed as a percent of revenues.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... 100.0% 100.0% 100.0%
Direct employee expenses.................................... 25.8 34.8 34.1
Other direct expenses....................................... 13.3 15.7 14.3
Indirect expenses:
Account services........................................ 13.1 9.9 9.5
Information services.................................... 15.2 17.6 21.3
----- ----- -----
Total indirect expenses................................. 28.3 27.5 30.8
----- ----- -----
General and administrative.................................. 18.4 20.1 15.8
Sales and marketing......................................... 11.3 7.8 10.9
----- ----- -----
Income (loss) from operations............................... 2.9 (5.9) (5.9)
Interest expense, net....................................... (1.6) (2.2) (0.6)
----- ----- -----
Income (loss) before income taxes........................... 1.3 (8.1) (6.5)
Provision for income taxes.................................. 0.0 0.0 0.0
----- ----- -----
Net income (loss)........................................... 1.3% (8.1)% (6.5)%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUES. Revenues were $24.0 million for the year ended December 31, 1999
as compared to $19.7 million for the year ended December 31, 1998, an increase
of $4.4 million or 22.2%. Revenues increased as a result of new business from
existing clients, as well as from new clients. Revenues for clients we provided
service for in both 1999 and 1998 were $21.8 million for the year ended
December 31, 1999 as compared to $18.0 million for the year ended December 31,
1998, an increase of $3.8 million or 21.1%.
DIRECT EMPLOYEE EXPENSES. Direct employee expenses were $8.2 million for
the year ended December 31, 1999 as compared to $6.8 million for the year ended
December 31, 1998, an increase of $1.3 million or 19.6%. The increase was
directly attributable to the additional staffing needed to service our clients
in 1999. Direct employee expenses as a percent of revenues was 34.1% in 1999,
down from 34.8% in 1998. This decrease resulted from higher customer
relationship associate productivity in 1999. The decrease as a percentage of
revenues was partially offset by the cost of hiring new customer relationship
associates.
OTHER DIRECT EXPENSES. Other direct expenses were $3.4 million for the year
ended December 31, 1999 as compared to $3.1 million for the year ended
December 31, 1998, an increase of $346,000 or 11.2%. The increase was primarily
due to the opening of a new communications center in Lafayette, Indiana in 1999
to accommodate increased volumes of business. Other direct expenses as a percent
of revenues was 14.3% in 1999, down from 15.7% in 1998. This decrease resulted
from our inability to leverage our communications center fixed costs.
ACCOUNT SERVICES. Account services expenses were $2.3 million for the year
ended December 31, 1999 as compared to $2.0 million for the year ended
December 31, 1998, an increase of $332,000 or 17.0%. The increase was primarily
the result of hiring additional account service associates along with additional
costs of providing specific account reporting to customers.
INFORMATION SERVICES. Information services expenses were $5.1 million for
the year ended December 31, 1999 as compared to $3.5 million for the year ended
December 31, 1998, an increase of
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$1.7 million or 48.0%. Information services expenses as a percentage of revenue
were 21.3% in 1999 compared to 17.6% in 1998. The increase both in dollars and
as a percentage of revenues was primarily the result of expenses related to year
2000 compliance issues. In addition, increases in information services expenses
resulted from the hiring of additional information service associates and
related costs.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$3.8 million for the year ended December 31, 1999 as compared to $3.9 million
for the year ended December 31, 1998, a decrease of $142,000 or 3.6%. General
and administrative expenses as a percent of revenue was 15.8% for 1999 as
compared 20.1% for 1998. This decrease was a result of our ability to leverage
our fixed overhead costs.
SALES AND MARKETING. Sales and marketing expenses were $2.6 million for the
year ended December 31, 1999 as compared to $1.5 million for the year ended
December 31, 1998, an increase of $1.1 million or 69.4%. Sales and marketing as
a percent of revenues was 10.9% in 1999 compared to 7.8% in 1998. The increase
both in dollars and as a percentage of revenues was primarily due to increased
staffing as well as advertising and marketing costs related to the promotion of
the iSKY brand.
INTEREST EXPENSE, NET. Interest expense, net was $157,000 for the year
ended December 31, 1999 as compared to $430,000 for the year ended December 31,
1998, a decrease of $273,000 or 63.5%. Interest expense incurred during 1999 and
1998 was primarily due to borrowings under our line-of-credit. Interest expense
was offset by interest income of $114,000 in the year ended December 31, 1999
and $72,000 for the year ended December 31, 1998.
PROVISION FOR INCOME TAXES. We incurred losses for the years ended
December 31, 1999 and 1998. Accordingly, there were no provisions for income
taxes in these periods. See also Note 13 to the "Financial Statements" included
elsewhere in this prospectus.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUES. Revenues were $19.7 million for the year ended December 31, 1998
as compared to $18.9 million for the year ended December 31, 1997, an increase
of $740,000 or 3.9%. The relatively low increase in revenue in 1998 as compared
to the prior year was mainly due to lower billable production relative to 1997.
Lower billable production resulted from the lack of sufficient capital resources
to develop the capacity and infrastructure necessary to expand services to the
existing client base. As a result, we had over $2.0 million of backlog revenue
at the end of 1998.
Revenues for clients we provided service for in both 1998 and 1997 were
$14.1 million for the year ended December 31, 1998 as compared to $10.0 million
for the year ended December 1997, an increase of $4.1 million or 41.0%.
DIRECT EMPLOYEE EXPENSES. Direct employee expenses were $6.8 million for
the year ended December 31, 1998 as compared to $4.9 million for the year ended
December 31, 1997, an increase of $2.0 million or 40.1%. Direct employee
expenses as a percentage of revenues was 34.8% in 1998 compared to 25.8% in
1997. The increase both in dollars and as a percent of revenue was a result of
hiring additional customer relationship associates, who due to infrastructure
constraints, were not as productive as in the prior year.
OTHER DIRECT EXPENSES. Other direct expenses were $3.1 million for the year
ended December 31, 1998 as compared to $2.5 million for the year ended
December 31, 1997, an increase of $578,000 or 23.1%. Other direct expenses as a
percent of revenues was 15.7% for 1998 as compared to 13.3% for 1997. The
increase both in dollars and as a percentage of revenues was a result of
additional costs to operate our information systems.
ACCOUNT SERVICES. Account services expenses were $2.0 million for the year
ended December 31, 1998 as compared to $2.5 million for the year ended
December 31, 1997, a decrease of $540,000 or 21.7%.
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INFORMATION SERVICES. Information services expenses were $3.5 million for
the year ended December 31, 1998 as compared to $2.9 million for the year ended
December 31, 1997, an increase of $588,000 or 20.5%. Information services as a
percent of revenues was 17.6% in 1998 compared to 15.2% in 1997. The increase
both in dollars and as a percentage of revenues was the result of additional
staffing, depreciation of new computer equipment and the development of the
database warehouse department.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$3.9 million for the year ended December 31, 1998 as compared to $3.5 million
for the year ended December 31, 1997, an increase of $462,000 or 13.3%. General
and administrative expenses as a percent of revenues was 20.1% in 1998 compared
to 18.4% in 1997. This increase was primarily due to an increase in the
provision for bad debt expense as well as increased staffing.
SALES AND MARKETING. Sales and marketing expenses were $1.5 million for the
year ended December 31, 1998 as compared to $2.1 million for the year ended
December 31, 1997, a decrease of $595,000 million or 27.9%. Sales and marketing
as a percentage of revenues was 7.8% in 1998 compared to 11.3% in 1997. The
decrease both in dollars and as a percentage of revenues was due to reduced
commissions paid to the sales force resulting from the relatively low revenue
growth as discussed above.
INTEREST EXPENSE, NET. Interest expense, net was $430,000 for the year
ended December 31, 1998 as compared to $290,000 for the year ended December 31,
1997, an increase of $140,000 or 48.3%. Interest expense was offset by interest
income of $72,000 for the year ended December 31, 1998 and $53,000 for the year
ended December 31, 1997.
PROVISION FOR INCOME TAXES. We incurred a loss for the year ended
December 31, 1998. We generated income for the year ended December 31, 1997 that
was offset by net operating loss carryforwards. Accordingly, there were no
provisions for income taxes in these periods. See also Note 13 to the "Financial
Statements" included elsewhere in this prospectus.
NET OPERATING LOSS CARRYFORWARDS
As of December 31, 1999, we had net operating loss carryforwards of
approximately $7.6 million that will expire at various dates, through 2018, if
not utilized. We have recorded a valuation allowance of 100% of net deferred tax
assets as the future realization of tax benefit is not sufficiently assured.
LIQUIDITY AND CAPITAL RESOURCES
In February 2000, we completed a private sale of convertible preferred
securities resulting in net proceeds of $28.3 million that will be used to
support information technology initiatives, working capital needs, strategic
acquisitions, continued expansion of our online business and general corporate
purposes.
Cash provided by operating activities was $360,000 and $478,000 for the
years ended December 31, 1999 and 1998, respectively. Working capital was
$2.0 million as of December 31, 1999 and $5.4 million as of December 31, 1998.
The decrease in working capital in 1999 was primarily due to the increase in
staffing and infrastructure necessary to provide additional services to existing
and new clients and the marketing costs associated with new services. We expect
that cash proceeds raised from the private sale of convertible perferred stock
in February 2000 and this offering will be sufficient to fund our operations for
the upcoming 12 months.
Cash used in investing activities was $2.7 million and $1.9 million for the
years ended December 31, 1999 and 1998, respectively. Capital expenditures have
consisted primarily of upgrades to our software and hardware at the
communication centers. We expect to incur significant capital expenditures in
order to support new contracts, business initiatives and anticipated future
growth opportunities. We anticipate that our total investment in new facilities,
and upgrades and additions to existing facilities and information technology
services for the year ended December 31, 2000 will be
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approximately $10.5 million. The increase in capital expenditures over 1999
relates primarily to the opening of our new communications center in Oregon and
to equipping our existing communication operations with our integrated customer
loyalty management solution.
Cash used in financing activities was $1.0 million for the year ended
December 31, 1999. Cash provided by financing activities was $4.5 million for
the year ended December 31, 1998. During October 1998, we completed a private
sale of convertible preferred securities resulting in net proceeds of
$7.3 million which was offset by repayment of borrowings under the line of
credit of $1.3 million and principal payments on obligations under capital
leases and notes payable of $1.5 million. The net proceeds were used to fund
working capital requirements and system upgrades.
We have a $5.0 million secured line of credit and a $2.0 million committed
equipment line with a commercial bank. The borrowings are collateralized by a
first priority security interest in all of the corporate assets of the company.
The line of credit is repayable in October 2000 and bears interest at the bank's
prime rate. The equipment line is repayable $1.0 million in February 2003 and
$1.0 million in August 2003 and bears interest at the bank's prime rate plus
three quarters of one percent per annum. At December 31, 1999, $645,000 was
outstanding under the line of credit and the interest rate on outstanding
borrowings under the line of credit was 8.5%. At December 31, 1999, no amount
was outstanding under the equipment line. Upon completion of this offering, and
in connection with the conversion of the series AA preferred stock, we will
declare and pay accrued dividends of approximately $1.2 million.
We believe that international markets represent further opportunities for
growth. We may consider entering into forward exchange contracts in order to
hedge our net investment in international countries in which we establish a
presence, although no assurance can be given that we will be able to do so on
acceptable terms.
INFLATION
Management believes that inflation has not had a material effect on our
operations.
YEAR 2000 COMPLIANCE
We estimate the year 2000 expenses in 1999 to be $1.4 million, including
internal personnel costs. The Year 2000 computer problem refers to the potential
for system and processing failures of date-related data as a result of computer
controlled systems using two digits rather than four to define the applicable
year. For example, software programs that have time-sensitive components may
recognize a date represented as "00" as the year 1900 instead of the year 2000.
In addition, programs may fail to recognize February 29, 2000 as a leap year
date as a result of an exception to the calculation of leap years that will
occur in the year 2000 and occurs only once every 400 years. This problem could
result in miscalculations, data corruption, system failures or disruptions of
operations. Because we integrate third-party software to provide some of the
functions of our services, residual Year 2000 problems affecting this software
could cause our systems to fail. If residual Year 2000 problems cause the
failure of any of the technology, software or systems necessary to provide our
services or operate our business, we could lose customers, suffer significant
disruptions in our business, lose revenues or incur substantial liabilities and
expenses. We could also become involved in costly litigation which would
materially affect our operating results and financial condition.
Although the transition from 1999 to 2000 has passed and we are not aware of
any Year 2000 problems with our internal systems or our vendors, it is possible
that Year 2000 problems could be discovered in the future.
QUALITATIVE AND QUANTITATIVE DISCLOSURE OF MARKET RISK
We do not currently have any derivative financial instruments. We invest our
excess cash in short-term highly liquid cash equivalents. Our line of credit
will be repaid upon completion of this offering. As a result, we believe that
our exposure to interest rate risk is not material.
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BUSINESS
OVERVIEW
We provide a complete outsourced customer loyalty management solution to
companies seeking to enhance their customers' on-line and off-line experience
before, during and after a purchase. Our customer loyalty management services
use interactive one-to-one communications, enhanced by real-time, personalized
data collection and management, to find, win, keep and enhance profitable
customer relationships.
We offer our clients a customized, fully-integrated, Web-enabled solution
which allows for interaction with their customers through a variety of media
including real-time text chat, e-mail, voice over Internet protocol, telephone
and facsimile. Equipped with state-of-the-art Windows-based customer interaction
software and leading computer telephony technologies, iSKY customer relationship
associates support inbound and outbound communications center applications
involving customer acquisition, retention and optimization. We are able to
collect and analyze data concerning our clients' customers based on our
interactions and provide immediate feedback to our clients.
Our clients include Fortune 1000 companies as well as both established and
early-stage electronic commerce companies. As of December 31, 1999, we had more
than 40 clients, including American Express, BMW, Concierge Club, General
Electric Capital Corporation, Hewlett Packard, Kohler, LensCrafters, Owens
Corning and Volkswagen.
INDUSTRY BACKGROUND
IMPORTANCE OF CUSTOMER LOYALTY
The emergence of the Internet and the accelerating pace of technological
innovation pose new challenges for both traditional off-line businesses and pure
on-line businesses as they fight to find, win, keep and enhance profitable
customer relationships. A critical factor in meeting this challenge is a
business' ability to foster and cultivate loyalty from its customers. Research
demonstrates that it costs significantly less to retain new customers than it
does to acquire new ones. According to research presented in Harvard Business
Review, companies can increase their profits by almost 100% by retaining 5% more
of their customers. Providing high quality customer care and establishing
long-term relationships with customers is crucial to the ability of on-line and
off-line businesses to maintain their competitive positions.
The consequences can be severe for on-line and off-line businesses that fail
to provide the highest quality customer care and take proactive steps to build
long-term relationships with their customers. Some potential negative
implications of poor customer service include the loss of existing customers,
increased difficulty in attracting new customers, increased difficulty in
converting on-line and off-line visits to sales, and the inability to maintain a
competitive position. In addition, companies face the possibility of losing
incremental revenue opportunities by not collecting and analyzing the
information obtained from interactive, one-to-one communications to personalize
all interactions with customers.
GROWTH OF OUTSOURCING
International Data Corporation, or IDC, expects that worldwide spending on
outsourcing services will grow from nearly $100 billion in 1998 to more than
$151 billion in 2003. An important segment of this market will be outsourcing
customer care services. Both off-line and on-line businesses often lack the
expertise, resources, and infrastructure necessary to appropriately and
efficiently provide top quality customer support. Additionally, as companies
focus their resources on their core competencies, many businesses have elected
to outsource their customer care services. Outsourcing customer care and
customer service functions provides access to skills, expertise and technology
that might be unavailable or expensive given the scale of the business. In
addition, outsourcing offers businesses the flexibility to
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meet changing business conditions, the opportunity to improve operating
efficiencies and to implement customer care programs quickly.
GROWTH OF THE INTERNET
The Internet has significantly changed the competitive environment for
businesses of all types and sizes. IDC estimates that Internet and electronic
commerce marketing services will grow from $700 million in 1998 to $3.5 billion
in 2002 as the global electronic commerce market expands from $27 billion to
$733 billion during the same period. Consumers now have a global medium for
commerce, and companies must provide a high quality customer support experience
in order to effectively maintain, leverage and grow their customer bases.
With the emergence of electronic commerce and communication over the
Internet, managing customer relationships has become more complex. Customers
around the world expect to be able to access information and communicate with a
company about its products or services at any time of day through a variety of
Internet-related communications tools. However, many companies are not able to
provide this range of service options to their customers. Forrester Research
reports that 42% of 125 major websites queried either never responded to the
inquiries, took more than five days to respond or simply did not have a system
in place to respond. In addition, according to Forrester, about 17% of consumers
polled said more things tend to go wrong with their on-line shopping excursions
than during a visit to a store. Over two-thirds of all on-line shopping carts
are abandoned before check-out.
Traditional off-line businesses are under tremendous pressure to exploit the
efficiencies of the Internet and to transition their businesses on-line. IDC's
US Global Information Technology survey estimates that 35% of U.S. businesses
have a home page on the Internet. In order to succeed in such a highly
competitive market, traditional off-line businesses must overcome customer
loyalty challenges on two fronts. First, they must find a way to maintain or
increase the level of service provided to their existing customer base which may
be aggressively targeted by new electronic commerce businesses. Second, off-line
businesses must be able to meet the heightened expectations for customer service
held by their new on-line consumers. These consumers expect customer service
that is personalized, responsive and accessible 24 hours a day, seven days a
week.
On-line businesses have an even greater incentive to respond to consumers'
demands. They operate in an environment in which new businesses can, and do,
enter established markets overnight. Customers can quickly and easily "click" to
a competitor's site. Consumers' opportunity to choose between multiple
competitors and their ability to move effortlessly from one to another makes the
provision of real-time customer service increasingly important to retaining and
growing an on-line customer base.
CUSTOMER CARE NEEDS
Many businesses are finding themselves ill-equipped to support customer care
management. At the same time, increasing numbers of Internet users are
attempting to use electronic commerce sites, and businesses need to provide
sites with accessible and responsive customer service. To address the
increasingly difficult challenge of acquiring, retaining, and building a loyal
customer base, businesses must be able to implement a cost-efficient, integrated
solution that allows customers to communicate with their vendors seamlessly
through any one of a number of modes. The solution should be flexible and
scalable to address growing consumer demand. The solution should also enhance
and personalize the customer's experience by enabling businesses to integrate
their existing communications infrastructure with database management technology
in order to gather, store and analyze customer information. Lastly, the solution
should provide businesses with a cost-effective alternative for delivering
customer care on an outsourced basis so that critical company resources can be
focused on improving core competencies.
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OUR SOLUTION
THE ONLY INTEGRATED REAL-TIME CUSTOMER LOYALTY MANAGEMENT SOLUTION.
iSKY provides a complete outsourced customer-focused solution to both
electronic businesses and traditional companies seeking to enhance their
customers' on-line and off-line experience before, during and after a purchase.
We believe that we offer the only integrated customer loyalty management
solution which allows us to capitalize on the opportunities arising from current
electronic commerce and outsourcing trends. We define customer loyalty
management as using interactive, one-to-one customer care communications,
enhanced by real-time, personalized data collection and management, to find,
win, keep and enhance profitable customer relationships.
We believe our solution offers the following unique elements:
- INTEGRATED COMMUNICATIONS CENTERS. Through our multi-channel
communications centers, we accommodate our clients' customers' preferred
communications medium by employing both on-line and off-line tactics. Our
communications centers can blend inbound and outbound communications
technologies at a customer relationship associate's desktop to provide
real-time customer care for large and small clients. A single iSKY trained
customer relationship associate can provide customer care services to a
customer visiting our client's website through live Internet chat, e-mail
message exchanges, placing or receiving a telephone call or facsimile, or
voice communication over an open Internet connection. Customer
relationship associates desk top technology also permits the customer
relationship associates to simultaneously view the same website as the
customer to answer questions, make suggestions and assist the customer in
completing on-line forms. In addition, iSKY provides Web self-service
functions such as frequently asked questions, pricing look-ups, order
status and inventory availability inquiries and automated e-mail.
- UNIQUE DATA MANAGEMENT AND WEB-BASED REPORTING CAPABILITIES. Our
multi-channel communications channels are directly linked with our
database and reporting systems. Web-based reporting, database query, and
analytic tools enable our clients to have virtually instant access to
customer information collected from the ongoing interactions between their
customers and iSKY customer relationship associates. Throughout our
16 years of operations, we have collected a significant amount of data
through our customer interactions and developed substantial data mining
capabilities. Data collected from interactions with iSKY can be analyzed
on a real-time or periodic basis. The analysis provides insights that
enable customer relationship associates to personalize interactions with
clients' customers as they are communicating with them.
- FLEXIBLE AND SCALABLE INFRASTRUCTURE. Our customer loyalty management
solutions have been designed for flexibility, and can easily and
cost-effectively be adapted for both small and large companies. Due to the
scalable and highly automated nature of our application design, a solution
created for a large client can often be replicated and leveraged for a
small client. As our client relationships develop, they can quickly and
easily implement additional iSKY support offerings and data mining
capabilities. We believe that our ability to service both small and large
companies easily and cost-efficiently provides us with a competitive
advantage. In addition, as our customer base grows, we have designed our
systems and infrastructure to be able to scale quickly and effectively to
handle additional demands.
BENEFITS TO OUR CLIENTS.
Our outsourced customer loyalty management solution allows our clients to
focus critical resources on their core competencies and to accelerate their
business plan in a cost-effective manner. As a result of the quick
implementation and integrated nature of our solution, we provide our clients
with the
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ability to capitalize on the dynamic opportunities in the electronic commerce
market. Our customized database management capabilities give our clients the
opportunity to not only enhance their revenues, but also dramatically improve
customer loyalty. In addition, our customer care service can easily be
implemented and integrated into our clients' back-end systems, and our clients
benefit from reduced operating and technical costs.
GROWTH STRATEGY
Our goal is to become the leading provider of real-time customer care
services. We offer what we believe is the only integrated customer loyalty
management solution that combines a complete Web-enabled customer service
offering with proven communications center operations, database management. The
key elements of our strategy are:
- RAPIDLY EXPAND AND ENHANCE EXISTING CLIENT RELATIONSHIPS. We have
developed strong relationships with our clients based on our expertise in
developing and providing outsourced customer loyalty management solutions.
We believe our clients want and need a fully-integrated, Web-based
customer care solution, and that by offering this solution we will expand
and enhance our relationship with these clients. We intend to extend our
integrated service offering to our existing customers and to build out our
multi-channel technology platform. We also intend to continue our
commitment to invest in leading-edge technology, equipment and systems to
provide new, high-quality, innovative services to our existing clients.
- EXPAND CLIENT BASE IN KEY VERTICAL MARKETS. We have and will continue to
target the leading companies in the electronic commerce, automotive,
health care, financial services and technology markets. These markets are
characterized by customers with high lifetime value, products or services
that have renewal or upgrade events, and large customer bases. Our
expertise in these markets enables us to meet our clients' needs quickly
and effectively. We intend to aggressively pursue new clients in each of
these vertical markets, with an emphasis on the large and growing
opportunity to work with electronic commerce companies.
- PROMOTE THE ISKY BRAND. We plan to aggressively build and market the iSKY
brand through various marketing efforts including such traditional methods
as trade shows, print advertising and direct mail. In addition, we intend
to use the dynamic marketing capabilities of the Internet to create
awareness and demand for our services through our website, Web advertising
and electronic newsletters. We plan to build consumer recognition of the
iSKY help button, the "iSKY bell," with the goal of achieving universal
recognition of the iSKY bell by consumers as a symbol of quality customer
service. Our goal is that over time, the icon's presence on clients'
websites will serve to reassure consumers of businesses' ability to
deliver high quality customer service.
- PURSUE ACQUISITIONS AND STRATEGIC PARTNERSHIPS. We will pursue
acquisitions of companies that have clients that fit our business model or
have complementary products or technologies. We also have and will
continue to develop a variety of strategic partnerships with marketing
services, electronic commerce and technology companies to enhance our
position as a leading, outsourced customer loyalty management provider. We
currently have strategic relationships with key distribution, technology
and investment partners, including Lucent, Internet Capital Group, General
Electric Capital Corporation, Ingram Book Company, Interpublic Group of
Companies and OrderTrust.
- EXPAND OUR PRESENCE ABROAD. We currently serve the U.S. business
operations of international clients and we believe there is a large
opportunity to expand our operations to provide our services
internationally. We plan to pursue our international expansion objective
via direct means, strategic partnerships and potential acquisitions.
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INTERACTIVE SERVICES
We offer a complete package of outsourced customer care services which we
can customize according to our clients' needs to help them increase customer
loyalty and profitability.
Using our interactive communications technology, we provide our clients with
a fully-integrated, Web-enabled solution which allows our clients to interact
with their customers through a variety of media including real-time text chat,
e-mail, voice over Internet protocol, telephone and facsimile. In addition, our
database management capabilities allow our customer relationship associates to
initiate personalized conversations with our clients' customers. We can also
utilize information from our databases to help our clients improve the
customer's on-line and off-line experience and provide cross-selling
opportunities to prospective and existing customers.
Our clients benefit from the following elements of our customer care
services:
- universal, blended, inbound/outbound/multi-channel communications;
- database management and mining skills;
- ability to synchronize, customize and intelligently route multi-channel
interactions with customers;
- electronic "help" function design, consultation and hosting;
- informed, trained customer relationship associates; and
- extensive customer loyalty management experience and capabilities.
We design and support a variety of Internet-based services that are
customizable according to our clients' needs. The screens that a customer views
and responds to in order to reach an iSKY customer relationship associate are
tailored to channel requests as suited to each business. Our multi-channel
communications technology, as symbolized by the iSKY bell, enables the following
communications modes:
<TABLE>
<S> <C>
[graphic icon for Call-Me Buttons] Customers see a "click" button which they use to schedule a
call back from a customer relationship associate.
[graphic icon for Text Chat] Ability to have a real-time text chat session with a
customer relationship associate.
[graphic icon for E-mail Intelligent routing of e-mail to enable prompt responses to
Management and Automatic Reply] browsers' inquiries, including automated replies and
suggested replies to live customer relationship associates.
[graphic icon for Web Self On-line knowledge-based access for customers to obtain
Service] answers to questions without live associate intervention.
[graphic icon for Web Screen Through Web screen synchronization, our customer
Synchronization and Escorted relationship associates can:
Browsing] - see the same Web page the customer is viewing,
- send additional pages to the customer,
- assist the customer in filling out Web forms by
simultaneously viewing the same Web page and data fields as
the customer, and
- respond in real time to the customer's questions as they
arise.
[graphic icon for Web Calls] Using Internet telephony, customers can speak to customer
relationship associates through multi-media personal
computers while viewing a website.
</TABLE>
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CUSTOMER LOYALTY MANAGEMENT
Our customer loyalty management services use interactive, one-to-one
communications and sophisticated database management to find, win, keep and grow
profitable customer relationships. Last year we engaged in approximately 11.3
million interactions with our clients' customers. We define an interaction as
any time we interact with a customer through any one of our communications
channels. As shown below, customer loyalty management consists of three stages:
acquisition of new customers, retention of existing customers and optimization
of new and existing customers.
[A picture depicting a circle with the words "Acquisition," "Retention"
and "Optimization" around the circumference and "Central Customer Care
Database" in a smaller circle in the center. The Acquisition portion of
the circle has the words "Initiation/Welcome," "Order Entry,"
"Dealer/Outlet Locate" and "Lead Mgmt." The Retention portion of the
circle has the words "Customer Service," "Channel Mgmt.," "Employee
Incentive Mgmt.," "Case Relations," "Customer Satisfaction Mgmt.,"
"Churn Prevention/Relationship Mgmt.," "Consumer Affairs," "Win Back,"
"Service Admin.," and "Warranty Mgmt." The Optimization portion of the
circle has the words "Credit & Collections," "Marketing Research,"
"Cross/Up/Next Selling" and "Referral Mgmt."]
CUSTOMER ACQUISITION SERVICES. Customer acquisition services include lead
management, order entry, initiation or welcome contacts and dealer or outlet
locator services. We use our multi-channel communications technology with
integrated telephonic and Internet communication, database management, data
mining, research and analysis to offer clients a complete set of services to
increase the acquisition rate of new, high value customers. Our lead management
techniques identify and prioritize sales leads based on analysis of key pieces
of information gathered from our clients' prospects to determine the likelihood
of their conversion to customers. We engage in one-to-one communication to build
customer profiles and route "hot" leads directly to the appropriate distribution
outlet, often within minutes. This rapid deployment system allows our clients to
answer inquiries quickly with a response tailored to the precise needs of an
individual prospect and provides our clients with data that facilitates later
follow-up with highly qualified prospects.
Our order entry programs can function with our lead management programs or
as separate programs. We can complete the recording of the specifics of the
order, and through partnerships, process payments and initiate fulfillment
quickly and accurately. All order information becomes part of the clients'
customer database. Initiation or welcome contacts provide a personal customer
loyalty tool to correct mistakes in the sales process, set customer
expectations, gather feedback and boost satisfaction. Dealer or outlet locator
services give information to prospects and facilitate appointments or sales
meetings. If appropriate, prospect requests are forwarded immediately to the
client's distribution channel member closest to the prospect with information on
their interest level, intent to purchase and time horizon for purchase.
One example of our acquisition services is our prospect follow-up system for
automotive dealerships to raise "walkout" close rates. Walkouts are prospects
who shop at the dealership but do not buy. We contact prospects by telephone and
facsimile to find out if they were satisfied with their recent shopping
experience, and to identify their purchase criteria including time horizon and
price. Our customer relationship associates engage prospects so that they "open
up" and describe preferences that they would not have directly told their
dealerships about. Hot prospect information is electronically transferred to the
dealership within hours of the contact to help them close the sales.
CUSTOMER RETENTION SERVICES. Our retention services are designed to prevent
customer turnover, maximize customer satisfaction, reinstate customers who have
defected and resolve customer service inquiries in a satisfactory and timely
fashion.
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<PAGE>
Retention includes tracking and managing customer satisfaction using
parameters adapted to our clients' particular businesses. We notify clients of
customer feedback that requires immediate attention, whether it is a sales
opportunity or a complaint that requires rapid resolution. We also track and
analyze customer satisfaction trends and their root causes and consult with
clients on customer care best practices.
Through channel management, our clients receive feedback on the service
their customers are receiving from distribution channel partners. Using
computer-based case management software, our professional customer relationship
associates resolve critical customer issues and conduct investigations when
needed.
Our employee incentive management programs provide near real-time
measurement and reports of employee performance on customer sales and service
activities relative to incentive criteria. Also available is customer service
overflow or full capacity outsourcing that is often less expensive and more
efficient than many clients can provide in-house and with higher customer
satisfaction and loyalty results.
Win back services utilize proven customer dialogue techniques to help our
clients restore customer relationships and gather information about the reasons
for defection. Our methods of churn prevention and relationship building can
identify the client's most profitable customers, detect patterns and causes of
defection, target customers most likely to defect and alert the client to a
potential defection.
Through established national networks of providers tailored to our clients'
needs, we can dispatch service personnel or arrange service appointments quickly
and conveniently for customers. We are able to process warranty claims,
inquiries, investigations and validations in compliance warranty terms through a
single communication source.
Our consumer affairs program provides customers and prospects with
information about our clients, their products and services. Customers can ask
questions, share opinions and receive information. Customer feedback is compiled
for use in forecasting and product development.
An example of our retention services is when we were retained by a large
bank which was experiencing low overall customer satisfaction ratings and high
attrition. We implemented a bank-wide customer satisfaction management system,
whereby facsimile and telephonic interactions were conducted regularly with
high-value customers of each branch in the bank's network. The volume and nature
of customer concerns and needs among the bank's top 50 branches and bottom 50
branches were analyzed. We determined that what differentiated the two groups
was customer satisfaction with branch controllable issues, such as problem
handling by branch personnel, courtesy and line waits. Both groups had about the
same number of bank-controllable complaints such as ATM issues, minimum
balances, product offerings, hours and locations. Thus, the bank was able to
improve overall satisfaction by helping troubled branches attack specific
branch-controllable issues. The bank also enjoyed an additional benefit:
whenever we uncovered a customer complaint or sales opportunity, a faxed
bulletin was sent to the appropriate branch for immediate action, enabling the
bank to fix problems and close new sales. The bank attributed substantial
numbers of "saved" customers and new sales to the follow-up program.
CUSTOMER OPTIMIZATION SERVICES. Our customer optimization services allow
our clients to capitalize on the goodwill they have built and increase sales
from existing customers. Our customer optimization program includes marketing
research, promotion of additional sales of complementary or higher value
products to existing customers, credit and collections and referral management.
We also perform strategic and tactical research, as well as customer
tracking and monitoring studies. Many of our programs include control groups to
help us measure the effectiveness of our customer care programs. Our methodology
for promoting additional sales focuses on creating profiles of customers who
make multiple purchases then identifying and meeting as many needs as possible
for
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<PAGE>
the existing customer base. This method has a lower overall cost per lead than
traditional mass marketing strategies. Referral management services use
electronic sales opportunity alerts to notify our clients and their channel
members immediately when a referral is made by an existing customer. The
notification process allows clients to contact prospects with the endorsement of
the customer who made the referral.
One example of our optimization services is represented by a luxury
automobile manufacturer that hired us to contact customers by e-mail, facsimile
and telephone during the last six months of their leases to inquire about their
satisfaction and their repurchase intentions, to communicate a lease loyalty
offer from the manufacturer and to encourage the customers to purchase again.
The success of the lease loyalty effort was measured by comparing the percentage
of people who repurchased the brand once their leases expired to the repurchase
percentage of customers in a control group that were not contacted.
DATA MANAGEMENT AND WEB-BASED REPORTING
Our integrated platform enables us to collect valuable marketing data which
provides insights into buying behaviors, responses to different sales channels,
the effectiveness of promotions and trends in customer service issues.
Throughout our 16 years of operations, we have collected a significant amount of
data through our customer interactions. In the past three years alone, we have
generated data through over 25 million individual interactions with customers.
We have also developed substantial database management and mining capabilities.
Data centers in Laurel, Maryland and Cedar Knolls, New Jersey use database
management and mining hardware and software tools to allow our customer
relationship associates real-time access to data obtained from customer
interactions and to facilitate gathering additional information that will help
our clients to either improve or provide additional products and services to
prospects and existing customers. For example, during a conversation with a
customer, our customer relationship associates can access information about a
customer's preferences from our database as well as map a history of where a
customer has been on the client's website and use this real-time information to
better understand the customer's interests and to suggest additional products
and services. In addition, we can compile clickstream histories and advise
clients on refinements to their Web pages and Web marketing campaigns. Web-based
reporting, database query and analytic tools enable our clients to have
virtually instant access to customer information generated by the ongoing
interactions between their customers and iSKY.
SALES
We sell our services primarily through our direct sales force. We focus our
sales efforts on five targeted vertical markets: automotive, electronic
commerce, health care, financial services, and technology. Within these markets,
we target Fortune 1000 prospects, existing clients and electronic commerce
companies of various sizes and stages. Our regional vice presidents are
responsible for complex strategic sales to Fortune 500 companies. We also have
national account managers who target complex multi-level sales at Fortune 1000
companies. Our account executives handle sales to electronic commerce businesses
and other businesses that we believe would benefit from our Internet
capabilities. We expect to grow our sales force significantly over the next
year. In addition, our Vice President of Strategic Alliances develops marketing
and distribution relationships.
Our target companies value customer service and typically have several of
the following characteristics:
- customers with high margin/lifetime value
- products or services that have renewal or upgrade events
- large customer bases
- competitive differentiation based on service
- not fully developed in-house customer service
- customer bases that are vulnerable
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<PAGE>
MARKETING
We focus our marketing effort on positioning iSKY as a leading real-time,
interactive customer loyalty management solution that integrates interactive
communications and database management technologies to help our clients increase
customer loyalty. Our marketing program targets existing clients, Fortune 1000
prospects and established and early-stage electronic commerce companies
requiring a customer loyalty management solution. We market through our direct
sales force, our strategic partners, our website, print and on-line advertising
and newsletters, trade shows, interviews with media and industry analysts, and
direct mailings.
CLIENTS
We have a number of long term client relationships. From 1995 through 1999,
we have retained 92% of the clients who have engaged us. In 1999, revenues from
our top 10 client relationships grew by approximately 25% on average from 1998.
The following is a representative list of our clients by key targeted market:
<TABLE>
<S> <C>
AUTOMOTIVE HEALTH CARE
- -------------------------------------------- --------------------------------------------
BMW Blue Cross/Blue Shield of Wisconsin
Porsche Compcare
Volkswagen LensCrafters
ELECTRONIC COMMERCE FINANCIAL SERVICES
- -------------------------------------------- --------------------------------------------
Concierge Club Advanta Corporation
e-chemicals General Electric Capital Corporation
TECHNOLOGY OTHER
- -------------------------------------------- --------------------------------------------
Hewlett Packard American Express Travel Services
Sharp Continental Airlines
Owens Corning
Kohler
</TABLE>
STRATEGIC PARTNERS
We have established three types of strategic relationships: distribution
partners, technology partners and investment partners. These relationships are
designed to leverage and enhance our customer loyalty management solution and
related business opportunities. We view these relationships as an important
component of our success.
DISTRIBUTION PARTNERS
We have distribution partners through our alliance partner program which is
a cooperative effort between electronic commerce infrastructure providers and
iSKY. The alliance partner program allows both organizations to expand their
marketing exposure and to complement each other's electronic commerce services.
Under the program, both parties refer leads to the other and work to ensure
proper interaction and assistance as needed. In exchange for this lead referral
and assistance, the partner receives a finder/referral fee once the account is
closed and generating revenues. The partner reciprocates when we refer a lead to
the partner's sales organization and this lead culminates in a contract for the
partner.
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In addition to the mutual referral program, iSKY offers the following:
- training of partner's sales and marketing organization on iSKY products
and offerings
- collateral material for partner's sales personnel
- "Hot Link" URL between iSKY's website to the partner's site and from the
partner's site to iSKY
- joint customer presentations
- participation in partner's booth at trade shows
- co-sponsorship position at iSKY hosted seminars
- other joint efforts as individually developed.
We have formed strategic partnerships with businesses whose services or
products support the key operations of electronic commerce companies and which
are in a strong position to promote our services to their clients or affiliates,
including the following companies:
<TABLE>
<S> <C>
Cirqit Cirqit's electronic commerce business provides digital and
hard copy printing services to complete electronic commerce
order fulfillment.
OneSoft OneSoft helps electronic commerce companies develop their
interactive websites. OneSoft's core solution, OneCommerce,
enables enterprises to interact with their customers and
trading partners over the Internet to exchange information,
provide services, and complete business-to-business and
business-to-consumer transactions.
OrderTrust OrderTrust manages the entire lifecycle of an electronic
commerce order from when a shopper decides to buy until the
goods reach the shopper. The OrderTrust network enables the
execution of critical tasks such as payment processing,
order routing and auditing, status reporting, account
settlement and exception handling.
Peppers & Rogers Peppers & Rogers assist organizations in developing business
practices that result in stronger and more profitable
relationships with their customers by individualizing
customers' interactions.
</TABLE>
TECHNOLOGY PARTNERS
We have developed strategic partnerships with technology companies who are
developing Internet-based applications to support electronic commerce.
<TABLE>
<S> <C>
IMA IMA is an industry leader in customer interaction software
for high-volume call centers. IMA's software solutions
enable businesses to create, manage and respond to demand in
a highly effective manner. We are working with IMA to
develop their software to support Internet-based customer
interactions.
Lucent Technologies Lucent Technologies designs, develops and manufacturers
communications systems, software and products for network
operators and other service providers. Lucent currently
provides the telephony backbone for our operations. We are
working with Lucent to integrate their inbound and outbound
platform with Internet-based communications tools.
</TABLE>
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INVESTMENT PARTNERS
We have also developed strategic partnerships with businesses that have
invested in our company. These businesses promote our services to companies they
operate or work with.
<TABLE>
<S> <C>
Internet Capital Internet Capital Group is an Internet holding company
Group actively engaged in business-to-business electronic commerce
through a network of partner companies.
General Electric General Electric Capital Corporation is a global,
Capital Corporation diversified financial services company with 28 specialized
businesses.
Ingram Industries Ingram Industries Inc., the parent company of Ingram Book
Inc. Company, has made an investment in our company. We are
exploring strategic business opportunities with Ingram Book
Company which is a leading wholesale book distributor.
The Interpublic As one of the largest advertising and marketing services
Group of Companies, holding companies in the world, Interpublic would present
Inc. many opportunities to introduce our services to marketing
services companies in its portfolio whose clients require a
customer loyalty management solution. We and Interpublic are
exploring ways to develop these opportunities.
Advanta Partners Advanta Corporation, an affiliate of Advanta Partners,
provides credit card services to small companies and engages
us to provide their retention services. Advanta Partners
also promotes our services to companies in which it invests.
</TABLE>
COMMUNICATIONS CENTERS
iSKY maintains four communication centers which house customer relationship
associates who communicate with our clients' customers. Equipped with
state-of-the-art Windows-based customer interaction software and leading
computer telephony technologies, each center supports inbound and outbound
interactions by means of telephone, voice over Internet protocol, Web-based live
chat sessions, e-mail and facsimile. The following table lists our centers
currently operational along with one center currently under construction.
Interaction capacity is based on a seat utilization of 24 hours a day, 7 days a
week with an average of 14 customer interactions per hour.
<TABLE>
<CAPTION>
MAXIMUM CAPACITY
FOR CUSTOMER
RELATIONSHIP CURRENT INTERACTION
FACILITY SQUARE FOOTAGE ASSOCIATES CAPACITY PER MONTH
- -------- -------------- ---------------- -------------------
<S> <C> <C> <C>
Laurel, Maryland............................. 18,884 400 827,904
Milwaukee, Wisconsin......................... 11,241 275 799,680
Lafayette, Indiana........................... 12,000 225 846,720
Montreal, Canada............................. 826 25 75,264
Bend, Oregon*................................ 42,027 900 3,292,800
------ ----- ---------
Total.................................. 84,978 1,825 5,842,368
====== ===== =========
</TABLE>
- ------------------------
* Indicates facility scheduled for opening in March 2000.
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<PAGE>
We believe that our interaction capacity will increase as we develop our
Internet-based services and increase utilization of our communications centers
to 24 hours a day, seven days a week.
TECHNOLOGY
We have deployed state-of-the-art technology platforms to handle the various
communications and data base management services we offer clients. This
technology includes communications center telephony, network infrastructure,
Internet connectivity and computing power.
Our technology is currently deployed in a hub and spoke configuration, in
which central computing is done at the data center in Laurel, Maryland. This
center contains our "host" database computers, HP9000K class servers running
Oracle, and central routing for data control. Host data is downloaded to our
data center in Cedar Knolls, New Jersey, where data mining and analytic
functions are performed on Microsoft SQL servers, applying SAS and SPSS data
management and query tools. Captured and analyzed data is reported to clients
via both printed hard copy as well as on-line, Web-based media. iSKY's Web-based
reporting systems include real-time data query and analysis functions.
At each of the communications centers in the United States and Canada, which
operate as remote sites, iSKY maintains a local area network, or LAN, and full
telephonic and Internet communications equipment. Each communications center has
its own Lucent telecommunications switch, predictive dialer, automatic call
distributor, or ACD, and Internet interface for automated inbound and outbound
interactive communications.
Our LAN/WAN is Ethernet utilizing Microsoft NT 4.0 as a network operating
system. Locations are linked together using a frame relay communications system
from MCI and connected via Cisco routers. Our customer relationship associates'
desktop personal computers are supported with IMA Edge-TM- customer interactions
software which provides call flow scripting, screen management and data capture.
The Edge-TM- software is served from HP9000K class systems located in our
Laurel, Maryland data center. Through frame relay communications, the servers
send and receive data to and from our communications centers.
ON-LINE COMMUNICATIONS MANAGEMENT SYSTEMS
Using various leading technologies, we are integrating on-line Internet
communications capabilities with our off-line telephonic communications in our
centers. Our integrated interactive communications system links outbound
predictive dialing, inbound call routing, Web chats, voice over Internet
protocol, facsimile and e-mail with full dialogue management scripting and
database management. Our multi-channel communications system provides for
SmartCalls(SM) which enable our customer relationship associates to identify
customers whom we have been in contact with before and personalize subsequent
interactions. Our technology integrates the following technologies:
- EDGE-TM- CALL FLOW AND SCRIPTING SYSTEM FROM IMA: manages call flow with
screen presentations for customer relationship associates with interaction
scripting capabilities.
- LUCENT G3S AND G3I DEFINITY PBX/ACD: switching platform with skills based
routing, inbound/ outbound blending, intelligent announcements, built in
automated attendant and other features.
- MOSIAX OUTBOUND PREDICTIVE DIALERS: facilitates efficient automated
outbound communications.
- ORACLE DATABASES: relational database software to manage and mine large
volumes of complex data.
- LUCENT CENTREVU INTERNET SOLUTIONS: facilitates electronic interactions
through the Internet as well as management and control of Web content.
- MARKETSWITCH REAL TIME OPTIMIZER: selects offers to be presented during
customer interactions based on customer demographics, business rules and
responses to questions.
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- ONESOFT CLICK STREAM TECHNOLOGY: when installed on a client website
through iSKY, provides our customer relationship associate with
information as to the recent Internet sites a customer requesting
assistance has been viewing.
- COLDFUSION: cross-platform Web application which enables Web developers to
develop large volume, transaction intensive Web applications for
electronic commerce and business automation.
- REDBRICK: software for dimensional data warehouses, databases and
associated tool sets.
Our multi-channel technology provides our clients' customers with the
ability to communicate with us using the communications medium of their choice.
They can contact us using traditional 800 numbers, facsimiles through e-mail, or
interactively while browsing on our clients' websites. While on the Web,
customers can communicate with us by clicking on the "Customer Service" button
or the iSKY bell displayed on the site. Clicking on the button will create
either a Web text chat, or facilitate an automated telephone callback, depending
on the customer's preference. The iSKY customer relationship associates will be
able to view the same Web page as the customer and answer questions or guide
them through a check-out process or other Web procedure.
If the customer has a multi-media enabled computer, the customer will be
able to use a Java-enabled browser to access the Web. While browsing a website,
the customer may click on a button on the Web page to talk to a customer
representative without ending the browsing session and waiting for a callback.
Our software facilitates navigating calls over the Internet through difficult
protocols often found in corporate firewalls, while maintaining security. The
communications center Internet telephony gateway, or ITG, downloads a
mini-application to the customer's computer. The application provides the
customer with call status messages as well as the interface through which the
customer drops the call, conducts text chat or types in data to collaborate with
the customer relationship agent.
Our current platform is best described as a hub and spoke design. Our
central processors, constitute the hub and control the processing at all
communications centers as well as the Oracle data stores for all clients. They
are backed up on a nightly, weekly, and monthly rotation using a five tape
strategy (two days rolling, two weeks rolling and monthly). Each server is
protected by Hewlett Packard's most comprehensive level of customer support. We
utilize a RAID5 strategy, the highest level of disc drive redundancy. This
strategy uses a redundant array of disk drives to write data and algorithms that
provided for the automatic recovery of a failed disk drive. We also have
multiple central processing units, or CPUs, for each server to protect against
CPU failure.
We plan to move our server processing to our communications centers and
utilize the hub and spoke design as a backup to decentralized CPU processing. We
also plan to utilize the Internet as a backup to our frame relay network. We are
currently implementing redundancy for our e-mail, facsimile, and Internet
services. Our backup and disaster recovery plan will be updated as each new
network component is layered into our infrastructure.
EMPLOYEES
As of December 30, 1999 we had 1,137 associates. We have 1,022 associates in
our communications centers, including customer relationship associates and
supervisors, of which 701 were permanent associates and 321 were contract
associates. Our corporate organization includes 147 associates including 20
executives, financial and administrative personnel, 33 account services
associates who are responsible for day-to-day management of our programs, 38
associates in our information technology organization, and 20 associates in our
sales organization. We also have six associates in our on-line product
development team. We plan to continue to expand our associate base as we expand
our business.
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HIRING
The hiring, training and retention of customer relationship associates in
our communications centers is critical to our business. We have located our
customer communications centers in suburban areas of Maryland, Indiana,
Wisconsin, and Quebec where the labor demographics are best suited to our
recruiting needs. These communities offer a large, mature, college-educated
labor pool, primarily made up of middle to upper income families. We carefully
screen applicants for relevant skills and professional behavior and introduce
them to the requirements of the position.
TRAINING
Thorough training of customer relationship associates is the key to the
success of iSKY programs. Our customer relationship associates must be
Internet-savvy customer service experts who are knowledgeable about the client's
website, the client's products and services, and the client's policies and
processes. The new iSKY customer relationship associate is taught the essential
elements of high quality customer interactions, effective listening skills, how
to handle different customer profiles in a myriad of situations, and also how to
utilize iSKY's Windows-based desktop customer interaction technology. The "basic
training" program lasts approximately two weeks. Subsequently, the associate is
introduced to and trained in the particulars of the client program on which he
or she will work.
RETENTION
We offer competitive compensation packages with attractive benefits as well
as scheduling flexibility and an array of career path opportunities. In
addition, to maintain the quality of our associates, we have ongoing reviews of
each customer relationship associate and provide structured feedback and
reinforcement.
COMPETITION
The outsourced customer care market is competitive and evolving. We expect
competition to persist and intensify in the future. Our competitors include new
on-line interaction solutions providers and traditional customer interaction and
call center outsourcers. We also compete against the in-house customer service
departments of companies. New on-line interaction and electronic service
solutions providers include Brigade Solutions, LivePerson and PeopleSupport.
Established large call center outsourcers that have announced on-line
capabilities include APAC, ICT Group, Precision Response Corp. and TeleSpectrum.
We expect that more call center outsourcers will develop and announce on-line
capabilities in the next year.
FACILITIES
We lease properties in California, Illinois, Indiana, Maryland, New Jersey
and Wisconsin. In Columbia, Maryland, we lease 7,703 square feet of office space
for our headquarters. In Laurel, Maryland, Lafayette, Indiana, Cedar Knolls, New
Jersey Montreal, Canada and Milwaukee, Wisconsin we lease an aggregate of 44,452
square feet of office space for our communications centers and data centers. In
addition, we have executed a letter of intent to lease 42,027 square feet in
Bend, Oregon to locate our planned communications center.
PENDING LITIGATION
From time to time, we are involved in litigation incidental to our business.
In our opinion, no litigation to which we are currently a party is likely to
have a materially adverse effect on our results of operations or financial
condition.
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MANAGEMENT
The following table sets forth information with respect to our executive
officers and key associates.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- -------- --------
<S> <C> <C>
Richard T. Hebert.............. 41 President, Chief Executive
Officer and Director
Raymond J. Zukowski............ 39 Chief Operating Officer,
Secretary
Mark F. Yanson................. 41 Chief Financial Officer,
Treasurer
Mark E. Malnati................ 40 Chief Information Officer
Steven G. Krumenaker........... 45 Chief Technology Officer
Bradley Steer.................. 38 Senior Vice President of
Sales
Richard Taylor................. 36 Senior Vice President of
Client Relations
Patrick Drimmer................ 31 Vice President, Operations
Wendy E. Jones................. 33 Vice President, Account Services
Lorraine Miano-Fike............ 35 Vice President, Human Resources
Ruthanne Kurtas................ 35 Vice President of Marketing
Michael S. Fisher.............. 39 Director
Stephen J. Getsy............... 54 Director
Steven J. Gilbert.............. 52 Director
Walter G. Lohr, Jr............. 55 Director, Chairman of
the Board
Walter P. Maner, IV............ 32 Director
Gary H. Neems.................. 46 Director
Charles W. Stryker............. 52 Director
</TABLE>
RICHARD T. HEBERT. Mr. Hebert joined iSKY in 1992 as Senior Vice President.
He was Chief Operating Officer in 1993 and President, Chief Executive Officer
and a Director in 1995. Prior to joining iSKY, Mr. Hebert held various
management positions at Danbury Mint, a direct marketing company, serving most
recently as its head of operations. Mr. Hebert holds a B.A. from Kenyon College
in Gambier, Ohio.
RAYMOND J. ZUKOWSKI. Mr. Zukowski joined iSKY as Chief Operating Officer in
August 1999 and became Secretary in January 2000. Prior to joining iSKY, since
July 1996, Mr. Zukowski held several positions at APAC, a publicly traded,
teleservices outsourcing company, most recently as Senior Vice President of
Customer Solutions and Process Development. Between July 1995 and July 1996 he
served as a re-engineering specialist for Oxford Health. From September 1993 to
January 1994 he served as Director of Operations / Customer Services for
Montgomery Ward and served as their Vice President, Customer Service and
Operations from January 1994 to July 1995. Mr. Zukowski holds a B.A. in business
administration and marketing from Sacred Heart University.
MARK F. YANSON. Mr. Yanson joined iSKY as Chief Financial Officer and
Treasurer in January 2000. Prior to joining iSKY, from May 1997 to
December 1999, Mr. Yanson was Chief Financial Officer, Treasurer and Senior Vice
President of Panurgy Corporation, a consolidation company. From August 1995
through May 1997, Mr. Yanson served as Chief Financial Officer, Treasurer and
Senior Vice President of Greenspring Health Services, a national behavioral
healthcare company. From August 1990 to August 1995, Mr. Yanson served as
Greenspring Health Services'
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Corporate Controller. Mr. Yanson holds a B.A. from Towson University and an
M.B.A. from Loyola College. Mr. Yanson is a Certified Public Accountant.
MARK E. MALNATI. Mr. Malnati joined iSKY as Chief Information Officer in
October of 1999. Prior to joining iSKY, Mr. Malnati served as principal
consultant, director, and unit delivery manager at Cap Gemini America, a
management consulting and information technology services provider. From
November 1992 to May 1996, Mr. Malnati was director and senior systems manager
of the Montgomery Ward Product Service Division. Mr. Malnati holds a B.A. in
business administration from the University of Washington and an M.B.A. from
Seattle University.
STEVEN G. KRUMENAKER. Mr. Krumenaker joined iSKY as Chief Technology
Officer in March, 1998. Prior to joining iSKY, from March, 1991 to March, 1998,
Mr. Krumenaker was employed by LCS Industries, a publicly owned service bureau
to the direct marketing industry, most recently as Vice President of Operations.
Prior to his position as Vice President of Operations, Mr. Krumenaker served as
the Vice President of Technical Services for LCS, from June, 1993 to June 1996.
Before working at LCS, Mr. Krumenaker served in several positions including Vice
President of Operations, Director of Telemarketing, and Director of MIS and
Consulting Services with Trinet, Inc., a national direct marketing information
services company and business list compiler. Mr. Krumenaker holds both a Master
of Engineering in Operations Research and a B.S. in Industrial Engineering with
a specialization in Computer Science from Cornell University, in addition to an
M.B.A. from Rutgers University.
BRADLEY STEER. Mr. Steer joined iSKY as Senior Vice President of Sales in
March 1999. Prior to joining iSKY, Mr. Steer was Vice President of Sales for
Conxus, a privately-held wireless company since October 1996. Mr. Steer held
several positions at Skytel from October 1993 to October 1996, most recently
serving as general manager of strategic accounts. Mr. Steer served in a variety
of senior sales positions at Sprint Communications from January 1987 to
October 1993, including three years as Director of Sales operations at Sprint's
Corporate headquarters. Mr. Steer holds a B.A. in business administration and
economics from the University of New Hampshire.
RICHARD TAYLOR. Mr. Taylor joined iSKY in January, 2000 as Senior Vice
President of Client Relations. Prior to joining iSKY, Mr. Taylor had been Vice
President of Sales and Account Services for Accoudent Health Services since
October, 1998. From June 1996 to October 1998, Mr. Taylor was a business unit
leader at Oxford Specialty Management. From August, 1994 to May 1996 Mr. Taylor
served as Director of Real Estate for Oxford Health Plans. Mr. Taylor holds a
B.S. from Massey University and a Masters of Science from New York University.
PATRICK DRIMMER. Mr. Drimmer joined iSKY as Vice President of Operations in
October 1999. Prior to joining iSKY, from March 1999 to October 1999,
Mr. Drimmer was Director of Commercial Sales and Customer Service for Office
Depot's Corporate Call Center. From November 1997 to March 1999, Mr Drimmer
served as Regional Director of Operations for APAC. From May 1996 to November
1997, Mr. Drimmer served as Project Operations Manager for Precision Response
Corp. From February 1992 to May 1996, Mr. Drimmer served as Operations Manager
for Budget-Rent-A-Car. Mr. Drimmer holds a Bachelor's degree in Business
Administration and Computer Information Systems from the University of Munich,
Germany.
WENDY E. JONES. Ms. Jones joined iSKY in October, 1991. From 1994 until
1996, Ms. Jones directed all of iSKY's Communications Center Operations, and
most recently is responsible for heading up its Account Services group.
Ms. Jones holds a BA from the University of Connecticut and an M.B.A. from
Loyola College.
LORRAINE MIANO-FIKE. Ms. Miano-Fike joined iSKY in October 1999 as Vice
President of Human Resources. Prior to joining iSKY, from January 1995 to
October 1999, she headed up the Human
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Resources function on the East Coast for Jones Communications/Comcast, a
telecommunications provider. Ms. Miano-Fike held positions with CIGNA
Corporation's Insurance Services from June 1986 to December 1994.
Ms. Miano-Fike holds a B.A. from Cornell University's school of Industrial and
Labor Relations and an M.A. in Organization Development from American
University.
RUTHANNE KURTAS. Ms. Kurtas joined iSKY as Vice President of Marketing in
January 2000. Prior to joining iSKY, from April 1998 to November 1999, Ms.
Kurtas served as Senior Marketing Manager for Columbia Energy Group, a start up
energy utility. From February 1997 to April 1998, Ms. Kurtas served as Customer
Marketing Manager for MCI. From May 1994 to February 1997, Ms. Kurtas served as
a managing associate and senior associate for PricewaterhouseCoopers. Ms. Kurtas
holds an M.B.A. from the Darden School of Business of the University of Virginia
and a B.B.A. from the Wharton School of the University of Pennsylvania.
MICHAEL S. FISHER. Mr. Fisher has served on our board of directors since
October 1998. Since 1995, Mr. Fisher has been with GE Equity, a subsidiary of
General Electric Corporation, which invests in growth companies, and is
currently serving as Managing Director and Co-Head of the Financial Services
Group for GE Equity. Mr. Fisher joined General Electric Capital Corporation in
1989 as a member of the Corporate Finance Group. From 1991 to 1995, Mr. Fisher
was involved in General Electric Capital Corporation's merger and acquisition
activities focused on building General Electric Capital Corporation's life and
consumer insurance business. Mr. Fisher holds a B.A. from Hamilton College and
an M.B.A. from Columbia Business School.
STEPHEN J. GETSY. Mr. Getsy has served on our board of directors since
February 1996. Mr. Getsy is the co-founder and chief executive officer of
On-Line Ventures-Registered Trademark-, a position he has held since
November 1993. Mr. Getsy holds a B.S. in Mathematics/Education from Indiana
University of Pennsylvania, an M.S. in Computer Science from New York University
and is a graduate of the Executive Program in Business Administration at
Columbia University. Mr. Getsy is also a director of Daleen Technologies, Inc.
STEVEN J. GILBERT. Mr. Gilbert joined our board of directors in February
2000. Mr. Gilbert serves as Managing Director of Gilbert Global Equity Partners,
which he founded in 1997. Prior to forming Gilbert Global Equity, Mr. Gilbert
was founder and Managing Partner of Soros Capital. Mr. Gilbert holds degrees
from the Wharton School of the University of Pennsylvania, Harvard Law School
and Harvard Graduate School of Business Administration.
WALTER G. LOHR, JR. Mr. Lohr has served on our board of directors since
October, 1995. Mr. Lohr has been a partner in the law firm of Hogan & Hartson
LLP for more than five years. Mr. Lohr is also on the board of directors of
Danaher Corporation. Mr. Lohr holds a B.A. from Princeton University and a
L.L.B. from Yale University.
WALTER P. MANER, IV. Mr. Maner joined our board of directors in
January 2000. Mr. Maner is Vice President of Acquisitions for Internet Capital
Group, which he joined in April of 1999. Prior to Internet Capital Group, from
February 1997 to March 1999, Mr. Maner served as Vice President at TL Ventures,
where he lead the firm's investments in WebLogic, Naviant, Conduit Software and
Celarix. Before TL Ventures, from August 1995 to February 1997, Mr. Maner served
as a Senior Associate at Safeguard Scientifics. Prior to Safeguard, from
January 1992 to August 1995, Mr. Maner was a founder and chief executive officer
of Urban Alternatives in Baltimore, Maryland. Mr. Maner holds a B.A. from the
University of Richmond and an M.B.A. from the Wharton School.
GARY H. NEEMS. Mr. Neems has served on our board since February 1996. Since
May 1995, Mr. Neems has been a Managing Director of Advanta Partners LP, a
venture fund. Prior to joining Advanta Partners, from August 1993 to May 1995,
Mr. Neems was a Managing Director and Partner of Clipper Capital Partners, an
investment affiliate of CS First Boston. Mr. Neems holds an M.B.A. in
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<PAGE>
Finance and a B.A. in Chemistry from the University of Rochester. Mr. Neems also
serves on the board of directors of RMH Teleservices, Inc.
CHARLES W. STRYKER, PH.D. Mr. Stryker has served on our board since
November 1998. Mr. Stryker is the Chairman and Chief Executive Officer of
Naviant. Mr. Stryker served as the president of Intelliquest Information Group
from February 1998 to September 1999. Mr. Stryker was the president of the
Information Technology Forum, Inc. from May 1992 to June 1999. Mr. Stryker is
also on the board of 24/7 Media Corporation (TFSM). Mr. Stryker holds a B.S and
M.B.A. from the School of Science and Engineering of New York University, as
well as a Ph.D. in operations research.
BOARD STRUCTURE AND COMMITTEES
Our articles of incorporation and bylaws provide for a board of directors
that will be elected for three-year terms until their successors have been duly
elected, or until such director's earlier death, resignation or removal. Our
board of directors is currently classified into three classes with the term of
office of one class expiring in each year. Messrs. Getsy, Hebert and Stryker
have a three-year term expiring in 2003. Messrs. Gilbert and Lohr have two-year
terms expiring in 2002. Messrs. Fisher, Maner and Neems have one-year terms
which expire at the annual stockholders meeting.
Our bylaws provide that our board of directors may designate one or more
board committees. We currently have an audit committee and a compensation
committee.
Our audit committee, currently comprised of Messrs. Fisher, Maner, Lohr and
Neems:
- recommends to our board of directors the independent auditors to conduct
the annual audit of our books and records;
- reviews the proposed scope and results of the audit;
- approves the audit fees to be paid;
- reviews accounting and financial controls with the independent public
accountants and our financial and accounting staff; and
- reviews and approves transactions between us and our directors, officers
and affiliates.
Our compensation committee, currently comprised of Ms. Meyering and
Messrs. Getsy and Hollin:
- reviews and recommends the compensation arrangements for management,
including the compensation for our president and chief executive officer;
- establishes and reviews general compensation policies with the objective
to attract and retain superior talent, to reward individual performance
and to achieve our financial goals; and
- administers our stock option plans.
Our finance committee, comprised of Messrs. Fisher, Neems, Maner and Hebert:
- reviews our quarterly and annual financial statements; and
- reviews and recommends financing transactions including sales of stock and
incurrences of debt.
EMPLOYMENT AGREEMENTS
We have employment agreements with Richard Hebert, Steven Krumenaker,
Bradley Steer and Raymond Zukowski. The following is a brief description of each
of these agreements.
Our agreement with Mr. Hebert became effective as of January 17, 1995. The
agreement automatically renews for one year periods until terminated. The
agreement terminates immediately upon the death or disability of Mr. Hebert,
upon written notice by us of termination for cause or upon
39
<PAGE>
60 days written notice by us of termination without cause. Cause is defined
generally as fraud or embezzlement, conviction of a felony or willful misconduct
or gross negligence. For a period of two years after the last payment of salary
Mr. Hebert is entitled to receive under the agreement, the employee may not,
without prior written consent of iSKY, engage directly or indirectly in any
business activity which is competitive with us business within the geographic
area in which our business is being conducted. Mr. Hebert agreed to keep
strictly confidential any confidential or secret aspect our business.
Our agreement with Mr. Krumenaker became effective as of March 16, 1998. The
agreement automatically renews for one year periods until terminated. The
agreement terminates immediately upon the death or disability of Mr. Krumenaker,
upon written notice by us of termination for cause or termination by us without
cause. Cause is defined generally as fraud or embezzlement, conviction of a
felony or willful misconduct or gross negligence. Upon termination for cause,
Mr. Krumenaker will receive one week's severance for each month of employment up
to 24 weeks. On termination without cause, the Mr. Krumenaker will receive one
week's severance for each month of employment up to 24 weeks, and with a minimum
of 12 weeks, unless the termination without cause is due to our shutting down
either the Database Unit or our New Jersey office, in which case, the severance
shall be set at 24 weeks regardless of the number of weeks accrued. During the
period from the last day of employment and for the entire time Mr. Krumenaker is
receiving salary or severance compensation (except if severance is a result of
our shutting down either the Database Unit or our New Jersey office), Mr.
Krumenaker may not, without our prior written consent, engage directly or
indirectly in any business activity which is competitive with our business
within the geographic area in which our business is being conducted. Mr.
Krumenaker agreed to keep strictly confidential any confidential or secret
aspect our business.
Our agreement with Mr. Steer became effective as of March 15, 1999. The
initial term of the agreement was for one year commencing as of the effective
date. The term of employment automatically renews for additional one year
periods until terminated. The agreement terminates immediately upon the death or
disability of Mr. Steer, upon written notice by us of termination for cause or
termination by us without cause. Cause is defined generally as fraud or
embezzlement, conviction of a felony or willful misconduct or gross negligence.
Upon termination for cause, Mr. Steer will receive one weeks severance for each
month of employment up to 24 weeks. Upon termination without cause, Mr. Steer
will receive one week's severance for each month of employment up to 24 weeks,
and with a minimum of 12 weeks. During the period from the last day of
employment and for the entire time Mr. Steer is receiving salary or severance
compensation, Mr. Steer may not, without our prior written consent, engage
directly or indirectly in any business activity which is competitive with our
business within the geographic area in which our business is being conducted.
Mr. Steer agreed to keep strictly confidential any confidential or secret aspect
of our business.
Our agreement with Mr. Zukowski became effective as of August 16, 1999. The
initial term of the agreement was for one year commencing as of the effective
date. The agreement automatically renews for one year periods until terminated.
The agreement terminates immediately upon the death or disability of Mr.
Zukowski, upon written notice by us of termination for cause or termination by
us without cause. Cause is defined generally as fraud or embezzlement,
conviction of a felony or willful misconduct or gross negligence. Upon
termination for cause, Mr. Zukowski will receive one week's severance for each
month of employment up to 24 weeks. Upon termination without cause, Mr. Zukowski
will receive one week's severance for each month of employment up to 24 weeks,
and with a minimum of 12 weeks. During the period from the last day of
employment and for the entire time Mr. Zukowski is receiving salary or severance
compensation, Mr. Zukowski may not, without our prior written consent, engage
directly or indirectly in any business activity which is competitive with our
business within the geographic area in which our business is being conducted.
Mr. Zukowski agreed to keep strictly confidential any confidential or secret
aspect of our business.
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<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the compensation paid to our chief executive
officer and the other most highly paid executive officers whose total salary and
bonus exceed $100,000, whom we refer to as our named executive officers:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION
COMPENSATION ---------------------
------------------- OTHER ANNUAL SECURITIES UNDERLYING
YEAR SALARY BONUS COMPENSATION OPTIONS/SAR'S
-------- -------- -------- ------------- ---------------------
<S> <C> <C> <C> <C> <C>
Richard T. Hebert,
President and Chief Executive Officer............. 1999 $197,365 $30,000(1) $ 4,430 40,000
1998 $175,000 -- $ 4,430 --
1997 $173,846 -- $ 2,545 20,100
Raymond J. Zukowski,
Chief Operating Officer......................... 1999(2) $ 68,654 $25,000 $10,237 135,000
1998 -- -- -- --
1997 -- -- -- --
Steven G. Krumenaker,
Chief Technology Officer........................ 1999 $173,713 $ 9,731 $ -- --
1998(3) $112,500 -- -- 40,000
1997 -- -- -- --
Bradley Steer
Senior Vice President of Sales.................. 1999(4) $112,499 $45,000 $52,200 56,000
1998 -- -- -- --
1997 -- -- $ -- --
</TABLE>
- ------------------------------
(1) Mr. Hebert received a $30,000 bonus in 1999 that was earned in 1998. The
bonus was immediately converted into 3,750 shares of common stock.
(2) Mr. Zukowski began employment with iSKY on August 16, 1999 at which time he
received a signing bonus of $25,000 and iSKY paid his relocation expenses of
$10,237.
(3) Mr. Krumenaker began employment with iSKY on March 16, 1998.
(4) Mr. Steer began employment with iSKY on March 15, 1999. iSKY paid Mr.
Steer's relocation expenses of $50,000.
GRANT OF STOCK OPTIONS IN FISCAL 1999
The following table shows information regarding options granted to the named
executive officers during 1999.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
--------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF OF
SECURITIES TOTAL OPTIONS EXERCISE STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO OR BASE FOR OPTION TERM
OPTIONS EMPLOYEES PRICE EXPIRATION ---------------------------
NAME GRANTED IN 1999 ($/SHARE) DATE 5% 10%
- ---------------------------- ---------- ------------- --------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Richard T. Hebert........... 40,000 7.3% $8.00 12-16-09(1) $201,200 $ 510,000
Raymond J. Zukowski......... 110,000 20.1% $8.00 10-14-09(2) $553,300 $1,402,500
25,000 4.6% $8.00 12-16-09(2) $125,750 $ 318,750
Steven G. Krumenaker........ -- -- -- -- -- --
Bradley Steer............... 56,000 10.2% $8.00 3-15-09(3) $281,680 $ 714,000
</TABLE>
- ------------------------
(1) Options are subject to a one-year vesting schedule.
(2) Options are subject to a four-year vesting schedule, with the exception of
20% of the options granted vesting immediately.
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<PAGE>
(3) Options are subject to a four-year vesting schedule.
YEAR-END OPTIONS VALUES
The following table shows the number of unexercised options at December 31,
1999. None of the executive officers had exercised any options to purchase
common stock as of December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED IN-THE-
UNEXERCISED OPTIONS AT MONEY OPTIONS AT
DECEMBER 31, 1999 DECEMBER 31, 1999
--------------------------- -----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
Richard T. Hebert.............................. 230,100 40,000
Raymond J. Zukowski............................ 27,000 108,000
Mark Malnati................................... 8,000 32,000
Steven G. Krumenaker........................... 10,000 30,000
Bradley Steer.................................. -- 56,000
</TABLE>
EMPLOYEE STOCK PURCHASE PLAN.
Our employee stock purchase plan, which will become effective upon the
closing of this offering, provides for the issuance of up to shares
of common stock. This plan, which is intended to qualify under Section 423 of
the Internal Revenue Code, provides our employees with an opportunity to
purchase shares of our common stock through payroll deductions.
All of our employees, including directors who are employees, are eligible to
participate in the purchase plan. Options to purchase our common stock will
initially be granted to each eligible employee on the first trading day on or
after the date of the initial public offering. Thereafter, options will be
granted on the first trading day on or after January 1 of each year, or such
other date as determined by the administrator. Each option will terminate on the
last trading day of a period specified by the administrator and no option period
will be longer than 27 months in duration. Subsequent option periods of equal
duration will consecutively follow, unless the administrator determines
otherwise.
Each option represents a right to purchase shares of our common stock. The
administrator determines the purchase price of each share of common stock,
provided that the purchase price will never be less than the lesser of 85% of
the fair market value of the common stock at the beginning or end of the option
period.
Any employee who immediately after a grant owns 5% or more of the total
combined voting power or value of our capital stock may not be granted an option
to purchase common stock under the purchase plan. Participation may also be
limited where rights to purchase stock under all other purchase plans accrue at
a rate which exceeds $25,000 of the fair market value of our common stock for
each calendar year.
STOCK INCENTIVE PLAN.
In February, 2000, we amended our stock incentive plan to promote our
long-term growth and profitability by providing our people with incentives to
improve stockholder value and contribute to our growth and financial success. We
believe the plan will assist us in attracting, retaining and rewarding the best
available people.
The compensation committee of our board of directors has been given broad
authority to administer our stock incentive plan. The compensation committee may
grant the following types of awards under our stock incentive plan to our
employees, officers, directors and consultants.
- incentive and nonstatutory stock options
- stock appreciation rights
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<PAGE>
- restricted and unrestricted stock awards
- phantom stock awards
- performance awards
- other stock-based awards
The compensation committee determines the size and terms of all awards under
the plan. However, no more than an aggregate of 2,825,432 shares of our common
stock, plus the number of any shares surrendered to us in connection with any
award, may be issued under stock incentive plan awards. This limitation on the
aggregate number of shares issued under the plan may be adjusted for future
stock dividends, spin-offs, split-ups, recapitalizations, mergers,
consolidations, business combinations, exchanges of shares and the like.
As of December 31, 1999, a total of 149 employees, officers, directors and
key consultants hold options to purchase 1,026,574 shares of our common stock.
Of this number, 657,815 options are vested.
The stock incentive plan terminates automatically in 2010, but our board of
directors may amend or terminate it at any time.
The following is a summary of the types of awards that we may grant under
our stock incentive plan.
STOCK OPTIONS. The compensation committee may grant options to purchase
shares of our common stock intended to qualify as incentive stock options under
the Internal Revenue Code and options that do not qualify as incentive stock
options. The exercise price of each option will be determined by the
compensation committee, but the exercise price of any incentive stock option may
not be less than the fair market value of our common stock on the date of grant.
The term of each option will be fixed by the compensation committee, but the
term of any incentive stock option may not exceed 10 years from the date of
grant. The compensation committee will determine the vesting of each option and
the period of time, if any, after retirement, death, disability or termination
of employment during which options may be exercised. Options may vest in
installments. The vesting of options may be accelerated by the Compensation
Committee.
To exercise an option, the optionee must pay the exercise price in full
either in cash or cash equivalents or by delivery of shares of common stock
already owned by the optionee. The exercise price may also be delivered by a
broker under irrevocable instructions to the broker from the optionee.
STOCK APPRECIATION RIGHTS. The compensation committee may grant a right to
receive a number of shares, an amount in cash or a combination of shares and
cash, based on the increase in the fair market value of the shares of our common
stock underlying the right during a period specified by the compensation
committee. The compensation committee may grant these stock appreciation rights
alone or in connection with stock options. Upon exercise of a stock appreciation
right that is related to a stock option, the holder will surrender the option
for the number of shares as to which the stock appreciation right is exercised
and will receive payment of an amount computed as described in the stock
appreciation right award. A stock appreciation right granted in connection with
a stock option will usually be exercisable at the time or times, and only to the
extent that, the related stock option is exercisable and will not be
transferable except to the extent the related option is transferable.
RESTRICTED AND UNRESTRICTED STOCK. The compensation committee may also
award shares of our common stock to participants. These stock awards may be
conditioned on the achievement of performance goals and/or continued employment
with us through a specified restriction period. If the performance goals and any
other restrictions are not attained, the holder will forfeit his or her
restricted shares. The compensation committee may also grant shares of common
stock that are free from any restrictions under the stock incentive plan.
Unrestricted shares of common stock may be issued to participants in recognition
of past services or in lieu of cash compensation. The purchase
43
<PAGE>
price, if any, for shares of our common stock under stock awards will be
determined by the compensation committee.
PHANTOM STOCK AWARDS. The compensation committee may also grant phantom
stock awards to participants. These awards are contractual rights that are
equivalent in value to, but not actual shares of, our common stock. Phantom
stock awards may be conditioned on the achievement of performance goals and/or
continued employment with us through a specified date. The compensation
committee will determine the time or times when a participant will be paid the
value of the phantom stock award, and the payment may be in cash, in shares of
our common stock or in a combination of cash and common stock. Because phantom
stock awards are not actual shares of our common stock, they do not have any
voting rights.
PERFORMANCE STOCK AWARDS. The compensation committee may also grant
performance stock awards to receive shares of our common stock upon achievement
of performance goals and other conditions determined by the compensation
committee.
OTHER STOCK-BASED AWARDS. The compensation committee is authorized to grant
to participants other awards that may be based on or related to our common stock
or other securities. These could include:
- convertible or exchangeable debt securities;
- other rights convertible or exchangeable into shares;
- purchase rights for shares or other securities; and
- incentive awards with value and payment contingent upon performance.
The compensation committee will determine whether other stock-based awards
will be paid in our common stock, other securities, cash or a combination of
these mediums.
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<PAGE>
CERTAIN TRANSACTIONS
Richard M. Berkeley, a former director and current stockholder of iSKY, is a
Managing Director of Deutsche Bank Securities Inc., which has been retained as
one of our managing underwriters in connection with this offering and as a
placement agent in connection with our recently completed private placement of
Series BB convertible preferred stock.
In October 1998, we issued 1,000,000 shares of Series AA convertible
preferred stock to General Electric Capital Corporation for an aggregate
purchase price of $8,000,000.
In February 2000, we issued 1,260,775 shares of Series BB convertible
preferred stock to Gilbert Global Equity Partners, L.P., FG-Sky, L.L.C., Ingram
Industries Inc., The Interpublic Group of Companies, Inc., General Electric
Capital Corporation and 1999 Internet Capital L.P. for an aggregate price of
$30,000,000.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth as of February 3, 2000 the number of shares
of iSKY capital stock and the percentage of the outstanding shares of iSKY
capital stock that are beneficially owned by:
- each person that is the beneficial owner of more than 5% of the
outstanding shares of capital stock;
- each director; and
- the executive officers.
Shares beneficially owned includes shares of common stock held by a person
plus the number of shares of common stock issuable to that person on conversion
of preferred stock or exercise of options held by the person exercisable within
60 days. Except as noted, each stockholder possesses sole voting and investment
power with respect to the shares listed. Unless otherwise noted, the address of
each of the stockholders below is c/o iSKY, Inc., 6740 Alexander Bell Drive,
Suite 300, Columbia, Maryland 21046.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED
THE OFFERING AFTER THE OFFERING
---------------------- ----------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- ---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Richard T. Hebert.................................. 230,300 4.8% 230,300 %
Raymond J. Zukowski................................ 27,000 *% 27,000 %
Mark F. Yanson..................................... 11,000 *% 11,000 %
Mark E. Malnati.................................... 8,000 *% 8,000 %
Steven G. Krumenaker............................... 20,000 *% 20,000 %
Michael S. Fisher (1)
General Electric Capital Corporation
120 Long Ridge Road
Stamford, CT 06927............................... 1,000,000 22.0% 1,000,000 %
Stephen J. Getsy (2)............................... 62,796 1.4% 62,796 %
Walter G. Lohr, Jr................................. 99,375 2.2% 99,375 %
Walter P. Maner, IV (3)
Internet Capital Group, L.L.C.
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945............................. 1,394,513 30.7% 1,394,513 %
Gary H. Neems (4)
Advanta Partners, L.P.
712 Fifth Avenue, 28(th) Floor
New York, NY 10019-4102.......................... 952,380 21.0% 952,380 %
Charles W. Stryker (5)............................. 16,000 *% 16,000 %
Internet Capital Group, L.L.C. (6)
800 The Safeguard Building
435 Devon Park Drive
Wayne, PA 19087-1945............................. 1,646,668 36.3% 1,646,668 %
General Electric Capital Corporation
120 Long Ridge Road
Stamford, CT 06927............................... 1,084,052 23.9% 1,084,052 %
Advanta Partners L.P.
712 Fifth Avenue, 28(th) Floor
New York, NY 10019-4102.......................... 952,380 21.0% 952,380 %
</TABLE>
46
<PAGE>
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED BEFORE OWNED
THE OFFERING AFTER THE OFFERING
---------------------- ----------------------
NAME NUMBER PERCENTAGE NUMBER PERCENTAGE
- ---- --------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Gilbert Global Equity Partners, L.P.
c/o GGEP Investments, L.L.C.
785 Smith Ridge Road
New Canaan, Connecticut 06840.................... 672,413 14.8% 672,413 %
Directors and officers as a group.................. 3,982,301 81.8% 3,982,301
</TABLE>
- ------------------------
(1) Includes shares held by General Electric Capital Corporation. Mr. Fisher
disclaims beneficial ownership of these shares.
(2) Includes 1,394,513 shares held by Internet Capital Group, L.L.C., as to
which Mr. Getsy shares voting power. Mr. Getsy disclaims beneficial
ownership of these shares.
(3) Includes shares held by Internet Capital Group, L.L.C., as to which
Mr. Maner shares voting power. Mr. Maner disclaims beneficial ownership of
these shares
(4) Includes shares held by Advanta Partners, L.P., as to which Mr. Neems shares
voting power. Mr. Neems disclaims beneficial ownership of these shares.
(5) Includes shares held by Internet Capital Group, L.L.C. as to which
Mr. Stryker shares voting power. Mr. Stryker disclaims beneficial ownership
of these shares.
(6) Includes shares held by 1999 Internet Capital L.P., an affiliate of Internet
Capital Group, L.L.C.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this offering our authorized capital stock
will consist of 20,000,000 shares of preferred stock and 80,000,000 shares of
common stock.
The following description of our securities is not complete and is subject
to, and qualified in its entirety by, the provisions of our charter and the
other agreements described below, where the rights are established, and the
provisions of applicable law.
COMMON STOCK
As of February 3, 2000, of the 80,000,000 shares of common stock authorized,
796,349 shares of common stock are outstanding.
The holders of the common stock are entitled to one vote for each share held
of record upon the matters and in the manner as may be provided by law. Subject
to the rights of the holders of any preferred stock to receive preferential
dividends and to participate in any payment of dividends on an as-converted
basis, the holders of shares of common stock are entitled to receive ratably
dividends when, as and if, declared by the board of directors out of legally
available funds. In the event of a liquidation, dissolution or winding up of
iSKY, the holders of shares of common stock are entitled to share ratably with
one another in all assets remaining after payment of liabilities and liquidation
preferences to the holders of any preferred stock. The holders of shares of
common stock have no rights to convert their shares of common stock into any
other securities of iSKY. Other than as described herein, the holders of common
stock have no preemptive rights, subscription, redemption, sinking fund or
conversion rights. All outstanding shares of common stock are fully paid and
nonassessable.
REGISTRATION RIGHTS.
The holders of shares of our common stock have the right to request
that we file a registration statement covering sales of their shares of common
stock or to request that we include their shares in registration statements we
file. These rights are subject to conditions and limitations including the right
of underwriters of an offering to limit the number of shares included in the
registration statement.
PREFERRED STOCK
As of February 3, 2000, there were 5,293,175 shares of preferred stock
authorized of which 3,740,595 were outstanding, including:
- 127,000 shares of Series C Preferred Stock;
- 855,400 shares of Series D Preferred Stock;
- 486,438 shares of Series F Preferred Stock;
- 523,809 shares of Series G Preferred Stock;
- 523,809 shares of Series H Preferred Stock;
- 1,000,000 shares of Series AA Preferred Stock; and
- 1,260,775 shares of Series BB Preferred Stock.
All of the outstanding preferred stock is fully paid and nonassessable.
Concurrently with the closing of this offering, all of the outstanding shares of
preferred stock will be converted into shares of our common stock.
Our charter authorizes the board of directors to establish one or more
classes or series of preferred stock and to determine, with respect to any class
or series of preferred stock, preferences, rights, qualifications, limitations
and restrictions thereof.
48
<PAGE>
BUSINESS COMBINATIONS
The Maryland General Corporation Law prohibits specified "business
combinations" between a Maryland corporation and an "interested stockholder."
These business combinations include a merger, consolidation, share exchange, an
asset transfer or issuance or reclassification of equity securities. An
interested stockholder is either:
(i) anyone who beneficially owns 10% or more of the voting power of the
corporation's shares; and
(ii) an affiliate or associate of the corporation who was an interested
stockholder, or an affiliate or an associate of the interested
stockholder at any time within the two-year period prior to the date in
question.
Business combinations with interested stockholders are prohibited for five
years after the most recent date on which the stockholder became an interested
stockholder. Thereafter, any of these business combinations must be recommended
by the board of directors of the corporation and approved by the vote of:
(i) at least 80% of the votes entitled to be cast by all holders of the
corporation's voting shares; and
(ii) at least 66 2/3% of the votes entitled to be cast by all holders of the
corporation's voting shares other than voting shares held by the
interested stockholder or an affiliate or associate of the interested
stockholder.
However, these special voting requirements do not apply if the corporation's
stockholders receive the minimum price for their shares specified in the statute
and the consideration is received in cash or in the same form previously paid by
the interested stockholder for its shares.
This business combination statute does not apply to business combinations
that are approved or exempted by the corporation's board of directors prior to
the time that the interested stockholder becomes an interested stockholder. A
Maryland corporation may adopt an amendment to its charter electing not to be
subject to these special voting requirements. Any amendment would have to be
approved by at least 80% of the votes entitled to be cast by all holders of
outstanding shares of voting stock and 66 2/3% of the votes entitled to be cast
by holders of outstanding shares of voting stock who are not interested
stockholders. We have elected to be generally subject to this statute.
CONTROL SHARE ACQUISITIONS
The Maryland General Corporation Law provides that "control shares" of a
Maryland corporation acquired in a "control share acquisition" have no voting
rights unless approved by a vote of two-thirds of the votes entitled to be cast
on the matter, excluding shares owned by the acquiror or by the corporation's
officers or directors who are employees of the corporation. Control shares are
shares of voting stock which, if aggregated with all other shares of stock
previously acquired, would entitle the acquiror to exercise voting power in
electing directors within one of the following ranges of voting power:
(i) 20% or more but less than 33 1/3%;
(ii) 33 1/3% or more but less than a majority; or
(iii) a majority of all voting power.
Control shares do not include shares of stock an acquiring person is
entitled to vote as a result of having previously obtained stockholder approval.
A control share acquisition generally means the
49
<PAGE>
acquisition of, ownership of or the power to direct the exercise of voting power
with respect to, control shares.
A person who has made or proposes to make a "control share acquisition,"
under specified conditions, including an undertaking to pay expenses, may
require the board of directors to call a special stockholders' meeting to
consider the voting rights of the shares. If no request for a meeting is made,
the corporation may itself present the question at any stockholders' meeting. If
voting rights are not approved at the meeting or if the acquiring person does
not deliver an acquiring person statement as permitted by the statute, the
corporation generally may redeem any or all of the control shares, except those
for which voting rights have previously been approved. This redemption of shares
must be for fair value, determined without regard to voting rights as of the
date of the last control share acquisition or of any stockholders' meeting at
which the voting rights of the shares are considered and not approved. If voting
rights for "control shares" are approved at a stockholders' meeting and the
acquiror becomes entitled to vote a majority of the shares entitled to vote, all
other stockholders may exercise appraisal rights. The fair value of the stock
determined for purposes of appraisal rights may not be less than the highest
price per share paid in the control share acquisition. The limitations and
restrictions otherwise applicable to the exercise of dissenters' rights do not
apply in the context of a "control share acquisition."
The control share acquisition statute does not apply to stock acquired in a
merger, consolidation or share exchange if the corporation is a party to the
transaction, or to acquisitions previously approved or exempted by a provision
in the charter or bylaws of the corporation. We have elected to be generally
subject to this statute.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 2-418 of the Maryland General Corporation Law permits
indemnification of directors, officers, employees and agents of a corporation
under certain conditions and subject to limitations. Our bylaws include
provisions to require us to indemnify our directors and officers to the fullest
extent permitted by Section 2-418, including circumstances in which
indemnification is otherwise discretionary. Section 2-418 also empowers us to
purchase and maintain insurance that protects our officers, directors, employees
and agents against any liabilities incurred in connection with their service in
such positions.
At present, there is no pending litigation or proceeding involving any of
our directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
SHARES ELIGIBLE FOR FUTURE SALE
The shares of our common stock sold in this offering, or
shares if the underwriters exercise their over-allotment option in
full, will be freely tradable without restriction under the Securities Act,
except for any such shares which may be acquired by an "affiliate" of iSKY as
that term is defined in Rule 144 promulgated under the Securities Act, which
shares will remain subject to the resale limitations of Rule 144.
The shares of our common stock that will continue to be held by
directors, officers and , after this offering constitute "restricted
securities" within the meaning of Rule 144, and will be eligible for sale by
these person in the open market after this offering, subject to certain
contractual lockup provisions and the applicable requirements of Rule 144, both
of which are described below. iSKY has granted registration rights to holders of
common stock as described below.
50
<PAGE>
Generally, Rule 144 provides that a person who has beneficially owned
"restricted" shares for at least one year will be entitled to sell on the open
market in brokers' transactions within any three month period a number of shares
that does not exceed the greater of:
- 1% of the then outstanding shares of common stock; and
- the average weekly trading volume in the common stock on the open market
during the four calendar weeks preceding such sale.
Sales under Rule 144 are also subject to post-sale notice requirements and
the availability of current public information about iSKY.
In the event that any person who is deemed to be an affiliate purchases
shares of our common stock pursuant to this offering or acquires shares of our
common stock pursuant to an employee benefit plan of iSKY, the shares held by
that person are required under Rule 144 to be sold in brokers' transactions,
subject to the volume limitations described above. Shares properly sold in
reliance upon Rule 144 to persons who are not affiliates will then be freely
tradable without restriction.
Sales of substantial amounts of our common stock in the open market, or the
availability of shares for sale, could adversely affect the price of our common
stock.
Each of iSKY and its directors and executive officers have agreed that,
without the prior written consent of Chase Securities Inc. and Deutsche Bank
Securities Inc. on behalf of the underwriters, they will not, during the period
ending 180 days after the date of this prospectus, sell or otherwise dispose of
any shares of our common stock.
An aggregate of shares of our common stock are reserved for
issuance under our stock option plans. We intend to file a registration
statement on Form S-8 covering the issuance of shares of our common stock
pursuant to these plans. Accordingly, the shares issued pursuant to these stock
option plans will be freely tradable, subject to the restrictions on resale by
affiliates under Rule 144.
TRANSFER AGENT
is the registrar and transfer agent for our common stock. Its
address is and its telephone number is .
51
<PAGE>
UNDERWRITING
We have entered into an underwriting agreement with the underwriters named
below. Chase Securities Inc., Deutsche Bank Securities Inc. and William Blair &
Company LLC are acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
- ------------ ---------
<S> <C>
Chase Securities Inc........................................
Deutsche Bank Securities Inc................................
William Blair & Company LLC.................................
-------
Total.......................................................
=======
</TABLE>
This is a firm commitment underwriting. This means that the underwriters
have agreed to purchase all of the shares offered by this prospectus, other than
those covered by the over-allotment option described below, if any are
purchased. Under the underwriting agreement, if an underwriter defaults in its
commitment to purchase shares, the commitments of non-defaulting underwriters
may be increased or the underwriting agreement may be terminated, depending on
the circumstances. We have agreed to indemnify the underwriters against certain
civil liabilities under the Securities Act, or to contribute to payments the
underwriters may be required to make in respect of such liabilities.
The representatives have advised iSKY that the underwriters propose to offer
the shares directly to the public at the public offering price that appears on
the cover page of this prospectus. In addition, the representatives may offer
some of the shares to certain securities dealers at such price less a concession
of $ per share. The underwriters may also allow to dealers, and such dealers
may reallow, a concession not in excess of $ per share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and other selling terms at various
times.
iSKY has granted the underwriters an over-allotment option. This option,
which is exercisable for up to 30 days after the date of this prospectus,
permits the underwriters to purchase a maximum of additional shares
from iSKY to cover over-allotments. If the underwriters exercise all or part of
this option, they will purchase shares covered by the option at the public
offering price that appears on the cover page of this prospectus, less the
underwriting discount. If this option is exercised in full, the total price to
public will be $ million and the net proceeds to iSKY will be approximately
$ million. The underwriters have severally agreed that, to the extent the
over-allotment option is exercised, they will each purchase a number of
additional shares proportionate to the underwriter's initial amount reflected in
the above table.
The following table provides information regarding the amount of the
discount to be paid to the underwriters by iSKY. Such amount is shown assuming
both no exercise and full exercise of the underwriters' option to purchase
additional shares.
52
<PAGE>
DISCOUNT PAID BY ISKY
<TABLE>
<CAPTION>
NO EXERCISE FULL EXERCISE
----------- -------------
<S> <C> <C>
Per Share.............................................. $ $
Total.................................................. $ $
</TABLE>
iSKY estimates that the total expenses of the offering, excluding the
underwriting discount, will be approximately $ million.
We have agreed to indemnify each underwriter against all liabilities to
which they may become subject under the federal securities laws or other law,
including reimbursement of expenses, arising out of any untrue statement or
alleged untrue statement of a material fact contained in the registration
statement, including the prospectus, or the omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements not misleading, except that there is no indemnification for specific
information furnished by the underwriters. This includes contribution to any
payments which may be made by the underwriters in the event that indemnification
is not available.
iSKY, its executive officers and directors have agreed to a 180-day lock up
with respect to shares of common stock that they beneficially own,
including securities that are convertible into shares of common stock and
securities that are exchangeable or exercisable for shares of common stock. This
means that, subject to certain exceptions, for a period of 180 days following
the date of this prospectus, iSKY and those persons may not offer, sell, pledge
or otherwise dispose of iSKY securities without the prior written consent of
Chase Securities Inc. and Deutsche Bank Securities Inc.
The underwriters have reserved for sale up to shares for employees,
directors and certain other persons associated with iSKY. These reserved shares
will be sold at the public offering price that appears on the cover of this
prospectus. The number of shares available for sale to the general public in the
offering will be reduced to the extent reserved shares are purchased by these
persons. The underwriters will offer to the general public, on the same terms as
other shares offered by this prospectus, any reserved shares that are not
purchased by these persons.
Up to 20% of the shares available for sale in this offering will be
allocated to existing stockholders of iSky who have the preemptive right to
purchase shares in this offering at the price per share set forth on the cover
of this prospectus. The underwriters will offer to the public any of these
shares not purchased by existing stockholders on the same terms as other shares
offered by this prospectus.
Prior to this offering, there has been no public market for the common
stock. Consequently, the offering price for the common stock has been determined
by negotiations between iSKY and the underwriters and is not necessarily related
to iSKY's asset value, net worth or other established criteria of value. The
factors considered in these negotiations, in addition to prevailing market
conditions, included the history of and prospects for the industry in which iSKY
competes, an assessment of iSKY's management, iSKY's prospects, its capital
structure, prevailing market conditions, its results of operations in recent
periods and other factors as we deemed relevant.
Rules of the SEC may limit the ability of the underwriters to bid for or
purchase shares before the distribution of the shares is completed. However, the
underwriters may engage in the following activities in accordance with the
rules:
- Stabilizing transactions. The representatives may make bids or purchases
for the purpose of pegging, fixing or maintaining the price of the shares, so
long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions. The underwriters may
create a short position in the shares by selling more shares than are shown on
the cover page of this prospectus. If a short position is created in connection
with the offering, the representatives may engage in syndicate
53
<PAGE>
covering transactions by purchasing shares in the open market. The
representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option.
- Penalty bids. If the representatives purchase shares in the open market in
a stabilizing transaction or syndicate covering transaction, they may reclaim a
selling concession from the underwriters and selling group members who sold
those shares as part of this offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of those transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither iSKY nor the underwriters makes any representation or prediction as
to the effect that the transactions described above may have on the price of the
shares. These transactions may occur on the Nasdaq National Market or otherwise.
If these transactions are commenced, they may be discontinued without notice at
any time.
One or more members of the underwriting selling group may make copies of the
preliminary prospectus available over the Internet to certain customers through
its or their websites. The representatives expect to allocate a limited number
of shares to that member or members of the selling group for sale to brokerage
account holders.
54
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for iSKY
by Piper Marbury Rudnick & Wolfe LLP, Washington, D.C. Certain legal matters
relating to this offering will be passed upon for the underwriters by Brobeck,
Phleger & Harrison LLP, Washington, D.C.
EXPERTS
The financial statements of iSKY, Inc. as of December 31, 1999 and 1998, and
for each of the years in the three-year period ended December 31, 1999 have been
included herein and in the Registration Statement in reliance upon the reports
of KPMG LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a Registration Statement on Form S-1 under the Securities Act of 1933, as
amended, with respect to the common stock we are offering. This prospectus does
not contain all of the information contained in the Registration Statement and
the exhibits and schedules. Items are omitted in accordance with the rules and
regulations of the Commission. For further information about iSKY and our common
stock, please see the registration statement and the exhibits and schedules
filed with it. Statements in this prospectus as to the contents of any contract
or any other document referred to are not necessarily complete, and, in each
instance, if the contract or document is filed as an exhibit, reference is made
to the copy of the contract or document filed as an exhibit to the registration
statement. Each description of a document filed as an exhibit to the
registration statement is qualified in all respects by reference to the exhibit.
The registration statement, including the exhibits and schedules, may be
inspected without charge at the public reference facilities maintained by the
Commission in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's regional offices located at the North Western Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World
Trade Center, 13th Floor, New York, NY 10048, and copies of all or any part of
the registration statement may be obtained from such office after payment of
fees prescribed by the Commission. The Commission maintains a Web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission.
As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to these requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
shareholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain an Internet
site at http://www.isky.com. Our website and the information contained in it or
connected to it should not be considered incorporated into this prospectus or
the registration statement of which this prospectus is a part.
55
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Independent Auditors' Report................................ F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity............. F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
iSky, Inc.:
We have audited the accompanying consolidated balance sheets of iSky, Inc.
and subsidiary as of December 31, 1998 and 1999, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three-year period ended December 31, 1999. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of iSky, Inc.
and subsidiary as of December 31, 1998 and 1999, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles.
KPMG LLP
McLean, VA
February 4, 2000
F-2
<PAGE>
ISKY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1998 1999
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,926,447 $ 1,611,951
Accounts receivable, net.................................. 4,275,286 5,427,350
Other receivables......................................... 3,318 6,392
Prepaid expenses.......................................... 173,939 344,007
----------- -----------
Total current assets.................................. 9,378,990 7,389,700
Property and equipment, net................................. 5,187,433 6,600,640
Goodwill, net............................................... 429,739 357,098
Deposits.................................................... 122,492 134,219
----------- -----------
Total assets.......................................... $15,118,654 $14,481,657
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit............................................ $ 645,000 $ 645,000
Accounts payable.......................................... 1,753,046 2,808,896
Accrued liabilities....................................... 662,582 965,439
Deferred revenue.......................................... 29,579 15,500
Current maturies of obligations under capital leases...... 903,751 944,907
Notes payable............................................. 7,464 --
----------- -----------
Total current liabilities............................. 4,001,422 5,379,742
Obligations under capital leases, net of current
maturities................................................ 1,054,042 585,979
Other liabilities........................................... 75,985 50,394
----------- -----------
Total liabilities..................................... 5,131,449 6,016,115
----------- -----------
Convertible redeemable preferred stock...................... 1,421,154 1,421,154
----------- -----------
Commitments and contingencies
Stockholders' equity:
Series C convertible preferred stock (nonvoting), $.01 par
value, 127,000 shares authorized, issued and outstanding
at December 31, 1998 and 1999 (liquidation
preference--$96,975).................................... 1,270 1,270
Series D convertible preferred stock (voting), $.01 par
value, 855,400 shares authorized, issued and outstanding
at December 31, 1998 and 1999 (liquidation
preference--$653,025)................................... 8,554 8,554
Series G convertible preferred stock (voting), $4.50 par
value, 600,000 shares authorized, 523,809 shares issued
and outstanding at December 31, 1998 and 1999
(liquidation preference--$3,177,171).................... 2,357,140 2,357,140
Series H convertible preferred stock (voting), $6.00 par
value, 600,000 shares authorized, 523,809 shares issued
and outstanding at December 31, 1998 and 1999
(liquidation preference--$4,236,228).................... 3,142,854 3,142,854
Series AA convertible preferred stock (voting), $.01 par
value, 1,100,000 shares authorized, 1,000,000 shares
issued and outstanding at December 31, 1998 and 1999
(liquidation preference--$8,973,151).................... 10,000 10,000
Common stock, $.01 par value, 20,000,000 shares
authorized, 732,658 and 796,349 shares issued and
outstanding at December 31, 1998 and 1999,
respectively............................................ 7,327 7,963
Additional paid-in capital................................ 8,247,272 8,289,215
Accumulated deficit....................................... (5,208,366) (6,772,608)
----------- -----------
Total stockholders' equity............................ 8,566,051 7,044,388
----------- -----------
$15,118,654 $14,481,657
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
ISKY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Revenues.............................................. $18,911,691 $19,651,610 $24,010,532
Direct employee expenses.............................. 4,882,010 6,837,826 8,176,549
Other direct expenses................................. 2,506,983 3,085,400 3,431,113
Indirect expenses:
Account services.................................... 2,490,650 1,950,649 2,282,563
Information services................................ 2,869,725 3,457,354 5,116,581
----------- ----------- -----------
Total indirect expenses........................... 5,360,375 5,408,003 7,399,144
----------- ----------- -----------
General and administrative............................ 3,484,697 3,945,346 3,804,270
Sales and marketing................................... 2,132,733 1,537,721 2,606,205
----------- ----------- -----------
Income (loss) from operations......................... 544,893 (1,162,686) (1,406,749)
Interest expense, net................................. (289,613) (430,021) (157,493)
----------- ----------- -----------
Income (loss) before income taxes..................... 255,280 (1,592,707) (1,564,242)
Provision (benefit) for income taxes.................. -- -- --
----------- ----------- -----------
Net income (loss)..................................... 255,280 (1,592,707) (1,564,242)
Preferred stock dividend requirements................. (985,957) (681,615) (1,349,141)
----------- ----------- -----------
Net income (loss) applicable to common stockholders... $ (730,677) $(2,274,322) $(2,913,383)
=========== =========== ===========
Basic and diluted net income (loss) per share
applicable to common stockholders................... $ (1.02) $ (3.10) $ (3.81)
=========== =========== ===========
Shares used to compute basic and diluted net income
(loss) per share applicable to common
stockholders........................................ 718,358 732,651 764,504
=========== =========== ===========
Unaudited pro forma basic and diluted net income
(loss) per share.................................... $ (0.65)
===========
Shares used to compute unaudited pro forma basic and
diluted net income (loss) per share................. 4,505,099
===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ISKY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SERIES C SERIES D SERIES G SERIES H
CONVERTIBLE CONVERTIBLE CONVERTIBLE CONVERTIBLE
PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK PREFERRED STOCK
------------------- ------------------- --------------------- ---------------------
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT
-------- -------- -------- -------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.............. 127,000 $1,270 855,400 $8,554 523,809 $2,357,140 523,809 $3,142,854
Issuance of common stock................ -- -- -- -- -- -- -- --
Net income.............................. -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ---------- ------- ----------
Balance, December 31, 1997.............. 127,000 1,270 855,400 8,554 523,809 2,357,140 523,809 3,142,854
Issuance of common stock................ -- -- -- -- -- -- -- --
Issuance of common stock for options
exercised............................. -- -- -- -- -- -- -- --
Issuance of Series AA preferred stock,
net of issuance costs................. -- -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ---------- ------- ----------
Balance, December 31, 1998.............. 127,000 1,270 855,400 8,554 523,809 2,357,140 523,809 3,142,854
Issuance of common stock................ -- -- -- -- -- -- -- --
Issuance of common stock for options
exercised............................. -- -- -- -- -- -- -- --
Net loss................................ -- -- -- -- -- -- -- --
------- ------ ------- ------ ------- ---------- ------- ----------
Balance, December 31, 1999.............. 127,000 $1,270 855,400 $8,554 523,809 $2,357,140 523,809 $3,142,854
======= ====== ======= ====== ======= ========== ======= ==========
<CAPTION>
SERIES AA
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL
-------------------- ------------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY
--------- -------- -------- -------- ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996.............. -- $ -- 704,072 $7,041 $ 815,030 $(3,870,939) $ 2,460,950
Issuance of common stock................ -- -- 28,571 285 171,140 -- 171,425
Net income.............................. -- -- -- -- -- 255,280 255,280
--------- ------- ------- ------ ---------- ----------- -----------
Balance, December 31, 1997.............. -- -- 732,643 7,326 986,170 (3,615,659) 2,887,655
Issuance of common stock................ -- -- 10 1 -- -- 1
Issuance of common stock for options
exercised............................. -- -- 5 -- -- -- --
Issuance of Series AA preferred stock,
net of issuance costs................. 1,000,000 10,000 -- -- 7,261,102 -- 7,271,102
Net loss................................ -- -- -- -- -- (1,592,707) (1,592,707)
--------- ------- ------- ------ ---------- ----------- -----------
Balance, December 31, 1998.............. 1,000,000 10,000 732,658 7,327 8,247,272 (5,208,366) 8,566,051
Issuance of common stock................ -- -- 3,750 375 29,625 -- 30,000
Issuance of common stock for options
exercised............................. -- -- 59,941 261 12,318 -- 12,579
Net loss................................ -- -- -- -- -- (1,564,242) (1,564,242)
--------- ------- ------- ------ ---------- ----------- -----------
Balance, December 31, 1999.............. 1,000,000 $10,000 796,349 $7,963 $8,289,215 $(6,772,608) $ 7,044,388
========= ======= ======= ====== ========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ISKY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1997 1998 1999
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................... $ 255,280 $(1,592,707) $(1,564,242)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization...................... 959,886 1,427,725 1,927,057
Change in allowance for doubtful accounts.......... 21,140 (36,243) 116,671
Loss on disposal of fixed assets................... -- 50,401 14,921
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable....... (1,637,110) 482,128 (1,268,734)
(Increase) decrease in other receivables......... (131,200) 139,522 (3,074)
(Increase) decrease in prepaid expenses.......... (150,030) 74,140 (170,068)
(Increase) decrease in deposits.................. 10,484 (2,840) (11,727)
Increase in accounts payable..................... 443,986 200,575 1,055,850
Increase (decrease) in accrued liabilities....... 117,025 (95,727) 302,857
Increase (decrease) in deferred revenue.......... (298,324) (152,742) (14,079)
Increase (decrease) in other liabilities......... (9,084) (16,676) (25,591)
----------- ----------- -----------
Net cash provided by (used in) operating
activities................................... (417,947) 477,556 359,841
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.................. (978,296) (1,970,870) (2,669,705)
Proceeds from sale of property and equipment......... 162,680 -- --
Purchase of short-term investments................... (65,000) -- --
Proceeds from sale of short-term investments......... 290,341 65,000 --
----------- ----------- -----------
Net cash used in investing activities.......... (590,275) (1,905,870) (2,669,705)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from stock issuance......................... -- 7,297,575 --
Proceeds from exercise of stock options.............. -- 44 12,579
Redemption of preferred stock........................ -- (26,608) --
(Repayments) borrowings on line of credit............ 1,875,000 (1,330,000) --
Proceeds from long-term debt......................... 334,136 -- --
Principal payments on obligations under capital
leases and notes payable........................... (1,198,873) (1,451,927) (1,017,211)
----------- ----------- -----------
Net cash provided by (used in) financing
activities................................... 1,010,263 4,489,084 (1,004,632)
----------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents.................................. 2,041 3,060,770 (3,314,496)
Cash and cash equivalents, beginning of year........... 1,863,636 1,865,677 4,926,447
----------- ----------- -----------
Cash and cash equivalents, end of year................. $ 1,865,677 $ 4,926,447 $ 1,611,951
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest............... $ 343,344 $ 448,512 $ 248,675
=========== =========== ===========
Supplemental disclosure of noncash investing
activities:
Property and equipment acquired under capital lease
obligations........................................ $ 353,267 $ 1,367,913 $ 575,297
=========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND DESCRIPTION OF BUSINESS
iSky, Inc. ("iSky" or the "Company"), formerly known as Sky Alland
Research, Inc. and doing business as Sky Alland Marketing, was incorporated in
the State of Maryland in May 1984 and provides a complete outsourced customer
loyalty management solution to both electronic businesses and traditional
companies seeking to enhance their customers' on-line and off-line experience
before, during and after a purchase. The Company offers its services as an
integrated solution, which enables its clients to outsource their complete
customer loyalty management needs. The Company currently provides customer care
services to businesses in a range of industries including automotive, health
care, electronic commerce, technology and financial services.
The Company has not generated sufficient cash flows from operations to
support its current operating and capital requirements and is dependent on
financing to fund their requirements. In February 2000, the Company issued
convertible preferred stock (see Note 15).
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of iSky and its
wholly-owned subsidiary, Data Group II, Inc. All significant intercompany
transactions and balances have been eliminated in consolidation.
(B) CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. As of
December 31, 1998 and 1999, cash equivalents consisted of certificates of
deposit. Cash equivalents are carried at cost which approximates market.
(C) GOODWILL
The excess of the cost over the fair value of net tangible assets acquired
has been assigned to goodwill and is being amortized using the straight-line
method over ten years. Accumulated amortization of goodwill at December 31, 1998
and 1999 was $133,754 and $206,395, respectively.
(D) PROPERTY AND EQUIPMENT
Property and equipment are stated at cost, or fair value if acquired in a
purchase business combination. Equipment under capital leases is stated at the
lesser of the present value of future minimum lease payments at the inception of
the lease or estimated fair market value. Depreciation and amortization of
property and equipment are determined on the straight-line method, using the
lesser of the estimated useful lives or lease term as follows:
<TABLE>
<S> <C>
Computer equipment.............................. 3--5 years
Furniture and equipment......................... 5--7 years
Leasehold improvements.......................... 5--7 years
</TABLE>
The Company has adopted the provisions of SFAS No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
This Statement requires that long-lived assets and certain identifiable
intangibles, including goodwill, be reviewed for impairment whenever
F-7
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to undiscounted future net
cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured as the amount by
which the carrying amount of the assets exceeds the fair value of the assets.
Assets to be disposed of are reported at the lower of the carrying amount or
fair value less costs to sell.
(E) COMPUTER SOFTWARE
The Company capitalizes software development costs, principally contractor
fees, when incurred, for software developed for internal use. These costs are
amortized using the straight-line method over the estimated economic life of the
software, generally three to five years.
(F) REVENUES
Revenues are derived from a broad range of services involving inbound and
outbound telephonic and Internet-based communications which are customized
according to the client's needs. Revenues are generally recognized at
contractual rates as services are provided. Revenues are generated based on the
number and type of interactions with clients' customers through various
communication channels, including text chat, e-mail, telephone and facsimile.
Typically, a rate for inbound contacts for each contract is established based on
the number of minutes of interaction. The rate for outbound contacts is
established based on the number of interactions. Additionally, revenue is
recognized related to program set up costs, reporting and additional services.
Under contracts whereby specific performance measures are required, the
Company utilizes the percentage-of-completion method measured by labor hours
incurred to total estimated hours required. Estimates of costs to complete are
reviewed periodically and revised as required. Provisions are made for the full
amount of anticipated losses, if any, on all contracts in the period in which
the losses are first determinable. Changes in estimates are also reflected in
the period they become known.
(G) DEFERRED REVENUE
Deferred revenue represents billings or collections on contracts in advance
of performance of services.
(H) INCOME TAXES
The Company accounts for income taxes under the asset and liability method.
Under the asset and liability method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted statutory tax rates applicable to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on the deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-8
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(I) STOCK OPTION PLAN
Prior to January 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board ("APB") Opinion
No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES and related interpretations. As
such, compensation expense was recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January 1,
1996, the Company adopted SFAS No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
which permits entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS
No. 123 also allows entities to continue to apply the provisions of APB Opinion
No. 25 and provide pro forma net income disclosures for employee stock option
grants made in 1995 and future years as if the fair-value-based method defined
in SFAS No. 123 had been applied. The Company has elected to continue to apply
the provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS No. 123.
(J) NET INCOME (LOSS) PER SHARE
The Company computes net income (loss) per share applicable to common
stockholders in accordance with SFAS No. 128, "Earnings Per Share" and SEC Staff
Accounting Bulletin No. 98 ("SAB 98"). Under the provisions of SFAS No. 128 and
SAB 98, basic net income (loss) applicable to common stockholders is computed by
dividing the net income (loss) per share applicable to common stockholders for
the period by the weighted average number of common shares outstanding during
the period. Diluted net income (loss) per share applicable to common
stockholders is computed by dividing the net income (loss) for the period by the
weighted average number of common and dilutive common equivalent shares
outstanding during the period. The Company has presented historical basic and
diluted net income (loss) applicable to common stockholders in accordance with
SFAS No. 128. As the Company had a net loss in each of the periods presented,
basic and diluted net income (loss) per share is the same. The convertible
preferred stock converts into common stock upon the occurance of a qualifying
initial public offering, as defined. Pro forma basic and diluted net income
(loss) per share has been calculated assuming the conversion of all shares of
preferred stock outstanding at December 31, 1999 into common stock as if the
shares had converted immediately upon their issuance.
(K) USE OF ESTIMATES
The preparation of consolidated 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 consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
(L) COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement
No. 130, REPORTING COMPREHENSIVE INCOME. SFAS No. 130 establishes standards for
the reporting and display of comprehensive income and its components in the
consolidated financial statements. The Company has no components of other
comprehensive income for the years ended December 31, 1997, 1998 and 1999.
F-9
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(M) CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentration
of credit risk consist of accounts receivable.
(3) ACQUISITION
On April 1, 1996, the Company purchased all of the assets and assumed all of
the liabilities of Marcom, Inc. The purchase price was $310,000 in cash and was
financed with the Company's working capital. The transaction was accounted for
using the purchase method of accounting. The excess of the purchase price over
the estimated fair value of the tangible and identifiable intangible assets
acquired is being amortized over a period of ten years using the straight-line
method. Under the terms of the purchase agreement, the purchase price was
subject to an additional payout in common stock upon the achievement of certain
revenue and profit performance objectives. The revenue objective was met for
1996, and in connection therewith, the Company issued 28,571 shares of common
stock during 1997 to the former owners of Marcom, Inc. The additional
consideration of $171,426 was added to goodwill during 1997.
(4) ACCOUNTS RECEIVABLE
Accounts receivable consists of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
---------- ----------
<S> <C> <C>
Billed............................................... $4,342,282 $5,574,703
Unbilled............................................. 36,898 73,212
---------- ----------
4,379,180 5,647,915
Less--allowance for doubtful accounts................ (103,894) (220,565)
---------- ----------
$4,275,286 $5,427,350
========== ==========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31, 1998 and
1999:
<TABLE>
<CAPTION>
1998 1999
---------- -----------
<S> <C> <C>
Computer equipment.................................. $3,838,904 $ 4,877,658
Computer software................................... 4,212,684 5,850,866
Furniture and equipment............................. 813,445 838,090
Automobiles......................................... 24,107 24,107
Leasehold improvements.............................. 327,341 361,634
---------- -----------
9,216,481 11,952,355
Less--accumulated depreciation and amortization..... (4,029,048) (5,351,715)
---------- -----------
$5,187,433 $ 6,600,640
========== ===========
</TABLE>
F-10
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(6) NOTES PAYABLE AND LINE OF CREDIT
Notes payable consists of the following at December 31, 1998 and 1999:
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Note payable to former owner of subsidiary, interest at
8.25%. Payable in quarterly installments of $4,091
through April 1, 1999................................... $ 7,464 $ --
------- -------
7,464 --
Less current maturities................................... (7,464) --
------- -------
Notes payable, net of current maturities............ $ -- $ --
======= =======
</TABLE>
The Company has a $5.0 million secured line of credit and a $2.0 million
committed equipment line with a commercial bank. The borrowings are
collateralized by a first priority security interest in all of the corporate
assets of the company. The line of credit is repayable in October 2000 and bears
interest at the bank's prime rate. The equipment line is repayable $1.0 million
in February 2003 and $1.0 million in August 2003 and bears interest at the
bank's prime rate plus three quarters of one percent (.75%) per annum. At
December 31, 1999, $645,000 was outstanding under the line of credit and the
interest rate on outstanding borrowings under the line of credit was 8.5%. As of
December 31, 1999, the Company had not drawn funds related to the equipment
line.
(7) COMMITMENTS AND CONTINGENCIES
(A) CAPITAL AND OPERATING LEASES
The Company leases computer equipment, software, office facilities, and
furniture and fixtures under operating and capital lease arrangements, some of
which contain renewal options and escalation clauses for operating expenses and
inflation.
The following is a schedule of future minimum lease payments for capital and
operating leases at December 31, 1999:
<TABLE>
<CAPTION>
OPERATING CAPITAL
---------- ----------
<S> <C> <C>
2000................................................. $1,182,000 $1,005,205
2001................................................. 620,000 435,146
2002................................................. 384,000 315,966
2003................................................. 57,000 --
---------- ----------
Total future minimum lease payments............ $2,243,000 $1,756,317
==========
Less amount representing interest.................... (225,431)
----------
Present value of future minimum lease
payments..................................... 1,530,886
Less current maturities of obligations under capital
leases............................................. (944,907)
----------
Obligations under capital leases, net of
current maturities........................... $ 585,979
==========
</TABLE>
F-11
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES (CONTINUED)
Rent expense under operating leases for the years ended December 31, 1997,
1998 and 1999 was approximately $1,303,000, $1,141,000 and $1,347,000,
respectively. Cost and accumulated amortization for assets under capital leases
at December 31, 1999 are as follows:
<TABLE>
<CAPTION>
FURNITURE
COMPUTER COMPUTER AND
SOFTWARE EQUIPMENT EQUIPMENT
----------- ----------- -----------
<S> <C> <C> <C>
Cost................................... $ 2,779,912 $ 563,808 $ 1,024,078
Accumulated amortization............... (1,668,095) (261,861) (214,464)
----------- ----------- -----------
Net book value................... $ 1,111,817 $ 301,947 $ 809,614
=========== =========== ===========
</TABLE>
In accordance with the provisions of the certain leasing arrangements, the
Company is required to maintain a minimum cash balance of $565,000 in connection
with its capital leases.
(B) CONTINGENCIES
The Company is a defendant in certain employment claims arising in the
ordinary course of business. In the opinion of management after consultation
with legal counsel, the utimate disposition of these matters is not expected to
have a material adverse effect on the consolidated financial position of the
Company.
(8) STOCKHOLDERS' EQUITY
The Company's Certificate of Incorporation, as amended, authorizes the
Company to issue 20,000,000 shares of common stock.
As of December 31, 1999, the Company had reserved shares of common stock for
future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series C convertible preferred stock.......... 127,000
Conversion of Series D convertible preferred stock.......... 855,400
Conversion of Series F convertible redeemable preferred
stock..................................................... 710,577
Conversion of Series G convertible preferred stock.......... 523,809
Conversion of Series H convertible preferred stock.......... 523,809
Conversion of Series AA convertible preferred stock......... 1,000,000
Exercise of stock options under stock option plans.......... 1,026,574
---------
4,767,169
=========
</TABLE>
(9) CONVERTIBLE PREFERRED STOCK
The holders of the Series C Convertible Preferred Stock (which is nonvoting)
are entitled to receive dividends on an equivalent basis with the holders of the
shares of common stock. Additionally, they are entitled, on an equivalent basis
with the holders of the shares of common stock, to share in amounts
distributable to the holders of common stock upon liquidation of the Company
after payment of any liquidation preference of any other class or series of
stock of the Company. Each share of the
F-12
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(9) CONVERTIBLE PREFERRED STOCK (CONTINUED)
Series C Convertible Preferred Stock is convertible at the option of the holder
at any time into one fully paid and nonassessable share of common stock.
The holders of Series D Convertible Preferred Stock have essentially the
same rights with respect to dividends and preference in liquidation as holders
of the Series C Convertible Preferred Stock. Additionally, they are entitled to
cast a number of votes in the aggregate which, when added to the number of votes
that may be cast on such matters by all holders of the Series D Convertible
Preferred Stock, shall not exceed 49 percent of all votes that may be cast on
such matters by the holders of all classes and series of capital stock of the
Company. Each share of Series D Convertible Preferred Stock is convertible at
the option of the holder at any time into one fully paid and nonassessable share
of common stock.
The shares of Series G and H Convertible Preferred Stock are convertible at
the option of the holder at any time into common stock on a one-for-one basis.
These shares are also convertible automatically upon an initial public offering
of at least $10 million and at a shares price equal to or exceeding $15.00. The
Series G and H Convertible Preferred Stock accrues dividends at the annual rate
of 8 percent, whether or not declared. In liquidation, the holders of Series G
and H Convertible Preferred Stock are entitled to receive $4.50 and $6.00 per
share, respectively, plus all accrued, but unpaid dividends, prior to any
preference or distribution of any assets of the Company to the holders of any
other shares of capital stock. To date, no dividends have been declared on the
Series G and H Convertible Preferred Stock. The accumulated unpaid dividends are
$1,364,264 and $1,913,405 at December 31, 1998 and 1999, respectively.
During October 1998, the Company issued 1,000,000 shares of Series AA
Convertible Preferred Stock for $8,000,000. Each share of Series AA Convertible
Preferred Stock is convertible at the option of the holder at any time into
Common Stock on a one-for-one basis, subject to certain adjustments. These
shares are also convertible automatically upon an initial public offering. The
Series AA Convertible Preferred Stock accrues dividends at the annual rate of
10 percent, whether or not declared. In liquidation, the holders of Series AA
Convertible Preferred Stock are entitled to receive $8.00 per share plus all
accrued, unpaid dividends, prior to any preference or distribution of any assets
of the Company to the holders of any other shares of capital stock. To date no
dividends have been declared on Series AA Convertible Preferred Stock. The
accumulated unpaid dividends are $173,151 and $973,151 at December 31, 1998 and
1999, respectively.
In addition, the holders of the Series AA Preferred Stock are entitled to an
adjustment to the conversion price of the Series AA Preferred Stock, based upon
the valuation of the Company's common stock at the time of an initial public
offering of the Company's common stock or a liquidation of the Company if such
event has occurred prior to March 31, 2001. Until March 31, 2001, this
adjustment takes effect if the value of a share of the Company's common stock is
less than $11.86 at the time of an initial public offering or liquidation. This
threshold is increased to $13.52 on March 31, 2000 and $15.42 on September 30,
2000. If an initial public offering or liquidation of the Company has not
occurred by March 31, 2001, then the conversion price of the Series AA Preferred
Stock is subject to adjustment based upon the performance of the Company during
the 2000 fiscal year. As a result of the provisions outlined above, the
conversion price of the Series AA Preferred Stock, which currently is $8.00 per
share, can be reduced on a proportional basis to a minimum price of $7.00 per
share.
F-13
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) CONVERTIBLE REDEEMABLE PREFERRED STOCK
The holders of Series E mandatorily redeemable Convertible Preferred Stock
are entitled to receive dividends at the annual rate of 10 percent. These shares
were redeemed by the Company in April, 1998 at $2.00 per share plus accrued and
unpaid dividends of $8,130.
The holders of Series F mandatorily redeemable Convertible Preferred Stock
will share ratably in all dividends declared and paid on common stock; and any
Series F shares which have not been converted to common stock by April 30, 2003
must be redeemed by the Company for $2.00 per share. In liquidation, the holders
of the Series F mandatorily redeemable Convertible Preferred Stock are entitled
to receive $2.00 per share, prior to any preference or distribution of any
assets of the Company to the holders of any other shares of capital stock.
Additionally, Series F holders are entitled to vote on an equivalent basis with
holders of common stock. Each share of the Series F mandatorily redeemable
Convertible Preferred Stock is convertible at the option of the holder into one
fully paid and nonassessable share of common stock at any time. Also, each share
of Series F Preferred Stock shall automatically be converted into Common Stock,
a the then applicable conversion price, upon the consummation by the Company of
a firmly underwritten public offering of shares of Common Stock of the Company
at a per share price not less than $4.00 per share and for a total offering of
not less than $5 million (before deduction of underwriting discounts,
commissions and fees).
F-14
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(11) STOCK COMPENSATION
(A) STOCKHOLDERS' AND DIRECTORS' STOCK OPTIONS
The Company has reserved 1,000,000 shares of common stock for issuance
pursuant to outstanding options held by current stockholders and directors. The
following is a summary of activity related to these stock options:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Options outstanding, January 1, 1997........................ 214,115 $2.36
Options granted............................................. 5,000 6.00
-------
Options outstanding, December 31, 1997...................... 219,115 2.44
Options granted............................................. 21,000 6.00
Options expired............................................. (10) 3.00
-------
Options outstanding, December 31, 1998...................... 240,105 2.75
Options granted............................................. -- --
Options exercised........................................... (57,941) 0.01
Options expired............................................. (39,990) 3.00
-------
Options outstanding, December 31, 1999...................... 142,174 3.80
=======
</TABLE>
At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.00--$6.00, and 5.5
years, respectively.
(B) STOCK INCENTIVE PLAN
The Company has reserved 900,000 shares of common stock pursuant to the 1989
Stock Incentive Plan (the "Plan") as amended and restated in 1998. Options under
this plan vest over a period of four years and have a term of ten years. Options
are granted at a price not less than the fair market value of the stock as
estimated by the Board of Directors at the grant date. The following is a
summary of activity of the Stock Incentive Plan in 1998 and 1999:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
-------- ----------------
<S> <C> <C>
Options outstanding, January 1, 1997........................ 461,000 $2.73
Options granted............................................. 439,600 6.00
Options exercised........................................... (177,500) 5.53
--------
Options outstanding, December 31, 1997...................... 723,100 3.95
Options granted............................................. 166,400 6.00
Options expired............................................. (330,295) 5.18
Options exercised........................................... (5) 2.75
--------
Options outstanding, December 31, 1998...................... 559,200 3.80
Options granted............................................. 484,800 8.00
Options expired............................................. (159,600) 6.39
--------
Options outstanding, December 31, 1999...................... 884,400 5.63
========
</TABLE>
F-15
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(11) STOCK COMPENSATION (CONTINUED)
At December 31, 1999, the range of exercise prices and weighted-average
remaining contractual life of outstanding options was $2.00-$8.00, and 6.73
years, respectively.
The Company has elected to follow APB No. 25 and related interpretations in
accounting for its employee stock options rather than the alternative fair value
accounting method allowed by SFAS No. 123. APB No. 25 provides that compensation
expense relative to the Company's employee stock options is measured based upon
the intrinsic value of the stock option. SFAS No. 123 requires companies that
continue to follow APB No. 25 to provide a pro forma disclosure of the impact of
applying the fair value method of SFAS No. 123.
Under APB No. 25, because the exercise price of the Company's employee stock
options equaled the fair value of the underlying stock on the date of grant, no
compensation expense has been recognized. Had compensation expense for the
Company's stock option plan been determined based upon the fair value
methodology under SFAS No. 123, the Company's net loss would have increased to
these pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1997 1998 1999
--------- ----------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss) applicable to common stockholders:
As reported............................................ $(730,677) $(2,274,322) $(2,913,383)
Pro forma.............................................. (800,374) (2,398,211) (3,303,068)
Basic and diluted net income (loss) per share applicable
to common stockholders:
As reported............................................ $ (1.02) $ (3.10) $ (3.81)
Pro forma.............................................. (1.11) (3.27) (4.32)
</TABLE>
The fair value of these options was estimated at the date of grant using the
Black-Scholes option pricing model on the date of grant using the following
assumptions:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Risk-free interest rates.................................... 5.7% 4.6% 6.4%
Expected lives (in years)................................... 5.0 5.0 5.0
Dividend yield.............................................. -- -- --
Expected volatility......................................... -- -- --
--- --- ---
</TABLE>
The weighted average fair value of stock options granted during 1997, 1998,
and 1999 was $1.46, $1.20 and $1.98, respectively.
(12) RETIREMENT PLANS
The Company has two qualified defined contribution retirement plans,
established under the provisions of Internal Revenue Code Section 401(k). The
Company contributes amounts to the Plans on a discretionary basis. The
participants may contribute any whole percentage of salary each pay period,
subject to federal limitations. The Company's expense under the Plans was
$5,512, $11,744 and $39,944 for the years ended December 31, 1997, 1998 and
1999, respectively.
F-16
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(13) INCOME TAXES
No provision or benefit for federal or state income taxes has been recorded
in 1997 as the Company utilized its net operating loss carryforwards to
eliminate any tax on 1997 income. No provision or benefit for federal or state
income taxes has been recorded in 1998 and 1999 as the Company is incurring a
net operating loss in those periods.
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at December 31, 1997, 1998 and 1999 are
presented below:
<TABLE>
<CAPTION>
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts........................ $ 54,600 $ 40,500 $ 86,000
Deferred rent.......................................... 36,100 29,600 31,700
Net operating loss carryforward........................ 1,831,000 2,495,000 2,956,500
AMT credit carryforward................................ 64,000 134,000 134,000
Cumulative book depreciation in excess of tax
depreciation......................................... 55,000 100,000 163,600
Other.................................................. 49,900 23,400 20,000
---------- ---------- ----------
Gross deferred tax assets............................ 2,090,600 2,822,500 3,391,800
Less--valuation allowance................................ 2,090,600 2,822,500 3,391,800
Net deferred tax assets.............................. -- -- --
Gross deferred tax liabilities........................... -- -- --
---------- ---------- ----------
Net deferred tax assets.............................. $ -- $ -- $ --
========== ========== ==========
</TABLE>
The Company has net operating loss carryforwards available for income tax
purposes of approximately $7,580,810 at December 31, 1999, respectively,
expiring at various dates through 2018. As a result of certain capital
transactions, there is an annual limitation on the future utilization of the net
operation loss carryforwards. In assessing the realizability of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax asset will not be realized. Based upon the
level of historical taxable income and projections for future taxable income
over the periods in which the net operating loss carryforwards are available to
reduce income taxes payable, management has established a valuation allowance
such that the net deferred tax asset is $-0- at December 31, 1998 and 1999,
respectively. The net change in the valuation allowance during the year ended
December 31, 1999, was an increase of $569,400.
(14) BASIC AND DILUTED NET LOSS PER SHARE
The Company computes net income (loss) per share in accordance SFAS
No. 128, "Earnings Per Share", which requires certain disclosures relating to
the calculation of earnings per common stock
F-17
<PAGE>
ISKY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(14) BASIC AND DILUTED NET LOSS PER SHARE (CONTINUED)
share. The following as a reconciliation of the numerators and denominators of
the basic and diluted earnings per common share computations for net income
(loss).
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1998 1999
---------- ----------- -----------
<S> <C> <C> <C>
Net income (loss)....................................... $ 255,280 $(1,592,707) $(1,564,242)
Preferred stock dividend requirements................... (985,957) (681,615) (1,349,141)
---------- ----------- -----------
Net income (loss) applicable to common stockholders..... $ (730,677) $(2,274,322) $(2,913,383)
========== =========== ===========
Weighted average shares of common stock outstanding..... 718,358 732,651 764,504
========== =========== ===========
Basic and diluted net income (loss) per share applicable
to common stockholders................................ $ (1.02) $ (3.10) $ (3.81)
========== =========== ===========
</TABLE>
(15) SUBSEQUENT EVENT
On February 4, 1999 the Company issued 1,260,775 shares of newly authorized
Series BB convertible preferred stock for approximately $28,300,000, net of
offering costs. The Series BB convertible preferred stock is automatically
converted into common stock upon an initial public offering.
(16) RELATED PARTY TRANSACTIONS
A stockholder and certain members of the Board of Directors provided
management services to the Company for which management fees of $126,500 and
$61,277 were expensed in 1998 and 1999, respectively.
Additionally, the company conducts business with two stockholders whose
representatives are members of the Board of Directors. Revenues from these
stockholders were approximately $264,000, $127,000 and $243,000 in 1992, 1998
and 1999, respectively. At December 31, 1998 and 1999, accounts receivable from
these stockholders were approximately $11,000 and $59,000, respectively.
(17) SIGNIFICANT CUSTOMERS
The Company provides a substantial amount of services to customers in the
automotive industry, from which approximately 51, 57 and 55 percent of total
revenues were derived from certain customers in 1997, 1998 and 1999,
respectively. At December 31, 1998 and 1999, accounts receivable from these
automotive industry customers were approximately $2,222,000 and $2,774,000,
respectively.
F-18
<PAGE>
[Inside Back Cover]
A graphic containing 26 boxes, each box containing a screaming faces. In the
middle of this graphic is a box containing the iSKY logo and the text "Because
in cyberspace no one can hear your customers scream."
Below the graphic is a picture of the iSKY Bell.
Below the picture is the iSKY logo.
<PAGE>
SHARES
[LOGO]
COMMON STOCK
---------------------
PROSPECTUS
---------------------
CHASE H&Q DEUTSCHE BANC ALEX. BROWN
WILLIAM BLAIR & COMPANY
---------------------
, 2000
---------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION DIFFERENT FROM THAT
INCLUDED IN THIS PROSPECTUS. WE ARE OFFERING TO SELL AND SEEKING OFFERS TO BUY
SHARES OF ISKY, INC. COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS OR SALES
ARE PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS
OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF DELIVERY OF THIS
PROSPECTUS OR THE SALE OF THE ISKY, INC. COMMON STOCK.
THROUGH AND INCLUDING , 2000 (THE 25(TH) DAY AFTER COMMENCEMENT OF
THE OFFERING), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK OF
ISKY, INC., WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table shows the various expenses payable by us in connection
with the sale and distribution of the securities we are offering, other than
underwriting discounts and commissions. All of the amounts shown are estimated
except the Securities and Exchange Commission registration fee, the National
Association Securities Dealers, Inc. filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $18,216
National Association of Securities Dealers, Inc. filing
fee....................................................... *
Nasdaq National Market listing fee.......................... 1,000
Transfer agent's and registrar's fees....................... *
Printing expenses........................................... *
Legal fees and expenses..................................... *
Accounting fees and expenses................................ *
Blue Sky filing fees and expenses........................... *
Miscellaneous expenses...................................... *
-------
Total..................................................... *
=======
</TABLE>
- ------------------------
* To be filed by amendment.
14. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 2-418 of the Maryland General Corporation Law permits
indemnification of directors, officers, employees and agents of a corporation
under certain conditions and subject to limitations. Our bylaws include
provisions to require us to indemnify our directors and officers to the fullest
extent permitted by Section 2-418, including circumstances in which
indemnification is otherwise discretionary. Section 2-418 also empowers us to
purchase and maintain insurance that protects our officers, directors, employees
and agents against any liabilities incurred in connection with their service in
such positions.
At present, there is no pending litigation or proceeding involving any of
our directors or officers as to which indemnification is being sought nor are we
aware of any threatened litigation that may result in claims for indemnification
by any officer or director.
The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification of our directors and officers by the
Underwriters, for liabilities arising under the Securities Act.
15. RECENT SALES OF UNREGISTERED SECURITIES
During the last three years, we have issued unregistered securities in the
transactions described below. These securities were offered and sold by us in
reliance upon the exemptions provided for in Section 4(2) of the Securities Act,
relating to sales not involving any public offering, Rule 506 of the Securities
Act relating to sales to accredited investors and Rule 701 of the Securities Act
relating to a compensatory benefit plan. The sales were made without the use of
an underwriter and the certificates representing the securities sold contain a
restrictive legend that prohibits transfer without registration or an applicable
exemption.
II-1
<PAGE>
(1) In October 1998, we issued 1,000,000 shares of Series AA preferred stock to
a group of accredited investors at a purchase price of $8.00 per share for
an aggregate of $8,000,000.
(2) In February 2000, we issued 1,260,775 shares of Series BB preferred stock to
a group of accredited investors at a purchase price of $23.79 per share for
an aggregate of $30,000,000.
(3) Issuance of 1,126,800 shares on exercise of options at $Range of $6-8 per
share.
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Articles of Amendment and Restatement, dated December 5,
1986
3.1.1 Articles Supplementary, dated March 20, 1989
3.1.2 Certificate of Corporate Secretary Concerning Change of
Principal Office, dated March 27, 1989
3.1.3 Articles of Amendment, dated May 5, 1989
3.1.4 Articles Supplementary, dated December 4, 1990
3.1.5 Articles Supplementary, dated December 4, 1990
3.1.6 Articles Supplementary, dated December 4, 1990
3.1.7 Articles Supplementary, dated May 23, 1991
3.1.8 Amended & Restated Articles Supplementary, dated July 25,
1991
3.1.9 Certificate Changing Name and Address of Resident Agent and
Principal Office, dated November 26, 1991
3.1.10 Articles Supplementary, dated September 25, 1995
3.1.11 Articles Supplementary, dated February 13, 1996
3.1.12 Articles Supplementary, dated October 14, 1998
3.1.13 Articles of Amendment, dated October 14, 1998
3.1.14 Articles of Amendment, dated December 18, 1998
3.1.15 Articles Supplementary, dated February 3, 2000
3.1.16 Articles of Amendment, dated February 4, 2000
3.2 Amended and Restated Bylaws, dated February 4, 2000
4.1* Specimen stock certificate for shares of common stock of
iSky Inc.
5.1* Form of Opinion of Piper Marbury Rudnick & Wolfe LLP,
regarding legality of securities being registered
10.1 Richard T. Hebert Employment Agreement
10.2 Raymond J. Zukowski Employment Agreement
10.3 Bradley Steer Employment Agreement
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
<C> <S>
10.4 Steven G. Krumenaker Employment Agreement
10.5 Amended and Restated Stock Incentive Plan, dated February 4,
2000
10.6 Employee Stock Purchase Plan, dated February 4, 2000
10.7 Loan and Security Agreement by and among Sky Alland
Research, Inc., The Data Group, II, Inc. and Silicon Valley
Bank, dated February 14, 1997
10.7.1 First Amendment to Loan and Security Agreement by and among
Sky Alland Research, Inc., Marcom Holdings, Inc., The Data
Group, II, Inc. and Silicon Valley Bank, dated September 1,
1997
10.7.2 Second Amendment to Loan and Security Agreement by and among
Sky Alland Research, Inc., The Data Group, II, Inc. and
Silicon Valley Bank, dated December 22, 1997
10.7.3 Third Amendment to Loan and Security Agreement by and among
Sky Alland Research, Inc., The Data Group, II, Inc. and
Silicon Valley Bank, dated March 19, 1998
10.7.4 Fourth Amendment to Loan and Security Agreement by and among
Sky Alland Research, Inc., The Data Group, II, Inc. and
Silicon Valley Bank, dated June 13, 1999
10.7.5 Fifth Amendment to Loan and Security Agreement by and among
Sky Alland Research, Inc., The Data Group, II, Inc. and
Silicon Valley Bank, dated September 13, 1999
10.7.6 Sixth Amendment to Loan and Security Agreement by and among
Sky Alland Research, Inc., The Data Group, II, Inc. and
Silicon Valley Bank, dated November 5, 1999
10.8 Fifth Amended and Restated Revolving Promissory Note by and
among Sky Alland Research, Inc., The Data Group, II, Inc.
and Silicon Valley Bank, dated November 5, 1999
10.9 Second Amended and Restated Equipment Term Note No.1 of 2 by
and among Sky Alland Research, Inc., The Data Group, II,
Inc. and Silicon Valley Bank, dated November 5, 1999
10.10 Second Amended and Restated Equipment Term Note No. 2 of 2
by and among Sky Alland Research, Inc., The Data Group, II,
Inc. and Silicon Valley Bank, dated November 5, 1999
10.11 Second Amended & Restated Registration Rights Agreement,
dated February 3, 2000
23.1 Consent of KPMG LLP
23.2* Consent of Piper Marbury Rudnick & Wolfe LLP (included as
part of Exhibit 5.1 hereto)
23.3 Opinion of KPMG LLP, regarding financial statement schedule
24.1 Power of Attorney (included in signature pages)
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment
(B) FINANCIAL STATEMENT SCHEDULES:
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been ommitted.
II-3
<PAGE>
17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions of its Charter or Bylaws or the Maryland
General Corporation Law or otherwise, the Registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer, employee or agent of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer, employee or agent in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted form 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.
(2) For the purpose of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Company has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Columbia, Maryland, on
the 4th day of February, 2000.
<TABLE>
<S> <C> <C>
iSKY, Inc.
By: /s/ RICHARD T. HEBERT
-----------------------------------------
Richard T. Hebert
PRESIDENT AND
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated. Each person whose signature appears below
in so signing also makes, constitutes and appointed Richard T. Hebert and Mark
F. Yanson, and each of them acting alone, his true and lawful attorney-in-fact,
with full power of substitution, for him in any and all capacities, to execute
and cause to be filed with the Securities and Exchange Commission any and all
amendments and post-effective amendments to this Registration Statement, or any
registration statement for this offering that is to be effective upon filing
pursuant to rule 462(b) under the Securities Act of 1933, with exhibits thereto
and other documents in connection therewith, and hereby ratifies and confirms
all that said attorney-in-fact or his or her substitute or substitutes may do or
cause to be done by virtue hereof.
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
President and Chief
/s/ RICHARD T. HEBERT Executive Officer
------------------------------------------- (Principal Executive February 4, 2000
Richard T. Hebert Officer)
/s/ RAYMOND J. ZUKOWSKI Chief Operating Officer
------------------------------------------- February 4, 2000
Raymond J. Zukowski
/s/ MARK F. YANSON Chief Financial Officer
------------------------------------------- (Principal Accounting and February 4, 2000
Mark F. Yanson Financial Officer)
/s/ MICHAEL S. FISHER Director
------------------------------------------- February 4, 2000
Michael S. Fisher
/s/ STEPHEN J. GETSY Director
------------------------------------------- February 4, 2000
Stephen J. Getsy
Director
------------------------------------------- February 4, 2000
Steven Gilbert
/s/ WALTER G. LOHR, JR. Director
------------------------------------------- February 4, 2000
Walter G. Lohr, Jr.
/s/ WALTER MANER Director
------------------------------------------- February 4, 2000
Walter Maner
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
---- ----- ----
<C> <S> <C>
/s/ GARY NEEMS Director
------------------------------------------- February 4, 2000
Gary Neems
/s/ CHARLES STRYKER Director
------------------------------------------- February 4, 2000
Charles Stryker
</TABLE>
II-6
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE
BEGINNING COSTS AND OTHER DEDUCTIONS AT END
OF PERIOD EXPENSES ACCOUNTS (WRITE-OFFS) OF PERIOD
DESCRIPTION ---------- ---------- ---------- ------------ ---------
<S> <C> <C> <C> <C> <C>
1/1/97-12/31/97
Allowance for doubtful accounts......... $118,907 67,227 -- (46,087) 140,047
1/1/98-12/31/98
Allowance for doubtful accounts......... $140,047 205,000 -- (241,153) 103,894
1/1/99-12/31/99
Allowance for doubtful accounts......... $103,894 190,000 -- (73,329) 220,565
</TABLE>
S-1
<PAGE>
Exhibit 3.1
ORIGINAL RESEARCH CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
Original Research Corporation, a Maryland corporation, having
its principal office at 1901 Pennsylvania Avenue, N.W., Suite 402, Washington,
D.C. 20006 (the "Corporation"), hereby certifies to the State Department of
Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to amend and restate its
Charter.
SECOND: The Amended and Restated Charter of the Corporation
set forth in item SIXTH herein has been advised by the Board of Directors and
approved by the stockholders of the Corporation.
THIRD: Immediately prior to the filing of these Articles of
Amendment and Restatement, the total number of shares of the authorized capital
stock of the Corporation, the par value per share, and the aggregate par value
of the Corporation's capital stock are as follows:
Number Par Value Aggregate
CLASS OF STOCK OF SHARES PER SHARE PAR VALUE
- -------------- --------- --------- ---------
Common Stock 1,000,000 $0.0001 $100
FOURTH: The total number of shares of the authorized capital
stock of the Corporation, the par value per share and the aggregate par value of
the Corporation's capital stock, as amended, are as follows:
Number Par Value Aggregate
CLASS OF STOCK OF SHARES PER SHARE PAR VALUE
- -------------- ---------- --------- ----------
Common Stock 20,000,000 $0.01 $200,000
FIFTH: The shares of capital stock of the Corporation are not,
as of the date of the filing of these Articles of Amendment and Restatement,
divided into classes. A
-1-
<PAGE>
description of the Common Stock of the Corporation, as amended, is set forth in
Article Sixth of the Amended and Restated Charter of the Corporation.
SIXTH: The Charter of the Corporation is hereby amended by
deleting therefrom, in their entirety, Articles FOURTH through SEVENTH, and by
substituting in lieu thereof new Articles Fourth through Seventh; by amending
the second sentence of Article EIGHTH to read, in its entirety: "The number of
directors of the Corporation may be increased or decreased pursuant to the
By-Laws of the Corporation, but shall never be less than the minimum number
permitted by the General Laws of the State of Maryland now or hereafter in
force."; and by adding new Article NINTH. The Amended and Restated Charter of
the Corporation, in its entirety, is as follows:
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
ORIGINAL RESEARCH CORPORATION
A Maryland Corporation
FIRST: Eileen R. Ferrara, whose post office address is 1220
19th Street, N.W., Suite 400, Washington, D.C. 20036, being at least eighteen
years of age, does hereby form a corporation under the general laws of the State
of Maryland.
SECOND: The name of the Corporation is:
ORIGINAL RESEARCH CORPORATION
THIRD: The period of its duration shall be perpetual.
FOURTH: The purposes for which and any of which the
Corporation is formed and the business and objects to be carried on and promoted
by it are:
(1) To provide marketing consulting services for individuals,
firms, partnerships, corporations, associations and other forms of business
entity, including in particular, automobile dealerships.
-2-
<PAGE>
(2) To conduct public opinion surveys, and to collect and
report data compiled as a result of such surveys.
(3) To engage in any one or more businesses or transactions,
or to acquire all or any portion of any entity engaged in any one or more
businesses or transactions which the Board of Directors may from time to time
authorize or approve, whether or not related to the business described elsewhere
in this Article or to any other business at the time or theretofore engaged in
by the Corporation.
The foregoing enumerated purposes and objects shall be in no
way limited or restricted by reference to, or inference from, the terms of any
other clause of this or any other Article of the charter of the Corporations and
each shall be regarded as independent; and they are intended to be and shall be
construed as powers as well as purposes and objects of the Corporation and shall
be in addition to and not in limitation of the general powers of corporations
under the General Laws of the State of Maryland.
FIFTH: The present address of the principal office of the
Corporation in this State is The Corporation Trust, Incorporated, 32 South
Street, Baltimore, Maryland 21202.
SIXTH: The name and address of the resident agent of the
Corporation in this State are The Corporation Trust, Incorporated, 32 South
Street, Baltimore, Maryland 21202. Said resident agent is a Maryland
corporation.
SEVENTH: (1) The total number of shares of stock of all
classes which the Corporation has authority to issue is 20,000,000 shares of
capital stock (par value $0.01 per share), amounting in aggregate par value to
$200,000. All of such shares are initially classified as "Common Stock". The
Board of Directors may classify and reclassify any unissued shares of capital
stock by setting or changing in any one or more respects the preferences,
conversion or other rights, voting powers, restrictions, limitations as to
dividends, qualifications or terms or conditions of redemption of such shares of
stock.
(2) The following is a description of the preferences,
conversion and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and terms and conditions of redemption of the Common
Stock of the Corporation.
(a) Each share of Common Stock shall have one vote, and,
except as otherwise provided in
-3-
<PAGE>
respect of any class of stock hereafter classified or reclassified, the
exclusive voting power for all purposes shall be vested in the holders
of the Common Stock.
(b) Subject to the provisions of law and any preferences of
any class of stock hereafter classified or reclassified, dividends may
be paid on the Common Stock of the Corporation at such time and in such
amounts as the Board of Directors may deem advisable.
(c) In the event of any liquidation, dissolution or winding up
of the Corporation, whether voluntary or involuntary, the holders of the
Common Stock shall be entitled, after payment or provision for payment
of the debts and other liabilities of the Corporation and the amount to
which the holders of any class of stock hereafter classified or
reclassified having a preference on distributions in the liquidation,
dissolution or winding up of the Corporation shall be entitled, together
with the holders of any other class of stock hereafter classified or
reclassified not having a preference on distributions in the
liquidation, dissolution or winding up of the Corporation, to share
ratably in the remaining net assets of the Corporation.
(3) Subject to the foregoing, the power of the Board of
Directors to classify and reclassify any of the shares of capital stock shall
include, without limitation, subject to the provisions of the charter, authority
to classify or reclassify any unissued shares of such stock into a class or
classes of preferred stock, preference stock, special stock or other stock, and
to divide and classify shares of any class into one or more series of such
class, by determining, fixing, or altering one or more of the following:
(a) The distinctive designation of such class or series and
the number of shares to constitute such class or series; provided that,
unless otherwise prohibited by the terms of such or any other class or
series, the number of shares of any class or series may be decreased by
the Board of Directors in connection with any classification or
reclassification of unissued shares and the number of shares of such
class or series may be increased by the Board of Directors
-4-
<PAGE>
in connection with any such classification or reclassification, and any
shares of any class or series which have been redeemed, purchased,
otherwise acquired or converted into shares of Common Stock or any
other class or series shall become part of the authorized capital stock
and be subject to classification and reclassification as provided in
this Section.
(b) Whether or not and, if so, the rates, amounts and times at
which, and the conditions under which, dividends shall be payable on
shares of such class or series, whether any such dividends shall rank
senior or junior to or on a parity with the dividends payable on any
other class or series of stock, and the status of any such dividends as
cumulative, cumulative to a limited extent or non-cumulative and as
participating or non-participating.
(c) Whether or not shares of such class or series shall have
voting rights, in addition to any voting rights provided by law and, if
so, the terms of such voting rights.
(d) Whether or not shares of such class or series shall have
conversion or exchange privileges and, if so, the terms and conditions
thereof, including provision for adjustment of the conversion or
exchange rate in such events or at such times as the Board of Directors
shall determine.
(e) Whether or not shares of such class or series shall be
subject to redemption and, if so, the terms and conditions of such
redemption, including the date or dates upon or after which they shall
be redeemable and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption dates; and whether or not there shall be any sinking fund or
purchase account in respect thereof, and if so, the terms thereof.
(f) The rights of the holders of shares of such class or
series upon the liquidation, dissolution or winding up of the affairs
of, or upon any distribution of the assets of, the Corporation, which
rights may vary depending upon whether such liquidation, dissolution or
winding
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<PAGE>
up is voluntary or involuntary and, if voluntary, may vary at different
dates, and whether such rights shall rank senior or junior to or on a
parity with such rights of any other class or series of stock.
(g) Whether or not there shall be any limitations applicable,
while shares of such class or series are outstanding, upon the payment
of dividends or making of distributions on, or the acquisition of, or
the use of moneys for purchase or redemption of, any stock of the
Corporation, or upon any other action of the Corporation, including
action under this Section, and, if so, the terms and conditions
thereof.
(h) Any other preferences, rights, restrictions, including
restrictions on transferability, and qualifications of shares of such
class or series, not inconsistent with law and the charter of the
Corporation.
(4) For the purposes hereof and of any articles supplementary
to the charter providing for the classification or reclassification of any
shares of capital stock or of any other charter document of the Corporation
(unless otherwise provided in any such articles or document), any class or
series of stock of the Corporation shall be deemed to rank:
(a) prior to another class or series either as to dividends or
upon liquidation, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable on
liquidation, dissolution or winding up, as the case may be, in
preference or priority to holders of such other class or series;
(b) on a parity with another class or series either as to
dividends or upon liquidation, whether or not the dividend rates,
dividend payment dates or redemption or liquidation price per share
thereof be different from those of such others, if the holders of such
class or series of stock shall be entitled to receipt of dividends or
amounts distributable upon liquidation, dissolution or winding up, as
the case may be, in proportion to their respective dividend rates or
redemption or
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<PAGE>
liquidation prices, without preference or priority over the holders of
such other class or series; and
(c) junior to another class or series either as to dividends
or upon liquidation, if the rights of the holders of such class or
series shall be subject or subordinate to the rights of the holders of
such other class or series in respect of the receipt of dividends or the
amounts distributable upon liquidation, dissolution or winding up, as
the case may be.
EIGHTH: The number of directors constituting the initial Board
of Directors is one, and the name and address of the person who is to serve as
initial director is:
NAME ADDRESS
----- ----------
J. Schuyler Alland 101 Sixth Street, N.E.
Washington, D.C. 20002
The number of directors of the Corporation may be increased or decreased
pursuant to the By-Laws of the Corporation, but shall never be less than the
minimum number permitted by the General Laws of the State of Maryland now or
hereafter in force.
NINTH: The following provisions are hereby adopted for the
purpose of defining, limiting, and regulating the powers of the Corporation and
of the directors and stockholders:
(1) The Board of Directors is hereby empowered to authorize
the issuance from time to time of shares of its stock of any class, whether now
or hereafter authorized, or securities convertible into shares of its stock of
any class or classes, whether now or hereafter authorized, for such
consideration as may be deemed advisable by the Board of Directors and without
any action by the stockholders.
(2) No holder of any stock or any other securities of the
Corporation, whether now or hereafter authorized, shall have any preemptive
right to subscribe for or purchase any stock or any other securities of the
Corporation other than such, if any, as the Board of Directors, in its sole
discretion, may determine and at such price or prices and upon such other terms
as the Board of Directors, in its sole discretion, may fix; and any stock or
other securities which the Board of Directors may determine to offer for
subscription may, as the Board of Directors in its sole discretion shall
determine, be offered to the holders of any class, series or
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<PAGE>
type of stock or other securities at the time outstanding to the exclusion of
the holders of any or all other classes, series or types of stock or other
securities at the time outstanding.
(3) The Board of Directors shall have power from time to time
and in its sole discretion to determine in accordance with sound accounting
practice, what constitutes annual or other net profits, earnings, surplus, or
net assets in excess of capital; to fix and vary from time to time the amount to
be reserved as working capital, or determine that retained earnings or surplus
shall remain in the hands of the Corporation; to set apart out of any funds of
the Corporation such reserve or reserves in such amount or amounts and for such
proper purpose or purposes as it shall determine and to abolish any such reserve
or any part thereof; to distribute and pay distributions or dividends in stock,
cash or other securities or property, out of surplus or any other funds or
amounts legally available therefor, at such times and to the stockholders of
record on such dates as it may, from time to time, determine; and to determine
whether and to what extent and at what times and places and under what
conditions and regulations the books, accounts and documents of the Corporation,
or any of them, shall be open to the inspection of stockholders, except as
otherwise provided by statute or by the By-Laws, and, except as so provided, no
stockholder shall have any right to inspect any book, account or document of the
Corporation unless authorized so to do by resolution of the Board of Directors.
(4) A contract or other transaction between the Corporation
and any of its directors or between the Corporation and any other Corporation,
firm or other entity in which any of its directors is a director or has a
material financial interest is not void or voidable solely because of any one or
more of the following: the common directorship or interest; the presence of the
director at the meeting of the Board of Directors which authorizes, approves, or
ratifies the contract or transaction; or the counting of the vote of the
director for the authorization, approval, or ratification of the contract or
transaction. This Section applies if:
(a) the fact of the common directorship or interest is
disclosed or known to: the Board of Directors and the Board authorizes,
approves, or ratifies the contract or transaction by the affirmative
vote of a majority of disinterested directors, even if the
disinterested directors constitute less than a quorum; or the
stockholders entitled to vote, and the contract
-8-
<PAGE>
or transaction is authorized, approved, or ratified by a majority of
the votes cast by the stockholders entitled to vote other than the
votes of shares owned of record or beneficially by the interested
director or Corporation, firm, or other entity; or
(b) the contract or transaction is fair and reasonable to the
Corporation.
Common or interested directors or the stock owned by them or
by an interested Corporation, firm, or other entity may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
at a meeting of the stockholders, as the case may be, at which the contract or
transaction is authorized, approved, or ratified. If a contract or transaction
is not authorized, approved, or ratified in one of the ways provided for in
clause (a) of the second sentence of this Section, the person asserting the
validity of the contract or transaction bears the burden of proving that the
contract or transaction was fair and reasonable to the Corporation at the time
it was authorized, approved, or ratified. The procedures in this Section do not
apply to the fixing by the Board of Directors of reasonable compensation for a
director, whether as a director or in any other capacity.
(5) The Corporation shall indemnify (a) its directors to the
full extent provided by the general laws of the State of Maryland now or
hereafter in force, including the advance of expenses under the procedures
provided by such laws; (b) its officers to the same extent it shall indemnify
its directors; and (c) its officers who are not directors to the same extent it
shall indemnify its directors and to such further extent as shall be authorized
by the Board of Directors and be consistent with law. The foregoing shall not
limit the authority of the Corporation to indemnify other employees and agents
consistent with law.
(6) The Corporation reserves the right from time to time to
make any amendments of its charter which may now or hereafter be authorized by
law, including any amendments changing the terms or contract rights, as
expressly set forth in its charter, of any of its outstanding stock by
classification, reclassification or otherwise; but no such amendment which
changes such terms or contract rights of any of its outstanding stock shall be
valid unless such amendment shall have been authorized by not less than a
majority of the aggregate number of the votes entitled to be cast thereon, by a
vote at a meeting or in writing with or without a meeting.
-9-
<PAGE>
The enumeration and definition of particular powers of the
Board of Directors included in the foregoing shall in no way be limited or
restricted by reference to or inference from the terms of any other clause of
this or any other Article of the charter of the Corporation, or construed as or
deemed by inference or otherwise in any manner to exclude or limit any powers
conferred upon the Board of Directors under the General Laws of the State of
Maryland now or hereafter in force.
IN WITNESS WHEREOF, I have signed these Articles of
Incorporation on May 3, 1984, acknowledging. them to be my act.
Witness:
/s/ EILEEN R. FERRARA
---------------------------
Eileen R. Ferrara
IN WITNESS WHEREOF, Original Research Corporation has caused
these presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on October 15, 1986.
Witness: ORIGINAL RESEARCH CORPORATION
/s/ JOHN C. HILGENBERG BY: /s/ J. SCHUYLER ALLAND
John C. Hilgenberg J. Schuyler Alland
Secretary President
THE UNDERSIGNED, President of Original Research Corporation,
who executed on behalf of the Corporation the foregoing Articles of Amendment
and Restatement of which this certificate is made a part, hereby acknowledges in
the name and on behalf of said Corporation the foregoing Articles of Amendment
and Restatement to be the corporate act of said Corporation and hereby certifies
that to the best of his
-10-
<PAGE>
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ J. SCHUYLER ALLAND
--------------------------
J. Schuyler Alland
President
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<PAGE>
Exhibit 3.1.1
ORIGINAL RESEARCH CORPORATION
ARTICLES SUPPLEMENTARY
Original Research Corporation, a Maryland corporation having
its principal office in Laurel, Maryland (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Articles of Incorporation
of the Corporation (the "Charter"), the Board of Directors has duly divided and
classified 75,000 shares of the capital stock of the Corporation, par value one
cent ($.01) per share, into a series designated Convertible Preferred Stock,
Series A (the "Convertible Preferred Stock") and has authorized the issuance of
such series.
SECOND: A description of the Convertible Preferred Stock,
including the preferences and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
conversion into shares of Common Stock of the Corporation is as follows:
1. DIVIDEND PROVISIONS. The holders of shares of Convertible
Preferred Stock shall be entitled to receive
<PAGE>
dividends, out of any assets legally available therefor, on a PARI PASSU basis
with the holders of shares of Common Stock of the Corporation. The amount of
such dividend, per share, payable to the holders of the convertible Preferred
Stock shall equal the quotient of (a) the remainder of (i) 49% of the aggregate
amount of all cash dividends or other distributions on the Common Stock and
Convertible Preferred Stock of the Corporation, other than a dividend payable in
shares of Common Stock or a subdivision of the outstanding shares of Common
Stock (by reclassification or otherwise) declared on the Common Stock of the
Corporation, less (ii) the amount of such dividends declared and payable with
respect to 182,500 shares of such Common Stock (such number of shares being
appropriately adjusted after the effective date hereof in the event of any
split, subdivision, stock dividend, combination or recapitalization of the
outstanding Common Stock), together with such additional shares of Common Stock
which were issued upon the conversion of shares of the Convertible Preferred
Stock (the total number of such shares of Common Stock referred to in this
clause (ii) is hereinafter referred to as the "Designated Common Stock"),
divided by (b) the total number of shares of Convertible Preferred Stock then
outstanding.
-1-
<PAGE>
2. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntary or involuntary, the holders of
Convertible Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock or any other shares of capital stock ranking junior to
the Convertible Preferred Stock by reason of their ownership thereof, an amount
per share equal to $10.00 for each outstanding share of Convertible Preferred
Stock plus all declared but unpaid dividends thereon, if any. If upon the
occurrence of such event, the assets and funds thus distributed among the
holders of the Convertible Preferred Stock shall be insufficient to permit the
payment to such holders of the full aforesaid preferential amounts, then the
entire assets and funds of the Corporation legally available for distribution to
the holders of the Convertible Preferred Stock shall be distributed ratably
among the holders of the Convertible Preferred Stock in proportion to the amount
of such Stock owned by each such holder.
(b) After the distribution described in subsection
(a) has been paid, shares of Convertible Preferred Stock shall be entitled to no
further participation in the
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<PAGE>
distribution of the assets of the Corporation and shall have no further rights
of conversion.
3. CONVERSION. The holders of the Convertible Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) AUTOMATIC CONVERSION. If the 1990 EBIT
(hereinafter defined) is equal to or in excess of $1,300,000, each share of
Convertible Preferred Stock shall automatically be converted on the thirtieth
day following the Conversion Date into such number of fully paid and
nonassessable shares of Common Stock as is equal to the Convert Number
(hereinafter defined).
(b) OPTIONAL CONVERSION. If the 1990 EBIT
(hereinafter defined) is less than $1,300,000, each share of Convertible
Preferred Stock shall be convertible, at the option of the holder thereof,
during the period from the Conversion Date until the second anniversary of the
Conversion Date, at the office of the Corporation or any transfer agent for the
Convertible Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is equal to the Convert Number (hereinafter defined);
provided that if any holder of the Convertible Preferred Stock wishes to extend
the conversion
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<PAGE>
period as provided herein, such holder shall so elect in writing delivered to
the Corporation within the 60 days following the Conversion Date, and if no such
writing is delivered to the Corporation within such 60 day period, the
Convertible Preferred Stock in respect of which no such election is delivered
shall automatically be converted on the expiration of such 60 day period into
such number of fully paid and nonassessable shares of Common Stock as is equal
to the Convert Number.
(c) DEFINITIONS.
(i) "Conversion Date" shall mean the earlier of
March 31, 1991 or the date the audited financial statements of the Corporation
for the fiscal year ended December 31, 1990 (the "1990 Financials") are first
released to the holders of the Convertible Preferred Stock.
(ii) "Convert Number" shall mean the quotient
of (A) that number of shares of Common Stock which, when added to the number of
shares of Designated Common Stock, will result in the aggregate of such shares
being equal to the Equity Percentage (hereinafter defined) of all outstanding
Common Stock (including the number of shares of Common Stock issuable upon
conversion of the Convertible Preferred Stock)
-4-
<PAGE>
and assuming issuance of all shares of Common Stock reserved for issuance
pursuant to any stock incentive or other plan or subject to issuance upon
exercise of any option, warrant, or other right to acquire shares of Common
Stock (except for such shares of Common Stock as are reserved for issuance upon
conversion of the Convertible Preferred Stock), divided by (B) the number of
then outstanding shares of Convertible Preferred Stock.
(iii) "1990 EBIT" shall mean the earnings
before income taxes of the Corporation for its fiscal year ending December 31,
1990 as determined in accordance with generally accepted accounting principles
consistently applied and as set forth in the Corporation's 1990 financials, plus
the aggregate amount of any administrative services fee paid to Safeguard
Scientifics, Inc. or any affiliate thereof with respect to such fiscal year, and
without taking into account any employee bonuses or other incentive compensation
payable therefrom.
-5-
<PAGE>
(iv) "Equity Percentage" shall mean the
percentage set forth below opposite the range which includes the 1990 EBIT:
<TABLE>
<CAPTION>
1990 EBIT EQUITY PERCENTAGE
--------- -----------------
<S> <C>
$10,400,000 or greater 27.96%
$5,200,000 to $10,399,999 29.80%
$2,600,000 to $5,199,999 32.40%
$2,300,000 to $2,599,999 37.60%
$2,000,000 to $2,299,999 43.38%
$1,700,000 to $1,999,999 49.00%
$1,500,000 to $1,699,999 52.58%
$1,3000,000 to $1,499,999 56.50%
Less than $1,300,000 59.77%
</TABLE>
(d) MECHANICS OF CONVERSION. Before any holder of
Convertible Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Convertible Preferred Stock, and shall give written notice by mail, postage
prepaid, to the corporation at its principal corporate office, of the election
to convert the same and shall state therein the name or names in which the
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<PAGE>
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver at such
office to such holder of Convertible Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of whole
shares of Common Stock to which such holder shall be entitled as aforesaid. 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 Convertible 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 as of such date.
Upon conversion of any Convertible Preferred Stock, all dividends declared but
unpaid on the Convertible Preferred Stock shall be paid.
(e) RECAPITALIZATIONS. If at any time or from time to
time there shall be a recapitalization of the Common Stock, provision shall be
made so that the holders of the Convertible Preferred Stock shall thereafter be
entitled to receive upon conversion of the Convertible Preferred Stock the
number of shares of stock or other securities or property of the Corporation or
otherwise, to which a holder of Common Stock deliverable upon conversion would
have been entitled on such recapitalization
-7-
<PAGE>
(f) NO IMPAIRMENT. The Corporation will not, by
amendment of its Articles of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance 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 these Articles Supplementary 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 Convertible Preferred Stock against
impairment.
(g) NO FRACTIONAL SHARES. No fractional shares shall
be issued upon conversion of the Convertible Preferred Stock, and the number of
shares of Common Stock to be issued shall be rounded to the nearest whole share.
(h) 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) or other distribution, any right to
subscribe for, purchase or otherwise acquire any shares of stock or any class of
any other securities or property, or to receive any
-8-
<PAGE>
other right, the Convertible Preferred Stock shall have the same record date as
established for the Common Stock and the holders of the Convertible Preferred
Stock shall be provided the same notice thereof as is provided to the holders of
the Common Stock.
(i) RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock solely for the purpose of
effecting the conversion of the shares of the Convertible Preferred Stock such
number of its shares of the Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Convertible
Preferred Stock; and if 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 Convertible Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Convertible Preferred
Stock, the Corporation will take such corporate action as may, in the opinion of
its counsel, be necessary to increase its authorized but unissued shares of
Common Stock to such number of shares as shall be sufficient for such purposes.
-9-
<PAGE>
j. NOTICES. Any notice required by the provisions
hereof to be given to the holders of shares of Convertible Preferred Stock shall
be deemed given if deposited in the United States mail, postage prepaid, and
addressed to each holder of record at his address appearing on the books of the
Corporation.
4. VOTING RIGHTS. The holder of each share of Convertible
Preferred Stock shall have the right to vote on all matters upon which holders
of Common Stock are entitled to vote. The shares of Convertible Preferred Stock,
in the aggregate, shall have the right to cast that number of votes (the
"Preferred Votes") which, when combined with the number of such votes as may be
cast by the Designated Common Stock shall equal 49% of all such votes as are
eligible to be cast, and each share of Convertible Preferred Stock shall be
entitled to cast that number of votes equal to the quotient of (a) the Preferred
Votes, divided by (b) the total number of shares of Convertible Preferred Stock
then outstanding. With respect to such vote, such holder shall have full voting
rights and powers equal to the voting rights and powers of the holders of Common
Stock, and shall be entitled, notwithstanding any provision hereof, to notice of
any shareholders' meeting in accordance with the by-laws of this Corporation,
and shall be entitled to vote, together with holders of Common Stock, with
respect to
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<PAGE>
any questions upon which holders of Common Stock have the right to
vote. Such voting rights shall be exercised only as a class which includes the
Common Stock and shall not be exercisable as a separate class except to the
extent otherwise required by law or the express provisions of these Articles.
5. STATUS OF CONVERTED STOCK. In the event any shares of
Convertible Preferred Stock shall be converted pursuant hereto, the shares so
converted shall be cancelled and shall not be reissuable by the Corporation.
-11-
<PAGE>
IN WITNESS WHEREOF, Original Research Corporation has caused
these presents to be signed in its name and on its behalf by its President and
attested by its Secretary on the 20th day of March, 1989.
ATTEST: ORIGINAL RESEARCH CORORATION
/s/ Suzanne T. Brennan By:/s/ J. Schuyler Alland
- ---------------------------- ----------------------
Suzanne T. Brennan J. Schuyler Alland
Secretary President
THE UNDERSIGNED, President of Original Research Corporation,
who executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles Supplementary are the corporate act of
the Corporation and certifies that the matters and facts set forth in herein
with respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ J. Schulyer Alland
----------------------
J. Schulyer Alland
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<PAGE>
Exhibit 3.1.2
ORIGINAL RESEARCH CORPORATION
CERTIFICATE OF CORPORATE SECRETARY
CONCERNING CHANGE OF PRINCIPAL OFFICE
-------------------------------------------------
I, Suzanne T. Brennan, hereby certify that:
1. I am the duly elected and acting Secretary of Original Research
Corporation, a corporation duly organized and existing in good standing under
the laws of the State of Maryland (hereafter, the "Corporation").
2. The resolution set forth on Exhibit "A", attached hereto, was duly
adopted by the Board of Directors of the Corporation at the annual meeting of
directors held March 4, 1989.
3. Pursuant to the resolution set forth on Exhibit "A", the Corporation
has moved its principal office in the State of Maryland to:
14502 Greenview Drive, Third Floor
Laurel, Maryland 20708
This address will now serve as the principal office in the State of Maryland as
well as the principal executive office of the Corporation.
4. The resolution set forth on Exhibit "A" has not been amended,
rescinded or modified and is in full force and effect on the date hereof.
5. The undersigned further certifies that the following individuals are
the directors of the Corporation and that each of the following individuals was
duly elected as a director by proper corporate action and is eligible to serve
and act as a director until the successor director has been duly elected and has
qualified as such:
J. Schuyler Alland
Walter W. Buckley, III
John M. Camp, III
John Hilgenberg
John N. Richardson, Jr.
-1-
<PAGE>
IN WITNESS WHEREOF, I have executed this Certificate under seal of the
Corporation as of this 27th day of March, 1989.
By:/s/ Suzanne T. Brennan (SEAL)
-------------------
Name: Suzanne T. Brennan
Title: Secretary
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<PAGE>
EXHIBIT A
RESOLVED, that the principal office of the Corporation be and it hereby
is changed from 1901 Pennsylvania Avenue, N.W.-Suite 402, Washington, D.C. 20006
to 14502 Greenview Drive-Third Floor, Laurel, Maryland 20708, and in connection
therewith, the appropriate officers of the Corporation are hereby authorized to
file all notices and certificates as may be required by applicable law.
<PAGE>
Exhibit 3.1.3
ORIGINAL RESEARCH CORPORATION
ARTICLES OF AMENDMENT
----------------------------------------------------------------------------
ORIGINAL RESEARCH CORPORATION, a Maryland corporation, having its
principal office at 14502 Greenview Drive, Third Floor, Laurel, Maryland 20708
(which is hereinafter called the "Corporation"), hereby certifies to the State
Department of Assessments and Taxation of Maryland that:
FIRST: The Charter of the Corporation is hereby amended as
follows:
(a) Article SECOND of the Charter is hereby amended to read as
follows:
"The name of the Corporation is:
SKY ALLAND RESEARCH, INC."
(b) Article NINTH of the Charter is amended by adding the
following paragraph 7 thereto:
"(7) To the fullest extent permitted by Maryland statutory
or decisional law, as amended or interpreted, no director
or officer of this Corporation shall be personally liable
to the Corporation or its stockholders for money damages.
No amendment of the charter of the Corporation or repeal of
any of its provisions shall limit or eliminate the benefits
provided to directors and officers under the provision with
respect to any act or omission which occurred prior to such
amendment or repeal."
SECOND: The amendments do not increase the authorized stock of the
Corporation.
THIRD: The foregoing amendments to the Charter of the Corporation
have been advised by the Board of Directors and approved by the stockholders of
the Corporation.
-1-
<PAGE>
IN WITNESS WHEREOF, ORIGINAL RESEARCH CORPORATION has caused these
presents to be signed in its name and on its behalf by its President and
witnessed by its Secretary on May 1, 1989.
WITNESS:
By: Suzanne T. Brennan By: J. Schuyler Alland
----------------------- -----------------------
Name: Suzanne T. Brennan Name: J. Schuyler Alland
Title: Secretary Title: President
-2-
<PAGE>
THE UNDERSIGNED, President of ORIGINAL RESEARCH CORPORATION, who
executed on behalf of the Corporation the foregoing Articles of Amendment of
which this certificate is made a part, hereby acknowledges in the name and on
behalf of said Corporation the foregoing Articles of Amendment to be the
corporate act of said Corporation and hereby certifies that to the best of his
knowledge, information, and belief the matters and facts set forth therein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ J. Schuyler Alland
-------------------
J. Schuyler Alland
President
-3-
<PAGE>
Exhibit 3-1-4
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its
principal office in Laurel, Maryland (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Articles of Incorporation
of the Corporation (the "Charter"), the Board of Directors has duly divided and
classified 1,000 shares of the capital stock of the Corporation into a series
designated Nonconvertible Callable Preferred Stock, Series B with a par value of
five hundred seventy-five dollars ($575.00) per share (the "Preferred Stock")
and has authorized the issuance of such series.
SECOND: A description of the Preferred Stock, including the
preferences and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and other terms and conditions is as follows:
1. DIVIDEND PROVISIONS. The holders of shares of the
Preferred Stock shall be entitled to receive no dividends until January 1, 1993.
After such date, dividends shall accrue annually at the rate of 12% on the
aggregate par value of the outstanding shares through 1993, 14% thereon through
1994, and 16% thereon thereafter, and shall be paid out of any assets legally
available therefor annually on March 1 of each year after accrual thereof or
sooner as may be herein required.
2. LIQUIDATION PREFERENCE.
(a) In the event of any other liquidation dissolution or
winding up of the Corporation not involving a Business Combination as defined in
paragraph 5(c) below, whether voluntary or involuntary (each, a "Liquidation"),
the holders of the Preferred Stock shall be entitled to receive, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of Common Stock or any other shares of capital stock ranking junior to
the Preferred Stock by reason of their ownership thereof, an amount (the
"Liquidation Preference") equal to 37.5% of Liquidation proceeds (after giving
effect to payment of all accrued but unpaid dividends on any preferred stock in
the Corporation) not
-1-
<PAGE>
to exceed $750,000; provided, however, if all of the 1,000 shares of Preferred
Stock are not issued and outstanding at the time of the Liquidation, the holders
shall be entitled to receive a Liquidation Preference equal to the amount
obtained by multiplying the lesser of 37.5% of Liquidation proceeds or $750,000
by the quotient obtained by dividing the number of shares of Preferred Stock
outstanding at the time of the Liquidation by 1,000. The Liquidation Preference
will be distributed on a pro rata basis to the holders of the Preferred Stock
with all accrued but unpaid dividends thereon, if any.
(b) After the distribution described in subparagraph (a)
has been paid, share of Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Corporation.
3. CONVERSION. The holders of the Preferred Stock shall have
no right to convert shares of Preferred Stock into any other security of the
Corporation.
4. VOTING RIGHTS. The holders of the Preferred Stock shall
have no right to vote upon any matter which holders of Common Stock or holders
of other capital stock are entitled to vote except as otherwise may be provided
by law.
5. REDEMPTION.
(a) REDEMPTION AT THE OPTION OF THE CORPORATION. The
Corporation may redeem, in whole or in part, the Preferred Stock at any time
upon prior written notice thereof to the holders of the Preferred Stock, for the
par value thereof (the "Redemption Value") plus all accrued but unpaid dividends
thereon. If at the time of any such redemption there is more than one holder of
such Preferred Stock, a redemption of less than 100% of the then outstanding
Preferred Stock shall be made on a pro rata basis.
(b) NO REDEMPTION AT THE OPTION OF THE HOLDERS. The
holders of the Preferred Stock shall have no right of redemption, except as
provided in paragraph (c) below.
(c) MANDATORY REDEMPTION UPON CERTAIN BUSINESS
COMBINATIONS. In the event of any Business Combination (as hereinafter defined)
involving the Corporation, the Corporation shall redeem all of the outstanding
shares of the Preferred Stock before engaging in such Business Combination upon
the following terms:
-2-
<PAGE>
(i) DEFINITIONS.
(A) "Business Combination" shall mean:
(1) if the Corporation shall merge or consolidate
with or into another corporation and in such merger or consolidation more than
50% of the voting stock of the corporation surviving the merger or consolidation
is owned beneficially by persons who were not stockholders of the Corporation
immediately prior to such merger or consolidation; or
(2) if the Corporation shall sell all or
substantially all of its assets to any person except the beneficial owner of
Preferred Stock; or
(3) if any person, or group of persons acting in
concert for the purpose, acquire shares of the Corporation's stock in a single
or related series of transactions over a period of less than six months, whether
from the Corporation or from stockholders of the Corporation, so that
immediately after such transactions more than 50% of the voting stock of the
Corporation is owned beneficially by persons who were not stockholders of the
Corporation immediately prior to such transactions.
(B) "Redemption Amount" shall mean the proceeds paid to
each holder of Preferred Stock and calculated as to each holder by multiplying
the Redemption Price by the number of shares redeemed by such holder pursuant to
a redemption under this paragraph 5(c).
(C) "Redemption Date" shall mean the date one day before
the date of the consummation of the Business Combination giving rise to the
redemption.
(D) "Redemption Price" shall mean $750.00 per share of
Preferred Stock.
(ii) MECHANICS OF REDEMPTION. The Corporation shall give
written notice by mail, postage prepaid, to all of the holders of the Preferred
Stock of a redemption of the same pursuant to this paragraph 5(c) at least 20
days before consummating a Business Combination. The notice shall request the
surrender to the Corporation of the certificate or certificates for the shares
of Preferred Stock being redeemed. The Corporation shall, as soon as practicable
after the tender of the certificate or certificates duly endorsed for transfer
by the holders of the Preferred Stock, deliver to such holders, or to the
nominee or nominees of such holders, the Redemption
-3-
<PAGE>
Amount for the number of shares of Preferred Stock which each holder shall have
redeemed as aforesaid. Such redemption shall be deemed to have been made
immediately prior to the close of business on the Redemption Date. Upon such
redemption of the Preferred Stock, all dividends accrued through the Redemption
Date but unpaid on the Preferred Stock shall be paid with the Redemption Amount
as of the Redemption Date.
(iii) If the Corporation consummates a Business
Combination within six months after the effective date of a redemption
under paragraph 5(a) hereof, the Corporation will pay the holders of the shares
redeemed within such time the difference between the Redemption Price and the
Redemption Value for each share redeemed under paragraph 5(a).
6. STATUS OF REDEEMED STOCK. In the event any shares of
Preferred Stock shall be redeemed pursuant hereto, the shares so redeemed shall
be cancelled and shall not be reissued by the Corporation.
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on the 3rd day of December, 1990.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Suzanne T. Brennan By:/s/ J. Schuyler Alland
- --------------------------- ---------------------------
Suzanne T. Brennan J. Schuyler Alland
Secretary President
-4-
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who
executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles Supplementary are the corporate act of
the Corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under penalties of perjury.
/s/ J. Schuyler Alland
---------------------------
J. Schuyler Alland
<PAGE>
Exhibit 3.1.5
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its
principal office in Laurel, Maryland (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Articles of Incorporation
of the Corporation (the "Charter"), the Board of Directors has duly divided and
classified 127,000 shares of the capital stock of the Corporation into a series
designated Convertible Preferred Stock, Series C with a par value of $0.01 per
share (the "Preferred Stock") and has authorized the issuance of such series.
SECOND: A description of the Preferred Stock, including the
preferences and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and other terms and conditions is as follows:
1. DIVIDEND PROVISIONS. The holders of shares of the
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, on a PARI PASSU basis with the holders of shares of
Common Stock of the Corporation.
2. LIQUIDATION PREFERENCE. The holders of the
Preferred Stock shall not be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any other
shares of capital stock of the Corporation, any amounts as a preference upon
liquidation. However, the holders of the Preferred Stock shall be entitled, on a
PARI PASSU basis with the holders of the shares of Common Stock of the
Corporation, to share in all amounts distributable to the holders of Common
Stock of the Corporation upon the liquidation of the Corporation after the
payment of any liquidation preference of any class or series of stock of the
Corporation that is entitled to a preferential payment upon liquidation.
3. CONVERSION. The holders of the Preferred Stock
shall have conversion rights as follows:
(a) CONVERSION AT THE OPTION OF THE HOLDERS.
Each share of Preferred Stock shall be convertible at any time, at the option
of the holder thereof, at the office of the Corporation or any transfer agent
for the Preferred Stock, into one fully paid and nonassessable share of
Common Stock of the Corporation.
(b) MECHANICS OF CONVERSION. Before any holder
of Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Corporation or of any transfer agent for
the Preferred Stock, and shall give written notice by mail, postage prepaid,
to the Corporation at its principal corporate office, of the election to
convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common
<PAGE>
Stock are to be issued. The Corporation shall, as soon as practicable
thereafter, issue and deliver to such holder of Preferred Stock, or the nominee
or nominees of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder shall be entitled as aforesaid. 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 as of such date.
(c) RECAPITALIZATIONS. If at any time or from
time to time there shall be a recapitalization of the Common Stock, provision
shall be made so that the holders of the Preferred Stock shall thereafter be
entitled to receive upon conversion of the Preferred Stock the number of
share of stock or other securities or property of the Corporation or
otherwise to which a holder of Common Stock would have been entitled on such
recapitalization.
(d) STOCK SPLITS AND REVERSE SPLITS. In case at
any time the Corporation shall subdivide its outstanding shares of Common
Stock into a greater number of shares, the number of shares of Common Stock
issuable upon conversion of the Preferred Stock prior to such split shall be
proportionately increased, and conversely, in case at any time the
Corporation shall combine its outstanding shares of Common Stock into a
smaller number of shares, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock prior to such combination shall be
proportionately reduced.
(e) RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. The Corporation shall at all times reserve and keep available out
of its authorized but unissued shares of Common Stock a sufficient number of
shares of Common Stock solely for the purpose of effecting the conversion of
the shares of the Preferred Stock into such equal number of shares of Common
Stock. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
4. VOTING RIGHTS. The holders of the Preferred Stock
shall have no right to vote upon any matter which holders of Common Stock or
holders of other capital stock are entitled to vote except as otherwise may be
provided by law.
5. RIGHTS OF REDEMPTION. Neither the Corporation nor
the holders of the Preferred Stock shall have any right of redemption with
respect to the Preferred Stock.
6. STATUS OF CONVERTED STOCK. In the event any shares
of Preferred Stock shall be converted pursuant thereto, the shares so converted
shall be cancelled and shall not be reissued by the Corporation.
-2-
<PAGE>
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on the 3rd day of December, 1990.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ By: /s/
Suzanne T. Brennan J. Schuyler Alland
Secretary President
-3-
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who
executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles Supplementary are the corporate act of
the corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/
J. Schuyler Alland
-4-
<PAGE>
Exhibit 3.1.6
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its
principal office in Laurel, Maryland (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Articles of Incorporation
of the Corporation (the "Charter"), the Board of Directors has duly divided and
classified 855,400 shares of the capital stock of the Corporation into a series
designated Convertible Preferred Stock, Series D with a par value of $0.01 per
share (the "Preferred Stock") and has authorized the issuance of such series.
SECOND: A description of the Preferred Stock, including the
preferences and other rights, voting powers, restrictions, limitations as to
dividends, qualifications, and other terms and conditions is as follows:
1. DIVIDEND PROVISIONS. The holders of shares of the
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, on a PARI PASSU basis with the holders of shares of
Common Stock of the Corporation.
2. LIQUIDATION PREFERENCE. The holders of the Preferred
Stock shall not be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any other
shares of capital stock of the Corporation, any amounts as a preference upon
liquidation. However, the holders of the Preferred Stock shall be entitled, on a
PARI PASSU basis with the holders of the shares of Common Stock of the
Corporation, to share in all amounts distributable to the holders of Common
Stock of the Corporation upon the liquidation of the Corporation after the
payment of any liquidation preference of any class or series of stock of the
Corporation that is entitled to a preferential payment upon liquidation.
3. CONVERSION. The holders of the Preferred Stock shall
have conversion rights as follows:
-1-
<PAGE>
(a) CONVERSION AT THE OPTION OF THE HOLDERS. Each share
of Preferred Stock shall be convertible at any time, at the option of the holder
thereof, at the office of the Corporation or any transfer agent for the
Preferred Stock, into one fully paid and nonassessable share of Common Stock of
the Corporation.
(b) MECHANICS OF CONVERSION. Before any holder of
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver to such holder of Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. 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 as of such date.
(c) RECAPITALIZATIONS. If at any time or from time to
time there shall be a recapitalization of the Common Stock, provision shall be
made so that the holders of the Preferred Stock shall thereafter be entitled to
receive upon conversion of the Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise to which a holder
of Common Stock would have been entitled on such recapitalization.
(d) STOCK SPLITS AND REVERSE SPLITS. In case at any time
the Corporation shall subdivide its outstanding shares of Common Stock into a
greater number shares, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock prior to such split shall be proportionately
increased, and conversely, in case at any time the Corporation shall combine its
outstanding shares of Common Stock into a smaller number of shares, the number
of shares of Common Stock issuable upon conversion of the Preferred Stock prior
to such combination shall be proportionately reduced.
-2-
<PAGE>
(e) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock a sufficient number of shares of Common
Stock solely for the purpose of effecting the conversion of the shares of the
Preferred Stock into such equal number of shares of Common Stock. If at any time
the number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
4. VOTING RIGHTS. Except as otherwise may be provided by
law, on each matter on which holders of Common Stock are entitled to vote, the
holders of the Preferred Stock shall be entitled to cast in the aggregate that
number of votes which, when added to the number of votes that may be cast on
such matter by all other classes and series of capital stock held by all holders
of the Preferred Stock, shall not exceed 49% of all votes that may be cast on
such matter by the holders of all classes and series of capital stock of the
Corporation (the "Preferred Vote"), and each holder of shares of Preferred Stock
shall be thus entitled to cast that number of votes equal to the number of
shares of Preferred Stock held by that stockholder multiplied by the quotient
obtained by dividing the Preferred Vote by the total number of shares of
Preferred Stock outstanding on the record date for determining the holders of
all shares eligible to vote on such matter.
5. RIGHTS OF REDEMPTION. Neither the Corporation nor the
holders of the Preferred Stock shall have any right of redemption with respect
to the Preferred Stock.
6. STATUS OF CONVERTED STOCK. In the event any shares of
Preferred Stock shall be converted pursuant thereto, the shares so converted
shall be cancelled and shall not be reissued by the Corporation.
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on the 3rd day of December, 1990.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Suzanne T. Brennan By:/s/ J. Schuyler Alland
- ---------------------- ----------------------
Suzanne T. Brennan J. Schuyler Alland
Secretary President
-3-
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who executed on
behalf of the Corporation Articles Supplementary of which this Certificate is
made a part, acknowledges in the name and on behalf of the Corporation that the
foregoing Articles Supplementary are the corporate act of the Corporation and
certifies that the matters and facts set forth herein with respect to the
authorization and approval thereof are true in all material respects under
penalties of perjury.
/s/ J. Schuyler Alland
----------------------------
J. Schuyler Alland
-4-
<PAGE>
Exhibit 3.1.7
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its principal
office in Laurel, Maryland (hereinafter called the "Corporation"), certifies
to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article SEVENTH of the Articles of Incorporation of the
Corporation (the "Charter"), the Board of Directors has duly divided and
classified 750,000 shares of the capital stock of the Corporation into a
series designated Convertible Preferred Stock, Series E with a par value of
$0.01 per share (the "Preferred Stock") and has authorized the issuance of
such series.
SECOND: A description of the Preferred Stock, including the preferences
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and other terms and conditions is as follows:
1. DIVIDEND PROVISIONS. The holders of shares of the Preferred
Stock shall be entitled to receive no dividends until January 1, 1994.
Commencing January 1, 1994, dividends shall accrue at the rate of 10% per
annum on the aggregate investment in shares of the Preferred Stock
outstanding. Such dividends will be payable semi-annually (i) to holders of
record at the close of business on June 30 and December 31 of each year for
which the dividends are payable, and (ii) to holders who converted their
Preferred Stock within the six month period ending on June 30 or December 31
for which dividends are payable, pro rata for such time during the period in
which the holders held their Preferred Stock. Dividends so payable shall be
paid out of any assets legally available therefor within 30 days of the
foregoing record dates for the period with respect to which the dividends are
payable. If no assets are legally available for the payment of any dividend
when due, the Corporation shall pay dividends pro rata of such amount as is
legally available therefor, and dividends not paid shall cumulate and shall
be paid at such time as the Corporation has assets legally available therefor.
2. LIQUIDATION PREFERENCE. The holders of the Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of
any of the assets of the Corporation to the holders of any other shares of
capital stock of the Corporation, except for the Series B Preferred Stock of
<PAGE>
the Corporation which shall be entitled to preferential payment upon
liquidation, amounts paid to the Corporation in respect of the Preferred
Stock as a preference upon liquidation. The holders of the Preferred Stock
shall be entitled, on a preferential basis over the holders of the shares of
Common Stock of the Corporation and the Series C Preferred Stock and the
Series D Preferred Stock of the Corporation, to share before such holders in
all amounts distributable upon the liquidation of the Corporation but after
the payment of the liquidation preference of the Series B Preferred Stock of
the Corporation.
3. CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows:
(a) CONVERSION AT THE OPTION OF HOLDERS. Each share of
Preferred Stock shall be convertible at any time, at the option of the holder
thereof, at the office of the Corporation or any transfer agent for the
Preferred Stock, into one fully paid and nonassessable share of Common Stock
of the Corporation.
(b) MECHANICS OF CONVERSION. Before any holder of Preferred
Stock shall be entitled to convert the same into shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at
the office of the Corporation or of any transfer agent for the Preferred
Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver to such holder of
Preferred Stock, or to the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. 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 as of such date.
(c) RECAPITALIZATIONS. If at any time or from time to time
there shall be a recapitalization of the Common Stock, provision shall be
made so that the holders of the Preferred Stock shall thereafter be entitled
to receive upon conversion of the Preferred Stock the number of shares of
stock or other securities or property of the Corporation or otherwise to
which a holder of Common Stock would have been entitled on such
recapitalization.
-2-
<PAGE>
(d) STOCK SPLITS AND REVERSE SPLITS. In case at any time the
Corporation shall subdivide its outstanding shares of Common Stock into a
greater number of shares, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock prior to such split shall be
proportionately increased, and conversely, in case at any time the
Corporation shall combine its outstanding shares of Common Stock into a
smaller number of shares, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock prior to such combination shall be
proportionately reduced.
(e) CONVERSION UPON QUALIFYING UNDERWRITING. All outstanding
shares of Preferred Stock will be automatically converted upon the
consummation by the Company of an offering pursuant to an underwriting
agreement in which the Company commits to register Common Stock and obtains
at least $5,000,000 gross proceeds from such offering at a price of at least
$4.00 per share (a "Qualifying Underwriting").
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Common Stock a sufficient number of shares
of Common Stock solely for the purpose of effecting the conversion of the
shares of the Preferred Stock into such equal number of shares of Common
Stock. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Preferred Stock, the Corporation will take such
corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purposes.
4. PIGGY-BACK REGISTRATION RIGHTS. If at any time after a
Qualifying Underwriting the Corporation proposes for any reason to register
any of its Common Stock under the federal Securities Act of 1933, it will
each such time promptly give written notice of its intention to register
Common Stock to holders of then outstanding Common Stock received upon
conversion of Preferred Stock. Each such holder shall thereupon have the
right, which right must be exercised in writing to the Corporation within 30
days of receipt of such notice, to require the Corporation to thereupon
register such Common Stock, subject to the terms and conditions set forth
below. In the event that any registration pursuant to this section will be,
in whole or in part, an underwritten offering of securities of the
Corporation, the Corporation will arrange for the Common Stock requested to
be registered pursuant to this section to be included in the underwriting on
the same terms and conditions as the Common Stock otherwise being sold
through underwriters under such registration. However, if the managing
underwriter
-3-
<PAGE>
reasonably determines and advises in writing that the inclusion of all such
converted Common Stock covered by the requests for registration made under this
section would interfere with the successful marketing of the securities being
sold by the Corporation for its own account in such registration, then the
requisite number of such Common Stock as specified by the managing underwriter
will be excluded from the underwritten portion of the public offering, on a pro
rata basis among the prior holders of the Preferred Stock requesting such
registration, and such excluded Common Stock will be withheld from the market by
the holders thereof for a period, not to exceed one year, which the managing
underwriter reasonably determines is necessary in order to effect the
underwritten portion of the public offering.
5. VOTING RIGHTS. The holders of the Preferred Stock shall have
the right to vote, on a pan passu basis, upon any matter which holders of
Common Stock are entitled to vote, except as otherwise may be provided by law.
6. RIGHTS OF REDEMPTION. All outstanding unconverted shares of
Preferred Stock must be redeemed by the Corporation at $2.00 per share on
April 30, 1998. The holders of the Preferred Stock shall have no right of
redemption with respect to the Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of Preferred
Stock shall be converted pursuant thereto, the shares so converted shall be
cancelled and shall not be reissued by the Corporation.
8. PREEMPTIVE RIGHTS.
(a) The holders of the Preferred Stock and Common Stock
received upon conversion of any shares of the Preferred Stock (collectively,
the "Eligible Securities") shall have the right to purchase upon the price
and terms most favorably offered any shares of Common Stock of the
Corporation, or any warrants, options, or other rights to purchase such
shares or any securities convertible into or exchangeable for such shares, on
the terms and conditions set forth in this Section 8.
(b) The preemptive rights granted hereby shall be exercisable
in proportion to the number of shares of Eligible Securities held by each
holder of Eligible Securities at the time such preemptive rights arise, such
proportion to be determined by calculating the ratio of (i) the number of
Eligible Securities held by such holder to (ii) the aggregate number of
outstanding shares of Common Stock of the Corporation (assuming the
conversion of all outstanding convertible securities and the exercise of all
outstanding options, warrants or other rights to acquire Common Stock).
-4-
<PAGE>
(c) In connection with a proposed issuance by the Corporation
of any securities giving rise to the preemptive rights granted hereby, the
Corporation shall give to each holder of Eligible Securities written notice
stating its intention to sell such securities and containing a description of
the price and general terms of the proposed sale. Such notice shall also
contain an unconditional offer by the Corporation to sell to each holder of
Eligible Securities such holder's proportionate share of the Common Stock or
other securities of the Corporation described in the notice on the same terms
and conditions set forth therein. Each holder of Eligible Securities
receiving the notice from the Corporation described herein must exercise his
preemptive rights within 30 days of receiving such notice by delivering
written notice of such exercise to the Corporation, and must deliver to the
Corporation the purchase price in cash within 15 days following such
exercise. Any holder of Eligible Securities who fails to exercise his
preemptive rights in the manner described herein shall be deemed to have
waived his preemptive rights with respect to the subject securities. Any
waiver of preemptive rights to acquire any securities of the Corporation
shall be effective for a period of 90 days following the effective date of
such waiver, and the Corporation may issue and sell such securities during
such period without further offer or notice to any holder of Eligible
Securities waiving his preemptive rights.
(d) Notwithstanding the foregoing, holders of Eligible
Securities shall have no preemptive rights with respect to any securities of
the Corporation in the following cases:
(i) When the securities are being issued in consideration
of services performed or to be performed;
(ii) When the securities are being issued in consideration
of the transfer of tangible personal property to the Corporation;
(iii) When the securities are being issued in
consideration of the transfer of intangible personal property to the
Corporation;
(iv) When the securities are being issued in consideration
of the transfer of real property to the Corporation;
(v) When the securities are being issued as dividends of
the Corporation;
(vi) When the securities are being issued in exchange for
other outstanding securities of the Corporation;
-5-
<PAGE>
(vii) When the securities are being issued upon exercise
of any right or option issued by the Corporation prior to the date of these
Articles Supplementary;
(viii) When the securities are being issued upon exercise
of any option held by an officer, director or employee of the Corporation,
which option was granted pursuant to a plan duly adopted by the Board of
Directors of the Corporation;
(ix) When the securities are being issued pursuant to a
recapitalization to which Section 3(c) of these Articles Supplementary
applies; or
(x) When the securities are being issued in connection
with the merger or consolidation of the Corporation.
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on the 21st day of May, 1991.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Suzanne T. Brennan By: /s/ William R. Sullivan
- ------------------------------ -----------------------------
Suzanne T. Brennan William R. Sullivan
Secretary President
-6-
<PAGE>
THE UNDERSIGNED, president of Sky Alland Research, Inc., who
executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles Supplementary are the corporate act of
the Corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ William R. Sullivan
-----------------------------
William R. Sullivan
-7-
<PAGE>
SKY ALLAND RESEARCH, INC.
AMENDED AND RESTATED
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its principal
office in Laurel, Maryland (hereinafter called the "Corporation"), certifies to
the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article SEVENTH of the Articles of Incorporation of the
Corporation (the "Charter"), the Board of Directors has duly divided and
classified 750,000 shares of the capital stock of the Corporation into a series
designated Convertible Preferred Stock, Series E with a par value of $0.01 per
share (the "Preferred Stock") and has authorized the issuance of such series.
SECOND: These Amended and Restated Articles Supplementary hereby amend
and restate the Articles Supplementary of the Corporation with respect to the
Preferred Stock executed on behalf of the Corporation on the 21st day of May,
1991.
THIRD: A description of the Preferred Stock, including the preferences
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications, and other terms and conditions is as follows:
1. DIVIDEND PROVISIONS. The holders of shares
of the Preferred Stock shall be entitled to receive no dividends until January
1, 1994, provided that if the Corporation declares or pays any cash dividend
prior to January 1, 1994 with respect to any of the Common Stock, Series C
Preferred Stock, Series D Preferred Stock or other shares of stock of the
Corporation ranking junior to the Preferred Stock (collectively, the "Junior
Shares"), the holders of the Preferred Stock shall participate fully in such
dividend and shall receive, per share of Preferred Stock, a dividend equal to
the product of (a) the per share amount of such cash dividend declared or paid
with respect to the Junior Shares, multiplied by (b) the number of shares
(including fractional shares) of Common Stock into which each share of Preferred
Stock is then convertible. Commencing January 1, 1994, dividends shall accrue at
the rate of 10% per annum on the aggregate investment in shares of the Preferred
Stock outstanding. Such dividends will be payable semi-annually (i) to holders
of record at the close of business on June 30 and December 31 of each year for
which the dividends are payable, and (ii) to holders who converted their
Preferred Stock within the six month period ending on June 30 or December 31 for
which
<PAGE>
dividends are payable, pro rata for such time during the period in which the
holders held their Preferred Stock. Dividends so payable shall be paid out of
any assets legally available therefor within 30 days of the foregoing record
dates for the period with respect to which the dividends are payable. No
dividends shall be declared or paid by the Corporation with respect to any
Junior Shares unless all accrued dividends payable with respect to any Junior
Shares unless all accrued dividends payable with respect to the Preferred Stock
have been paid in full by the Corporation. If no assets are legally available
for the payment of any dividend when due, the Corporation shall pay dividends
pro rata of such amount as is legally available therefor, and dividends not paid
shall cumulate and shall be paid at such time as the Corporation has assets
legally available therefor.
2. LIQUIDATION PREFERENCE. The holders of the
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Corporation to the holders of any other
shares of capital stock of the Corporation, except for the Series B Preferred
Stock of the Corporation which shall be entitled to preferential payment upon
liquidation, amounts paid to the Corporation in respect of the Preferred Stock,
together with all accrued but unpaid dividends thereon, as a preference upon
liquidation. The holders of the Preferred Stock shall be entitled, on a
preferential basis over the holders of all Junior Shares, to share before such
holders in all amounts distributable upon the liquidation of the Corporation but
after the payment of the liquidation preference of the Series B Preferred Stock
of the Corporation. If amounts distributable to the holders of the Preferred
Stock upon liquidation of the Corporation are insufficient to pay all amounts
due to the holders of the Preferred Stock pursuant to this paragraph, then such
amount shall be allocated and distributed ratably among the holders of the
Preferred Stock.
3. CONVERSION. The holders of the Preferred
Stock shall have conversion rights as follows:
(a) CONVERSION AT THE OPTION OF THE
HOLDERS. Each share of Preferred Stock shall be convertible at any time, at the
option of the holder thereof, at the office of the Corporation or any transfer
agent for the Preferred Stock, into one fully paid and nonassessable share of
Common Stock of the Corporation.
(b) MECHANICS OF CONVERSION. Before any
holder of Preferred Stock shall be entitled to convert the same into shares of
Common Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election
-2-
<PAGE>
to convert the same and shall state therein the name or names in which the
certificate or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, issue and deliver to such
holder of Preferred Stock, or to the nominee or nominees of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder shall be entitled as aforesaid. 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 of holders or
such shares of Common Stock as of such date.
(c) RECAPITALIZATIONS. If at any time
or from time to time there shall be a recapitalization of the Common Stock,
provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of the Preferred Stock the
number of shares of stock or other securities or property of the Corporation or
otherwise to which a holder of Common Stock would have been entitled on such
recapitalization.
(d) STOCK SPLITS AND REVERSE SPLITS. In
case at any time the Corporation shall subdivide its outstanding shares of
Common Stock into a greater number of shares, whether through a stock split,
stock dividend or otherwise, the number of shares of Common Stock issuable upon
conversion of the Preferred Stock prior to such split shall be proportionately
increased, and conversely, in case at any time the Corporation shall combine its
outstanding shares of Common Stock into a smaller number of shares, the number
of shares of Common Stock issuable upon conversion of the Preferred Stock prior
to such combination shall be proportionately reduced.
(e) CONVERSION UPON QUALIFYING
UNDERWRITING. All outstanding shares of Preferred Stock will be automatically
converted upon the consummation by the Company of an offering pursuant to an
underwriting agreement in which the Company commits to register Common Stock and
obtains at least $5,000,000 gross proceeds from such offering at a price of at
least $4.00 per share (a "Qualifying Underwriting").
(f) RESERVATION OF STOCK ISSUABLE UPON
CONVERSION. The Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock a sufficient number of shares
of Common Stock solely for the purpose of effecting the conversion of the share
of the Preferred Stock into such equal number of shares of Common Stock. If at
any time the number of authorized but unissued shares of Common Stock shall not
be sufficient to effect the conversion of all then outstanding shares of the
-3-
<PAGE>
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
4. PIGGY-BACK REGISTRATION RIGHTS. If at any
time after a Qualifying Underwriting the Corporation proposes for any reason to
register any of its Common Stock under the federal Securities Act of 1933, it
will each such time promptly give written notice of its intention to register
Common Stock to holders of then outstanding Common Stock received upon
conversion of Preferred Stock. Each such holder shall thereupon have the right,
which right must be exercised in writing to the Corporation within 30 days of
receipt of such notice, to require the Corporation to thereupon register such
Common Stock, subject to the terms and conditions set forth below. In the event
that any registration pursuant to this section will be, in whole or in part, an
underwritten offering of securities of the Corporation, the Corporation will
arrange for the Common Stock requested to be registered pursuant to this section
to be included in the underwriting on the same terms and conditions as the
Common Stock otherwise being sold through underwriters under such registration.
However, if the managing underwriter reasonably determines and advises in
writing that the inclusion of all such converted Common Stock covered by the
requests for registration made under this section would interfere with the
successful marketing of the securities being sold by the Corporation for its own
account in such registration, then the requisite number of such Common Stock as
specified by the managing underwriter will be excluded from the underwritten
portion of the public offering, on a pro rata basis among the prior holders of
the Preferred Stock requesting such registration, and such excluded Common Stock
will be withheld from the market by the holders thereof for a period, not to
exceed one year, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten portion of the public offering.
5. VOTING RIGHTS. The holder of the Preferred
Stock shall have the right to vote, on a pari passu basis, upon any matter which
holders of Common Stock are entitled to vote, except as otherwise may be
provided by law, and except that the holders of the Preferred Stock shall be
entitled to vote as a separate class with respect to any amendment to the
Articles of Incorporation of the Corporation affecting the terms of the
Preferred Stock.
6. RIGHTS OF REDEMPTION. All outstanding
unconverted shares of Preferred Stock must be redeemed by the Corporation at
$2.00 per share plus any accrued but unpaid
-4-
<PAGE>
dividends thereon on April 30, 1998. The holders of the Preferred Stock shall
have no right of redemption with respect to the Preferred Stock.
7. STATUS OF CONVERTED STOCK. In the event any
shares of Preferred Stock shall be converted pursuant thereto, the shares so
converted shall be cancelled and shall not be reissued by the Corporation.
8. PREEMPTIVE RIGHTS.
(a) The holders of the Preferred Stock
and Common Stock received upon conversion of any shares of the Preferred Stock
(collectively, the "Eligible Securities") shall have the right to purchase upon
the price and terms most favorably offered any shares of Common Stock of the
Corporation, or any warrants, options, or other rights to purchase such shares
or any securities convertible into or exchangeable for such shares, on the terms
and conditions set forth in this Section 8.
(b) The preemptive rights granted hereby
shall be exercisable in proportion to the number of shares of Eligible
Securities held by each holder of Eligible Securities at the time such
preemptive rights arise, such proportion to be determined by calculating the
ratio of (i) the number of Eligible Securities held by such holder to (ii) the
aggregate number of outstanding shares of Common Stock of the Corporation
(assuming the conversion of all outstanding convertible securities and the
exercise of all outstanding options, warrants or other rights to acquire Common
Stock).
(c) In connection with a proposed
issuance by the Corporation of any securities giving rise to the preemptive
rights granted hereby, the Corporation shall give to each holder of Eligible
Securities written notice stating its intention to sell such securities and
containing a description of the price and general terms of the proposed sale.
Such notice shall also contain an unconditional offer by the Corporation to sell
to each holder of Eligible Securities such holder's proportionate share of the
Common Stock or other securities of the Corporation described in the notice on
the same terms and conditions set forth therein. Each holder of Eligible
Securities receiving the notice from the Corporation described herein must
exercise his preemptive rights within 30 days of receiving such notice by
delivering written notice of such exercise to the Corporation, and must deliver
to the Corporation the purchase price in cash within 15 days following such
exercise. Any holder of Eligible Securities who fails to exercise his preemptive
rights in the manner described herein shall be deemed to have waived his
preemptive rights with respect to the subject securities. Any waiver of
preemptive rights to acquire any securities of the Corporation shall be
-5-
<PAGE>
effective for a period of 90 days following the effective date of such waiver,
and the Corporation may issue and sell such securities during such period
without further offer or notice to any holder of Eligible Securities waiving his
preemptive rights.
(d) Notwithstanding the foregoing,
holders of Eligible Securities shall have no preemptive rights with respect to
any securities of the Corporation in the following cases:
(i) When the securities are
being issued in consideration of services performed or to be performed;
(ii) When the securities are
being issued in consideration of the transfer of tangible personal property to
the Corporation;
(iii) When the securities are
being issued in consideration of the transfer of intangible personal property to
the Corporation;
(iv) When the securities are
being issued in consideration of the transfer of real property to the
Corporation;
(v) When the securities are
being issued as dividends of the Corporation;
(vi) When the securities are
being issued in exchange for other outstanding securities of the Corporation;
(vii) When the securities are
being issued upon exercise of any right or option issued by the Corporation
prior to the date of these Articles Supplementary;
(viii) When the securities are
being issued upon exercise of any option held by an officer, director or
employee of the Corporation, which option was granted pursuant to a plan duly
adopted by the Board of Directors of the Corporation;
(ix) When the securities are
being issued pursuant to a recapitalization to which Section 3(c) of these
Articles Supplementary applies; or
(x) When the securities are
being issued in connection with the merger or consolidation of the Corporation.
-6-
<PAGE>
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these presents
to be signed in its name and on its behalf by its President and attested by its
Secretary on the 24th day of June, 1991.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Suzanne T. Brennan By: /s/ William R. Sullivan
- ----------------------------- --------------------------------
Suzanne T. Brennan William R. Sullivan
Secretary President
-7-
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who executed
on behalf of the Corporation Articles Supplementary of which this Certificate is
made a part, acknowledges in the name and on behalf of the Corporation that the
foregoing Amended and Restated Articles Supplementary are the corporate act of
the Corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ WR Sullivan
--------------------------------
William R. Sullivan
-8-
<PAGE>
Exhibit 3.1.9
SKY ALLAND RESEARCH, INC.
CERTIFICATE CHANGING NAME AND ADDRESS OF
RESIDENT AGENT AND ADDRESS OF PRINCIPAL OFFICE
Sky Alland Research, Inc., a Maryland corporation, having its principal
office in Prince George's County, Maryland, hereby certifies to the State
Department of Assessments and Taxation the due adoption on October 23, 1991 of
the following resolution by its Board of Directors changing the name and address
of the resident agent of the Corporation and address of the principal office of
the Corporation in the State of Maryland.
RESOLVED, that P&M Agent Corp., a Maryland corporation,
of 36 South Charles Street, Baltimore, Maryland 21201, is
designated as the Resident Agent of the Corporation; that c/o
P&M Agent Corp., 36 South Charles Street, Baltimore, Maryland
21201 is designated as the principal office of the Corporation;
and that such appointment and change in address shall become
effective as of the date this resolution is filed for the record
with the State Department of Assessments and Taxation of
Maryland.
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused this
certificate to be signed in its name and on its behalf by its President and
attested to by its Secretary on October 23, 1991.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Suzanne T. Brennan /s/ William R. Sullivan
- ------------------------------ ------------------------------
Suzanne T. Brennan, Secretary William R. Sullivan, President
[STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
11/26/91 AT 1:24 p.m.]
<PAGE>
Exhibit 3.1.10
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its
principal office in Laurel, Maryland (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Articles of Incorporation
of the Corporation (the "Charter"), the Board of Directors has duly divided and
classified 750,000 shares of the capital stock of the Corporation into a series
designated Convertible Preferred Stock, Series F with a par value of $0.01 per
share (the "Preferred Stock") and has authorized the issuance of such series.
SECOND: A description of the Preferred Stock, including the
preferences and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and other terms and conditions is as follows:
1. DIVIDEND PROVISIONS. The holders of shares of the
Preferred Stock shall be entitled to receive dividends, out of any assets
legally available therefor, on a PARI PASSU basis with the holders of shares of
Common Stock of the Corporation.
2. LIQUIDATION PREFERENCE. The holders of the Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets of the Corporation to the holders of any other shares of
capital stock of the Corporation, (except for the Series B Preferred Stock of
the Corporation which shall be entitled to preferential payment upon
liquidation, and except for the Series E Preferred Stock of the Corporation
which shall be entitled to payment on a PARI PASSU basis with the holders of
shares of the Preferred Stock), amounts paid to the Corporation in respect of
the Preferred Stock, together with all accrued but unpaid dividends thereon as a
preference upon liquidation. The holders of the Preferred Stock shall be
entitled, on a preferential basis over the holders of all junior shares, to
share before such holders in all amounts distributable upon the liquidation of
the Corporation but after the payment of the liquidation preference of the
Series B Preferred Stock of the Corporation. If amounts distributable to the
holders of the Preferred Stock upon liquidation of the Corporation are
insufficient to pay all amounts due to the holders of the Preferred Stock
pursuant to this paragraph, then such amount shall be allocated and distributed
ratably among the holders of the Preferred Stock.
3. CONVERSION. The holders of the Preferred Stock shall have
conversion rights as follows:
(a) CONVERSION AT THE OPTION OF THE HOLDERS. Each share
of Preferred Stock shall be convertible at any time, at the office of the option
of the holder thereof, at the office of the
<PAGE>
Corporation or any transfer agent for the Preferred Stock, into one fully paid
and nonassessable share of Common Stock of the Corporation.
(b) MECHANICS OF CONVERSION. Before any holder of
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, he shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Preferred Stock, and shall give written notice by mail, postage prepaid, to the
Corporation at its principal corporate office, of the election to convert the
same and shall state therein the name or names in which the certificate or
certificates for shares of Common Stock are to be issued. The Corporation shall,
as soon as practicable thereafter, issue and deliver to such holder of Preferred
Stock, or to the nominee or nominees of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. 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 as of such date.
(c) RECAPITALIZATIONS. If at any time or from time to
time there shall be a recapitalization of the Common Stock, provision shall be
made so that the holders of the Preferred Stock shall thereafter be entitled to
receive upon conversion of the Preferred Stock the number of shares of stock or
other securities or property of the Corporation or otherwise to which a holder
of Common Stock would have been entitled on such recapitalization.
(d) STOCK SPLITS AND REVERSE SPLITS. In case at any time
the Corporation shall subdivide its outstanding shares of Common Stock into a
greater number of shares, whether through a stock split, stock dividend or
otherwise, the number of shares of Common Stock issuable upon conversion of the
Preferred Stock prior to such split shall be proportionately increased, and
conversely, in case at any time the Corporation shall combine its outstanding
shares of Common Stock into a smaller number of shares, the number of shares of
Common Stock issuable upon conversion of the Preferred Stock prior to such
combination shall be proportionately reduced.
(e) CONVERSION UPON QUALIFYING UNDERWRITING. All
outstanding shares of Preferred Stock will be automatically converted upon the
consummation by the Company of an offering pursuant to an underwriting agreement
in which the Company commits to register Common Stock and obtains at least
$5,00,000 gross proceeds from such offering at a price of at least $4.00 per
share (a "Qualifying Underwriting").
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock a sufficient number of shares of Common
Stock solely for the purpose of effecting the conversion of the shares of the
Preferred Stock into such equal number of shares of Common Stock. If at any time
the number of authorized but unissued shares of Common Stock shall not
-2-
<PAGE>
be sufficient to effect the conversion of all then outstanding shares of the
Preferred Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purposes.
4. PIGGY-BACK REGISTRATION RIGHTS. If at any time after a
Qualifying Underwriting the Corporation proposes for any reason to register any
of its Common Stock under the federal Securities Act of 1933, it will at such
time promptly give written notice of its intention to register Common Stock to
holders of then outstanding Common Stock received upon conversion of Preferred
Stock. Each such holder shall thereupon have the right, which right must be
exercised in writing to the Corporation within 30 days of receipt of such
notice, to require the Corporation to thereupon register such Common Stock,
subject to the terms and conditions set forth below. In the event that any
registration pursuant to this section will be, in whole or in part, an
underwritten offering of securities of the Corporation, the Corporation will
arrange for the Common Stock requested to be registered pursuant to this section
to be included in the underwriting on the same terms and conditions as the
Common Stock otherwise being sold through underwriters under such registration.
However, if the managing underwriter reasonably determines and advises in
writing that the inclusion of all such converted Common Stock covered by the
requests for registration made under this section would interfere with the
successful marketing of the securities being sold by the Corporation for its own
account in such registration, then the requisite number of such Common Stock as
specified by the managing underwriter will be excluded from the underwritten
portion of the public offering, on a pro rata basis among the prior holders of
the Preferred Stock requesting such registration, and such excluded Common Stock
will be withheld from the market by the holders thereof for a period, not to
exceed one year, which the managing underwriter reasonably determines is
necessary in order to effect the underwritten portion of the public offering.
5. VOTING RIGHTS. The holders of the Preferred Stock shall
have the right to vote, on a PARI PASSU basis, upon any matter which holders of
Common Stock are entitled to vote, except as otherwise may be provided by law,
and except that the holders of the Preferred Stock shall be entitled to vote as
a separate class with respect to any amendment to the Articles of Incorporation
of the Corporation affecting the terms of the Preferred Stock.
6. RIGHTS OF REDEMPTION. All outstanding unconverted shares
of Preferred Stock must be redeemed by the Corporation at $2.00 per share plus
any accrued but unpaid dividends thereon on April 30, 2000. The holders of the
Preferred Stock shall have no right of redemption with respect to the Preferred
Stock.
7. STATUS OF CONVERTED STOCK. In the event any shares of
Preferred Stock shall be converted pursuant thereto, the shares so converted
shall be canceled and shall not be reissued by the Corporation.
-3-
<PAGE>
8. PREEMPTIVE RIGHTS.
(a) The holders of the Preferred Stock and Common Stock
received upon conversion of any shares of the Preferred Stock (collectively, the
"Eligible Securities") shall have the right to purchase upon the price and terms
most favorably offered any shares of Common Stock of the Corporation, or any
warrants, options, or other rights to purchase such shares or any securities
convertible into or exchangeable for such shares, on the terms and conditions
set forth in this Section 8.
(b) The preemptive rights granted hereby shall be
exercisable in proportion to the number of shares of Eligible Securities held by
each holder of Eligible Securities at the time such preemptive rights arise,
such proportion to be determined by calculating the ratio of (i) the number of
Eligible Securities held by such holder to (ii) the aggregate number of
outstanding shares of Common Stock of the Corporation (assuming the conversion
of all outstanding convertible securities and the exercise of all outstanding
options, warrants or other rights to acquire Common Stock).
(c) In connection with a proposed issuance by the
Corporation of any securities giving rise to the preemptive rights granted
hereby, the Corporation shall give to each holder of Eligible Securities written
notice stating its intention to sell such securities and containing a
description of the price and general terms of the proposed sale. Such notice
shall also contain an unconditional offer by the Corporation to sell to each
holder of Eligible Securities such holder's proportionate share of the Common
Stock or other securities of the Corporation described in the notice on the same
terms and conditions set forth therein. Each holder of Eligible Securities
receiving the notice from the Corporation described herein must exercise his
preemptive rights within 30 days of receiving such notice by delivering written
notice of such exercise to the Corporation, and must deliver to the Corporation
the purchase price in cash within 15 days following such exercise. Any holder of
Eligible Securities who fails to exercise his preemptive rights in the manner
described herein shall be deemed to have waived his preemptive rights with
respect to the subject securities. Any waiver of preemptive rights to acquire
any securities of the Corporation shall be effective for a period of 90 days
following the effective date of such waiver, and the Corporation may issue and
sell such securities during such period without further offer or notice to any
holder of Eligible Securities waiving his preemptive rights.
(d) Notwithstanding the foregoing, holders of Eligible
Securities shall have no preemptive rights with respect to any securities of the
Corporation in the following cases:
(i) When the securities are being issued in
consideration of services performed or to be performed;
(ii) When the securities are being issued in
consideration of the transfer of tangible personal property to the Corporation;
-4-
<PAGE>
(iii) When the Securities are being issued in
consideration of the transfer of intangible personal property to the
Corporation;
(iv) When the securities are being issued in
consideration of the transfer of real property to the Corporation;
(v) When the securities are being issued as dividends
of the Corporation;
(vi) When the securities are being issued in exchange
for other outstanding securities of the Corporation;
(vii) When the Securities are being issued upon
exercise of any right or option issued by the Corporation prior to the date of
these Articles Supplementary;
(viii) When the securities are being issued upon
exercise of any option held by an officer, director or employee of the
Corporation, which option was granted pursuant to a plan duly adopted by the
Board of Directors of the Corporation;
(ix) When the securities are being issued pursuant to
a recapitalization to which Section 3(c) of these Articles of Supplementary
applies; or
(x) When the securities are being issued in
connection with the merger or consolidation of the Corporation.
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
presents to be signed in its name and on its behalf by its President and
attested by its Secretary on the 30th day of August, 1995.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Julianna Poff By: /s/ Richard T. Hebert
- ------------------------- ----------------------------
Julianna Poff Richard T. Hebert
Secretary President
-5-
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, lnc., who
executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles Supplementary are the corporate act of
the Corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Richard T. Hebert
---------------------------
Richard T. Hebert
-6-
[STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
9/25/95 at 9:16 a.m.]
<PAGE>
Exhibit 3.1.11
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its
principal office in Columbia, Maryland (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Articles of Incorporation
of the Corporation, as amended, (the "Charter"), the Board of Directors has duly
divided and classified 523,809 shares of the capital stock of the Corporation
into a series designated Convertible Preferred Stock, Series G with a par value
of $4.50 per share (the "Series G Preferred Stock") and classified 523,809
shares of the capital stock of the Corporation into a series designated
Convertible Preferred Stock, Series H with a par value of $6.00 per share (the
"Series H Preferred Stock") (collectively the Series G Preferred Stock and the
Series H Preferred Stock being referred to as the "Preferred Stock") and the
Board of Directors has authorized the issuance of such series.
SECOND: A description of the Preferred Stock, including the
preferences and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and other terms and conditions is as follows:
1. VOTING.
Except as otherwise required by the Maryland General Corporation
Law, in a separate agreement among the shareholders of the Corporation, in
another provision of the Charter, or as otherwise provided herein, the shares of
the Preferred Stock shall be voted together with the shares of the Corporation's
common stock, $0.01 par value per share (the "Common Stock"), voting as a single
class, at any annual or special meeting of shareholders of the Corporation, or
may act by written consent in the same manner as the Corporation's Common Stock,
upon the following basis: each holder of shares of Preferred Stock shall be
entitled to such number of votes for the shares of Preferred Stock held by him
on the record date fixed for such meeting, or on the effective date of such
written consent, as shall be equal to the whole number of shares of the
Corporation's Common Stock into which all of such shares of Preferred Stock held
by him are convertible as of the close of business on the record date fixed for
such meeting or the effective date of such written consent.
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2. ACCRUED RETURN ON INVESTMENT.
(a) ACCRUED RETURN ON PAR VALUE. Commencing with the date of
issuance of the Preferred Stock, each share of Preferred Stock shall accrue an
annual return on investment on the par value applicable to such share (the
"Annual Return"). The Annual Return shall be computed and accrue at the rate of
eight percent (8%) per annum (the "Annual Return Rate of Accrual") and shall be
compounded annually on the anniversary of the date of issuance. To the extent
the Corporation has assets legally available therefor, the holders of Preferred
Stock shall receive payment of the Annual Return if, as, and when such payment
of the accrued Annual Return is declared by the Board of Directors of the
Corporation.
(b) MANDATORY PAYMENT OF ACCRUED ANNUAL RETURN.
(1) To the extent the Corporation has assets legally available
therefor and the Board of Directors has not declared the payment of nor has the
Corporation paid the accrued Annual Return pursuant to Section 2(a) above, no
later than 30 days after the Payment Event Date (as defined hereinbelow), the
accrued unpaid Annual Return shall be paid in cash or by check to the holders of
record of shares of Preferred Stock on the Payment Event Date upon the
occurrence of a Payment Event (as defined hereinbelow). For purposes of this
Section 2(b), a "Payment Event" shall be defined as the occurrence of any one of
the following events:
(i) a Change in Control (as defined hereinbelow) of the
Corporation;
(ii) a sale of all or substantially all of the assets
of the Corporation;
(iii) a consolidation, merger or share exchange
involving the Corporation;
(iv) the first sale of Common Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(the "Securities Act"), (the "Initial Public Offering"); or
(v) an Act of Bankruptcy (as defined hereinbelow).
The "Payment Event Date" shall be the date upon which a Payment
Event is consummated.
An "Act of Bankruptcy" shall be defined as an occurrence of any of
the following with respect to the Corporation: (i) the Corporation shall have
made an assignment for the benefit of its creditors; (ii) the Corporation shall
have admitted in writing its inability to pay its debts as they become due;
(iii) the Corporation shall have filed a voluntary petition in bankruptcy; (iv)
the Corporation shall have been adjudicated a bankrupt or insolvent; (v) the
Corporation shall have
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filed any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future applicable law pertinent to such circumstances; (vi) the
Corporation shall have filed or shall file any answer admitting or not
contesting the material allegations of a bankruptcy, insolvency or similar
petition filed against the Corporation; (vii) the Corporation shall have sought
or consented to, or acquiesced in, the appointment of any trustee, receiver, or
liquidator of the Corporation or of all or any substantial part (20% or more) of
the properties of the Corporation; (viii) 60 days shall have elapsed after the
commencement of an action against the Corporation seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future applicable law without such action having
been dismissed or without all orders or proceedings thereunder affecting the
operations or the business of the Corporation having been stayed, or if a stay
of any such order or proceedings shall thereafter be set aside and the action
setting it aside shall not be timely appealed; or (ix) 60 days shall have
expired after the appointment, without the consent or acquiescence of the
Corporation of any trustee, receiver or liquidator of the Corporation or of all
or any substantial part of the assets and properties of the Corporation without
such appointment having been vacated.
A "Change in Control" shall be defined as a transaction or event
or series of transactions or events in which a person or entity acquires, or
after such acquisition such person or entity, together with its affiliates,
holds more than 50% of the voting power of the issued and outstanding shares of
the Corporation's capital stock or in which such person or entity, together with
its affiliates, acquires the right to elect or appoint a majority of the members
of the Board of Directors AND such person or entity is not a holder of shares of
the Corporation capital stock or an affiliate or an immediate family member
(meaning spouse, parent, sibling or lineal descendant) of such holder as of the
issuance date of the Preferred Stock.
(2) Notwithstanding anything to the contrary contained in
these Articles Supplementary, the Company shall be relieved of its obligation to
pay any unpaid accrued Annual Return and there shall be no further accruals of
the Annual Return if either of the following events occurs:
(i) the gross price per share to be received by the
Corporation for its Common Stock sold pursuant to the Initial Public Offering
equals or exceeds the Minimum Share Price (as is defined hereinbelow) for the
year in which the Initial Public Offering occurs, or
(ii) the per share amount of cash, the fair market
value of marketable securities, or other consideration to be distributed to the
holders of Preferred Stock on an as-converted basis in connection with a sale of
all or substantially all of the assets of the Corporation equals or exceeds the
Minimum Share Price for the year in which such sale of all or substantially all
of the assets of the Corporation occurs.
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The "Minimum Share Price" (as adjusted for any stock
dividends, combinations or splits with respect to such shares) shall be defined
as, and equal to, the Common Stock per share amounts set forth below:
a. for the two-year period ending on the second
anniversary of the first date of issuance of the Preferred Stock, the Minimum
Share Price shall be $10.50;
b. for the one-year period ending on the third
anniversary of the first date of issuance of the Preferred Stock, the Minimum
Share Price shall be $12.00;
c. at all times subsequent to the third anniversary of
the first date of issuance of the Preferred Stock, the Minimum Share Price shall
be $15.00.
3. PREFERENCES ON LIQUIDATION, ETC.
(a) PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Corporation, either voluntarily or involuntarily, the holders
of Preferred Stock shall be entitled to receive, at their option, prior and in
preference to any distribution of any of the assets or surplus funds of the
Corporation to the holders of Common Stock or other junior equity security by
reason of their ownership thereof, an amount per share (as adjusted for any
stock dividends, combinations or splits with respect to such shares) (the
"Liquidation Preference") equal to (i) the par value applicable to such share of
Preferred Stock plus (ii) all accrued but unpaid Annual Return applicable to
such share of Preferred Stock. Notwithstanding anything to the contrary
contained in the preceding sentence, if the per share consideration amount to be
received by the holders of shares of Preferred Stock on an as-converted basis
equals or exceeds the Minimum Share Price applicable to the year in which such
liquidation, distribution or winding up of the corporation occurs, then the per
share Liquidation Preference shall not include the Annual Return, and the
Corporation shall not be obligated to pay any accrued but unpaid Annual Return.
If, upon such liquidation, dissolution or winding up of the Corporation, the
assets of the Corporation are insufficient to provide for the cash payment of
the full aforesaid preferential amount to the holders of Preferred Stock, such
assets as are available shall be distributed ratably among the holders of
Preferred Stock in proportion to the full preferential amount each such holder
is otherwise entitled to receive.
After the payment or the setting apart of payment to the holders
of Preferred Stock of the preferential amounts so payable to them, all remaining
assets and funds of the Corporation shall be distributed in an accordance with
and pursuant to the terms and conditions of any preference rights applicable to
other series or classes of the Corporation's preferred stock. After the payment
or setting apart of payment to the holders of such other series or classes of
preferred stock of the preferential amounts so payable to them, all remaining
assets and funds of the Corporation shall be distributed ratably on an
as-converted basis to the holders of Preferred Stock, the holders of all other
series or classes of preferred stock and the holders of Common Stock of the
Corporation
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(b) CONSOLIDATION OR MERGER. A merger, share exchange or
reorganization of the Corporation that will result in the Corporation's
stockholders immediately prior to such transaction not holding (by virtue of
such shares or securities issued solely with respect thereto) more than 50% of
the voting power of the surviving, continuing or acquiring entity or the parent
of such entity shall be deemed to be a liquidation, dissolution or winding up
within the meaning of this Section 3; provided, however, that any Liquidation
Preference payments may be made in cash or in securities or other property
received from the acquiring entity or in a combination thereof, on the closing
of such transaction; and provided further, that if in any such transaction the
consideration per share payable in respect of the Preferred Stock includes an
amount in cash or the fair market value of marketable securities that exceeds
the Liquidation Preference of the Preferred Stock, all shares of such Preferred
Stock shall be treated in such transaction on an as-converted basis and such
transaction shall not be treated as a liquidation with respect to the Preferred
Stock.
(c) NON-CASH DISTRIBUTIONS. If any of the assets of the
Corporation are to be distributed other than in cash under this Section 3 or for
any purpose, then the Board of Directors shall promptly engage independent
competent appraisers to determine the fair market value of the assets to be
distributed to the holders of Preferred Stock or Common Stock. The Corporation
shall, upon receipt of such appraiser's valuation, give prompt written notice to
each holder of shares of Preferred Stock or Common Stock of the appraiser's
valuation. Notwithstanding anything to the contrary contained in the foregoing
sentences, any securities to be distributed to the stockholders shall be valued
as follows:
(i) if traded on a securities exchange, the value shall be
deemed to be the average of the closing prices of the securities on such
exchange over the 30-day period ending three business days prior to the
announcement of the transaction;
(ii) if actively traded over the counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three business days prior to the announcement of the transaction; and
(iii) if there is no active public market, the value shall be
the fair market value thereof, as mutually determined by the Corporation and the
holders of not less than a majority of the outstanding shares of Preferred
Stock, provided that if the Corporation and the holders of a majority of the
outstanding shares of Preferred Stock are unable to reach agreement, then by
independent appraisal by an investment banker hired and paid by the Corporation,
but acceptable to the holders of a majority of the outstanding shares of
Preferred Stock.
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4. CONVERSION.
The holders of shares of Preferred Stock shall have the following
respective conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of this
Section 4, the holder of any share or shares of Preferred Stock shall have the
right, at its option, at any time, to convert, any such shares of Preferred
Stock into such number of fully paid and nonassessable whole shares of Common
Stock as is obtained by (i) with respect to the Series G Preferred Stock, (A)
multiplying the number of shares of Series G Preferred Stock to be so converted
by $4.50 and (B) dividing the product thereof by the "Series G Conversion
Price," which term shall initially mean the par value of the Series G Preferred
Stock and thereafter shall mean such price as is from time to time adjusted
pursuant to the further provisions of this Section 4 and (ii) with respect to
the Series H Preferred Stock, (A) multiplying the number of shares of Series H
Preferred Stock to be so converted by $6.00 and (B) dividing the product thereof
by the "Series H Conversion Price," which term shall initially mean par value of
the Series H Preferred Stock and thereafter shall mean such price as is from
time to time adjusted pursuant to the further provisions of this Section 4. The
Series G Conversion Price and the Series H Conversion Price shall sometimes be
collectively referred to as the "Conversion Price", and the number of shares of
Common Stock into which each share of Preferred Stock is convertible is
hereinafter referred to as the "Conversion Rate" for the Preferred Stock. Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Preferred
Stock into Common Stock and by surrender of a certificate or certificates for
the shares so to be converted to the Corporation at its principal office (or
such other office or agency of the Corporation as the Corporation may designate
by notice in writing to the holders of the Preferred Stock) at any time during
its usual business hours on the date set forth in such notice, together with a
statement of the name or names (with address) in which the certificate or
certificates for shares of Common Stock shall be issued. Notwithstanding the
foregoing, no written notice of election to convert or surrender of certificates
shall be required in the event of an automatic conversion pursuant to Section
4(b) below.
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Rate upon the first sale of the Corporation's Common Stock pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, yielding gross proceeds to the Corporation of at least $10,000,000 at a
gross price per share to the Corporation equal to or exceeding the Minimum Share
Price in the year such sale of the Corporation's Common Stock occurs (a
"Qualified Public Offering").
(c) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. Promptly
after the receipt of the written notice referred to in paragraph 4(a) and
surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
shares of Common Stock
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issuable upon the conversion of such share or shares of Preferred Stock. If the
shares are to be issued in a name other than the name in which the Preferred
Stock is issued, then the Corporation may request the holder to cause to be
delivered to the Corporation an opinion of counsel to the effect that the
transfer may be effected without registration under the Securities Act of 1933
and state securities laws. To the extent permitted by law, such conversion shall
be deemed to have been effected and the Conversion Price shall be determined as
of the close of business on the date on which such written notice shall have
been received by the Corporation and the certificate or certificates for such
share or shares shall have been surrendered as aforesaid, and at such time the
rights of the holder of such share or shares of Preferred Stock shall cease, and
the person or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be deemed to
have become the holder or holders of record of the shares represented thereby.
(d) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. At the
time of each conversion, the Corporation shall pay in cash an amount equal to
all dividends declared and unpaid on the shares surrendered for conversion to
the date upon which such conversion is deemed to take place as provided in
subparagraph (c). In case the number of shares of Preferred Stock represented by
the certificate or certificates surrendered for conversion exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder thereof, at the expense of the Corporation, a new
certificate or certificates for the number of shares of Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional interest in a share of Common Stock would, except
for the provisions of the first sentence of this subparagraph (d), be delivered
upon any such conversion, the Corporation, in lieu of delivering the fractional
share thereof, shall pay to the holder surrendering the Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional interest as determined in good faith by the Board of Directors of the
Corporation.
(e) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price of shares
of the Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) During the two-year period ending on the second
anniversary of the first date of issuance of the Preferred Stock (the "Full
Ratchet Period"), if the Corporation shall issue, or be deemed to have issued
(pursuant to subsection (3) of this Section 4(e)(ii)), any Common Stock, other
than "Excluded Stock" (as defined hereinbelow), or stock dividends,
subdivisions, splits, combinations, which are covered by Sections 4(e)(iv), (v)
and (vi) hereof, for a consideration, determined in the manner provided in
subsections (1), (2) and (3) of Section 4(e)(ii), per share less than the
Conversion Price applicable to the shares of Preferred Stock in effect
immediately prior to the issuance of such Common Stock, the Conversion Price of
the shares of Preferred Stock in effect immediately after each such issuance
shall forthwith be adjusted, if shares of the Preferred Stock are outstanding,
to a price equal to the consideration,
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determined in the manner provided in subsections (1), (2) and (3) of Section
4(e)(ii), received by the Corporation upon such issuance.
(ii) Following the end of the Full Ratchet Period, if the
Corporation shall issue, or be deemed to have issued (pursuant to subsection (3)
of this Section 4(e)(ii)) any Common Stock (other than Excluded Stock), or stock
dividends, subdivisions, splits, combinations, which are covered by Sections
4(e)(iv), (v) and (vi) hereof, for a consideration per share less than the
Conversion Price applicable to any shares of Preferred Stock in effect
immediately prior to the issuance of such Common Stock (such issuance being
referred to as a "Dilutive Issuance"), the Conversion Price of the affected
shares of Preferred Stock in effect immediately after each such Dilutive
Issuance shall forthwith be adjusted, if shares of such Preferred Stock are
outstanding, to a price equal to the quotient obtained by dividing:
(A) an amount equal to the sum of
(I) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have
been issued pursuant to subsection (3) of this Section 4(e)(ii)
(other than shares of Preferred Stock) and any shares of Common
Stock issuable upon conversion or exercise of the Excluded Stock)
immediately prior to such Dilutive Issuance multiplied by the
consideration (determined in the manner provided in subsections
(1), (2) and (3) of Section 4(e)(ii)) per share of Common Stock or
per maximum number of issuable shares of Common Stock, as the case
may be, received by the Corporation upon such Dilutive Issuance,
plus
(II) the total number of shares of Common Stock deemed
(pursuant to subsection (3) of this Section 4(e)(ii)) to have been
issued in respect of the Preferred Stock, immediately prior to
such Dilutive Issuance multiplied, in each case, by the respective
consideration for the Preferred Stock (determined in the manner
provided in subsection (3) of Section 4(e)(ii)), per share (using
the Conversion Price in effect immediately prior to the Dilutive
Issuance) received by the Corporation upon such issuances,
respectively, plus
(III) the consideration received by the Corporation
upon such Dilutive Issuance, by
(B) the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued pursuant to
subsection (3) of this Section 4(e)(ii) and any shares of Common Stock issuable
upon conversion or exercise of the Excluded Stock) immediately after the
Dilutive Issuance.
For the purposes of Sections 4(e)(i) and (ii), the following provisions
shall be applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts,
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commissions or expenses paid or incurred by the Corporation in connection with
the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors, in accordance with generally accepted
accounting principles; provided, however, that if, at the time of such
determination, the Corporation's Common Stock is traded in the over-the-counter
market or on a national or regional securities exchange, such fair market value
as determined by the Board of Directors shall not exceed the aggregate "Current
Market Price" (as defined hereinbelow) of the shares of Common Stock being
issued.
(3) In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock (other than Excluded Stock), (ii)
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
(A) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options to purchase or rights to subscribe for
Common Stock shall be deemed to have been issued immediately prior to the
Dilutive Issuance and for a consideration equal to the consideration (determined
in the manner provided in subsections (1) and (2) of this Section 4(e)(ii)), if
any, received by the Corporation upon the issuance of such options or rights
plus the minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options to purchase or rights
to subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof, shall be deemed to have been issued immediately
prior to the Dilutive Issuance or such options or rights shall be deemed to have
been issued immediately prior to the Dilutive Issuance and for a consideration
equal to the consideration received by the Corporation for any such securities
and related options or rights (excluding any cash received on account of accrued
interest or accrued dividends), plus the additional consideration, if any, to be
received by the Corporation upon the conversion or exchange of such securities
or the exercise of any related options or rights (the consideration in each case
to be determined in the manner provided in subsections (1) and (2) of this
Section 4(e)(ii));
(C) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options or rights or conversion of or
exchange for such convertible or exchangeable securities, or on any change in
the minimum purchase price of such options, rights or securities, other than a
change resulting from the anti-dilution provisions, if any, of such options,
rights or securities, the Conversion Price shall forthwith be readjusted to
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such Conversion Price as would have been obtained had the adjustment made upon
(x) the issuance of such options, rights or securities not exercised, converted
or exchanged prior to such change, as the case may be, been made upon the basis
of such change or (y) the options or rights related to such securities not
converted or exchanged prior to such change, as the case may be, been made upon
the basis of such change; and
(D) on the expiration of any such options or rights, the
termination of any such rights to convert or exchange or the expiration of any
options or rights related to such convertible or exchangeable securities, the
Conversion Price shall forthwith be readjusted to such Conversion Price as would
have been obtained had the adjustment made upon the issuance of such options,
rights, convertible or exchangeable securities or options or rights related to
such convertible or exchangeable securities, as the case may be, been made upon
the basis of the issuance of only the number of shares of Common Stock actually
issued upon the exercise of such options or rights, upon the conversion or
exchange of such convertible or exchangeable securities or upon the exercise of
the options or rights related to such convertible or exchangeable securities, as
the case may be.
(iii) "Excluded Stock" shall mean:
(A) all shares of Common Stock and preferred stock of the
Corporation issued and outstanding on the effective date hereof;
(B) all shares of Common Stock into which such outstanding
shares of preferred stock of the Corporation are convertible;
(C) subject to adjustment pursuant to stock splits, stock
dividends and the like, up to 800,000 shares of Common Stock or other securities
issued or issuable to employees, officers, consultants or directors of the
Corporation under any agreement, arrangement or plan, including any incentive
stock plan, approved by the Board of Directors and the stockholders of the
Corporation, plus any additional shares of such Common Stock so issued or
issuable as approved by a majority of the entire Board of Directors of the
Corporation including at least one director appointed by the holders of the
Preferred Stock pursuant to the Stockholders Agreement related thereto;
provided, however, that no such shares of Common Stock or other securities shall
be issued, or shall be deemed to have been issued, for consideration (determined
in the manner provided in subsections (1), (2) and (3) of Section 4(e)(ii)) less
than the Current Market Price thereof on the date of issuance, or the deemed
date of issuance, thereof; and
(D) all shares of Common Stock or other securities issued in
connection with acquisitions approved by a majority of the entire Board of
Directors of the Corporation including at least one director appointed by the
holders of the Preferred Stock pursuant to the Stockholders Agreement related
thereto, or if no such director is holding office, then such issuance of shares
in connection with an acquisition must be approved by such holders of a majority
of the shares of the Preferred Stock who are the original purchasers, or an
affiliate
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of such purchasers, of such shares, taken together as a single class, and at the
time such approval is required, such holders from whom approval is required hold
in aggregate at least 50% of the number of shares of Preferred Stock originally
purchased such holders, or an affiliate of such holder.
(iv) If the number of shares of Common Stock
outstanding at any time after the initial date of issuance of the Preferred
Stock is increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split of shares of Common Stock, then, on the date such payment
is made or such change is effective, the Conversion Price of the Preferred Stock
then outstanding shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of any shares of such Preferred Stock
shall be increased in proportion to such increase in outstanding shares.
(v) If the number of shares of Common Stock outstanding
at any time after the initial date of issuance of the Preferred Stock is
decreased by a combination of the outstanding shares of Common Stock, then, on
the effective date of such combination, the Conversion Price of the Preferred
Stock then outstanding shall be appropriately increased so that the number of
shares of Common Stock issuable on conversion of any shares of such Preferred
Stock shall be decreased in proportion to such decrease in outstanding shares.
(vi) In case, at any time after the initial date of
issuance of the Preferred Stock, of any capital reorganization, or any
reclassification of the stock of the Corporation (other than a change in par
value or as a result of a stock dividend or subdivision, split or combination of
shares, or of the consolidation or merger of the Corporation with or into
another person) or of the sale or other disposition of all or substantially all
the properties and assets of the Corporation as an entirety to any other person,
the shares of Preferred Stock shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, be
convertible into the kind and number of shares of stock or other securities or
property or cash of the Corporation or of the entity resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold or otherwise disposed to which such holder would have been
entitled if immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition such holder had converted such
holder's shares of the Preferred Stock into Common Stock. The provisions of this
Section 4(e)(vi) shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, sales or other dispositions.
(vii) All calculations under this Section 4 shall be
made to the nearest cent or to the nearest one hundredth (1/100th) of a share,
as the case may be.
(viii) For the purpose of any computation pursuant to
this Section 4(e), the "Current Market Price" at any date of one share of Common
Stock shall be deemed to be the average of the highest reported bid and the
lowest reported offer prices on the preceding business day as furnished by the
National Quotation Bureau, Incorporated (or equivalent recognized source of
quotations); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to in this Section 4(e) are available for
the period required hereunder,
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Current Market Price shall be determined in good faith by the Board of
Directors, but if challenged by the holders of at least a majority of the
outstanding shares of the Preferred Stock, then as determined by an independent
appraiser selected by the Board of Directors, the cost of such appraisal to be
borne by the challenging parties.
(f) MINIMAL ADJUSTMENTS. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 that is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment that, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(g) NO IMPAIRMENT. The Corporation will not, 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 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 Preferred Stock against impairment.
(h) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
event requiring adjustment or readjustment of the Conversion Rate pursuant to
this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Preferred Stock affected thereby a certificate setting
forth such adjustment or readjustment and showing in detail the facts upon which
such adjustment or readjustment is based. The Corporation shall, upon 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 Rate at the time in effect, and (iii) the
number of shares of Common Stock and the amount, if any, of other property that
at the time would be received upon the conversion of the Preferred Stock held by
such holder.
(i) 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 regularly scheduled cash dividend) or other distribution
or to vote on any merger, consolidation or sale of assets, the Corporation shall
mail to each holder of Preferred Stock and to each holder of outstanding
warrants, options or other rights to acquire Preferred Stock at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
vote.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the outstanding shares of Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
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conversion of all outstanding shares of 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 Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(k) OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution to
the holders of its Common Stock;
(ii) the Corporation shall offer for subscription PRO
RATA to the holders of its Common Stock any additional shares of stock
of any class or other rights;
(iii) there shall be any capital reorganization,
reclassification of the capital stock of the Corporation, or a
consolidation, share exchange or merger of the Corporation with or
into, or transfer of all or substantially all of the Corporation's
property, assets or business to any other person or entity or similar
transaction; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class certified or registered mail, postage prepaid, addressed to each holder of
Preferred Stock at the last registered address of such holder as shown on the
books of the Corporation, (a) at least 30 days' prior written notice of the date
on which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining right to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 30 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
(l) CERTAIN EVENTS. If the Company issues any securities and
the provisions of this Section 4 are not strictly applicable to such issuance or
if strictly applicable would not fairly protect the rights of the holders of the
Preferred Stock in accordance with the essential intent and principles of such
provisions, then the Board of Directors of the Corporation in good faith shall
determine the adjustment, if any, of the Conversion Prices for each series of
Preferred Stock in
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the application of such provisions, in accordance with such essential intent and
principles, so as to protect such rights as aforesaid. In no event shall any
such adjustment have the effect of increasing the Conversion Prices for such
series of Preferred Stock as otherwise determined pursuant to any of the
provisions of this Section 4 except in the case of a combination of shares of a
type contemplated in Subsection (e)(v) hereof and then in no event to an amount
larger than the Conversion Price as adjusted pursuant to Subsection (e)(v)
hereof.
(m) NO DILUTION OR IMPAIRMENT. The Corporation will not, by
amendment of its Charter 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
Section 4 and in taking of all such action as may be necessary or appropriate in
order to protect the conversion privilege of the holders of the Preferred Stock.
Without limiting the generality of the foregoing, the Corporation (i) will take
all such action as may be necessary or appropriate in order that the Corporation
may validly and legally issue fully paid and nonassessable shares of Common
Stock upon the conversion of the Preferred Stock, (ii) will not take any action
which results in any adjustment of the Conversion Price for such series of
Preferred Stock if the total number of shares of Common Stock issuable after the
action upon conversion of the Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the Corporation's Charter and
available for the purpose of issue upon such exercise, and (iii) shall not at
any time authorize or issue any security which under the definition given in
Subsection (r) below constitutes "Common Stock" and which grants to its
registered holders rights to share in dividends or any other distributions of
any kind at any time made by the Corporation (including but not limited to
liquidating distributions) which have the right to the distribution of a greater
amount per share than the amount per share distributable on the Corporation's
Common Stock on the date hereof or which are in any respect more favorable than
the corresponding rights attributable to Common Stock on the date hereof.
(n) LISTING ON SECURITIES EXCHANGES, ETC. The Corporation will
list on each national securities exchange on which any Common Stock may at any
time be listed, subject to official notice of issuance upon the conversion of
the Preferred Stock, all shares of Common Stock from time to time issuable upon
the conversion of the Preferred Stock pursuant to this Section 4 and will
maintain such listing as long as any Common Stock is listed.
(o) NO REISSUANCE OF PREFERRED STOCK. Shares of Preferred
Stock which are converted into shares of Common Stock or redeemed as provided
herein shall be canceled, shall not be reissued, and shall return to the status
of authorized but unissued preferred stock of the Corporation.
(p) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any
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certificate in a name other than that of the holder of the Preferred Stock which
is being converted.
(q) CLOSING OF BOOKS. The Corporation will at no time close
its transfer books against the transfer of any Preferred Stock or of any shares
of Common Stock issued or issuable upon the conversion of any Preferred Stock in
any manner which interferes with the timely conversion of such Preferred Stock.
(r) DEFINITION OF COMMON STOCK. As used in this Section 4, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock as constituted on the date immediately preceding the effective date
hereof, and shall also include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed sum or percentage of
such fixed sum in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
5. REDEMPTION.
(a) Subject to the limitations on the Corporation's
obligations to pay unpaid and accrued Annual Return on the Preferred Stock set
forth in Section 2(b)(2), all outstanding shares of Preferred Stock will be
automatically redeemed in the event of a sale of all or substantially all the
assets of the Corporation or in the event of a Change in Control of the
Corporation.
(b) Subject to the limitations on the Corporation's
obligations to pay unpaid and accrued Annual Return on the Preferred Stock set
forth in Section 2(b)(2), at the individual option of each holder of shares of
the Preferred Stock (such option being referred to as the "Right of
Redemption"), the Corporation shall redeem, on the seventh anniversary of the
initial date of issuance of the Preferred Stock (such date the "Preferred Stock
Redemption Date"), the number of shares of Preferred Stock held by such holder
that is specified in a written request for redemption (the "Notice of
Redemption"). At any time subsequent to the sixth anniversary of the initial
date of issuance of the Preferred Stock, the Corporation shall deliver written
notice to the holders of Preferred Stock informing such holders of their right
to redeem such shares of Preferred Stock on the Preferred Stock Redemption Date
(such notice being referred to as the "Reminder Notice"). After receipt of the
Reminder Notice from the Company, a holder of Preferred Stock seeking to have
his shares of Preferred Stock redeemed pursuant to this Section 5(b) shall
deliver a Notice of Redemption to the Corporation no greater than 90 days and no
less than 30 days prior to the Preferred Stock Redemption Date (the "Redemption
Notice Period"). The Corporation shall effect such redemption by paying in cash
therefor, on a per share basis the sum of (i) the par value applicable to such
redeemed shares of Preferred Stock and (ii) all unpaid and accrued Annual
Return, if any, applicable to such redeemed shares of Preferred Stock (the
"Preferred Stock Redemption Price"). In the event that a holder of Preferred
Stock does not provide the Corporation with the Notice of Redemption during the
Redemption Notice Period, such holder's Right of Redemption shall lapse, and the
Corporation shall not be required to effect
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the redemption of any shares of such holder's Preferred Stock at a future date.
Notwithstanding anything to the contrary contained in the previous sentence, if
the Corporation does not deliver the Reminder Notice and a holder of shares of
Preferred Stock does not, of its own accord, deliver a Notice of Redemption to
the Corporation during the Redemption Notice Period, then such holder's Right of
Redemption shall be deferred until such time as the Corporation delivers a
Reminder Notice. If the Corporation delivers a Reminder Notice anytime
subsequent to the start of the 12th month of the seventh year following the
initial date of issuance of the Preferred Stock and the holders of Preferred
Stock have not, of their own accord, delivered a Notice of Redemption to the
Corporation, a new redemption date shall be established as the 90th day
following the date of the Corporation's Reminder Notice (the "New Redemption
Date"). The holders of Preferred Stock shall have 30 days from the date of the
Corporation's Reminder Notice during which such holders may deliver a Notice of
Redemption to the Company. In the event a holder of Preferred Stock does not
provide the Corporation with a Notice of Redemption during such 30-day period,
such holder's Right of Redemption shall lapse and the Corporation shall not be
required to effect the redemption of any shares of such holder's Preferred Stock
at a future date.
(c) Notwithstanding any other provision to the contrary in
this Section 5, if upon exercise of the Right of Redemption by a holder or
holders of the Preferred Stock (i) the redemption of such Preferred Stock would
be prohibited by the provisions of applicable state law, (ii) the redemption of
such Preferred Stock would be prohibited by the provisions of the Corporation's
debt agreements executed subsequent to the effective date of these Articles
Supplementary or any debt agreements to which the Corporation is bound executed
subsequent to the effective date of these Articles Supplementary or (iii) it is
determined in good faith by a majority of the members of the Corporation's Board
of Directors that payment of the Preferred Stock Redemption Price for the
redemption of such Preferred Stock would significantly impair the financial
viability of the Corporation (each condition a "Redemption Restriction"), then
the Corporation and the holder or holders of Preferred Stock exercising such
Right of Redemption shall have the rights described in this Section 5(c).
Notwithstanding anything to the contrary contained in the foregoing sentence,
the Corporation shall not be entitled to make the determination under clause
(iii) above more than one time and in no event shall a Redemption Restriction
pursuant to clause (iii) remain in effect for a period in excess of one year
from the date of such determination. If a Redemption Restriction exists and
restricts the exercise of the Right of Redemption of a holder of Preferred
Stock, the Corporation shall, subject to the right of the holder or holders of
the Preferred Stock to rescind pursuant to Section 5(d):
(i) redeem for cash so much of the Preferred Stock as
to which the Right of Redemption has been exercised as the Corporation is able
to purchase, taking into account the effect of the applicable Redemption
Restriction(s);
(ii) redeem for subordinated promissory notes so much
of the Preferred Stock as to which the Right of Redemption has been exercised as
cannot be purchased for cash under subparagraph (i) above and as the Corporation
is able to redeem for promissory notes, taking into account the effect of the
applicable Redemption Restriction(s); provided, however,
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that such subordinated promissory notes shall be in form and substance
satisfactory to the holder or holders of Preferred Stock with the principal
amount payable in three equal annual installments beginning on the first
anniversary of issuance, bearing interest at a floating rate per annum equal to
the prime rate per annum announced from time to time by the Corporation's senior
lender as its prime rate plus 50 basis points; and
(iii) defer the redemption of so much of the Preferred
Stock as to which the Right of Redemption has been exercised as cannot be
purchased under subparagraphs (i) and (ii) above until such time as the
Corporation is able to consummate the redemption of such Preferred Stock without
a Redemption Restriction.
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<PAGE>
(d) In the event the Corporation elects to pay for the Right
of Redemption exercise with a subordinated promissory note as described above,
the holder or holders of Preferred Stock shall be entitled to rescind any
portion of the exercised Right of Redemption payable with such note. Any portion
of a Right of Redemption exercised in any year that is either deferred by the
Corporation or rescinded by the holder or holders of Preferred Stock shall
remain exercisable for a period of up to six months after such time as the
Corporation is able to consummate a redemption of Preferred Stock for cash
without a Redemption Restriction. The Corporation shall notify the holder or
holders of Preferred Stock originally exercising such Right of Redemption of the
cessation of the Redemption Restrictions, which shall be determined in good
faith by a majority of the members of the Corporation's Board of Directors. The
six month exercise period referred to above shall commence upon delivery of such
notice by the Corporation to the holder or holders of Preferred Stock originally
exercising such Right of Redemption.
(e) If on the Redemption Date or the New Redemption Date, as
applicable, the Corporation for any reason redeems less than 75% of the
aggregate number of shares Preferred Stock tendered for redemption, then the
holders of the shares of the Preferred Stock, taken together as a single class,
shall be entitled, but not obligated, to designate a majority of the directors
constituting the entire Board of Directors on the Redemption Date or the New
Redemption Date, as applicable.
If on the Redemption Date or the New Redemption Date, as
applicable, the Corporation for any reason redeems at least 75% but less than
100% of the aggregate number of shares Preferred Stock tendered for redemption
but the Corporation does not redeem the remaining balance of shares Preferred
Stock tendered for redemption by the first anniversary of the Redemption Date or
the New Redemption Date, as applicable, then the holders of the shares of the
Preferred Stock, taken together as a single class, shall be entitled, but not
obligated, to designate a majority of the directors constituting the entire
Board of Directors on the first anniversary of the Redemption Date or the New
Redemption Date, as applicable.
6. PREEMPTIVE RIGHTS.
(a) The holders of the Preferred Stock shall have the right to
purchase from the Corporation, upon the price and terms most favorably offered,
any shares of capital stock of the Corporation, or any warrants, options, or
other rights to purchase such shares or any securities convertible into or
exchangeable for such shares to be offered by the Corporation, on the terms and
conditions set forth in this Section 6.
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(b) The preemptive rights granted hereby shall be exercisable
in proportion to the number of shares of Preferred Stock, on and as-converted
basis, held by each holder of Preferred Stock at the time such preemptive rights
arise, such proportion to be determined by calculating the ratio of (i) the
number of shares of Preferred Stock, on an as-converted basis held by such
holder to (ii) the aggregate number of outstanding shares of Common Stock of the
Corporation (assuming the conversion of all outstanding convertible securities
and the exercise of all outstanding options, warrants or other rights to acquire
Common Stock).
(c) In connection with a proposed issuance by the Corporation
of any securities giving rise to the preemptive rights granted hereby, the
Corporation shall give to each holder of Preferred Stock written notice stating
its intention to sell such securities and containing a description of the price
and general terms of the proposed sale. Such notice shall also contain an
unconditional offer by the Corporation to sell to each holder of Preferred Stock
such holder's proportionate share of the capital stock or other securities of
the Corporation described in the notice on the same terms and conditions set
forth therein. Each holder of Preferred Stock receiving the notice from the
Corporation described herein must exercise his preemptive rights within 30 days
of receiving such notice by delivering written notice of such exercise to the
Corporation, and must deliver to the Corporation the purchase price in cash
within 15 days following such exercise. Any holder of Preferred Stock who fails
to exercise his preemptive rights in the manner described herein shall be deemed
to have waived his preemptive rights with respect to the subject securities. Any
waiver of preemptive rights to acquire any securities of the Corporation shall
be effective for a period of 90 days following the effective date of such
waiver, and the Corporation may issue and sell such securities during such
period without further offer or notice to any holder of Preferred Stock waiving
his preemptive rights.
(d) Notwithstanding the foregoing, holders of Preferred Stock
shall have no preemptive rights with respect to any securities of the
Corporation in the following cases:
(i) When the securities are being issued in
consideration of services performed or to be performed;
(ii) When the securities are being issued in
consideration of the transfer of tangible personal property to the Corporation;
(iii) When the Securities are being issued in
consideration of the transfer of intangible personal property to the
Corporation;
(iv) When the securities are being issued in
consideration of the transfer of real property to the Corporation;
(v) When the securities are being issued as dividends
of the Corporation;
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(vi) When the securities are being issued in exchange
for other outstanding securities of the Corporation;
(vii) When the Securities are being issued upon
exercise of any right or option issued by the Corporation prior to the date of
these Articles Supplementary;
(viii) When the securities are being issued upon
exercise of any option held by an officer, director or employee of the
Corporation, which option was granted pursuant to a plan duly adopted by the
Board of Directors of the Corporation;
(ix) When the securities are being issued in connection
with the merger or consolidation of the Corporation; or
(x) When the securities being issued constitute
Excluded Stock.
{Signature and attestation on next page}
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IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on the 13th day of February, 1996.
ATTEST; SKY ALLAND RESEARCH, INC.
/s/ Julianna Poff By:/s/ Richard T. Hebert
- ------------------------- -------------------------
Julianna Poff Richard T. Hebert
Secretary President
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THE UNDERSIGNED, President of Sky Alland Research, Inc., who
executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles Supplementary are the corporate act of
the Corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Richard T. Hebert
------------------------------
Richard T. Hebert, President
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Exhibit 3.1.12
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its principal
office in Columbia, Maryland (hereinafter called the "Corporation"), certifies
to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of
Directors of the Corporation by Article SEVENTH of the Articles of Incorporation
of the Corporation, as amended, (the "Charter"), the Board of Directors has duly
divided and classified 1,100,000 shares of the capital stock of the Corporation
into a series designated Convertible Preferred Stock, Series AA with a par value
of $0.01 per share (the "Preferred Stock") and the Board of Directors has
authorized the issuance of such series.
SECOND: A description of the Preferred Stock, including the
preferences and other rights, voting powers, restrictions, limitations as to
dividends, qualifications and other terms and conditions is as follows:
1. VOTING.
(a) Except as otherwise required by the Maryland General
Corporation Law, the shares of the Preferred Stock shall be voted together with
the shares of the Corporation's common stock, $0.01 par value per share (the
"Common Stock"), voting as a single class, at any annual or special meeting of
shareholders of the Corporation, or may act by written consent in the same
manner as the Corporation's Common Stock, upon the following basis: each holder
of shares of Preferred Stock shall be entitled to such number of votes for the
shares of Preferred Stock held by him on the record date fixed for such meeting,
or on the effective date of such written consent, as shall be equal to the whole
number of shares of the Corporation's Common Stock into which all of such shares
of Preferred Stock held by him are convertible as of the close of business on
the record date fixed for such meeting or the effective date of such written
consent.
(b) So long as 20% of the shares of the Preferred Stock
originally issued remain outstanding, the Corporation may not take any of the
actions set forth below without first obtaining the approval of holders of
two-thirds of the Preferred Stock:
(i) amend the articles of incorporation or by-
laws of the Corporation that would have an adverse effect on the rights of the
holders of the Preferred Stock;
(ii) take any action that would alter, modify or
amend the rights, preferences, privileges or restrictions of the Preferred
Stock;
<PAGE>
(iii) create or issue any other class or series of
capital stock, Preferred Stock or other securities or securities convertible
into securities senior to, or pari passu with, the authorized shares of
Preferred Stock, other than up to 1,100,000 shares of Preferred Stock;
(iv) issue any shares of capital stock of the
Corporation or securities convertible into capital stock of the Corporation at a
per share price of less than $8.00, subject to adjustment for stock splits,
recapitalizations and similar restructurings of the capital structure of the
Corporation, except for up to 970,095 shares of Common Stock or other securities
at a price not less than the fair market value of such Common Stock or other
securities issued or issuable to employees, officers, consultants or directors
of the Corporation under any agreement, arrangement or plan, including any
incentive stock plan, approved by the Board of Directors and the stockholders of
the Corporation;
(v) sell all or substantially all of the assets
of the Corporation or undertake a merger or consolidation transaction in which
the stockholders of the Corporation immediately prior to the transaction possess
less than 50% of the voting equity securities of the surviving entity
immediately after the transaction, unless (i) such merger or consolidation
transaction has been approved by a majority of the Investor Directors (as
defined in the Stockholders Agreement of even date herewith) and (ii) in such
merger or consolidation transaction the consideration received per share of
Preferred Stock is greater than or equal to the Liquidation Preference (as
defined in the Series AA Articles Supplementary);
(vi) effect a reclassification or
recapitalization of the issued and outstanding capital stock of the Corporation;
(vii) declare or pay dividends on any shares of
the Corporation's Common Stock other than dividends to effectuate a stock split
of the Corporation's Common Stock or the annual return on the shares of
Preferred Stock in accordance with the terms of these Articles Supplementary or
shares of the Corporation's Series G Convertible Preferred Stock and Series H
Convertible Preferred Stock in accordance with the terms of Section 2(b) of the
Articles Supplementary of the Series G Convertible Preferred Stock and Series H
Convertible Preferred Stock; or
(viii) redeem any shares of the Corporation's
capital stock other than shares of Series G Convertible Preferred Stock of
Series H Convertible Preferred Stock in accordance with the terms thereof;
(ix) increase or decrease (other than by
conversion permitted hereby) the total number of authorized shares of the
Corporation's preferred stock.
2. ACCRUED RETURN ON INVESTMENT.
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(a) ACCRUED RETURN ON ORIGINAL ISSUE PRICE. Commencing
with the date of issuance of the Preferred Stock, each share of Preferred Stock
shall accrue an annual return on investment on the Original Issue Price of such
share (the "Annual Return"). The Annual Return shall be computed and accrue
quarterly at the rate of ten percent (10%) per annum (the "Annual Return Rate of
Accrual") and shall not be compounded. To the extent the Corporation has assets
legally available therefor, the holders of Preferred Stock shall receive payment
of the Annual Return only if, as, and when such payment of the accrued Annual
Return is declared by the Board of Directors of the Corporation. The Original
Issue Price per share of Preferred Stock shall be $8.00.
(b) MANDATORY PAYMENT OF ACCRUED ANNUAL RETURN. To the
extent the Corporation has assets legally available therefor and the Board of
Directors has not declared the payment of nor has the Corporation paid the
accrued Annual Return pursuant to Section 2(a) above, the accrued unpaid Annual
Return shall be paid in cash or by check to the holders of record of shares of
Preferred Stock prior and in preference to payment of dividends or other return
on any other capital stock of the Corporation and no later than 30 days after
(i) the conversion of the Preferred Stock pursuant to Section 4(b) below or (ii)
the occurrence of an Act of Bankruptcy (as defined below). An "Act of
Bankruptcy" shall be defined as an occurrence of any of the following with
respect to the Corporation: (i) the Corporation shall have made an assignment
for the benefit of its creditors; (ii) the Corporation shall have admitted in
writing its inability to pay its debts as they become due; (iii) the Corporation
shall have filed a voluntary petition in bankruptcy; (iv) the Corporation shall
have been adjudicated a bankrupt or insolvent; (v) the Corporation shall have
filed any petition or answer seeking for itself any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar relief under any
present or future applicable law pertinent to such circumstances; (vi) the
Corporation shall have filed or shall file any answer admitting or not
contesting the material allegations of a bankruptcy, insolvency or similar
petition filed against the Corporation; (vii) the Corporation shall have sought
or consented to, or acquiesced in, the appointment of any trustee, receiver, or
liquidator of the Corporation or of all or any substantial part (20% or more) of
the properties of the Corporation; (viii) 60 days shall have elapsed after the
commencement of an action against the Corporation seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or similar
relief under any present or future applicable law without such action having
been dismissed or without all orders or proceedings thereunder affecting the
operations or the business of the Corporation having been stayed, or if a stay
of any such order or proceedings shall thereafter be set aside and the action
setting it aside shall not be timely appealed; or (ix) 60 days shall have
expired after the appointment, without the consent or acquiescence of the
Corporation of any trustee, receiver or liquidator of the Corporation or of all
or any substantial part of the assets and properties of the Corporation without
such appointment having been vacated. No accrued but unpaid Annual Return shall
be payable in connection with any conversion of the Preferred Stock other than
pursuant to Section 4(b).
3. PREFERENCES ON LIQUIDATION, ETC.
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(a) PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntarily or
involuntarily, the holders of Preferred Stock shall be entitled to receive, at
their option, prior and in preference to any distribution of any of the assets
or surplus funds of the Corporation to the holders of Common Stock or any other
capital stock in respect of their shares of such class or series of stock, an
amount per share (as adjusted for any stock dividends, combinations or splits
with respect to such shares) (the "Liquidation Preference") equal to the greater
of (i) the (x) Original Issue Price plus (y) all accrued but unpaid Annual
Return applicable to such share of Preferred Stock, without interest, and (ii)
the amount per share that would be received by holders of Preferred Stock if
such holders had converted such Preferred Stock in accordance with Section 4(a)
hereof prior to the distribution pursuant to this Section 3 and the assets and
funds of the Corporation were distributed in accordance with and pursuant to the
terms and conditions of any preference rights applicable to other series or
classes of the Corporation's preferred stock and to the holders of Common Stock
of the Corporation. If in a liquidation, dissolution or winding up of the
Corporation pursuant to this Section the assets or funds of the Corporation are
insufficient to provide for the cash payment of the full aforesaid preferential
amount to the holders of Preferred Stock, then (i) such assets or funds as are
available shall be distributed ratably among the holders of Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive; and (ii) the holders of any other junior equity security
and Common Stock shall in no event be entitled to participate in the
distribution of such assets in respect of their ownership thereof.
After the payment or the setting apart of payment to the
holders of Preferred Stock of the preferential amounts so payable to them, all
remaining assets and funds of the Corporation shall be distributed in an
accordance with and pursuant to the terms and conditions of any preference
rights applicable to other series or classes of the Corporation's preferred
stock. After the payment or setting apart of payment to the holders of such
other series or classes of preferred stock of the preferential amounts so
payable to them, all remaining assets and funds of the Corporation shall be
distributed ratably to the holders of Common Stock of the Corporation.
(b) CONSOLIDATION OR MERGER. (i) any sale of all or
substantially all of the Corporation's assets, (ii) any acquisition of the
Corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation) in which all or substantially all of the outstanding shares of
the Corporation are exchanged for securities or other consideration issued by
the acquiring entity or its subsidiary; (iii) the acquisition by any person or
group of persons by means of any share exchange, reorganization or other
transaction that will result in the Corporation's stockholders immediately prior
to such transaction holding not more than 50% of the voting power of the
outstanding shares of capital stock of the surviving, continuing or acquiring
entity or the parent of such entity; or (iv) any transactions contemplated by
Section 5.4 of the Stockholders Agreement, dated as of October 14, 1998, among
the Corporation and the Stockholders named therein, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 3, and
shall entitle the holders of the Preferred Stock to receive the Liquidation
Preference, in preference to any distribution of any of the assets or surplus
funds of the
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Corporation to the holders of Common Stock or any other capital stock in respect
of their shares of such class or series of stock, payments which may be made in
cash or in securities or other property or in a combination thereof by the
acquiring entity on the closing of such transaction; and provided further, that
if in any such transaction the consideration per share payable in respect of the
Preferred Stock includes an amount in cash or the fair market value of
marketable securities that exceeds the Liquidation Preference of the Preferred
Stock, all shares of such Preferred Stock shall be treated in such transaction
on an as-converted basis and such transaction shall not be treated as a
liquidation with respect to the Preferred Stock.
(c) NON-CASH DISTRIBUTIONS. If any of the assets of the
Corporation are to be distributed other than in cash under this Section 3 or for
any purpose, then the Board of Directors shall promptly engage independent
competent appraisers reasonably acceptable to the holders of a majority of the
outstanding shares of Preferred Stock to determine the fair market value of the
assets to be distributed to the holders of Preferred Stock or Common Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Preferred Stock or Common Stock of
the appraiser's valuation. Notwithstanding anything to the contrary contained in
the foregoing sentences, any securities to be distributed to the stockholders
shall be valued as follows:
(i) if traded on a national securities exchange,
the value shall be deemed to be the average of the daily closing prices per
share of the securities on such exchange for the consecutive 30 trading days
ending three business days prior to the announcement of the transaction;
(ii) if actively traded over the counter, the
value shall be deemed to be the average of the closing bid prices in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotation System ("NASDAQ") or such other system then in
use, for the consecutive 30 trading days of such over-the-counter market ending
three business days prior to the announcement of the transaction; and
(iii) if such securities are not traded on a
national securities exchange or being quoted on NASDAQ, the value shall be the
fair market value thereof, as mutually determined by the Corporation and the
holders of not less than a majority of the outstanding shares of Preferred
Stock, provided that if the Corporation and the holders of a majority of the
outstanding shares of Preferred Stock are unable to reach agreement, then by
independent appraisal by an investment banker hired and paid for by the
Corporation, but acceptable to the holders of a majority of the outstanding
shares of Preferred Stock.
4. CONVERSION.
The holders of shares of Preferred Stock shall have the following
respective conversion rights:
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(a) RIGHT TO CONVERT. Subject to the terms and conditions
of this Section 4, the holder of any share or shares of Preferred Stock shall
have the right, at its option, at any time, to convert, any such shares of
Preferred Stock into such number of fully paid and nonassessable whole shares of
Common Stock as is obtained by (A) multiplying the number of shares of Preferred
Stock to be so converted by $8.00 and (B) dividing the product thereof by the
"Conversion Price," which term shall initially mean the Original Issue Price of
the Preferred Stock and thereafter shall mean such price as is from time to time
adjusted pursuant to the further provisions of this Section 4. The number of
shares of Common Stock into which each share of Preferred Stock is convertible
is hereinafter referred to as the "Conversion Rate" for the Preferred Stock.
Such rights of conversion shall be exercised by the holder thereof by giving
written notice that the holder elects to convert a stated number of shares of
Preferred Stock into Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Preferred
Stock) at any time during its usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be issued.
Notwithstanding the foregoing, no written notice of election to convert or
surrender of certificates shall be required in the event of an automatic
conversion pursuant to Section 4(b) below.
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock
shall automatically be converted into shares of Common Stock at the then
effective Conversion Rate upon the first sale of the Corporation's Common Stock
pursuant to an effective registration statement under the Securities Act of
1933, as amended, (such first sale, the "Initial Public Offering") yielding
gross proceeds to the Corporation of at least $30,000,000 at a gross price per
share to the Corporation which yields a post-offering total equity value of the
Corporation of at least $120,000,000 (a "Qualified Public Offering").
(c) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in paragraph 4(a)
and surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
shares of Common Stock issuable upon the conversion of such share or shares of
Preferred Stock. If the shares are to be issued in a name other than the name in
which the Preferred Stock is issued, then the Corporation may request the holder
to cause to be delivered to the Corporation an opinion of counsel to the effect
that the transfer may be effected without registration under the Securities Act
of 1933 and state securities laws. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Conversion Price shall
be determined as of the close of business on the date on which such written
notice shall have been received by the Corporation and the certificate or
certificates for such share or shares shall have been surrendered as aforesaid,
and at such time the rights of the holder of such share or shares of Preferred
Stock shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall
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be issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
(d) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. At the time of each conversion, the Corporation shall
pay in cash an amount equal to all dividends declared and unpaid on the shares
surrendered for conversion to the date upon which such conversion is deemed to
take place as provided in subparagraph (c). In case the number of shares of
Preferred Stock represented by the certificate or certificates surrendered for
conversion exceeds the number of shares converted, the Corporation shall, upon
such conversion, execute and deliver to the holder thereof, at the expense of
the Corporation, a new certificate or certificates for the number of shares of
Preferred Stock represented by the certificate or certificates surrendered which
are not to be converted. If any fractional interest in a share of Common Stock
would, except for the provisions of the first sentence of this subparagraph (d),
be delivered upon any such conversion, the Corporation, in lieu of delivering
the fractional share thereof, shall pay to the holder surrendering the Preferred
Stock for conversion an amount in cash equal to the current market price of such
fractional interest as determined in good faith by the Board of Directors of the
Corporation.
(e) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price
of shares of the Preferred Stock shall be subject to adjustment from time to
time as follows:
(i) if the Corporation shall issue, or be deemed
to have issued pursuant to subsection (3) of this Section 4(e)(i), any Common
Stock (other than Excluded Stock as defined below, or stock dividends,
subdivisions, splits, combinations, and the like which are covered by Sections
4(e)(iii), (iv) and (v) hereof), for a consideration per share less than the
Conversion Price applicable to any shares of Preferred Stock in effect
immediately prior to the issuance of such Common Stock (such issuance being
referred to as a "Dilutive Issuance"), the Conversion Price of the affected
shares of Preferred Stock in effect immediately after each such Dilutive
Issuance shall forthwith be adjusted, if shares of such Preferred Stock are
outstanding, to a price equal to the quotient obtained by dividing:
an amount equal to the sum of
(I) the total number of shares of
Common Stock outstanding (including any shares of Common Stock deemed to have
been issued pursuant to subsection (3) of this Section 4(e)(i) (other than
shares of Preferred Stock) and any shares of Common Stock issuable upon
conversion or exercise of the Excluded Stock) immediately prior to such
Dilutive Issuance multiplied by the consideration (determined in the manner
provided in subsections (1), (2) and (3) of Section 4(e)(i)) per
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share of Common Stock or per maximum number of issuable shares of Common Stock,
as the case may be, received or receivable by the Corporation upon the issuance
of such Common Stock, plus
(II) the total number of shares of
Common Stock deemed (pursuant to subsection (3) of this Section 4(e)(i)) to have
been issued in respect of the Preferred Stock, immediately prior to such
Dilutive Issuance multiplied, in each case, by the respective consideration for
the Preferred Stock (determined in the manner provided in subsection (3) of
Section 4(e)(i)), per share (using the Conversion Price in effect immediately
prior to the Dilutive Issuance) received by the Corporation upon such issuances,
respectively, plus
(III) the consideration received by the
Corporation upon such Dilutive Issuance, by
the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to have been issued
pursuant to subsection (3) of this Section 4(e)(i) and any shares of Common
Stock issuable upon conversion or exercise of the Excluded Stock) immediately
after the Dilutive Issuance.
For the purposes of Section 4(e)(i), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash,
the consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts, commissions or expenses paid or incurred by the
Corporation in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors, in accordance with generally accepted
accounting principles; provided, however, that if, at the time of such
determination, the Corporation's Common Stock is traded in the over-the-counter
market or on a national securities exchange, such fair market value as
determined by the Board of Directors shall not exceed the aggregate "Current
Market Price" (as defined hereinbelow) of the shares of Common Stock being
issued.
(3) In the case of the issuance of (i) options to
purchase or rights to subscribe for Common Stock (other than Excluded Stock),
(ii) securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
(A) the aggregate maximum number of shares of
Common Stock deliverable upon exercise of such options to purchase or rights to
subscribe for Common Stock
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shall be deemed to have been issued immediately prior to the Dilutive Issuance
and for a consideration equal to the consideration (determined in the manner
provided in subsections (1) and (2) of this Section 4(e)(i)), if any, received
by the Corporation upon the issuance of such options or rights plus the minimum
purchase price provided in such options or rights for the Common Stock covered
thereby;
(B) the aggregate maximum number of shares of
Common Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options to
purchase or rights to subscribe for such convertible or exchangeable securities
and subsequent conversion or exchange thereof, shall be deemed to have been
issued immediately prior to the Dilutive Issuance or such options or rights
shall be deemed to have been issued immediately prior to the Dilutive Issuance
and for a consideration equal to the consideration received by the Corporation
for any such securities and related options or rights (excluding any cash
received on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in subsections (1) and (2) of this Section 4(e)(i));
(C) on any change in the number of shares of
Common Stock deliverable upon exercise of any such options or rights or
conversion of or exchange for such convertible or exchangeable securities, or on
any change in the minimum purchase price of such options, rights or securities,
other than a change resulting from the anti-dilution provisions, if any, of such
options, rights or securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have been obtained had the
adjustment made upon (x) the issuance of such options, rights or securities not
exercised, converted or exchanged prior to such change, as the case may be, been
made upon the basis of such change or (y) the options or rights related to such
securities not converted or exchanged prior to such change, as the case may be,
been made upon the basis of such change; and
(D) on the expiration of any such options or
rights, the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or exchangeable
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment made upon the
issuance of such options, rights, convertible or exchangeable securities or
options or rights related to such convertible or exchangeable securities, as the
case may be, been made upon the basis of the issuance of only the number of
shares of Common Stock actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to such
convertible or exchangeable securities, as the case may be.
(ii) "Excluded Stock" shall mean:
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(A) all shares of Common Stock into
which such outstanding shares of preferred stock of the Corporation are
convertible and all shares of Common Stock issued upon exercise of options and
warrants outstanding on the effective date hereof, but not including shares
included in Section 4(e)(ii)(C) below;
(B) subject to adjustment pursuant to
stock splits, stock dividends and the like, up to 1,207,015 shares of Common
Stock or other securities convertible into shares of Common Stock ("Convertible
Securities") issued or issuable, at a price not less than the fair market value
of such Common Stock or Common Stock into which such Convertible Securities are
convertible, to employees, officers, consultants or directors of the Corporation
under any agreement, arrangement or plan, including any incentive stock plan,
approved by the Board of Directors and the stockholders of the Corporation; and
(C) all shares of Common Stock or other
securities issued in connection with acquisitions approved by a majority of the
entire Board of Directors of the Corporation.
(iii) If the number of shares of Common Stock
outstanding at any time after the initial date of issuance of the Preferred
Stock is increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split of shares of Common Stock, then, on the date such payment
is made or such change is effective, the Conversion Price of the Preferred Stock
then outstanding shall be appropriately decreased so that the number of shares
of Common Stock issuable on conversion of any shares of such Preferred Stock
shall be increased in proportion to such increase in outstanding shares.
(iv) If the number of shares of Common Stock
outstanding at any time after the initial date of issuance of the Preferred
Stock is decreased by a combination of the outstanding shares of Common Stock,
then, on the effective date of such combination, the Conversion Price of the
Preferred Stock then outstanding shall be appropriately increased so that the
number of shares of Common Stock issuable on conversion of any shares of such
Preferred Stock shall be decreased in proportion to such decrease in outstanding
shares.
(v) In case, at any time after the initial date
of issuance of the Preferred Stock, of any capital reorganization, or any
reclassification of the stock of the Corporation (other than a change in par
value or as a result of a stock dividend or subdivision, split or combination of
shares, or of the consolidation or merger of the Corporation with or into
another person) or of the sale or other disposition of all or substantially all
the properties and assets of the Corporation as an entirety to any other person,
the shares of Preferred Stock shall, after such reorganization,
reclassification, consolidation, merger, sale or other disposition, be
convertible into the kind and number of shares of stock or other securities or
property or cash of the Corporation or of the entity resulting from such
consolidation or surviving such merger or to which such properties and assets
shall have been sold or otherwise disposed to which such holder would have been
entitled if immediately prior to such reorganization, reclassification,
consolidation, merger, sale or other disposition such holder had converted such
holder's shares of the Preferred Stock into
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Common Stock. The provisions of this Section 4(e)(v) shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales or
other dispositions.
(vi) In the event that the Corporation completes
a Liquidity Transaction (as defined below) on or prior to March 31, 2001 and the
price per share of the Preferred Stock or any Common Stock into which the
Preferred Stock has been converted in such Transaction (the "Liquidity Price")
is below the applicable Target Price (as specified below), then the Conversion
Price shall be adjusted by multiplying such Conversion Price by the applicable
Adjustment Factor as set forth on Schedule A hereto that corresponds to the
percentage by which the Liquidity Price is less than the applicable Target
Price. If the Liquidity Transaction is completed on or prior to March 31, 1999,
then the Target Price shall be $9.12. If the Liquidity Transaction is completed
after March 31, 1999 but on or prior to September 30, 1999, then the Target
Price shall be $10.40. If the Liquidity Transaction is completed after September
30, 1999 but on or prior to March 31, 2000, then the Target Price shall be
$11.86. If the Liquidity Transaction is completed after March 31, 2000 but on or
prior to September 30, 2000, then the Target Price shall be $13.52. If the
Liquidity Transaction is completed after September 30, 2000 but on or prior to
March 31, 2001, then the Target Price shall be $15.42. Notwithstanding the
above, the Target Prices set forth in this Section (vi) shall be subject to
adjustment for any capital reorganization, stock split, stock combination or
similar transaction. A "Liquidity Transaction" shall mean an Initial Public
Offering, or a transaction otherwise defined as a liquidation in accordance with
Section 3(b).
(vii) In the event that the Corporation does not
complete a Liquidity Transaction on or prior to March 31, 2001 and the December
31, 2000 Net Income of the Corporation (as defined below) is less than
$4,600,000, or December 31, 2000 Revenue of the Corporation (as defined below)
is less than $48,500,000, or both, then the Conversion Price shall be adjusted
by multiplying such Conversion Price by the applicable Adjustment Factor (as set
forth on Schedule B hereto) that corresponds to the Performance Percentage (as
defined below). "December 31, 2000 Net Income" shall mean the net income of the
Company for the four quarters ended December 31, 2000 as determined in
accordance with generally-accepted accounting principles ("GAAP"), consistently
applied for the period in question as set forth on the Corporation's financial
statements for such four-quarter period. "December 31, 2000 Revenue" shall mean
the revenue of the Company for the four quarters ended December 31, 2000
determined in accordance with GAAP. "Performance Percentage" shall mean the
arithmetic average (based on equal weighting) of (i) the amount, expressed as a
percentage, determined by dividing December 31, 2000 Net Income by $4,600,000;
and (ii) the amount, expressed as a percentage, determined by dividing December
31, 2000 Revenue by $48,500,000.
(viii) All calculations under this Section 4 shall
be made to (a) the nearest cent or (b) the nearest one hundredth (1/100th) of a
share or (c) the nearest one percent, as the case may be.
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(ix) For the purpose of any computation pursuant
to this Section 4(e), the "Current Market Price" at any date of one share of
Common Stock shall be deemed to be the average of the highest reported bid and
the lowest reported offer prices on the preceding business day as furnished by
the National Quotation Bureau, Incorporated (or equivalent recognized source of
quotations); provided, however, that if the Common Stock is not traded in such
manner that the quotations referred to in this Section 4(e) are available for
the period required hereunder, Current Market Price shall be determined in good
faith by the Board of Directors, but if challenged by the holders of at least a
majority of the outstanding shares of the Preferred Stock, then as determined by
an independent appraiser selected by the Board of Directors, the cost of such
appraisal to be borne by the Corporation.
(f) MINIMAL ADJUSTMENTS. No adjustment in a Conversion
Price need be made if such adjustment would result in a change in a Conversion
Price of less than $0.01. Any adjustment of less than $0.01 that is not made
shall be carried forward and shall be made at the time of and together with any
subsequent adjustment that, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(g) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of
each event requiring adjustment or readjustment of the Conversion Rate pursuant
to this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and prepare and
furnish to each holder of Preferred Stock affected thereby a certificate setting
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based and the Conversion Rate then in effect.
The Corporation shall, upon 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 Rate at the time in effect, and (iii) the number of shares of Common
Stock and the amount, if any, of other property that at the time would be
received upon the conversion of the Preferred Stock held by such holder.
(h) 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 regularly scheduled cash dividend) or other distribution
or to vote on any merger, consolidation or sale of assets, the Corporation shall
mail to each holder of Preferred Stock and to each holder of outstanding
warrants, options or other rights to acquire Preferred Stock at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
vote.
(i) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the outstanding shares of Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion
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of all outstanding shares of 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 Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(j) OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend
upon its Common Stock payable in cash or stock or make any other distribution to
the holders of its Common Stock;
(ii) the Corporation shall offer for subscription
PRO RATA to the holders of its Common Stock any additional shares of stock of
any class or other rights;
(iii) there shall be any capital reorganization,
reclassification of the capital stock of the Corporation, or a consolidation,
share exchange or merger of the Corporation with or into, or transfer of all or
substantially all of the Corporation's property, assets or business to any other
person or entity or similar transaction; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation; then, in any one or
more of said cases, the Corporation shall give, by first class certified or
registered mail, postage prepaid, addressed to each holder of Preferred Stock at
the last registered address of such holder as shown on the books of the
Corporation, (a) at least 30 days' prior written notice of the date on which the
books of the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights or for determining right to vote
in respect of any such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 30 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
(k) CERTAIN EVENTS. If the Company issues any securities
and the provisions of this Section 4 are not strictly applicable to such
issuance or if strictly applicable would not fairly protect the rights of the
holders of the Preferred Stock in accordance with the essential intent and
principles of such provisions, then the Board of Directors of the Corporation in
good faith shall determine the adjustment, if any, of the Conversion Prices for
each series of Preferred Stock in the application of such provisions, in
accordance with such essential intent and principles, so as to protect such
rights as aforesaid. In no event shall any such adjustment have the effect of
increasing the Conversion Prices for such series of Preferred Stock as otherwise
determined
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pursuant to any of the provisions of this Section 4 except in the case of a
combination of shares of a type contemplated in Subsection (e)(v) hereof and
then in no event to an amount larger than the Conversion Price as adjusted
pursuant to Subsection (e)(v) hereof.
(l) NO DILUTION OR IMPAIRMENT. The Corporation will not,
by amendment of its Charter 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
Section 4 and in taking of all such action as may be necessary or appropriate in
order to protect the conversion privilege of the holders of the Preferred Stock
against impairment. Without limiting the generality of the foregoing, the
Corporation (i) will take all such action as may be necessary or appropriate in
order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the conversion of the Preferred Stock,
(ii) will not take any action which results in any adjustment of the Conversion
Price for such series of Preferred Stock if the total number of shares of Common
Stock issuable after the action upon conversion of the Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Corporation's Charter and available for the purpose of issue upon such exercise,
and (iii) shall not at any time authorize or issue any security which under the
definition given in Subsection (q) below constitutes "Common Stock" and which
grants to its registered holders rights to share in dividends or any other
distributions of any kind at any time made by the Corporation (including but not
limited to liquidating distributions) which have the right to the distribution
of a greater amount per share than the amount per share distributable on the
Corporation's Common Stock on the date hereof or which are in any respect more
favorable than the corresponding rights attributable to Common Stock on the date
hereof.
(m) LISTING ON SECURITIES EXCHANGES, ETC. The Corporation
will list on each national securities exchange on which any Common Stock may at
any time be listed, subject to official notice of issuance upon the conversion
of the Preferred Stock, all shares of Common Stock from time to time issuable
upon the conversion of the Preferred Stock pursuant to this Section 4 and will
maintain such listing as long as any Common Stock is listed.
(n) NO REISSUANCE OF PREFERRED STOCK. Shares of Preferred
Stock which are converted into shares of Common Stock or redeemed as provided
herein shall be canceled, shall not be reissued, and shall return to the status
of authorized but unissued preferred stock of the Corporation.
(o) ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
-14-
<PAGE>
(p) CLOSING OF BOOKS. The Corporation will at no time
close its transfer books against the transfer of any Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any Preferred
Stock in any manner which interferes with the timely conversion of such
Preferred Stock.
(q) DEFINITION OF COMMON STOCK. As used in this Section
4, the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock as constituted on the date immediately preceding the effective date
hereof, and shall also include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed sum or percentage of
such fixed sum in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
5. REDEMPTION.
(a) At the individual option of each holder of shares of
the Preferred Stock, which option may be exercised, in whole or in part, (such
option being referred to as the "Right of Redemption"), the Corporation shall
redeem, on a date specified by the holder of Preferred Stock that is within the
two year period (the "Redemption Notice Period") that commences on the date that
is 66 months after the initial date of issuance of the Preferred Stock (such
date the "Preferred Stock Redemption Date"), the number of shares of Preferred
Stock held by such holder that is specified in a written request for redemption
(the "Notice of Redemption"). Within 30 days after the fifth anniversary of the
initial date of issuance of the Preferred Stock, the Corporation shall deliver
written notice to the holders of Preferred Stock informing such holders of their
right to redeem such shares of Preferred Stock (such notice being referred to as
the "Reminder Notice"). The Corporation shall effect any such redemption by
paying in cash therefor, on a per share basis the sum of (i) the Original Issue
Price applicable to such redeemed shares of Preferred Stock and (ii) all unpaid
and accrued Annual Return (whether or not declared), if any, applicable to such
redeemed shares of Preferred Stock (the "Preferred Stock Redemption Price"). In
the event that a holder of Preferred Stock does not provide the Corporation with
the Notice of Redemption during the Redemption Notice Period, such holder's
Right of Redemption shall lapse, and the Corporation shall not be required to
effect the redemption of any shares of such holder's Preferred Stock at a future
date. Notwithstanding anything to the contrary contained in the previous
sentence, if the Corporation does not deliver the Reminder Notice and a holder
of shares of Preferred Stock does not, of its own accord, deliver a Notice of
Redemption to the Corporation during the Redemption Notice Period, then such
holder's Right of Redemption shall be deferred until such time as the
Corporation delivers a Reminder Notice. If the Corporation delivers a Reminder
Notice anytime subsequent to the start of the 66th month following the initial
date of issuance of the Preferred Stock and the holders of Preferred Stock have
not, of their own accord, delivered a Notice of Redemption to the Corporation,
the Redemption Notice Period shall be extended accordingly (such extended
period, the "New Redemption Period"). The holders of Preferred Stock shall have
two years from the date of the Corporation's Reminder Notice during which such
holders may deliver a Notice of Redemption to the Corporation. In the event a
holder of Preferred Stock does not provide the
-15-
<PAGE>
Corporation with a Notice of Redemption during such two-year period, such
holder's Right of Redemption shall lapse and the Corporation shall not be
required to effect the redemption of any shares of such holder's Preferred Stock
at a future date. Except as provided in Section 5(c) and (d) hereof, on or after
the Redemption Notice Period or the New Redemption Period, as the case may be,
each holder of Preferred Stock who has exercised the Right of Redemption shall
surrender to the Corporation the certificate or certificates representing such
shares in the manner and at the place designated by the Corporation, and
thereupon the Preferred Stock Redemption Price of such shares shall be payable
to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled.
(b) Notwithstanding anything contained in Section 5(a) to
the contrary, in the event that any holder of Corporation's Series G Convertible
Preferred Stock (the "Series G Preferred Stock") or Series H Convertible
Preferred Stock (the "Series H Preferred Stock") delivers to the Corporation a
Notice of Redemption during the Redemption Period (each as defined in the
Articles Supplementary setting forth the terms of the Series G Preferred Stock
and the Series H Preferred Stock), then the Corporation shall immediately
deliver such Notice to all holders of the Preferred Stock. Upon receipt of such
Notice, each holder of shares of Preferred Stock shall have seven days to
deliver to the Corporation a Notice of Redemption for all or any part of the
shares of Preferred Stock held by such holder (such period, the "Acceleration
Period"). Subject to the terms of Section 5(d) below, within 14 days of the
receipt of the Redemption Notice, the Corporation will redeem first the number
of shares of Preferred Stock specified in the Redemption Notice prior to the
shares of any other capital stock of the Corporation (including the Series G
Preferred Stock and the Series H Preferred Stock) by paying in cash therefor, on
a per share basis, the Preferred Stock Redemption Price. Notwithstanding
anything contained herein to the contrary, to the extent that a holder of
Preferred Stock elects not to exercise its rights under this Section 5(b), such
holder shall be entitled to exercise such rights in accordance with Section 5(a)
above.
(c) From and after the Redemption Notice Period, the New
Redemption Period, or the Acceleration Period, as the case may be, unless there
shall have been a default in payment of the Preferred Stock Redemption Price,
all rights of the holders of shares of the Preferred Stock designated for
redemption in the Notice of Redemption (except the right to receive the
Preferred Stock Redemption Price of such shares without interest upon surrender
of their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(d) Notwithstanding any other provision to the contrary
in this Section 5, if upon exercise of the Right of Redemption by a holder or
holders of the Preferred Stock (i) the redemption of such Preferred Stock would
be prohibited by the provisions of applicable state law, (ii) the redemption of
such Preferred Stock would be prohibited by the provisions of the Corporation's
debt agreements executed subsequent to the effective date of these Articles
Supplementary or any debt agreements to which the Corporation is bound executed
subsequent to the effective date of these Articles Supplementary or (iii) it is
determined in good faith by a
-16-
<PAGE>
majority of the members of the Corporation's Board of Directors that payment of
the Preferred Stock Redemption Price for the redemption of such Preferred Stock
would significantly impair the financial viability of the Corporation (each
condition a "Redemption Restriction"), then the Corporation and the holder or
holders of Preferred Stock exercising such Right of Redemption shall have the
rights described in this Section 5(d). Notwithstanding anything to the contrary
contained in the foregoing sentence, the Corporation shall not be entitled to
make the determination under clause (iii) above more than one time and in no
event shall a Redemption Restriction pursuant to clause (iii) remain in effect
for a period in excess of one year from the date of such determination. If a
Redemption Restriction exists and restricts the exercise of the Right of
Redemption of a holder of Preferred Stock, the Corporation shall:
(i) redeem for cash the maximum number of the
Preferred Stock ratably among the holders of Preferred Stock based upon the
number of shares of Preferred Stock as to which the Right of Redemption has been
exercised as the Corporation is able to purchase, taking into account the effect
of the applicable Redemption Restriction(s); and
(ii) defer the redemption of the remaining
Preferred Stock as to which the Right of Redemption has been exercised as cannot
be purchased under subparagraph (i) above until such time as the Corporation is
able to consummate the redemption of such Preferred Stock without a Redemption
Restriction.
6. PREEMPTIVE RIGHTS.
(a) The holders of the Preferred Stock or Common Stock
received upon the conversion of the Preferred Stock shall have the right to
purchase from the Corporation, upon the price and terms most favorably offered,
any shares of capital stock of the Corporation, or any warrants, options, or
other rights to purchase such shares or any securities convertible into or
exchangeable for such shares to be offered by the Corporation, on the terms and
conditions set forth in this Section 6.
(b) The preemptive rights granted hereby shall be
exercisable in proportion to the number of shares of Preferred Stock, on an
as-converted basis, and Common Stock received upon the conversion of the
Preferred Stock held by each holder of Preferred Stock at the time such
preemptive rights arise, such proportion to be determined by calculating the
ratio of (i) the number of shares of Preferred Stock, on an as-converted basis,
and Common Stock received upon the conversion of the Preferred Stock held by
such holder to (ii) the aggregate number of outstanding shares of Common Stock
of the Corporation (assuming the conversion of all outstanding convertible
securities and the exercise of all outstanding options, warrants or other rights
to acquire Common Stock).
(c) In connection with a proposed issuance by the
Corporation of any securities giving rise to the preemptive rights granted
hereby, the Corporation shall give to each holder of Preferred Stock or Common
Stock received upon the conversion of the Preferred Stock written notice stating
its intention to sell such securities and containing a description of the price
-17-
<PAGE>
and general terms of the proposed sale. Such notice shall also contain an
unconditional offer by the Corporation to sell to each holder of Preferred Stock
or Common Stock received upon the conversion of the Preferred Stock such
holder's proportionate share of the capital stock or other securities of the
Corporation described in the notice on the same terms and conditions set forth
therein. Each holder of Preferred Stock or Common Stock received upon the
conversion of the Preferred Stock receiving the notice from the Corporation
described herein must exercise his preemptive rights within 30 days of receiving
such notice by delivering written notice of such exercise to the Corporation,
and must deliver to the Corporation the purchase price in cash within 15 days
following such exercise. Any holder of Preferred Stock or Common Stock received
upon the conversion of the Preferred Stock who fails to exercise his preemptive
rights in the manner described herein shall be deemed to have waived his
preemptive rights with respect to the subject securities. Any waiver of
preemptive rights to acquire any securities of the Corporation shall be
effective for a period of 90 days following the effective date of such waiver,
and the Corporation may issue and sell such securities during such period
without further offer or notice to any holder of Preferred Stock or Common Stock
received upon the conversion of the Preferred Stock waiving his preemptive
rights.
(d) Notwithstanding the foregoing, holders of Preferred
Stock or Common Stock received upon the conversion of the Preferred Stock shall
have no preemptive rights with respect to any securities of the Corporation in
the following cases:
(i) When the securities are being issued in
consideration of services performed or to be performed;
(ii) When the securities are being issued in
consideration of the transfer of tangible personal property to the Corporation;
(iii) When the securities are being issued in
consideration of the transfer of intangible personal property to the
Corporation;
(iv) When the securities are being issued in
consideration of the transfer of real property to the Corporation;
(v) When the securities are being issued as
dividends of the Corporation;
(vi) When the securities are being issued in
exchange for other outstanding securities of the Corporation;
(vii) When the securities are being issued upon
exercise of any right or option issued by the Corporation prior to the date of
the original issue of Preferred Stock;
(viii) When the securities are being issued upon
exercise of any option held by an officer, director or employee of the
Corporation, which option was granted pursuant to a plan duly adopted by the
Board of Directors of the Corporation; or
-18-
<PAGE>
(ix) When the securities are being issued in
connection with the merger or consolidation of the Corporation.
(e) All preemptive rights granted by this Section 6 shall
terminate, and this Section 6 shall become void and of no further force and
effect, concurrently with closing of a Qualified Public Offering.
{SIGNATURE AND ATTESTATION ON NEXT PAGE}
-19-
<PAGE>
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these Articles
Supplementary to be signed in its name and on its behalf by its President and
attested by its Secretary on the 14th day of October, 1998.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Thomas Hohman By: /s/ Richard T. Hebert
- -------------------- ----------------------
Thomas Hohman Richard T. Hebert
Secretary President
-19-
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who executed
on behalf of the Corporation Articles Supplementary of which this Certificate is
made a part, acknowledges in the name and on behalf of the Corporation that the
foregoing Articles Supplementary are the corporate act of the Corporation and
certifies that the matters and facts set forth herein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.
/s/ Richard T. Hebert
-------------------------------
Richard T. Hebert, President
<PAGE>
SCHEDULE A
QUALIFIED PUBLIC OFFERING, SALE, MERGER OR CONSOLIDATION
OF THE COMPANY BETWEEN 10/01/98 - 3/31/99
<TABLE>
<CAPTION>
NEW CONVERSION PRICE
TARGET PERCENTAGE OF TARGET AS PERCENTAGE OF
IPO/SALE/MERGER IPO/SALE/MERGER EXISTING CONVERSION NEW
SHARE PRICE SHARE PRICE PRICE CONVERSION PRICE 1
----------- ----------- ----- ------------------
<S> <C> <C> <C> <C>
$9.12 >= 100% 100.0% 8.00
99% 99.3% 7.94
98% 98.6% 7.89
97% 98.0% 7.84
96% 97.3% 7.78
95% 96.6% 7.73
94% 96.0% 7.68
93% 95.3% 7.63
92% 94.7% 7.58
91% 94.1% 7.53
90% 93.4% 7.48
89% 92.8% 7.43
88% 92.2% 7.38
87% 91.6% 7.33
86% 91.0% 7.28
85% 90.4% 7.23
84% 89.8% 7.19
83% 89.2% 7.14
82% 88.7% 7.09
81% 88.1% 7.05
80% 87.5% 7.00
Less than 80% No Additional
Adjustment
</TABLE>
- ---------------------
1 Based on an original issue price of $8.00 per share, and subject to
adjustment in accordance with Section 4 hereof.
-i-
<PAGE>
SCHEDULE A
QUALIFIED PUBLIC OFFERING, SALE, MERGER OR CONSOLIDATION
OF THE COMPANY BETWEEN 04/01/99 - 09/30/99
<TABLE>
<CAPTION>
NEW CONVERSION PRICE
TARGET PERCENTAGE OF TARGET AS PERCENTAGE OF
IPO/SALE/MERGER IPO/SALE/MERGER EXISTING CONVERSION NEW
SHARE PRICE SHARE PRICE PRICE CONVERSION PRICE 1
----------- ----------- ----- ------------------
<S> <C> <C> <C> <C>
$10.40 >= 100% 100.0% 8.00
99% 99.4% 7.96
98% 98.9% 7.91
97% 98.4% 7.87
96% 97.8% 7.83
95% 97.3% 7.78
94% 96.8% 7.74
93% 96.2% 7.70
92% 95.7% 7.66
91% 95.2% 7.62
90% 94.7% 7.58
89% 94.2% 7.54
88% 93.7% 7.49
87% 93.2% 7.46
86% 92.7% 7.42
85% 92.2% 7.38
84% 91.7% 7.34
83% 91.2% 7.30
82% 90.8% 7.26
81% 90.3% 7.22
80% 89.8% 7.19
79% 89.4% 7.15
78% 88.9% 7.11
77% 88.4% 7.07
76% 88.0% 7.04
75% 87.5% 7.00
Less than 75% No Additional
Adjustment
</TABLE>
- ------------------
1 Based on an original issue price of $8.00 per share, and subject to
adjustment in accordance with Section 4 hereof.
-ii-
<PAGE>
SCHEDULE A
QUALIFIED PUBLIC OFFERING, SALE, MERGER OR CONSOLIDATION
OF THE COMPANY BETWEEN 10/01/99 - 3/31/00
<TABLE>
<CAPTION>
TARGET PERCENTAGE OF TARGET AS PERCENTAGE OF
IPO/SALE/MERGER IPO/SALE/MERGER EXISTING CONVERSION NEW
SHARE PRICE SHARE PRICE PRICE CONVERSION PRICE 1
----------- ----------- ----- ------------------
<S> <C> <C> <C> <C>
$11.86 >= 100% 100.0% 8.00
99% 99.4% 7.96
98% 98.9% 7.91
97% 98.4% 7.87
96% 97.8% 7.83
95% 97.3% 7.78
94% 96.8% 7.74
93% 96.2% 7.70
92% 95.7% 7.66
91% 95.2% 7.62
90% 94.7% 7.58
89% 94.2% 7.54
88% 93.7% 7.49
87% 93.2% 7.46
86% 92.7% 7.42
85% 92.2% 7.38
84% 91.7% 7.34
83% 91.2% 7.30
82% 90.8% 7.26
81% 90.3% 7.22
80% 89.8% 7.19
79% 89.4% 7.15
78% 88.9% 7.11
77% 88.4% 7.07
76% 88.0% 7.04
75% 87.5% 7.00
Less than 75% No Additional
Adjustment
</TABLE>
- -------------------
1 Based on an original issue price of $8.00 per share, and subject to
adjustment in accordance with Section 4 hereof.
-iii-
<PAGE>
SCHEDULE A
QUALIFIED PUBLIC OFFERING, SALE, MERGER OR CONSOLIDATION
OF THE COMPANY BETWEEN 04/01/00 - 09/30/00
<TABLE>
<CAPTION>
TARGET PERCENTAGE OF TARGET AS PERCENTAGE OF
IPO/SALE/MERGER IPO/SALE/MERGER EXISTING CONVERSION NEW
SHARE PRICE SHARE PRICE PRICE CONVERSION PRICE 1
----------- ----------- ----- ------------------
<S> <C> <C> <C> <C>
$13.52 >= 100% 100.0% 8.00
99% 99.4% 7.96
98% 98.9% 7.91
97% 98.4% 7.87
96% 97.8% 7.83
95% 97.3% 7.78
94% 96.8% 7.74
93% 96.2% 7.70
92% 95.7% 7.66
91% 95.2% 7.62
90% 94.7% 7.58
89% 94.2% 7.54
88% 93.7% 7.49
87% 93.2% 7.46
86% 92.7% 7.42
85% 92.2% 7.38
84% 91.7% 7.34
83% 91.2% 7.30
82% 90.8% 7.26
81% 90.3% 7.22
80% 89.8% 7.19
79% 89.4% 7.15
78% 88.9% 7.11
77% 88.4% 7.07
76% 88.0% 7.04
75% 87.5% 7.00
Less than 75% No Additional
Adjustment
</TABLE>
- ------------------
1 Based on an original issue price of $8.00 per share, and subject to
adjustment in accordance with Section 4 hereof.
-iv-
<PAGE>
SCHEDULE A
QUALIFIED PUBLIC OFFERING, SALE, MERGER OR CONSOLIDATION
OF THE COMPANY BETWEEN 10/01/00 - 3/31/01
<TABLE>
<CAPTION>
TARGET PERCENTAGE OF TARGET AS PERCENTAGE OF
IPO/SALE/MERGER IPO/SALE/MERGER EXISTING CONVERSION NEW
SHARE PRICE SHARE PRICE PRICE CONVERSION PRICE 1
----------- ----------- ----- ------------------
<S> <C> <C> <C> <C>
$15.42 >= 100% 100.0% 8.00
99% 99.4% 7.96
98% 98.9% 7.91
97% 98.4% 7.87
96% 97.8% 7.83
95% 97.3% 7.78
94% 96.8% 7.74
93% 96.2% 7.70
92% 95.7% 7.66
91% 95.2% 7.62
90% 94.7% 7.58
89% 94.2% 7.54
88% 93.7% 7.49
87% 93.2% 7.46
86% 92.7% 7.42
85% 92.2% 7.38
84% 91.7% 7.34
83% 91.2% 7.30
82% 90.8% 7.26
81% 90.3% 7.22
80% 89.8% 7.19
79% 89.4% 7.15
78% 88.9% 7.11
77% 88.4% 7.07
76% 88.0% 7.04
75% 87.5% 7.00
Less than 75% No Additional
Adjustment
</TABLE>
- ----------------------
1 Based on an original issue price of $8.00 per share, and subject to
adjustment in accordance with Section 4 hereof.
-v-
<PAGE>
SCHEDULE B
ADJUSTMENT TO CONVERSION PRICE BASED ON PERFORMANCE TARGET ACHIEVED
<TABLE>
<CAPTION>
PERCENTAGE OF
EQUALLY WEIGHTED NEW CONVERSION PRICE
BLENDED AS PERCENTAGE OF
PERFORMANCE TARGET EXISTING CONVERSION NEW
ACHIEVED PRICE CONVERSION PRICE 1
<S> <C> <C>
100% 100.0% 8.00
99% 99.4% 7.96
98% 98.9% 7.91
97% 98.4% 7.87
96% 97.8% 7.83
95% 97.3% 7.78
94% 96.8% 7.74
93% 96.2% 7.70
92% 95.7% 7.66
91% 95.2% 7.62
90% 94.7% 7.57
89% 94.2% 7.53
88% 93.7% 7.49
87% 93.2% 7.45
86% 92.7% 7.41
85% 92.2% 7.37
84% 91.7% 7.34
83% 91.2% 7.30
82% 90.7% 7.26
81% 90.3% 7.22
80% 89.8% 7.18
79% 89.3% 7.15
78% 88.9% 7.11
77% 88.4% 7.07
76% 88.0% 7.04
75% 87.5% 7.00
Less than 75% No Additional Adjustment
</TABLE>
- --------------
1 Based on an original issue price of $8.00 per share, and subject to
adjustment in accordance with Section 4 hereof.
-i-
<PAGE>
Exhibit 3.1.13
SKY ALLAND RESEARCH, INC.
ARTICLES OF AMENDMENT
Sky Alland Research, Inc., a Maryland corporation having its
principal office in Columbia, Maryland (hereinafter called the "Corporation"),
certifies to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to amend certain provisions
contained in its charter.
SECOND: The name of the Corporation is Sky Alland Research,
Inc.
THIRD. The Articles of Incorporation of the Corporation are
hereby amended as follows:
The Articles Supplementary of the Corporation filed with the
Maryland State Department of Assessments and Taxation on February 13, 1996
creating the rights, powers and preferences of the Convertible Preferred Stock,
Series G and the Convertible Preferred Stock, Series H (the "Series G/H Articles
Supplementary"), are hereby amended in the following manner:
Article SECOND, Section 3, subsection (b), of the Series G/H
Articles Supplementary be and hereby is deleted in its entirety and replaced as
follows:
(b) CONSOLIDATION OR MERGER. (i) any sale of all or
substantially all of the Corporation's assets; (ii) any acquisition of the
Corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation) in which all or substantially all of the outstanding shares of
the Corporation are exchanged for securities or other consideration issued by
the acquiring entity or its subsidiary; (iii) the acquisition by any person or
group of persons by means of any share exchange, reorganization or other
transaction that will result in the Corporation's stockholders immediately prior
to such transaction holding not more than 50% of the voting power of the
outstanding shares of capital stock of the surviving, continuing or acquiring
entity or the parent of such entity; or (iv) any transactions contemplated by
Section 5.4 of the Stockholders Agreement, dated as of October 14, 1998, among
the Corporation and the Stockholders named therein, shall be deemed to be a
liquidation, dissolution or winding up within the meaning of this Section 3, and
shall entitle the holders of the Preferred Stock to receive the Liquidation
Preference, in preference to any distribution of any of the assets or surplus
funds of the Corporation to the holders of Common Stock or any other capital
stock in respect of their shares of such class or series of stock other than the
Corporation's Convertible Preferred Stock, Series AA (the "Series AA Preferred
Stock"), payments which may be made in cash or in securities or other property
or in a combination thereof by the acquiring entity on the closing of such
transaction; and provided further, that if in any such transaction the
consideration per share payable in respect of the Preferred Stock includes an
amount in cash or the fair market value of marketable securities that exceeds
the Liquidation Preference of the Preferred Stock, all shares of such Preferred
Stock shall
<PAGE>
be treated in such transaction on an as-converted basis and such transaction
shall not be treated as a liquidation with respect to the Preferred Stock.
Article SECOND, Section 5, subsection (e), of the Series G/H
Articles Supplementary be and hereby is deleted in its entirety and replaced as
follows:
"(e) If, on the Redemption Date or the New Redemption Date, as
applicable, the Corporation for any reason redeems less than 75% of the
aggregate number of shares of Series G Preferred Stock and Series H Preferred
Stock tendered for redemption pursuant to the terms of redemption set forth
herein then on the Redemption Date or the New Redemption Date, as applicable,
(i) the size of the Board of Directors shall be increased by four; (ii) the
holders of a majority of the shares of the Series G Preferred Stock and Series H
Preferred Stock, taken together as a single class, shall be entitled to appoint
two additional members of the Board of Directors; and (iii) the holders of a
majority of the shares of the Series AA Preferred Stock shall be entitled to
appoint two additional members of the Board of Directors, provided, however,
that if on the Redemption Date or the New Redemption Date, as applicable, less
than 10% of the originally issued Series AA Preferred Stock is outstanding then
(i) the size of the Board of Directors shall be increased by seven; (ii) the
holders of a majority of the shares of the Series G Preferred Stock and Series H
Preferred Stock, taken together as a single class, shall be entitled to appoint
seven additional members of the Board of Directors; and (iii) the holders of a
majority of the shares of the Series AA Preferred Stock shall not be entitled to
appoint any additional members of the Board of Directors.
(f) If, on the Redemption Date or the New Redemption Date, as
applicable, (i) the Corporation for any reason redeems at least 75% but less
than 100% of the aggregate number of shares of Series G Preferred Stock and
Series H Preferred Stock tendered for redemption and (ii) the Company does not
redeem the remaining balance of shares Series G Preferred Stock and Series H
Preferred Stock tendered for redemption by the first anniversary of the
Redemption Date or the New Redemption Date, as applicable, then on the first
anniversary of the Redemption Date or the New Redemption Date, as applicable,
(i) the size of the Board of Directors shall be increased by four; (ii) the
holders of a majority of the shares of the Series G Preferred Stock and Series H
Preferred Stock, taken together as a single class, shall be entitled to appoint
two additional members of the Board of Directors, and (iii) the holders of a
majority of the shares of the Series AA Preferred Stock shall be entitled to
appoint two additional members of the Board of Directors, provided, however,
that if on the first anniversary of the Redemption Date or the New Redemption
Date, as applicable, less than 10% of the originally issued Series AA Preferred
Stock is outstanding then (i) the size of the Board of Directors shall be
increased by seven; (ii) the holders of a majority of the shares of the Series G
Preferred Stock and Series Ii Preferred Stock, taken together as a single class,
shall be entitled to appoint seven additional members of the Board of Directors;
and (iii) the holders of a majority of the shares of the Series AA Preferred
Stock shall not be entitled to appoint any additional members of the Board of
Directors."
FOURTH. The amendment to the Series G/H Articles Supplementary
was approved by the Board of
-2-
<PAGE>
Directors of the Corporation as of October 8, 1998 and declared by the Board of
Directors of the Corporation as advisable. The Board of Directors of the
Corporation directed that the amendment to the Series G/H Articles Supplementary
be submitted to the Corporation's stockholders for approval.
FIFTH: By unanimous written consent dated October 12, 1998,
the amendment to the Series G/H Articles Supplementary was approved by a vote of
more than a majority of the holders of the aggregate of the issued and
outstanding shares of the capital stock of the Corporation entitled to vote
thereon, including all of the holders of the issued and outstanding shares of
the Corporation's Convertible Preferred Stock, Series G, and Convertible
Preferred Stock, Series H, entitled to vote thereon, voting as a separate class.
SIXTH. Pursuant to the authorization of the Board of Directors
of the Corporation, these Articles of Amendment may be executed by the President
or any Vice President of the Corporation and may be attested by the Secretary of
the Corporation.
{Signature and attestation on next page}
-3-
<PAGE>
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
Articles of Amendment to be signed in its name and on its behalf by its
President and attested by its Secretary on the 14th day of October, 1998.
SKY ALLAND RESEARCH, INC.
By: Richard T. Hebert
----------------------
Richard T. Hebert
President
ATTEST:
By: Thomas C. Hohman
------------------
Thomas C. Hohman
Secretary
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who
executed on behalf of the Corporation Articles of Amendment of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles of Amendment are the corporate act of
the Corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
Richard T. Herbert
--------------------------
Richard T. Hebert
Date: 10/14/98
---------------
<PAGE>
Exhibit 3.1.14
SKY ALLAND RESEARCH, INC.
ARTICLES OF AMENDMENT
Sky Alland Research, Inc., a Maryland corporation having its principal
office in Columbia, Maryland (hereinafter called the "Corporation"), certifies
to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to amend certain provisions contained in
its charter.
SECOND: The name of the Corporation is Sky Alland Research, Inc.
THIRD: The Articles of Incorporation of the Corporation are hereby
amended as follows:
The Articles Supplementary of the Corporation filed with the
Maryland State Department of Assessments and Taxation on September 25, 1995
creating the rights, powers and preferences of the Convertible Preferred Stock,
Series F (the "Series F Articles Supplementary") and amended on February 13,
1996, are hereby amended in the following manner:
Article SECOND, Section 6 of the Series F Articles Supplementary be and
hereby is deleted in its entirety and replaced as follows:
"6. RIGHTS OF REDEMPTION. All outstanding unconverted shares of
Preferred Stock must be redeemed by the Corporation at $2.00 per share plus any
accrued but unpaid dividends thereon on April 30, 2003. The holders of the
Preferred Stock shall have no right of redemption with respect to the Preferred
Stock."
FOURTH: The amendment to the Series F Articles Supplementary was
approved by the Board of Directors of the Corporation as of October 8, 1998 and
declared by the Board of Directors of the Corporation as advisable. The Board of
Directors of the Corporation directed that the amendment to the Series F
Articles Supplementary be submitted to the Corporation's stockholders for
approval.
FIFTH: At a special meeting of the Corporation's stockholders held
on October 21, 1998, the amendment to the Series F Articles Supplementary was
approved by a vote of more than a majority of the holders of the aggregate of
the issued and outstanding shares of the capital stock of the Corporation
entitled to vote thereon, including a majority of the holders of the issued and
outstanding shares of the Corporation's Convertible Preferred Stock, Series F
(the "Series F Preferred Stock") entitled to vote thereon, voting as a separate
class.
<PAGE>
SIXTH: Pursuant to the authorization of the Board of Directors of the
Corporation, these Articles of Amendment may be executed by the President or any
Vice President of the Corporation and may be attested by the Secretary of the
Corporation.
{Signature and attestation on next page}
-2-
<PAGE>
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these Articles
of Amendment to be signed in its name and on its behalf by its President and
attested by its Secretary on the 15th day of December, 1998.
SKY ALLAND RESEARCH, INC.
By:/s/ Richard T. Herbert
-----------------------------
Richard T. Herbert
President
ATTEST:
/s/ Thomas C. Hohman
- ---------------------------
Thomas C. Hohman
Secretary
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<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who executed
on behalf of the Corporation Articles of Amendment of which this Certificate is
made a part, acknowledges in the name and on behalf of the Corporation that the
foregoing Articles of Amendment are the corporate act of the Corporation and
certifies that the matters and facts set forth herein with respect to the
authorization and approval thereof are true in all material respects under the
penalties of perjury.
/s/ Richard T. Hebert
----------------------------
Richard T. Hebert
Date: December 15, 1998
--------------------------
[STATE DEPARTMENT OF ASSESSMENTS
AND TAXATION
APPROVED FOR RECORD
12/18/98 at 1:26 p.m.]
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<PAGE>
Exhibit 3.1.15
SKY ALLAND RESEARCH, INC.
ARTICLES SUPPLEMENTARY
Sky Alland Research, Inc., a Maryland corporation having its principal
office in Columbia, Maryland (hereinafter called the "Corporation"), certifies
to the State Department of Assessments and Taxation of Maryland that:
FIRST: Pursuant to authority expressly vested in the Board of Directors
of the Corporation by Article SEVENTH of the Articles of Incorporation of the
Corporation, as amended, (the "Charter"), the Board of Directors has duly
divided and classified 1,260,775 shares of the capital stock of the Corporation
into a series designated Convertible Preferred Stock, Series BB with a par value
of $0.01 per share (the "Preferred Stock") and the Board of Directors has
authorized the issuance of such series.
SECOND: A description of the Preferred Stock, including the preferences
and other rights, voting powers, restrictions, limitations as to dividends,
qualifications and other terms and conditions is as follows:
1 VOTING.
(a) Except as otherwise required by the Maryland General
Corporation Law, the shares of the Preferred Stock shall be voted together with
the shares of the Corporation's common stock, $0.01 par value per share (the
"Common Stock"), voting as a single class, at any annual or special meeting of
shareholders of the Corporation, or may act by written consent in the same
manner as the Corporation's Common Stock, upon the following basis: each holder
of shares of Preferred Stock shall be entitled to such number of votes for the
shares of Preferred Stock held by him on the record date fixed for such meeting,
or on the effective date of such written consent, as shall be equal to the whole
number of shares of the Corporation's Common Stock into which all of such shares
of Preferred Stock held by him are convertible as of the close of business on
the record date fixed for such meeting or the effective date of such written
consent.
(b) So long as 20% of the shares of the Preferred Stock
originally issued remain outstanding, the Corporation may not take any of the
actions set forth below without first obtaining the approval of holders of a
majority of the issued and outstanding Preferred Stock:
(i) amend the articles of incorporation or by-laws of
the Corporation in any way that would have an adverse effect on the
rights of the holders of the Preferred Stock;
<PAGE>
(ii) take any action that would alter, modify or
amend the rights, preferences, privileges or restrictions of the
Preferred Stock;
(iii) create or issue any other class or series of
capital stock, preferred stock or other securities or securities
convertible into securities senior to, or pari passu with, the
authorized shares of Preferred Stock;
(iv) issue any shares of capital stock of the
Corporation or securities convertible into capital stock of the
Corporation at a per share price of less than $23.795, subject to
adjustment for stock splits, recapitalizations and similar
restructurings of the capital structure of the Corporation, except for
up to 1,346,674 shares of Common Stock or other securities at a price
not less than the fair market value of such Common Stock or other
securities issued or issuable to employees, officers, consultants or
directors of the Corporation under any agreement, arrangement or plan,
including any incentive stock plan, approved by the Board of Directors
and the stockholders of the Corporation;
(v) sell all or substantially all of the assets of
the Corporation or undertake a merger or consolidation transaction in
which the stockholders of the Corporation immediately prior to the
transaction possess less than 50% of the voting equity securities of
the surviving entity or the ultimate parent thereof immediately after
the transaction, unless (i) such merger or consolidation transaction
has been approved by a majority of the Investor Directors (as defined
in the Stockholders Agreement of even date herewith) and (ii) in such
merger or consolidation transaction the consideration received per
share of Preferred Stock is greater than or equal to the Liquidation
Preference (as defined in SECTION 3);
(vi) effect a reclassification or recapitalization of
the issued and outstanding capital stock of the Corporation;
(vii) declare or pay dividends on any shares of the
Corporation's Common Stock (other than dividends to effectuate a stock
split of the Corporation's Common Stock) or the annual return on the
shares of Preferred Stock in accordance with the terms of these
Articles Supplementary or shares of the Corporation's Series G
Convertible Preferred Stock, Series H Convertible Preferred Stock or
Series AA Convertible Preferred Stock in accordance with the terms of
Section 2(b) of the Articles Supplementary of the Series G Convertible
Preferred Stock, Series H Convertible Preferred Stock or Series AA
Convertible Preferred Stock;
(viii) redeem any shares of the Corporation's capital
stock other than shares of Common Stock in accordance with any existing
employment agreements or shares of Series G Convertible Preferred
Stock, Series H Convertible Preferred Stock or
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<PAGE>
Series AA Convertible Preferred Stock, in accordance with the terms
thereof and Section 5(b) below;
(ix) increase or decrease (other than by conversion
permitted hereby) the total number of authorized shares of the
Corporation's preferred stock;
(x) enter into any agreement that could restrict the
Corporation's ability to perform under the Series BB Preferred Stock
Purchase Agreement, dated the date hereof, between the Corporation and
the Purchasers named therein (the "Purchase Agreement"), the
Registration Rights Agreement or the Stockholders Agreement (each as
defined in the Purchase Agreement), each as amended in accordance with
its terms;
(xi) adopt any additional stock option plan or
similar plan or increase the number of shares available under any such
plans now in existence;
(xii) engage in any business other than interactive
relationship marketing or database marketing and management services,
unless approved in advance by the holders of at least a majority of the
outstanding shares of the Preferred Stock.
2 ACCRUED RETURN ON INVESTMENT.
(a) ACCRUED RETURN ON ORIGINAL ISSUE PRICE. Commencing with
the date of issuance of the Preferred Stock, each share of Preferred Stock shall
accrue an annual return on investment on the Original Issue Price of such share
(the "Annual Return"). The Annual Return shall be computed and accrue quarterly
at the rate of eight percent (8%) per annum (the "Annual Return Rate of
Accrual") and shall not be compounded. To the extent the Corporation has assets
legally available therefor, the holders of Preferred Stock shall receive payment
of the Annual Return only if, as, and when such payment of the accrued Annual
Return is declared by the Board of Directors of the Corporation. The Original
Issue Price per share of Preferred Stock shall be $23.795.
(b) MANDATORY PAYMENT OF ACCRUED ANNUAL RETURN. To the extent
the Corporation has assets legally available therefor and the Board of Directors
has not declared the payment of nor has the Corporation paid the accrued Annual
Return pursuant to SECTION 2(a) above, the accrued unpaid Annual Return shall be
paid in cash or by check to the holders of record of shares of Preferred Stock
prior and in preference to payment of dividends or other return on any other
capital stock of the Corporation and no later than 30 days after (i) the
conversion of the Preferred Stock pursuant to SECTION 4(b) below or (ii) the
occurrence of an Act of Bankruptcy (as defined below). An "Act of Bankruptcy"
shall be defined as an occurrence of any of the following with respect to the
Corporation: (i) the Corporation shall have made an assignment for the benefit
of its creditors; (ii) the Corporation shall have admitted in writing its
inability to pay its debts as they become due; (iii) the Corporation shall have
filed a voluntary petition in bankruptcy; (iv) the Corporation shall have been
adjudicated a bankrupt or insolvent;
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<PAGE>
(v) the Corporation shall have filed any petition or answer seeking for itself
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any present or future applicable law
pertinent to such circumstances; (vi) the Corporation shall have filed or shall
file any answer admitting or not contesting the material allegations of a
bankruptcy, insolvency or similar petition filed against the Corporation; (vii)
the Corporation shall have sought or consented to, or acquiesced in, the
appointment of any trustee, receiver, or liquidator of the Corporation or of all
or any substantial part (20% or more) of the properties of the Corporation;
(viii) 60 days shall have elapsed after the commencement of an action against
the Corporation seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any present or future
applicable law without such action having been dismissed or without all orders
or proceedings thereunder affecting the operations or the business of the
Corporation having been stayed, or if a stay of any such order or proceedings
shall thereafter be set aside and the action setting it aside shall not be
timely appealed; or (ix) 60 days shall have expired after the appointment,
without the consent or acquiescence of the Corporation of any trustee, receiver
or liquidator of the Corporation or of all or any substantial part of the assets
and properties of the Corporation without such appointment having been vacated.
No accrued but unpaid Annual Return shall be payable in connection with any
conversion of the Preferred Stock other than pursuant to SECTION 4(b).
3 PREFERENCES ON LIQUIDATION, ETC.
(a) PREFERENCE. In the event of any liquidation, dissolution
or winding up of the Corporation, either voluntarily or involuntarily, the
holders of Preferred Stock shall be entitled to receive, at their option, prior
and in preference to any distribution of any of the assets or surplus funds of
the Corporation to the holders of Common Stock or any other capital stock in
respect of their shares of such class or series of stock, an amount per share
(as adjusted for any stock dividends, combinations or splits with respect to
such shares) (the "Liquidation Preference") equal to the greater of (i) the (x)
Original Issue Price plus (y) all accrued but unpaid Annual Return applicable to
such share of Preferred Stock, without interest, and (ii) the amount per share
that would be received by holders of Preferred Stock if such holders had
converted such Preferred Stock in accordance with SECTION 4(a) hereof prior to
the distribution pursuant to this SECTION 3, and the assets and funds of the
Corporation were distributed in accordance with and pursuant to the terms and
conditions of any preference rights applicable to other series or classes of the
Corporation's preferred stock and to the holders of Common Stock of the
Corporation. If in a liquidation, dissolution or winding up of the Corporation
pursuant to this SECTION 3, the assets or funds of the Corporation are
insufficient to provide for the cash payment of the full aforesaid preferential
amount to the holders of Preferred Stock, then (i) such assets or funds as are
available shall be distributed ratably among the holders of Preferred Stock in
proportion to the full preferential amount each such holder is otherwise
entitled to receive; and (ii) the holders of any other junior equity security
and Common Stock shall in no event be entitled to participate in the
distribution of such assets in respect of their ownership thereof.
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<PAGE>
After the payment or the setting apart of payment to the
holders of Preferred Stock of the preferential amounts so payable to them, all
remaining assets and funds of the Corporation shall be distributed in accordance
with and pursuant to the terms and conditions of any preference rights
applicable to other series or classes of the Corporation's preferred stock.
After the payment or setting apart of payment to the holders of such other
series or classes of preferred stock of the preferential amounts so payable to
them, all remaining assets and funds of the Corporation shall be distributed
ratably to the holders of Common Stock of the Corporation.
(b) CONSOLIDATION OR MERGER. (i) Any sale of all or
substantially all of the Corporation's assets; (ii) any acquisition of the
Corporation by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation) in which all or substantially all of the outstanding shares of
the Corporation are exchanged for securities or other consideration issued by
the acquiring entity or its subsidiary; (iii) the acquisition by any person or
group of persons by means of any share exchange, reorganization or other
transaction that will result in the Corporation's stockholders immediately prior
to such transaction holding not more than 50% of the voting power of the
outstanding shares of capital stock of the surviving, continuing or acquiring
entity or the parent of such entity; or (iv) any transactions contemplated by
Section 5.4 of the Amended and Restated Stockholders Agreement, dated on or
about February 3, 2000 among the Corporation and the Stockholders named therein,
shall be deemed to be a liquidation, dissolution or winding up within the
meaning of this SECTION 3, and shall entitle the holders of the Preferred Stock
to receive the Liquidation Preference, in preference to any distribution of any
of the assets or surplus funds of the Corporation to the holders of Common Stock
or any other capital stock in respect of their shares of such class or series of
stock, payments which may be made in cash or in securities or other property or
in a combination thereof by the acquiring entity on the closing of such
transaction; and provided further, that, if in any such transaction, the
consideration per share payable in respect of the Preferred Stock includes an
amount in cash or the fair market value of marketable securities that exceeds
the Liquidation Preference of the Preferred Stock, all shares of such Preferred
Stock shall be treated in such transaction on an as-converted basis and such
transaction shall not be treated as a liquidation with respect to the Preferred
Stock.
(c) NON-CASH DISTRIBUTIONS. If any of the assets of the
Corporation are to be distributed other than in cash under this SECTION 3 or for
any purpose, then the Board of Directors shall promptly engage independent
competent appraisers reasonably acceptable to the holders of a majority of the
outstanding shares of Preferred Stock to determine the fair market value of the
assets to be distributed to the holders of Preferred Stock or Common Stock. The
Corporation shall, upon receipt of such appraiser's valuation, give prompt
written notice to each holder of shares of Preferred Stock or Common Stock of
the appraiser's valuation. Notwithstanding anything to the contrary contained in
the foregoing sentences, any securities to be distributed to the stockholders
shall be valued as follows:
(i) if traded on a national securities exchange, the
value shall be deemed to be the average of the daily closing prices per
share of the securities on such
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<PAGE>
exchange for the consecutive 30 trading days ending three business days
prior to the announcement of the transaction;
(ii) if actively traded over the counter, the value
shall be deemed to be the average of the closing bid prices in the
over-the-counter market, as reported by the National Association of
Securities Dealers, Inc. Automated Quotation System ("NASDAQ") or such
other system then in use, for the consecutive 30 trading days of such
over-the-counter market ending three business days prior to the
announcement of the transaction; and
(iii) if such securities are neither traded on a
national securities exchange nor quoted on NASDAQ, the value shall be
the fair market value thereof, as mutually determined by the
Corporation and the holders of not less than a majority of the
outstanding shares of Preferred Stock; PROVIDED, that if the
Corporation and the holders of a majority of the outstanding shares of
Preferred Stock are unable to reach agreement, then by independent
appraisal by an investment banker hired and paid for by the
Corporation, but acceptable to the holders of a majority of the
outstanding shares of Preferred Stock.
4 CONVERSION.
The holders of shares of Preferred Stock shall have the
following respective conversion rights:
(a) RIGHT TO CONVERT. Subject to the terms and conditions of
this SECTION 4, the holder of any share or shares of Preferred Stock shall have
the right, at its option, at any time, to convert any such shares of Preferred
Stock into such number of fully paid and nonassessable whole shares of Common
Stock as is obtained by (A) multiplying the number of shares of Preferred Stock
to be so converted by $23.795 and (B) dividing the product thereof by the
"Conversion Price," which term shall initially mean the Original Issue Price of
the Preferred Stock and thereafter shall mean such price as is from time to time
adjusted pursuant to the further provisions of this SECTION 4. The number of
shares of Common Stock into which each share of Preferred Stock is convertible
is hereinafter referred to as the "Conversion Rate" for the Preferred Stock.
Such rights of conversion shall be exercised by the holder thereof by giving
written notice that the holder elects to convert a stated number of shares of
Preferred Stock into Common Stock and by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Preferred
Stock) at any time during its usual business hours on the date set forth in such
notice, together with a statement of the name or names (with address) in which
the certificate or certificates for shares of Common Stock shall be issued.
Notwithstanding the foregoing, no written notice of election to convert or
surrender of certificates shall be required in the event of an automatic
conversion pursuant to SECTION 4(b) below.
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<PAGE>
(b) AUTOMATIC CONVERSION. Each share of Preferred Stock shall
automatically be converted into shares of Common Stock at the then effective
Conversion Rate upon the first sale of the Corporation's Common Stock pursuant
to an effective registration statement under the Securities Act of 1933, as
amended, (such first sale, the "Initial Public Offering") yielding gross
proceeds to the Corporation of at least $30,000,000 at an offering price per
share equal to at least (x) 130% of the then applicable Conversion Price if such
offering closes on or before May 31, 2000 or (y) 150% of the then applicable
Conversion Price if such offering closes after May 31, 2000 (a "Qualified Public
Offering").
(c) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED.
Promptly after the receipt of the written notice referred to in SECTION 4(a) and
surrender of the certificate or certificates for the share or shares of
Preferred Stock to be converted, the Corporation shall issue and deliver, or
cause to be issued and delivered, to the holder, registered in such name or
names as such holder may direct, a certificate or certificates for the number of
shares of Common Stock issuable upon the conversion of such share or shares of
Preferred Stock. If the shares are to be issued in a name other than the name in
which the Preferred Stock is issued, then the Corporation may request the holder
to cause to be delivered to the Corporation an opinion of counsel to the effect
that the transfer may be effected without registration under the Securities Act
of 1933 and state securities laws. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Conversion Price shall
be determined as of the close of business on the date on which such written
notice shall have been received by the Corporation and the certificate or
certificates for such share or shares shall have been surrendered as aforesaid,
and at such time the rights of the holder of such share or shares of Preferred
Stock shall cease, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby.
(d) FRACTIONAL SHARES; DIVIDENDS; PARTIAL CONVERSION. No
fractional shares shall be issued upon conversion of Preferred Stock into Common
Stock and no payment or adjustment shall be made upon any conversion on account
of any cash dividends on the Common Stock issued upon such conversion. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
more than one share of Preferred Stock by a holder thereof shall be aggregated
for purposes of determining whether the conversion would result in the issuance
of any fractional share. At the time of each conversion, the Corporation shall
pay in cash an amount equal to all dividends declared and unpaid on the shares
surrendered for conversion to the date upon which such conversion is deemed to
take place as provided in SECTION 4(c). In case the number of shares of
Preferred Stock represented by the certificate or certificates surrendered for
conversion exceeds the number of shares converted, the Corporation shall, upon
such conversion, execute and deliver to the holder thereof, at the expense of
the Corporation, a new certificate or certificates for the number of shares of
Preferred Stock represented by the certificate or certificates surrendered which
are not to be converted. If any fractional interest in a share of Common Stock
would, except for the provisions of the first sentence of this SECTION 4(d), be
delivered upon any such conversion, the Corporation, in lieu of delivering the
fractional
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<PAGE>
share thereof, shall pay to the holder surrendering the Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional interest as determined in good faith by the Board of Directors of the
Corporation.
(e) ADJUSTMENT OF CONVERSION PRICE. The Conversion Price of
shares of the Preferred Stock shall be subject to adjustment from time to time
as follows:
(i) if the Corporation shall issue, or be deemed to
have issued pursuant to SECTION 4(e)(i)(3), any Common Stock (other
than Excluded Stock as defined below, or stock dividends, subdivisions,
splits, combinations, and the like which are covered by SECTIONS
4(e)(iii), (iv) and (v) hereof), for a consideration per share less
than the Conversion Price applicable to any shares of Preferred Stock
in effect immediately prior to the issuance of such Common Stock (such
issuance being referred to as a "Dilutive Issuance"), the Conversion
Price of the affected shares of Preferred Stock in effect immediately
after each such Dilutive Issuance shall forthwith be adjusted, if
shares of such Preferred Stock are outstanding, to a price equal to the
quotient obtained by dividing:
an amount equal to the sum of
(A) the total number of shares of Common Stock
outstanding (including any shares of Common Stock deemed to
have been issued pursuant to SECTION 4(e)(i)(3)) (other than
shares of Preferred Stock) and any shares of Common Stock
issuable upon conversion or exercise of the Excluded Stock)
immediately prior to such Dilutive Issuance multiplied by the
consideration (determined in the manner provided in SECTIONS
4(e)(i)(1), (2) and (3)) per share of Common Stock or per
maximum number of issuable shares of Common Stock, as the case
may be, received or receivable by the Corporation upon the
issuance of such Common Stock, plus
(B) the total number of shares of Common Stock deemed
(pursuant to SECTION 4(e)(i)(3)) to have been issued in
respect of the Preferred Stock, immediately prior to such
Dilutive Issuance multiplied, in each case, by the respective
consideration for the Preferred Stock (determined in the
manner provided in SECTION 4(e)(i)(3)), per share (using the
Conversion Price in effect immediately prior to the Dilutive
Issuance) received by the Corporation upon such issuances,
respectively, plus
(C) the consideration received by the Corporation
upon such Dilutive Issuance, by
the total number of shares of Common Stock outstanding
(including any shares of Common Stock deemed to have been issued
pursuant to SECTION 4(e)(i)(3) and
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<PAGE>
any shares of Common Stock issuable upon conversion or exercise of the
Excluded Stock) immediately after the Dilutive Issuance.
For the purposes of SECTION 4(e)(i), the following provisions shall be
applicable:
(1) In the case of the issuance of Common Stock for cash, the
consideration shall be deemed to be the amount of cash paid therefor without
deducting any discounts, commissions or expenses paid or incurred by the
Corporation in connection with the issuance and sale thereof.
(2) In the case of the issuance of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors, in accordance with generally accepted
accounting principles; provided, however, that if, at the time of such
determination, the Corporation's Common Stock is traded in the over-the-counter
market or on a national securities exchange, such fair market value as
determined by the Board of Directors shall not exceed the aggregate "Current
Market Price" (as defined hereinbelow) of the shares of Common Stock being
issued.
(3) In the case of the issuance of (i) options to purchase or
rights to subscribe for Common Stock (other than Excluded Stock), (ii)
securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock), or (iii) options to purchase or rights to subscribe
for securities by their terms convertible into or exchangeable for Common Stock
(other than Excluded Stock):
(A) the aggregate maximum number of shares of Common
Stock deliverable upon exercise of such options to purchase or rights
to subscribe for Common Stock shall be deemed to have been issued
immediately prior to the Dilutive Issuance and for a consideration
equal to the consideration (determined in the manner provided in
subsections (1) and (2) of this Section 4(e)(i)), if any, received by
the Corporation upon the issuance of such options or rights plus the
minimum purchase price provided in such options or rights for the
Common Stock covered thereby;
(B) the aggregate maximum number of shares of Common
Stock deliverable upon conversion of or in exchange for any such
convertible or exchangeable securities, or upon the exercise of options
to purchase or rights to subscribe for such convertible or exchangeable
securities and subsequent conversion or exchange thereof, shall be
deemed to have been issued immediately prior to the Dilutive Issuance
or such options or rights shall be deemed to have been issued
immediately prior to the Dilutive Issuance and for a consideration
equal to the consideration received by the Corporation for any such
securities and related options or rights (excluding any cash received
on account of accrued interest or accrued dividends), plus the
additional consideration, if any, to be received by the Corporation
upon the conversion or exchange of such securities
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<PAGE>
or the exercise of any related options or rights (the consideration in
each case to be determined in the manner provided in SECTION 4(e)(i)(1)
and (2));
(C) on any change in the number of shares of Common
Stock deliverable upon exercise of any such options or rights or
conversion of or exchange for such convertible or exchangeable
securities, or on any change in the minimum purchase price of such
options, rights or securities, other than a change resulting from the
anti-dilution provisions, if any, of such options, rights or
securities, the Conversion Price shall forthwith be readjusted to such
Conversion Price as would have been obtained had the adjustment made
upon (x) the issuance of such options, rights or securities not
exercised, converted or exchanged prior to such change, as the case may
be, been made upon the basis of such change or (y) the options or
rights related to such securities not converted or exchanged prior to
such change, as the case may be, been made upon the basis of such
change; and
(D) on the expiration of any such options or rights,
the termination of any such rights to convert or exchange or the
expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price shall forthwith be
readjusted to such Conversion Price as would have been obtained had the
adjustment made upon the issuance of such options, rights, convertible
or exchangeable securities or options or rights related to such
convertible or exchangeable securities, as the case may be, been made
upon the basis of the issuance of only the number of shares of Common
Stock actually issued upon the exercise of such options or rights, upon
the conversion or exchange of such convertible or exchangeable
securities or upon the exercise of the options or rights related to
such convertible or exchangeable securities, as the case may be.
(ii) "Excluded Stock" shall mean:
(A) all shares of Common Stock into which
such outstanding shares of preferred stock of the Corporation
are convertible and all shares of Common Stock issued upon
exercise of options and warrants outstanding on the effective
date hereof, but not including shares included in SECTION
4(e)(ii)(C) below;
(B) subject to adjustment pursuant to stock
splits, stock dividends and the like, up to 1,346,674 shares
of Common Stock or other securities convertible into shares of
Common Stock ("Convertible Securities") issued or issuable, at
a price not less than the current market price of such Common
Stock or Common Stock into which such Convertible Securities
are convertible, to employees, officers, consultants or
directors of the Corporation under any agreement, arrangement
or plan, including any incentive stock plan, approved by the
Board of Directors and the stockholders of the Corporation;
and
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<PAGE>
(C) all shares of Common Stock or other
securities issued in connection with acquisitions approved by
a majority of the entire Board of Directors of the
Corporation.
(iii) If the number of shares of Common Stock
outstanding at any time after the initial date of issuance of the
Preferred Stock is increased by a stock dividend payable in shares of
Common Stock or by a subdivision or split of shares of Common Stock,
then, on the date such payment is made or such change is effective, the
Conversion Price of the Preferred Stock then outstanding shall be
appropriately decreased so that the number of shares of Common Stock
issuable on conversion of any shares of such Preferred Stock shall be
increased in proportion to such increase in outstanding shares.
(iv) If the number of shares of Common Stock
outstanding at any time after the initial date of issuance of the
Preferred Stock is decreased by a combination of the outstanding shares
of Common Stock, then, on the effective date of such combination, the
Conversion Price of the Preferred Stock then outstanding shall be
appropriately increased so that the number of shares of Common Stock
issuable on conversion of any shares of such Preferred Stock shall be
decreased in proportion to such decrease in outstanding shares.
(v) In case, at any time after the initial date of
issuance of the Preferred Stock, of any capital reorganization, or any
reclassification of the stock of the Corporation (other than a change
in par value or as a result of a stock dividend or subdivision, split
or combination of shares, or of the consolidation or merger of the
Corporation with or into another person) or of the sale or other
disposition of all or substantially all the properties and assets of
the Corporation as an entirety to any other person, the shares of
Preferred Stock shall, after such reorganization, reclassification,
consolidation, merger, sale or other disposition, be convertible into
the kind and number of shares of stock or other securities or property
or cash of the Corporation or of the entity resulting from such
consolidation or surviving such merger or to which such properties and
assets shall have been sold or otherwise disposed to which such holder
would have been entitled if immediately prior to such reorganization,
reclassification, consolidation, merger, sale or other disposition such
holder had converted such holder's shares of the Preferred Stock into
Common Stock. The provisions of this SECTION 4(e)(v) shall similarly
apply to successive reorganizations, reclassifications, consolidations,
mergers, sales or other dispositions.
(vi) All calculations under this SECTION 4 shall be
made to (a) the nearest cent or (b) the nearest one hundredth (1/100th)
of a share or (c) the nearest one percent, as the case may be.
(vii) For the purpose of any computation pursuant to
this SECTION 4(e), the "Current Market Price" at any date of one share
of Common Stock shall be deemed to be the average of the highest
reported bid and the lowest reported offer prices on the
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preceding business day as furnished by the National Quotation Bureau,
Incorporated (or equivalent recognized source of quotations); provided,
however, that if the Common Stock is not traded in such manner that the
quotations referred to in this SECTION 4(e) are available for the
period required hereunder, Current Market Price shall be determined in
good faith by the Board of Directors, but if challenged by the holders
of at least a majority of the outstanding shares of the Preferred
Stock, then as determined by an independent appraiser selected by the
Board of Directors, the cost of such appraisal to be borne by the
Corporation.
(f) SPECIAL ADJUSTMENTS TO CONVERSION PRICE. Notwithstanding
anything to the contrary contained in these Articles Supplementary, if at any
time or from time to time (i) the aggregate number of shares of Common Stock
directly or indirectly issuable upon exercise or conversion of any options or
convertible securities including Preferred Stock issued after the Original Issue
Date (as defined below), or pursuant to any agreements, in each case outstanding
or in effect immediately prior to the date hereof, is increased (whether by
reason of any adjustment or antidilution provision thereof or otherwise, but
excluding adjustments by reason of a stock split or stock dividend) or (ii) the
Corporation issues additional shares of Preferred Stock to holders of the
Company's Series F Preferred Stock pursuant to their exercise of preemptive
rights (any shares referred to in (i) or (ii) above, "Extra Shares"), such Extra
Shares shall be deemed to have been outstanding on the date of the first
issuance of the Preferred Stock (the "Original Issue Date") and the initial
Conversion Price of the Preferred Stock shall be reduced as of the Original
Issue Date (and in no event increased) to the Conversion Price required so that
the aggregate number of shares of Preferred Stock that were issued on the
Original Issue Date would have been convertible as of the Original Issue Date
into 21.4286% of the Measurement Shares (as defined below). The term
"Measurement Shares" shall mean 6,919,393 shares of Common Stock, plus any Extra
Shares issued or issuable after the Original Issue Date. All adjustments
pursuant to this SECTION 4(f) shall be cumulative; PROVIDED, HOWEVER, that no
such adjustment of the Conversion Price shall affect shares of Common Stock
previously issued upon conversion of any shares of the Preferred Stock. In the
event that any adjustment is made to the Conversion Price pursuant to this
SECTION 4(f), all adjustments to the Conversion Price of the Preferred Stock
that occurred (or would have occurred if the Conversion Price had been the
adjusted Conversion Price as of the Original Issue Date) between the Original
Issue Date and the date of adjustment pursuant to this SECTION 4(f) shall be
recomputed as if the initial Conversion Price of the Preferred Stock was the
adjusted initial Conversion Price.
(g) MINIMAL ADJUSTMENTS. No adjustment in a Conversion Price
need be made if such adjustment would result in a change in a Conversion Price
of less than $0.01. Any adjustment of less than $0.01 that is not made shall be
carried forward and shall be made at the time of and together with any
subsequent adjustment that, on a cumulative basis, amounts to an adjustment of
$0.01 or more in a Conversion Price.
(h) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
event requiring adjustment or readjustment of the Conversion Rate pursuant to
this SECTION 4, the
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Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Preferred Stock affected thereby a certificate setting forth such
adjustment or readjustment, showing in detail the facts upon which such
adjustment or readjustment is based and the Conversion Rate then in effect. The
Corporation shall, upon 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 Rate
at the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property that at the time would be received upon the
conversion of the Preferred Stock held by such holder.
(i) 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 regularly scheduled cash dividend) or other distribution
or to vote on any merger, consolidation or sale of assets, the Corporation shall
mail to each holder of Preferred Stock and to each holder of outstanding
warrants, options or other rights to acquire Preferred Stock at least 20 days
prior to the date specified therein, a notice specifying the date on which any
such record is to be taken for the purpose of such dividend, distribution or
vote.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its authorized
but unissued shares of Common Stock solely for the purpose of effecting the
conversion of the outstanding shares of Preferred Stock such number of its
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Preferred Stock; 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 Preferred Stock, the
Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purpose.
(k) OTHER NOTICES. In case at any time:
(i) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(ii) the Corporation shall offer for subscription PRO
RATA to the holders of its Common Stock any additional shares of stock
of any class or other rights;
(iii) there shall be any capital reorganization,
reclassification of the capital stock of the Corporation, or a
consolidation, share exchange or merger of the Corporation with or
into, or transfer of all or substantially all of the Corporation's
property, assets or business to any other person or entity or similar
transaction; or
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<PAGE>
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class certified or registered mail, postage prepaid, addressed to each holder of
Preferred Stock at the last registered address of such holder as shown on the
books of the Corporation, (a) at least 30 days' prior written notice of the date
on which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining right to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 30 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
(l) CERTAIN EVENTS. If the Company issues any securities and
the provisions of this SECTION 4 are not strictly applicable to such issuance or
if strictly applicable would not fairly protect the rights of the holders of the
Preferred Stock in accordance with the essential intent and principles of such
provisions, then the Board of Directors of the Corporation in good faith shall
determine the adjustment, if any, of the Conversion Prices for each series of
Preferred Stock in the application of such provisions, in accordance with such
essential intent and principles, so as to protect such rights as aforesaid. In
no event shall any such adjustment have the effect of increasing the Conversion
Prices for such series of Preferred Stock as otherwise determined pursuant to
any of the provisions of this SECTION 4 except in the case of a combination of
shares of a type contemplated in SECTION 4(e)(v) hereof and then in no event to
an amount larger than the Conversion Price as adjusted pursuant to SECTION
4(e)(v) hereof.
(m NO DILUTION OR IMPAIRMENT. The Corporation will not, by
amendment of its Charter 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
SECTION 4 and in taking of all such action as may be necessary or appropriate in
order to protect the conversion privilege of the holders of the Preferred Stock
against impairment. Without limiting the generality of the foregoing, the
Corporation (i) will take all such action as may be necessary or appropriate in
order that the Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock upon the conversion of the Preferred Stock,
(ii) will not take any action which results in any adjustment of the Conversion
Price for such series of Preferred Stock if the total number of shares of Common
Stock issuable after the action upon
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<PAGE>
conversion of the Preferred Stock would exceed the total number of shares of
Common Stock then authorized by the Corporation's Charter and available for the
purpose of issue upon such exercise, and (iii) shall not at any time authorize
or issue any security which under the definition given in Subsection (q) below
constitutes "Common Stock" and which grants to its registered holders rights to
share in dividends or any other distributions of any kind at any time made by
the Corporation (including but not limited to liquidating distributions) which
have the right to the distribution of a greater amount per share than the amount
per share distributable on the Corporation's Common Stock on the date hereof or
which are in any respect more favorable than the corresponding rights
attributable to Common Stock on the date hereof.
(n LISTING ON SECURITIES EXCHANGES, ETC. The Corporation will
list on each national securities exchange on which any Common Stock may at any
time be listed, subject to official notice of issuance upon the conversion of
the Preferred Stock, all shares of Common Stock from time to time issuable upon
the conversion of the Preferred Stock pursuant to this SECTION 4 and will
maintain such listing as long as any Common Stock is listed.
(o NO REISSUANCE OF PREFERRED STOCK. Shares of Preferred Stock
which are converted into shares of Common Stock or redeemed as provided herein
shall be canceled, shall not be reissued, and shall return to the status of
authorized but unissued preferred stock of the Corporation.
(p ISSUE TAX. The issuance of certificates for shares of
Common Stock upon conversion of Preferred Stock shall be made without charge to
the holders thereof for any issuance tax in respect thereof, provided that the
Corporation shall not be required to pay any tax which may be payable in respect
of any transfer involved in the issuance and delivery of any certificate in a
name other than that of the holder of the Preferred Stock which is being
converted.
(q CLOSING OF BOOKS. The Corporation will at no time close its
transfer books against the transfer of any Preferred Stock or of any shares of
Common Stock issued or issuable upon the conversion of any Preferred Stock in
any manner which interferes with the timely conversion of such Preferred Stock.
(r DEFINITION OF COMMON STOCK. As used in this SECTION 4, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock as constituted on the date immediately preceding the effective date
hereof, and shall also include any capital stock of any class of the Corporation
thereafter authorized which shall not be limited to a fixed sum or percentage of
such fixed sum in respect of the rights of the holders thereof to participate in
dividends or in the distribution of assets upon the voluntary or involuntary
liquidation, dissolution or winding up of the Corporation.
5. REDEMPTION.
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<PAGE>
(a At the individual option of each holder of shares of the
Preferred Stock, which option may be exercised, in whole or in part, (such
option being referred to as the "Right of Redemption"), the Corporation shall
redeem, on a date specified by the holder of Preferred Stock that is within the
two-year period (the "Redemption Notice Period") that commences on January 31,
2004 (the "Preferred Stock Redemption Date"), the number of shares of Preferred
Stock held by such holder that is specified in a written request for redemption
(the "Notice of Redemption"). On or after July 1, 2003, but prior to July 31,
2003, the Corporation shall deliver written notice to the holders of Preferred
Stock informing such holders of their right to redeem such shares of Preferred
Stock (such notice being referred to as the "Reminder Notice"). The Corporation
shall effect any such redemption by paying in cash therefor, on a per share
basis the sum of (i) the Original Issue Price applicable to such redeemed shares
of Preferred Stock and (ii) all unpaid and accrued Annual Return (whether or not
declared), if any, applicable to such redeemed shares of Preferred Stock (the
"Preferred Stock Redemption Price"). In the event that a holder of Preferred
Stock does not provide the Corporation with the Notice of Redemption during the
Redemption Notice Period, such holder's Right of Redemption shall lapse, and the
Corporation shall not be required to effect the redemption of any shares of such
holder's Preferred Stock at a future date. Notwithstanding anything to the
contrary contained in the previous sentence, if the Corporation does not deliver
the Reminder Notice and a holder of shares of Preferred Stock does not, of its
own accord, deliver a Notice of Redemption to the Corporation during the
Redemption Notice Period, then such holder's Right of Redemption shall be
deferred until such time as the Corporation delivers a Reminder Notice. If the
Corporation delivers a Reminder Notice anytime subsequent to January 31, 2004
and the holders of Preferred Stock have not, of their own accord, delivered a
Notice of Redemption to the Corporation, the Redemption Notice Period shall be
extended accordingly (such extended period, the "New Redemption Period"). The
holders of Preferred Stock shall have two years from the date of the
Corporation's Reminder Notice during which such holders may deliver a Notice of
Redemption to the Corporation. In the event a holder of Preferred Stock does not
provide the Corporation with a Notice of Redemption during such two-year period,
such holder's Right of Redemption shall lapse and the Corporation shall not be
required to effect the redemption of any shares of such holder's Preferred Stock
at a future date. Except as provided in SECTION 5(c) and (d) hereof, on or after
the Redemption Notice Period or the New Redemption Period, as the case may be,
each holder of Preferred Stock who has exercised the Right of Redemption shall
surrender to the Corporation the certificate or certificates representing such
shares in the manner and at the place designated by the Corporation, and
thereupon the Preferred Stock Redemption Price of such shares shall be payable
to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled.
(b Notwithstanding anything contained in SECTION 5(a) to the
contrary, in the event that any holder of Corporation's Series G Convertible
Preferred Stock (the "Series G Preferred Stock"), Series H Convertible Preferred
Stock (the "Series H Preferred Stock") or Series AA Convertible Preferred Stock
(the "Series AA Preferred Stock") delivers to the Corporation a Notice of
Redemption during the Redemption Period (each as defined in the
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<PAGE>
Articles Supplementary setting forth the terms of the Series G Preferred Stock,
the Series H Preferred Stock and the Series AA Preferred Stock), then the
Corporation shall immediately deliver such Notice to all holders of the
Preferred Stock. Upon receipt of such Notice, each holder of shares of Preferred
Stock shall have seven days to deliver to the Corporation a Notice of Redemption
for all or any part of the shares of Preferred Stock held by such holder (such
period, the "Acceleration Period"). Subject to the terms of SECTION 5(d) below,
within 14 days of the receipt of the Redemption Notice, the Corporation will
redeem first the number of shares of Preferred Stock specified in the Redemption
Notice prior to the shares of any other capital stock of the Corporation
(including the Series G Preferred Stock, the Series H Preferred Stock and the
Series AA Preferred Stock) by paying in cash therefor, on a per share basis, the
Preferred Stock Redemption Price. Notwithstanding anything contained herein to
the contrary, to the extent that a holder of Preferred Stock elects not to
exercise its rights under this SECTION 5(b), such holder shall be entitled to
exercise such rights in accordance with SECTION 5(a) above.
(c From and after the Redemption Notice Period, the New
Redemption Period, or the Acceleration Period, as the case may be, unless there
shall have been a default in payment of the Preferred Stock Redemption Price,
all rights of the holders of shares of the Preferred Stock designated for
redemption in the Notice of Redemption (except the right to receive the
Preferred Stock Redemption Price of such shares without interest upon surrender
of their certificate or certificates) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
(d Notwithstanding any other provision to the contrary in this
SECTION 5, if upon exercise of the Right of Redemption by a holder or holders of
the Preferred Stock (i) the redemption of such Preferred Stock would be
prohibited by the provisions of applicable state law, (ii) the redemption of
such Preferred Stock would be prohibited by the provisions of the Corporation's
debt agreements executed subsequent to the effective date of these Articles
Supplementary or any debt agreements to which the Corporation is bound executed
subsequent to the effective date of these Articles Supplementary or (iii) it is
determined in good faith by a majority of the members of the Corporation's Board
of Directors that payment of the Preferred Stock Redemption Price for the
redemption of such Preferred Stock would significantly impair the financial
viability of the Corporation (each condition a "Redemption Restriction"), then
the Corporation and the holder or holders of Preferred Stock exercising such
Right of Redemption shall have the rights described in this SECTION 5(d).
Notwithstanding anything to the contrary contained in the foregoing sentence,
the Corporation shall not be entitled to make the determination under clause
(iii) above more than one time and in no event shall a Redemption Restriction
pursuant to clause (iii) remain in effect for a period in excess of one year
from the date of such determination. If a Redemption Restriction exists and
restricts the exercise of the Right of Redemption of a holder of Preferred
Stock, the Corporation shall:
(i) redeem for cash the maximum number of the
Preferred Stock ratably among the holders of Preferred Stock based upon
the number of shares of
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<PAGE>
Preferred Stock as to which the Right of Redemption has been exercised
as the Corporation is able to purchase, taking into account the effect
of the applicable Redemption Restriction(s); and
(ii) defer the redemption of the remaining Preferred
Stock as to which the Right of Redemption has been exercised as cannot
be purchased under SECTION 5(d)(i) above until such time as the
Corporation is able to consummate the redemption of such Preferred
Stock without a Redemption Restriction.
6. PREEMPTIVE RIGHTS.
(a The holders of the Preferred Stock or Common Stock received
upon the conversion of the Preferred Stock shall have the right to purchase from
the Corporation, upon the price and terms most favorably offered, any shares of
capital stock of the Corporation, or any warrants, options, or other rights to
purchase such shares or any securities convertible into or exchangeable for such
shares to be offered by the Corporation, on the terms and conditions set forth
in this SECTION 6.
(b The preemptive rights granted hereby shall be exercisable
in proportion to the number of shares of Preferred Stock, on an as-converted
basis, and Common Stock received upon the conversion of the Preferred Stock held
by each holder of Preferred Stock at the time such preemptive rights arise, such
proportion to be determined by calculating the ratio of (i) the number of shares
of Preferred Stock, on an as-converted basis, and Common Stock received upon the
conversion of the Preferred Stock held by such holder to (ii) the aggregate
number of outstanding shares of Common Stock of the Corporation (assuming the
conversion of all outstanding convertible securities and the exercise of all
outstanding options, warrants or other rights to acquire Common Stock).
(c In connection with a proposed issuance by the Corporation
of any securities giving rise to the preemptive rights granted hereby, the
Corporation shall give to each holder of Preferred Stock or Common Stock
received upon the conversion of the Preferred Stock written notice stating its
intention to sell such securities and containing a description of the price and
general terms of the proposed sale. Such notice shall also contain an
unconditional offer by the Corporation to sell to each holder of Preferred Stock
or Common Stock received upon the conversion of the Preferred Stock such
holder's proportionate share of the capital stock or other securities of the
Corporation described in the notice on the same terms and conditions set forth
therein. Each holder of Preferred Stock or Common Stock received upon the
conversion of the Preferred Stock receiving the notice from the Corporation
described herein must exercise his preemptive rights within 30 days of receiving
such notice by delivering written notice of such exercise to the Corporation,
and must deliver to the Corporation the purchase price in cash within 15 days
following such exercise. Any holder of Preferred Stock or Common Stock received
upon the conversion of the Preferred Stock who fails to exercise his preemptive
rights in the manner described herein shall be deemed to have waived his
preemptive rights with respect to the subject securities. Any waiver of
preemptive rights to acquire any securities of the
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Corporation shall be effective for a period of 90 days following the effective
date of such waiver, and the Corporation may issue and sell such securities
during such period without further offer or notice to any holder of Preferred
Stock or Common Stock received upon the conversion of the Preferred Stock
waiving his preemptive rights.
(d Notwithstanding the foregoing, holders of Preferred Stock
or Common Stock received upon the conversion of the Preferred Stock shall have
no preemptive rights with respect to any securities of the Corporation in the
following cases:
(i) When the securities are being issued in
consideration of services performed or to be performed by employees,
directors or consultants of the Corporation;
(ii) When the securities are being issued in
consideration of the transfer of tangible personal property to the
Corporation;
(iii) When the securities are being issued in
consideration of the transfer of intangible personal property to the
Corporation;
(iv) When the securities are being issued in
consideration of the transfer of real property to the Corporation;
(v) When the securities are being issued as dividends
of the Corporation;
(vi) When the securities are being issued in exchange
for other outstanding securities of the Corporation;
(vii) When the securities are being issued upon
exercise of any right or option issued by the Corporation prior to the
date of the original issue of Preferred Stock;
(viii) When the securities are being issued upon
exercise of any option held by an officer, director or employee of the
Corporation, which option was granted pursuant to a plan duly adopted
by the Board of Directors of the Corporation; or
(ix) When the securities are being issued in
connection with the merger or consolidation of the Corporation.
(e All preemptive rights granted by this SECTION 6 shall
terminate, and this SECTION 6 shall become void and of no further force and
effect, concurrently with closing of a Qualified Public Offering, but shall
apply to the securities issued in such Qualified Public Offering.
{SIGNATURE AND ATTESTATION ON NEXT PAGE}
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<PAGE>
IN WITNESS WHEREOF, Sky Alland Research, Inc. has caused these
Articles Supplementary to be signed in its name and on its behalf by its
President and attested by its Secretary on the _____ day of February, 2000.
ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Raymond Zukowski By: /s/ Richard T. Hebert
- -------------------------- -------------------------
Raymond Zukowski Richard T. Hebert
Secretary President
<PAGE>
THE UNDERSIGNED, President of Sky Alland Research, Inc., who
executed on behalf of the Corporation Articles Supplementary of which this
Certificate is made a part, acknowledges in the name and on behalf of the
Corporation that the foregoing Articles Supplementary are the corporate act of
the Corporation and certifies that the matters and facts set forth herein with
respect to the authorization and approval thereof are true in all material
respects under the penalties of perjury.
/s/ Richard T. Hebert
----------------------------
Richard T. Hebert, President
<PAGE>
Exhibit 3.1.16
SKY ALLAND RESEARCH, INC.
ARTICLES OF AMEDMENT
Sky Alland Research, Inc, a Maryland corporation having its principal
office in Columbia, Maryland (hereinafter called the "Corporation"), certifies
to the State Department of Assessments and Taxation of Maryland that:
FIRST: The Corporation desires to amend certain provisions contained in
its charter.
SECOND: The name of the Corporation is Sky Alland Research, Inc.
THIRD: The Articles of Incorporation of the Corporation are hereby
amended as follows:
(a) Article SECOND of the Charter is hereby amended to read as follows:
"The name of the Corporation is:
iSky, Inc."
(b) Article SEVENTH, paragraph 1 of the Charter is hereby amended to
read as follows:
"(1) The total number of shares of stock of all
classes which the Corporation has authority to issue
is 100,000,000 shares of capital stock (par value
$0.01 per share), amounting in aggregate par value to
$1,000,000. 80,000,000 shares are classified as
"Common Stock," and 20,000,000 shares are classified
as "Preferred Stock." The Board of Directors may
classify and reclassify any unissued shares of
capital stock by setting or changing in any one or
more respects the preferences, conversion or other
rights, voting powers, restrictions, limitations as
to dividends, qualifications or terms or conditions
of redemption of such shares of stock."
(c) Article NINTH of the Charter is amended by adding the following
paragraph 8 thereto:
"(8) The Corporation elects to be subject to the
provisions of Section 3-602 of Subtitle 6 of the
Corporations and Associations Article of the
Annotated Code of Maryland, PROVIDED, HOWEVER, that
such section will
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<PAGE>
not apply to any business combination with a person
or the affiliate of such person who is an interested
stockholder as of February 4, 2000."
FOURTH: Immediately prior to the filing of these Articles of Amendment,
the total number of shares of the authorized capital stock of the Corporation,
the par value per share, and the aggregate par value of the Corporations capital
stock were are as follows:
<TABLE>
<CAPTION>
NUMBER PAR VALUE AGGREGATE
CLASS OF STOCK OF SHARES PER SHARE PAR VALUE
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Common Stock 15,293,982 $0.01 $152,939.82
Preferred Stock 4,706,018 $0.01 $ 47,060.18
----------- -----------
Total 20,000,000 $200,000
</TABLE>
FIFTH: The total number of shares of the authorized capital stock of
the Corporation, the par value per share and the aggregate par value of the
Corporations capital stock, as amended, are as follows:
<TABLE>
<CAPTION>
NUMBER PAR VALUE AGGREGATE
CLASS OF STOCK OF SHARES PER SHARE PAR VALUE
- -------------- --------- --------- ---------
<S> <C> <C> <C>
Common Stock 80,000,000 $0.01 $800,000
Preferred Stock 20,000,000 $0.01 $200,000
---------- --------
Total 100,000,000 $1,000,000
</TABLE>
SIXTH: The information required by Section 2-607(b)(2)(i) was not
changed by this amendment.
SEVENTH: The foregoing amendments to the Charter of the Corporation
have been advised by the Board of Directors and approved by the stockholders of
the Corporation.
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IN WITNESS WHEREOF, SKY ALLAND RESEARCH, INC. has caused these presents
to be signed in its name and on its behalf by its President and witnessed by its
Secretary on February 4, 2000.
Witness:
By: /s/ Raymond Zukowski By: /s/ Richard T. Hebert
------------------------- -------------------------
Name: Raymond Zukowski Name: Richard T. Hebert
Title: Secretary Title: President
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THE UNDERSIGNED, President of SKY ALLAND RESEARCH, INC., who executed
on behalf of the Corporation the foregoing Articles of Amendment of which this
certificate is made a part, hereby acknowledges in the name and on behalf of
said corporation the foregoing Articles of Amendment to be the corporate act of
said Corporation and hereby certifies that to the best of his knowledge,
information, and belief the matters and facts set forth therein with respect to
the authorization and approval thereof are true in all material respects under
penalties of perjury.
/s/ Richard T. Hebert
-------------------------
Richard T. Hebert
President
<PAGE>
Exhibit 3.2
SKY ALLAND RESEARCH, INC.
A Maryland Corporation
AMENDED AND RESTATED BY-LAWS
ARTICLE I
STOCKHOLDERS
SECTION 1.01. ANNUAL MEETING. The Corporation shall hold an annual
meeting of its stockholders to elect directors and transact any other business
within its powers. Such meeting shall be held during the month of May of each
year, or in such other month as shall be set by the Board of Directors, and at
such time and on such day during such month as shall be set by the Board of
Directors. Except as otherwise provided by the Charter or statute, any business
may be considered at an annual meeting without the purpose of the meeting having
been specified in the notice. Failure to hold an annual meeting does not
invalidate the Corporation's existence or affect any otherwise valid corporate
acts.
SECTION 1.02. SPECIAL MEETING. At any time in the interval between
annual meetings, a special meeting of the stockholders may be called by the
Chairman of the Board or the President or by a majority of the Board of
Directors by vote at a meeting or in writing (addressed to the Secretary of the
Corporation) with or without a meeting. Special meetings of the stockholders
shall be called by the Secretary at the request of the stockholders only on the
written request of stockholders entitled to cast at least a majority of all the
votes entitled to be cast at the meeting and then only as may be required by
law. A request for a special meeting shall state the purpose of the meeting and
the matters proposed to be acted on at it. The Board of Directors shall have
sole power to fix the date and time of the special meeting.
SECTION 1.03. PLACE OF MEETINGS. Meetings of stockholders shall be held
at such place in the United States as is set from time to time by the Board of
Directors.
SECTION 1.04. NOTICE OF MEETINGS; WAIVER OF NOTICE. Not less than ten
(10) nor more than ninety (90) days before each stockholders' meeting, the
Secretary shall give written notice of the meeting to each stockholder entitled
to vote at the meeting and each other stockholder entitled to notice of the
meeting. The notice shall state the time and place of the meeting and, if the
meeting is a special meeting or notice of the purpose is required by statute,
the purpose of the meeting. Notice is given to a stockholder when it is
personally delivered to him, left at his residence or usual place of business,
mailed to him at his address as it appears on the records of the Corporation, or
transmitted to him by electronic mail to any electronic mail address of the
stockholder or by any other means. Notwithstanding the foregoing provisions,
each person who is entitled to notice waives notice if he before or after the
meeting signs a waiver of the notice which is filed with the records of
stockholders' meetings, or is present at the meeting in person or by proxy.
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SECTION 1.05. QUORUM; VOTING. Unless statute or the Charter provides
otherwise, at a meeting of stockholders the presence in person or by proxy of
stockholders entitled to cast a majority of all the votes entitled to be cast at
the meeting constitutes a quorum, and a majority of all the votes cast at a
meeting at which a quorum is present is sufficient to approve any matter which
properly comes before the meeting, except that a plurality of all the votes cast
at a meeting at which a quorum is present is sufficient to elect a director.
SECTION 1.06. ADJOURNMENTS. Whether or not a quorum is present, a
meeting of stockholders convened on the date for which it was called may be
adjourned from time to time by the stockholders present in person or by proxy by
a majority vote. Any business which might have been transacted at the meeting as
originally notified may be deferred and transacted at any such adjourned meeting
at which a quorum shall be present. No further notice of an adjourned meeting
other than by announcement shall be necessary if held on a date not more than
120 days after the original record date.
SECTION 1.07. GENERAL RIGHT TO VOTE; PROXIES. Unless the Charter
provides for a greater or lesser number of votes per share or limits or denies
voting rights, each outstanding share of stock, regardless of class, is entitled
to one vote on each matter submitted to a vote at a meeting of stockholders. A
stockholder may vote the stock he owns of record either in person or by written
proxy signed by the stockholder or by his duly authorized attorney in fact. A
stockholder may authorize another person to act as proxy. The authorization may
be transmitted by a telegram, cablegram, datagram, electronic mail, or any other
electronic or telephonic means. Unless a proxy provides otherwise, it is not
valid more than 11 months after its date.
SECTION 1.08. LIST OF STOCKHOLDERS. At each meeting of stockholders, a
full, true and complete list of all stockholders entitled to vote at such
meeting, showing the number and class of shares held by each and certified by
the transfer agent for such class or by the Secretary, shall be furnished by the
Secretary.
SECTION 1.09. CONDUCT OF VOTING. At all meetings of stockholders, the
proxies and ballots shall be received, and all questions touching the
qualification of voters and the validity of proxies and the acceptance or
rejection of votes, shall be decided by the chairman of the meeting.
SECTION 1.10. INFORMAL ACTION BY STOCKHOLDERS. Any action required or
permitted to be taken at a meeting of stockholders may be taken without a
meeting if there is filed with the records of stockholders meetings a unanimous
written consent which sets forth the action and is signed by each stockholder
entitled to vote on the matter and a written waiver of any right to dissent
signed by each stockholder entitled to notice of the meeting but not entitled to
vote at it.
SECTION 1.11. CONDUCT OF BUSINESS. The proposal of business to be
considered by the stockholders may be made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of meeting, (b) by or at the direction
of the Board of Directors or (c) by any stockholder of the Corporation (i) who
was a stockholder of record at the time of giving
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notice provided for in Section 1.12, (ii) who is entitled to vote at the meeting
and (iii) who complied with the notice procedures set forth in Section 1.12. The
proposal of business to be considered by the stockholders may be made at a
special meeting of stockholders (a) only pursuant to the Corporation's notice of
meeting and (b) (i) by or at the direction of the Board of Directors or (ii) by
any stockholder of the Corporation (A) who was a stockholder of record at the
time of giving notice provided for in Section 1.12 (B) who is entitled to vote
at the meeting and (C) who complied with the notice procedures set forth in
Section 1.12. 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 in accordance with the procedures set forth in Section 1.12 and
this Section and, if any proposed nomination or business is not in compliance
with Section 1.12 and this Section, to declare that such defective nomination or
proposal be disregarded.
SECTION 1.12. ADVANCE NOTICE OF MATTERS TO BE PRESENTED AT AN ANNUAL
MEETING OF STOCKHOLDERS. No business may be transacted at an annual meeting of
stockholders, other than business that is either (a) specified in the notice of
meeting (or any supplement thereto) given by or at the direction of the Board of
Directors (or any duly authorized committee thereof), (b) otherwise properly
brought before the annual meeting by or at the direction of the Board of
Directors (or any duly authorized committee thereof) or (c) otherwise properly
brought before the annual meeting by any stockholder of the Corporation (i) who
is stockholder of record on the date of the giving of the notice provided for in
this Section and on the record date for the determination of stockholders
entitled to vote at such annual meeting and (ii) who complies with the notice
procedures set forth in this Section. A stockholder's notice must be delivered
to or mailed and received by the Secretary at the principal executive offices of
the Corporation not less than 60 days nor more than 90 days prior to the first
anniversary of the preceding year's annual meeting; PROVIDED, HOWEVER, that in
the event that the date of the annual meeting is advanced by more than 30 days
or delayed by more than 60 days from such anniversary date, notice by the
stockholder must be so delivered not earlier than the 90th day prior to such
annual meeting and not later than the close of business on the later of the 60th
day prior to such annual meeting or the tenth day following the day on which
public announcement of the date of such meeting is first made. A stockholder's
notice to the Secretary must be in writing and set forth as to each matter such
stockholder proposes to bring before the annual meeting (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (ii) the name and address of
such stockholder as they appear on the Corporation's books and of the beneficial
owner, if any, on whose behalf the proposal is made, (iii) the class or series
and number of shares of capital stock of the Corporation which are owned
beneficially or of record by such stockholder and such beneficial owner, (iv) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business and (v) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting. No business shall be conducted at the annual
meeting of stockholders except business brought before the annual meeting in
accordance with the procedures set forth in this Section, PROVIDED, HOWEVER,
that once business has been properly brought before the annual meeting in
accordance with such procedures, nothing in this Section
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shall be deemed to preclude discussion by any stockholder of any such business.
If the chairman of an annual meeting determines that business was not properly
brought before the annual meeting in accordance with the foregoing procedures,
the chairman of the meeting shall declare to the meeting that the business was
not properly brought before the meeting and such business shall not be
transacted. No adjournment or postponement of a meeting of stockholders shall
commence a new period for the giving of notice of a stockholder proposal
hereunder.
ARTICLE II
BOARD OF DIRECTORS
SECTION 2.01. FUNCTION OF DIRECTORS. The business and affairs of the
Corporation shall be managed under the direction of its Board of Directors. All
powers of the Corporation may be exercised by or under authority of the Board of
Directors, except as conferred on or reserved to the stockholders by statute or
by the Charter or By-laws.
SECTION 2.02. NUMBER OF DIRECTORS. The Corporation shall have at least
three (3) directors; provided that, if there is no stock outstanding, the number
of Directors may be less than three but not less than one, and, if there is
stock outstanding and so long as there are less than three stockholders, the
number of Directors may be less than three but not less than the number of
stockholders. The Corporation shall have the number of directors provided in the
Charter until changed as herein provided. A majority of the entire Board of
Directors may alter the number of directors set by the Charter to not exceeding
12 nor less than the minimum number then permitted herein, but the action may
not affect the tenure of office of any director.
SECTION 2.03. ELECTION, CLASSES AND TENURE OF DIRECTORS. Except as
otherwise provided by law or these By-laws, at each annual meeting of
stockholders, or at a special meeting of stockholders in lieu of the annual
meeting, the holders of stock present in person or by proxy at such meeting and
entitled to vote thereat shall elect members of the Board of Directors to hold
office until the next annual meeting and until their successors shall have been
duly elected and qualified. Directors shall be elected by a plurality of votes
cast at such meeting. The Board of Directors shall divide the directors into
three classes, Class 1, Class 2, and Class 3; and, when the number of directors
is changed, shall determine the class or classes to which the increased or
decreased number of directors shall be apportioned; PROVIDED, HOWEVER, that no
decrease in the number of directors shall affect the term of any director then
in office. Upon the initial classification, the Class 1 directors shall hold
office for an initial term of three years, Class 2 directors shall hold office
for an initial term of two years, and Class 3 directors shall hold office for an
initial term of one year. Thereafter, at each annual meeting of stockholders,
directors elected to succeed those whose terms are expiring shall be elected for
a term of office expiring at the annual meeting of stockholders held in the
second year following their election and until their respective successors are
elected and qualified, or until such director's earlier death, resignation or
removal.
SECTION 2.04. REMOVAL OF DIRECTOR. Unless statute or the Charter
provides otherwise, the stockholders may remove any director, only for cause, by
the affirmative vote of a majority of all the votes entitled to be cast for the
election of directors
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SECTION 2.05. VACANCY ON BOARD. The stockholders may elect a successor
to fill a vacancy on the Board of Directors which results from any cause, by the
affirmative vote of a majority of all the votes entitled to be cast for the
election of directors. A director elected by the stockholders to fill a vacancy
that results from the removal of a director serves for the balance of the term
of the removed director. A majority of the remaining directors, regardless of
whether sufficient to constitute a quorum, may fill a vacancy on the Board of
Directors that results from any cause except an increase in the number of
directors, and a majority of the entire Board of Directors may fill a vacancy
that results from an increase in the number of directors. A director elected by
the Board of Directors to fill a vacancy serves until the next annual meeting of
stockholders and until his or her successor is elected and qualified.
SECTION 2.06. REGULAR MEETINGS. After each meeting of stockholders at
which a Board of Directors shall have been elected, the Board of Directors so
elected shall meet as soon as practicable for the purpose of organization and
the transaction of other business; and in the event that no other time is
designated by the stockholders, the Board of Directors shall meet one hour after
the time for such stockholders' meeting or immediately following the close of
such meeting, whichever is later, on the day of such meeting. Such first regular
meeting shall be held at any place as may be designated by the stockholders, or
in default of such designation at the place designated by the Board of Directors
for such first regular meeting, or in default of such designation at the place
of the holding of the immediately preceding meeting of stockholders. No notice
of such first meeting shall be necessary if held as hereinabove provided. Any
other regular meeting of the Board of Directors shall be held on such date and
at any place as may be designated from time to time by the Board of Directors.
SECTION 2.07. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called at any time by the Chairman of the Board, the President
or by a majority of the Board of Directors by vote at a meeting, or in writing
with or without a meeting. A special meeting of the Board of Directors shall be
held on such date and at any place as may be designated from time to time by the
Board of Directors. In the absence of designation such meeting shall be held at
such place as may be designated in the call.
SECTION 2.08. NOTICE OF MEETING. Except as provided in Section 2.06,
the Secretary shall give notice to each director of each regular and special
meeting of the Board of Directors. The notice shall state the time and place of
the meeting. Notice is given to a director when it is delivered personally to
him, left at his residence or usual place of business, or sent by telegraph or
telephone, at least 24 hours before the time of the meeting or, in the
alternative by mail to his address as it shall appear on the records of the
Corporation, at least 72 hours before the time of the meeting. Unless the
By-laws or a resolution of the Board of Directors provides otherwise, the notice
need not state the business to be transacted at or the purposes of any regular
or special meeting of the Board of Directors. No notice of any meeting of the
Board of Directors need be given to any director who attends, or to any director
who, in writing executed and filed with the records of the meeting either before
or after the holding thereof, waives such notice. Any meeting of the Board of
Directors, regular or special, may adjourn from time to time to reconvene at the
same or some other place, and no notice need be given of any such adjourned
meeting other than by announcement.
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SECTION 2.09. DIRECTOR PROPOSALS. Any director may require the
Corporation, by delivering notice to the Corporation no less than 24 hours in
advance of a regularly scheduled meeting of the Board of Directors, to include
in the business to be discussed at such meeting any one or more proposals
submitted by such director.
SECTION 2.10. ACTION BY DIRECTORS. Unless statute or the Charter or
By-laws requires a greater proportion, the action of a majority of the directors
present at a meeting at which a quorum is present is action of the Board of
Directors. A majority of the entire Board of Directors shall constitute a quorum
for the transaction of business. In the absence of a quorum, the directors
present by majority vote and without notice other than by announcement may
adjourn the meeting from time to time until a quorum shall attend. At any such
adjourned meeting at which a quorum shall be present, any business may be
transacted which might have been transacted at the meeting as originally
notified. Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken without a meeting, if an unanimous written consent
which sets forth the action is signed by each member of the Board and filed with
the minutes of proceedings of the Board.
SECTION 2.10. MEETING BY CONFERENCE TELEPHONE. Members of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
constitutes presence in person at a meeting.
SECTION 2.11. COMPENSATION. By resolution of the Board of Directors a
fixed sum and expenses, if any, for attendance at each regular or special
meeting of the Board of Directors or of committees thereof, and other
compensation for their services as such or on committees of the Board of
Directors, may be paid to directors. A director who serves the Corporation in
any other capacity also may receive compensation for such other services,
pursuant to a resolution of the directors.
ARTICLE III
COMMITTEES
SECTION 3.01. COMMITTEES. The Board of Directors may appoint from among
its members an Executive Committee, an Audit Committee, a Compensation
Committee, and other committees composed of two or more directors and delegate
to these committees any of the powers of the Board of Directors, except the
power to authorize dividends on stock, elect directors, issue stock other than
as provided in the next sentence, recommend to the stockholders any action which
requires stockholder approval, amend these By-laws, or approve any merger or
share exchange which does not require stockholder approval. If the Board of
Directors has given general authorization for the issuance of stock providing
for or establishing a method or procedure for determining the maximum number of
shares to be issued, a committee of the Board of Directors, in accordance with
that general authorization or any stock option or other plan or program adopted
by the Board of Directors, may authorize or fix the terms of stock subject to
classification or reclassification and the terms on which any stock may be
issued,
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including all terms and conditions required or permitted to be established or
authorized by the Board of Directors.
SECTION 3.02. COMMITTEE PROCEDURE. Each committee may fix rules of
procedure for its business. A majority of the members of a committee shall
constitute a quorum for the transaction of business and the act of a majority of
those present at a meeting at which a quorum is present shall be the act of the
committee. The members of a committee present at any meeting, whether or not
they constitute a quorum, may appoint a director to act in the place of an
absent member. Any action required or permitted to be taken at a meeting of a
committee may be taken without a meeting, if an unanimous written consent which
sets forth the action is signed by each member of the committee and filed with
the minutes of the committee. The members of a committee may conduct any meeting
thereof by conference telephone in accordance with the provisions of Section
2.10.
SECTION 3.03. EMERGENCY. In the event of a state of disaster of
sufficient severity to prevent the conduct and management of the affairs and
business of the Corporation by its directors and officers as contemplated by the
Charter and the By-laws, any two or more available members of the then incumbent
Executive Committee shall constitute a quorum of that Committee for the full
conduct and management of the affairs and business of the Corporation in
accordance with the provisions of Section 3.01. In the event of the
unavailability, at such time, of a minimum of two members of the then incumbent
Executive Committee, the available directors shall elect an Executive Committee
consisting of any two members of the Board of Directors, whether or not they be
officers of the Corporation, which two members shall constitute the Executive
Committee for the full conduct and management of the affairs of the Corporation
in accordance with the foregoing provisions of this Section. This Section shall
be subject to implementation by resolution of the Board of Directors passed from
time to time for that purpose, and any provisions of the By-laws (other than
this Section) and any resolutions which are contrary to the provisions of this
Section or to the provisions of any such implementary resolutions shall be
suspended until it shall be determined by any interim Executive Committee acting
under this Section that it shall be to the advantage of the Corporation to
resume the conduct and management of its affairs and business under all the
other provisions of the By-laws.
ARTICLE IV
OFFICERS
SECTION 4.01. EXECUTIVE AND OTHER OFFICERS. The Corporation shall have
a President, a Secretary, and a Treasurer. It may also have a Chairman of the
Board. The Board of Directors shall designate who shall serve as chief executive
officer, who shall have general supervision of the business and affairs of the
Corporation, and may designate a chief operating officer, who shall have
supervision of the operations of the Corporation. In the absence of any
designation the Chairman of the Board, if there be one, shall serve as chief
executive officer and the President shall serve as chief operating officer. In
the absence of the Chairman of the Board, or if there be none, the President
shall be the chief executive officer. The same person may hold both offices. The
Corporation may also have one or more Vice-Presidents, assistant officers, and
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subordinate officers as may be established by the Board of Directors. A person
may hold more than one office in the Corporation except that no person may serve
concurrently as both President and Vice-President of the Corporation. The
Chairman of the Board shall be a director, and the other officers may be
directors.
SECTION 4.02. CHAIRMAN OF THE BOARD. The Chairman of the Board, if one
be elected, shall preside at all meetings of the Board of Directors and of the
stockholders at which he or she shall be present. If specified by the Board of
Directors, he or she may also serve as chief executive officer of the
Corporation. In general, he or she shall perform such other duties and have such
other powers as are from time to time assigned to him or her by the Board of
Directors.
SECTION 4.03. PRESIDENT. Unless otherwise provided by resolution of the
Board of Directors, the President, in the absence of the Chairman of the Board,
shall preside at all meetings of the Board of Directors and of the stockholders
at which he or she shall be present. Unless otherwise specified by the Board of
Directors, the President shall be the chief operating officer and chief
executive officer of the Corporation and perform the duties customarily
performed by chief operating officers and chief executive officers. He or she
may execute, in the name of the Corporation, all authorized deeds, mortgages,
bonds, contracts or other instruments, except in cases in which the signing and
execution thereof shall have been expressly delegated to some other officer or
agent of the Corporation. In general, he or she shall perform such other duties
customarily performed by a president of a corporation and shall perform such
other duties and have such other powers as are from time to time assigned to him
or her by the Board of Directors or the chief executive officer of the
Corporation.
SECTION 4.04. VICE-PRESIDENTS. The Vice-President or Vice-Presidents,
at the request of the chief executive officer or the President, or in the
President's absence or during his or her inability to act, shall perform the
duties and exercise the functions of the President, and when so acting shall
have the powers of the President. If there be more than one Vice-President, the
Board of Directors may determine which one or more of the Vice-Presidents shall
perform any of such duties or exercise any of such functions, or if such
determination is not made by the Board of Directors, the chief executive
officer, or the President may make such determination; otherwise any of the
Vice-Presidents may perform any of such duties or exercise any of such
functions. Each Vice-President shall perform such other duties and have such
other powers, and have such additional descriptive designations in their titles
(if any), as are from time to time assigned to them by the Board of Directors,
the chief executive officer, or the President.
SECTION 4.05. SECRETARY. The Secretary shall keep the minutes of the
meetings of the stockholders, of the Board of Directors and of any committees,
in books provided for the purpose; he or she shall see that all notices are duly
given in accordance with the provisions of these By-laws or as required by law;
he or she shall be custodian of the records of the Corporation; he or she may
witness any document on behalf of the Corporation, the execution of which is
duly authorized, see that the corporate seal is affixed where such document is
required or desired to be under its seal, and, when so affixed, may attest the
same. In general, he or she shall perform such other duties customarily
performed by a secretary of a corporation, and shall
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perform such other duties and have such other powers as are from time to time
assigned to him or her by the Board of Directors, the chief executive officer,
or the President.
SECTION 4.06. TREASURER. The Treasurer shall have charge of and be
responsible for all funds, securities, receipts and disbursements of the
Corporation, and shall deposit, or cause to be deposited, in the name of the
Corporation, all moneys or other valuable effects in such banks, trust companies
or other depositories as shall, from time to time, be selected by the Board of
Directors; he or she shall render to the President and to the Board of
Directors, whenever requested, an account of the financial condition of the
Corporation. In general, he or she shall perform such other duties customarily
performed by a treasurer of a corporation, and shall perform such other duties
and have such other powers as are from time to time assigned to him or her by
the Board of Directors, the chief executive officer, or the President.
SECTION 4.07. ASSISTANT AND SUBORDINATE OFFICERS. The assistant and
subordinate officers of the Corporation are all officers below the office of
Vice-President, Secretary, or Treasurer. The assistant or subordinate officers
shall have such duties as are from time to time assigned to them by the Board of
Directors, the chief executive officer, or the President.
SECTION 4.08. ELECTION, TENURE AND REMOVAL OF OFFICERS. The Board of
Directors shall elect the officers of the Corporation. The Board of Directors
may from time to time authorize any committee or officer to appoint assistant
and subordinate officers. Election or appointment of an officer, employee or
agent shall not of itself create contract rights. All officers shall be
appointed to hold their offices, respectively, during the pleasure of the Board
of Directors. The Board of Directors (or, as to any assistant or subordinate
officer, any committee or officer authorized by the Board of Directors) may
remove an officer at any time. The removal of an officer does not prejudice any
of his or her contract rights. The Board of Directors (or, as to any assistant
or subordinate officer, any committee or officer authorized by the Board of
Directors) may fill a vacancy which occurs in any office for the unexpired
portion of the term.
SECTION 4.09. COMPENSATION. The Board of Directors shall have power to
fix the salaries and other compensation and remuneration, of whatever kind, of
all officers of the Corporation. No officer shall be prevented from receiving
such salary by reason of the fact that he or she is also a director of the
Corporation. The Board of Directors may authorize any committee or officer, upon
whom the power of appointing assistant and subordinate officers may have been
conferred, to fix the salaries, compensation and remuneration of such assistant
and subordinate officers.
ARTICLE V
STOCK
SECTION 5.01. CERTIFICATES FOR STOCK. Each stockholder is entitled to
certificates which represent and certify the shares of stock he or she holds in
the Corporation. Each stock certificate shall include on its face the name of
the Corporation, the name of the
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stockholder or other person to whom it is issued, and the class of stock and
number of shares it represents. It shall also include on its face or back (a) a
statement of any restrictions on transferability and a statement of the
designations and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of the stock of each class which the Corporation is
authorized to issue, of the differences in the relative rights and preferences
between the shares of each series of a preferred or special class in series
which the Corporation is authorized to issue, to the extent they have been set,
and of the authority of the Board of Directors to set the relative rights and
preferences of subsequent series of a preferred or special class of stock or (b)
a statement which provides in substance that the Corporation will furnish a full
statement of such information to any stockholder on request and without charge.
Such request may be made to the Secretary or to its transfer agent. Except as
provided in the Maryland Uniform Commercial Code Investment Securities, the fact
that a stock certificate does not contain or refer to a restriction on
transferability that is adopted after the date of issuance does not mean that
the restriction is invalid or unenforceable. Upon the issuance of uncertificated
shares of capital stock, the Corporation shall send the stockholder a written
statement of the same information required above on the certificate and by the
Maryland Uniform Commercial Code - Investment Securities. It shall be in such
form, not inconsistent with law or with the Charter, as shall be approved by the
Board of Directors or any officer or officers designated for such purpose by
resolution of the Board of Directors. Each stock certificate shall be signed by
the Chairman of the Board, the President, or a Vice-President, and countersigned
by the Secretary, an Assistant Secretary, the Treasurer, or an Assistant
Treasurer. Each certificate may be sealed with the actual corporate seal or a
facsimile of it or in any other form and the signatures may be either manual or
facsimile signatures. A certificate is valid and may be issued whether or not an
officer who signed it is still an officer when it is issued. A certificate may
not be issued until the stock represented by it is fully paid.
SECTION 5.02. TRANSFERS. The Board of Directors shall have power and
authority to make such rules and regulations as it may deem expedient concerning
the issue, transfer and registration of certificates of stock; and may appoint
transfer agents and registrars thereof. The duties of transfer agent and
registrar may be combined.
SECTION 5.03. RECORD DATE AND CLOSING OF TRANSFER BOOKS. The Board of
Directors may set a record date or direct that the stock transfer books be
closed for a stated period for the purpose of making any proper determination
with respect to stockholders, including which stockholders are entitled to
notice of a meeting, vote at a meeting, receive a dividend, or be allotted other
rights. The record date may not be more than 90 days before the date on which
the action requiring the determination will be taken; the transfer books may not
be closed for a period longer than 20 days; and, in the case of a meeting of
stockholders, the record date or the closing of the transfer books shall be at
least ten days before the date of the meeting.
SECTION 5.04. STOCK LEDGER. The Corporation shall maintain a stock
ledger which contains the name and address of each stockholder and the number of
shares of stock of each class which the stockholder holds. The stock ledger may
be in written form or in any other form which can be converted within a
reasonable time into written form for visual
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inspection. The original or a duplicate of the stock ledger shall be kept at the
offices of a transfer agent for the particular class of stock, or, if none, at
the principal office in the State of Maryland or the principal executive offices
of the Corporation.
SECTION 5.05. CERTIFICATION OF BENEFICIAL OWNERS. The Board of
Directors may adopt by resolution a procedure by which a stockholder of the
Corporation may certify in writing to the Corporation that any shares of stock
registered in the name of the stockholder are held for the account of a
specified person other than the stockholder. The resolution shall set forth the
class of stockholders who may certify; the purpose for which the certification
may be made; the form of certification and the information to be contained in
it; if the certification is with respect to a record date or closing of the
stock transfer books, the time after the record date or closing of the stock
transfer books within which the certification must be received by the
Corporation; and any other provisions with respect to the procedure which the
Board considers necessary or desirable. On receipt of a certification which
complies with the procedure adopted by the Board in accordance with this
Section, the person specified in the certification is, for the purpose set forth
in the certification, the holder of record of the specified stock in place of
the stockholder who makes the certification.
SECTION 5.06. LOST STOCK CERTIFICATES. The Board of Directors of the
Corporation may determine the conditions for issuing a new stock certificate in
place of one which is alleged to have been lost, stolen, or destroyed, or the
Board of Directors may delegate such power to any officer or officers of the
Corporation. In their discretion, the Board of Directors or such officer or
officers may refuse to issue such new certificate save upon the order of some
court having jurisdiction in the premises.
ARTICLE VI
FINANCE
SECTION 6.01. CHECKS, DRAFTS, ETC. All checks, drafts and orders for
the payment of money, notes and other evidences of indebtedness, issued in the
name of the Corporation, shall, unless otherwise provided by resolution of the
Board of Directors, be signed by the President, a Vice-President or an Assistant
Vice-President.
SECTION 6.02. ANNUAL STATEMENT OF AFFAIRS. The President shall prepare
annually a full and correct statement of the affairs of the Corporation, to
include a balance sheet and a financial statement of operations for the
preceding fiscal year. The statement of affairs shall be submitted at the annual
meeting of the stockholders and, within 20 days after the meeting, placed on
file at the Corporation's principal office.
SECTION 6.03. FISCAL YEAR. The fiscal year of the Corporation shall be
the twelve calendar months period ending December 31 in each year, unless
otherwise provided by the Board of Directors.
SECTION 6.04. DIVIDENDS. If declared by the Board of Directors at any
meeting thereof, the Corporation may pay dividends on its shares in cash,
property, or in shares
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of the capital stock of the Corporation, unless such dividend is contrary to law
or to a restriction contained in the Charter.
ARTICLE VII
INDEMNIFICATION
SECTION 7.01. PROCEDURE. Any indemnification, or payment of expenses in
advance of the final disposition of any proceeding, shall be made promptly, and
in any event within 60 days, upon the written request of the director or officer
entitled to seek indemnification (the "Indemnified Party"). The right to
indemnification and advances hereunder shall be enforceable by the Indemnified
Party in any court of competent jurisdiction, if (i) the Corporation denies such
request, in whole or in part, or (ii) no disposition thereof is made within 60
days. The Indemnified Party's costs and expenses incurred in connection with
successfully establishing his or her right to indemnification, in whole or in
part, in any such action shall also be reimbursed by the Corporation. It shall
be a defense to any action for advance for expenses that (a) a determination has
been made that the facts then known to those making the determination would
preclude indemnification or (b) the Corporation has not received both (i) an
undertaking as required by law to repay such advances in the event it shall
ultimately be determined that the standard of conduct has not been met and (ii)
a written affirmation by the Indemnified Party of such Indemnified Party's good
faith belief that the standard of conduct necessary for indemnification by the
Corporation has been met.
SECTION 7.02. EXCLUSIVITY, ETC. The indemnification and advance of
expenses provided by the Charter and these By-laws shall not be deemed exclusive
of any other rights to which a person seeking indemnification or advance of
expenses may be entitled under any law (common or statutory), or any agreement,
vote of stockholders or disinterested directors or other provision that is
consistent with law, both as to action in his or her official capacity and as to
action in another capacity while holding office or while employed by or acting
as agent for the Corporation, shall continue in respect of all events occurring
while a person was a director or officer after such person has ceased to be a
director or officer, and shall inure to the benefit of the estate, heirs,
executors and administrators of such person. The Corporation shall not be liable
for any payment under this By-Law in connection with a claim made by a director
or officer to the extent such director or officer has otherwise actually
received payment under an insurance policy, agreement, vote or otherwise, of the
amounts otherwise indemnifiable hereunder. All rights to indemnification and
advance of expenses under the Charter of the Corporation and hereunder shall be
deemed to be a contract between the Corporation and each director or officer of
the Corporation who serves or served in such capacity at any time while this
By-Law is in effect. Nothing herein shall prevent the amendment of this By-Law,
provided that no such amendment shall diminish the rights of any person
hereunder with respect to events occurring or claims made before its adoption or
as to claims made after its adoption in respect of events occurring before its
adoption. Any repeal or modification of this By-Law shall not in any way
diminish any rights to indemnification or advance of expenses of such director
or officer or the obligations of the Corporation arising hereunder with respect
to events occurring, or claims made, while this By-Law or any provision hereof
is in force.
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SECTION 7.03. SEVERABILITY; DEFINITIONS. The invalidity or
unenforceability of any provision of this Article VII shall not affect the
validity or enforceability of any other provision hereof. The phrase "this
By-Law" in this Article VII means this Article VII in its entirety.
ARTICLE VIII
SUNDRY PROVISIONS
SECTION 8.01. BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of its accounts and transactions and minutes of the
proceedings of its stockholders and Board of Directors and of any executive or
other committee when exercising any of the powers of the Board of Directors. The
books and records of a Corporation may be in written form or in any other form
which can be converted within a reasonable time into written form for visual
inspection. Minutes shall be recorded in written form but may be maintained in
the form of a reproduction. The original or a certified copy of the By-laws
shall be kept at the principal office of the Corporation.
SECTION 8.02. CORPORATE SEAL. The Board of Directors shall provide a
suitable seal, bearing the name of the Corporation, which shall be in the charge
of the Secretary. The Board of Directors may authorize one or more duplicate
seals and provide for the custody thereof. If the Corporation is required to
place its corporate seal to a document, it is sufficient to meet the requirement
of any law, rule, or regulation relating to a corporate seal to place the word
"Seal" adjacent to the signature of the person authorized to sign the document
on behalf of the Corporation.
SECTION 8.03. BONDS. The Board of Directors may require any officer,
agent or employee of the Corporation to give a bond to the Corporation,
conditioned upon the faithful discharge of his duties, with one or more sureties
and in such amount as may be satisfactory to the Board of Directors.
SECTION 8.04. VOTING UPON SHARES IN OTHER CORPORATIONS. Stock of other
corporations or associations, registered in the name of the Corporation, may be
voted by the President, a Vice-President, or a proxy appointed by either of
them. The Board of Directors, however, may by resolution appoint some other
person to vote such shares, in which case such person shall be entitled to vote
such shares upon the production of a certified copy of such resolution.
SECTION 8.05. MAIL. Any notice or other document which is required by
these By-laws to be mailed shall be deposited in the United States mails,
postage prepaid.
SECTION 8.06. EXECUTION OF DOCUMENTS. A person who holds more than one
office in the Corporation may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer.
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SECTION 8.07. VOTING RIGHTS OF CERTAIN CONTROL SHARES. The Corporation
elects to be subject to the provisions of Section 3-702 of Subtitle 6 of the
Corporations and Associations Article of the Annotated Code of Maryland,
PROVIDED, HOWEVER, that such section will not apply to the voting rights of
shares of stock held by a person, as of February 4, 2000, who was an interested
stock holder, as that term is defined in Section 3-602 of Subtitle 6 of the
Corporations and Associations Article of the Annotated Code of Maryland, or an
affiliate of such person.
SECTION 8.08. AMENDMENTS. These By-laws may be amended, altered or
repealed and new By-laws may be adopted by a majority vote of the Board of
Directors at any regular or special meeting held in accordance with the
provisions of these By-laws.
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Exhibit 10.1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the 17th day of
January, 1995, by and between Sky Alland Research, Inc., a Maryland corporation
(the "Company"), and Richard T. Hebert (the "Employee").
W I T N E S S E T H:
The Company desires to employ the Employee and the Employee is willing to accept
such employment with the Company on the terms and subject to the conditions and
limitations contained i this Agreement. Accordingly, in consideration of the
mutual promises and covenants contained in this Agreement, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment with the Company on the terms and conditions
set forth in this Agreement.
2.. DUTIES. The Employee shall perform, under the direction of the Board of
Directors the duties of President and CEO for the Company, which duties
shall include the management and supervision of the Company and duties
as are consistent with this position as may be assigned or delegated
from time to time by the Board of Directors of the Company. The
Employee agrees to be so employed and shall devote his best efforts and
substantially all of his business time to advance the interests of the
Company, subject to reasonable vacations compatible with his position.
The Employee shall perform his duties hereunder in compliance with all
Company policies applicable thereto.
3. EMPLOYMENT TERMS. The term of the Employee's employment hereunder (the
Employment Term") shall commence as of the date hereof and, unless
extended by the terms of this Paragraph 3 or otherwise modified by
separate agreement
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signed by all parties hereto, or terminated as otherwise provided
herein, shall terminate on December 31, 1995. The term of the
Employee's employment shall be renewed and extended automatically for
additional one-year periods thereafter (each, an "Extended Employment
Term"), until terminated pursuant to Paragraph 6 hereof. Paragraphs 8,
9, and 10 shall continue in force in accordance with provisions
therein and shall survive the expiration of the Employment Term and
each Extended Employment Term.
4. COMPENSATION. During the Employment Term and each Extended Employment
Term under this Agreement, the Employee shall be paid his entire
compensation for services performed under this Agreement as follows:
a. SALARY. The Employee shall receive a salary ("Salary") paid
at a rate of $12,500 per month, which shall be reviewed at
least annually by the Board of Directors and adjusted at
their discretion. In no event shall the Employee's Salary
be less than $150,000 per year. The Salary shall be paid in
such increments as are established by the Company, but in
no event less frequently than once per calendar month.
b. INCENTIVE COMPENSATION. The Employee may be paid an
incentive compensation ("Incentive Compensation") in
addition to his Salary, including cash awards and stock
options, as awarded at the discretion of the Board of
Directors of the Company in recognition of exceptional
performance.
5. OTHER BENEFITS.
a. In addition to the compensation set forth in Paragraph 4, the
Company shall provide for the Employee, during the Employment
Term and each Extended Employment Term, the following benefits:
(i) payment of premiums for a medical insurance plan
covering the Employee, including hospitalization, major
medical, dental and prescriptions, and payment of the
premiums for his dependents for
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inclusion in such medical insurance plan, in such
amounts which the Company will pay on behalf of its
other management officials, if at all;
(ii) assuming underwriting is obtained, disability insurance
equal to 75% of base wage will be provided;
(iii) the same or similar leave or absence from work on
account of personal illness as is the policy of the
Company to grant to other management officials;
(iv) 4 weeks of vacation per each calendar year. It is the
intention of the parties that the Employee take all
vacation allotted to him within the calendar year for
which the vacation is awarded, consistent with his
duties and the demands on his time made from the
ongoing operation of the Company's business. Should the
Employee not take all of the allotted days of vacation
in a given calendar year which he is entitled to take,
he will lose that vacation time and will not be
entitled either to carry over the unused vacation to
succeeding years or to receive payment in respect of
such unused vacation; and
(v) a term life insurance policy in the face amount of
$500,000. which shall name such other persons as
beneficiaries of all of the proceeds of the policy as
the Employee may, in his sole discretion, name from
time to time in writing to the carrier providing the
policy;
b. REIMBURSEMENT FOR REASONABLE BUSINESS EXPENSES. The Company
shall reimburse the Employee for reasonable, ordinary and
necessary expenses, as defined by the Company's policy, incurred
by him in connection with the performance of his duties pursuant
to this Agreement.
6. TERMINATION OF EMPLOYMENT
a. TERMINATION UPON DEATH OR DISABILITY. The Employee's employment
and this Agreement shall terminate immediately upon the Employee's
death or upon the certification by a duly licensed physician that
the Employee is mentally or physically incapable of performing his
duties hereunder. He, or his estate or
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heirs, as the case may be, shall be entitled to receive his rights
vested as of the date of such termination, prorated to that date,
and, in the case to termination on account of disability, he, or
his estate or heirs, as the case may be, shall be entitled to
receive disability benefits as provided under Paragraph 5a(ii), if
any.
b. TERMINATION FOR CAUSE. At any time during the Employment Term or
any Extended Employment Term hereunder, the Company shall be
entitled to terminate the Employee's employment for Cause. Such
Termination for Cause shall be effective immediately following
the delivery by the Company to the Employee of a written notice
thereof specifying the Cause. For this purpose, "Cause" shall
mean: (i) fraud or embezzlement by the Employee in the course of
employment; (ii) conviction of a felony or of any crime involving
moral turpitude; or (iii) willful misconduct or gross negligence
in the performance of his duties hereunder. In the event of such
termination, the Company shall pay the Employee his Salary
through the date of such termination.
c. TERMINATION WITHOUT CAUSE. Effective at any time on or after six
months from the date hereof during the Employment Term, or at any
rime during any Extended Employment Term, the Company may
terminate the Employee's employment without Cause upon not less
than 60 days prior written notice thereof by the Company to the
Employee. In the event of termination without Cause, the Employee
shall be entitled to receive his Salary through the effective
date of such termination and the Employee shall be entitled to
any incentive Compensation accrued or owed as of the date of such
termination, pro rated through the effective date of such
termination. In the event that the Employee shall accept any
other employment following the termination of his employment
hereunder, the amount of the compensation otherwise payable to
him hereunder shall be reduced by all compensation payable to him
on account of such other employment.
7. DISCOVERIES. The Employee will promptly disclose to the Company each
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improvement, discovery, development, idea, and invention, whether
patentable or not, directly or indirectly relating to the business or
products of the Company, made or conceived, in whole or in part, by the
Employee while employed by the Company (whether or not during Company
working hours). Each such improvement, discovery, development, idea,
and invention shall be the sole and exclusive property of, and is
hereby assigned to, the Company.
8. COMPETITION. For a period of two years following the last payment of
Salary the Employee shell receive or be entitled to receive under this
Agreement, the Employee will not, without the prior written consent of
the Company, solicit or engage directly or indirectly in any business
or activity (either financially or as a shareholder, employee,
officer, partner. independent contractor, consultant, advisor or
owner, or in any other capacity, including, but not limited to, any
capacity calling for the making of any investment or rendition of
personal services or acts of management, operation or control) which
is competitive with the "Company Business" within the geographic area
in which any such Company Business is now being conducted by the
Company. For purposes of this Agreement, the term "Company Business"
shall mean the business of providing customer management services,
including but not limited to telephone follow-up services and
computerized database management.
9. CONFIDENTIALITY. The Employee agrees not to divulge, furnish or make
accessible to any person or entity, and to keep strictly and
absolutely confidential during the initial Employment Term, each
Extended Employment Term, if any, and forever thereafter, any
confidential or secret aspect of the business of the Company or any
related company, including, but not limited to, the finances, trade
secrets, customers, customer lists, suppliers, supplier lists, sales
or distribution agents and representatives, sales or distribution
agent and representative lists, methods, arts
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or processes, and the business plans and marketing strategies of the
Company. All records, files, drawings, documents, models, equipment,
computer software and the like relating to the business of the Company
which the Employee shall prepare or use or come into contact with
shall remain the sole property of the Company.
10. INJUNCTIVE RELIEF. The Employee acknowledges that his compliance with
his agreements in Paragraphs 8 end 9 is necessary to protect the
goodwill and other proprietary interests of the Company. The Employee
acknowledges that a breach of his agreements in Paragraphs 8 or 9 will
result in irreparable and continuing damage to the Company and the
business of the Company for which there will be no adequate remedy at
law, and agrees that, in the event of any breach of the aforesaid
agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as
may be proper.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the Employee's employment by the Company and
supersedes any prior agreements between them, whether oral or written.
12. AMENDMENTS. Any amendment to this Agreement shall be made in writing
and signed by both parties hereto.
13. ENFORCEABILITY. If any provision of this Agreement shall be found by a
court with proper jurisdiction to be invalid or unenforceable, in whole
or in part, then such provision shall be deemed to be modified,
narrowed, or restricted only to the limited extent and in the manner
necessary to render the same valid and enforceable, as the case may
require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law as if such provision had been
originally incorporated herein as so modified, narrowed, or restricted.
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14. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
assignable to the successors of the business of the Company. This
Agreement is personal to the Employee and may not be assigned by him.
15. WAIVERS. A waiver by one party of any breach of or failure to comply
with any provision of this Agreement by the other party shall not be
construed as a waiver of any other provision, or a waiver of a breach
of any other provision, of this Agreement.
16. NOTICES. Unless otherwise notified in writing to the contrary, any
notice required or permitted by the terms hereof shall be effectively
delivered for all purposes if delivered personally, upon delivery, or
if mailed, upon deposit in the United States mail, registered or
certified, postage prepaid, and if directed to the Company at its
principal business office and in the case of the Employee, to his
address appearing on the records of the Company, or to such other
address as he may designate in writing to the Company.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto to be
effective on the date first above written.
Sky Alland Research, Inc. Accepted
/s/ Richard M. Berkeley /s/ Richard T. Hebert
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Chairman of the Compensation Committee Richard T. Hebert
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Exhibit 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the 16th day of
August 1999, by and between Sky Alland Research, Inc., d/b/a Sky Alland, a
Maryland corporation (the "Company"), and Raymond J. Zukowski (the "Employee").
W I T N E S S E T H:
The Company desires to employ the Employee and the Employee is willing to accept
such employment with the Company on the terms and subject to the conditions and
limitations contained in this Agreement. Accordingly, in consideration of the
mutual promises and covenants contained in this Agreement, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment with the Company on the terms and conditions set
forth in this Agreement.
2. DUTIES. The Employee shall perform, under the direction of the Chief
Executive Officer, the duties of Chief Operating Officer for the Company.
The Employee agrees to be so employed and shall devote his best efforts
and substantially all of his business time to advance the interests of the
Company, subject to reasonable vacations compatible with his position. The
Employee shall perform his duties hereunder in compliance with all Company
policies applicable thereto.
3. EMPLOYMENT TERM. The term of the Employee's employment hereunder (the
"Employment Term") shall commence as of the date hereof and, unless
extended by the terms of this Paragraph 3 or otherwise modified by
separate agreement signed by all parties hereto, or terminated as
otherwise provided herein, shall terminate on August 16, 2000. The term of
the Employee's employment shall be renewed and extended automatically for
additional one-year periods thereafter (each, an "Extended Employment
Term"), until terminated pursuant to Paragraph 6 hereof. Paragraphs 8, 9,
and 10 shall continue in force in accordance with provisions therein and
shall survive the expiration of the Employment Term and each Extended
Employment Term.
<PAGE>
4. COMPENSATION. During the Employment Term and each Extended Employment Term
under this Agreement, the Employee shall be paid his entire compensation
for services performed under this Agreement as follows:
a. SALARY. The Employee shall receive a salary ("Salary") paid at a
rate of $210,000.00 annually, which shall be reviewed at least
annually by the Board of Directors and adjusted by the Board of
Directors in its sole discretion. The Salary shall be paid in such
increments as are established by the Company, but in no event less
frequently than once per calendar month.
b. SIGNING BONUS. The Employee shall receive a one-time signing bonus
in the amount of $25,000. If the Employee terminates his employment
with the Company prior to August 16, 2000, he agrees to reimburse
the Company for the full amount of the signing bonus. The Employee
authorizes the Company to withhold the appropriate amount of
reimbursement from his final salary payments. If that withholding is
insufficient to make full reimbursement, the Employee agrees to
repay within 60 days of ceasing employment with the Company, any
amount still due to the Company. The Employee further agrees to pay
all reasonable costs, including reasonable legal fees, incurred by
the Company as a result of any failure to repay the signing bonus.
c. INCENTIVE COMPENSATION. With respect to the first year of
employment, the Employee shall be entitled to a cash bonus of 25% of
annual salary ($52,500 based on initial salary) if the following
conditions are met: (1) the Company meets its budgets; and (2) the
Employee meets specific individual performance objectives, set by
the Chief Executive Officer and agreed to by the Employee, by the
end of the Employee's first year of employment. The Employee's bonus
for succeeding employment years will be established based upon
mutual agreement between the Employee and the Chief Executive
Officer of the Company.
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d. STOCK OPTIONS. The Employee shall receive, in accordance with
the Company's Employee Stock Option Plan and subject to the
approval of the Board, an initial grant to purchase 110,000
shares of the Company's stock at $8.00 per share. Twenty percent
of the options will vest upon hire. The remaining options will
vest on the Employee's employment anniversary date at the rate
of 20% of the total grant per year for the next four years.
5. OTHER BENEFITS.
a. In addition to the compensation set forth in Paragraph 4, the
Company shall provide for the Employee, during the Employment
Term and each Extended Employment Term, the following benefits:
(i) payment of premiums for a medical insurance plan covering
the Employee, including hospitalization, major medical,
dental and prescriptions, and payment of the premiums for
his dependents for inclusion in such medical insurance plan,
in such amounts which the Company will pay on behalf of its
other management officials, if at all;
(ii) disability and life insurance, if any, upon the same terms
and conditions which the Company will grant to other
management officials, if at all;
(iii) the same or similar leave or absence from work on account
of personal illness as is the policy of the Company to grant
to other management officials;
(iv) such number of days of vacation per each calendar year as
the Company grants to other management officials, or such
greater number of days of vacation as may be determined in
the discretion of the Chief Executive Officer. It is the
intention of the parties that the Employee take all vacation
allotted to him within the calendar year for which the
vacation is awarded, consistent with his duties and the
demands on his time made from the ongoing operation of the
Company's business. Should the Employee not take all of the
allotted days of vacation in a given calendar year which he
is entitled to take, he will lose that vacation time and
will not be entitled either to carry over the unused
vacation to succeeding years or to receive payment in
respect of such unused vacation; and
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b. REIMBURSEMENT FOR REASONABLE BUSINESS EXPENSES. The Company shall
reimburse the Employee for reasonable ordinary and necessary expenses
incurred by him in connection with the performance of his duties
pursuant to this Agreement.
c. REIMBURSEMENT FOR RELOCATION EXPENSES. The Company shall pay the costs
of the Employee's relocation to Maryland. The Company expects the
Employee to make reasonable efforts to obtain the lowest possible cost
relocation services. The Company's payment of such expenses is
conditioned upon its approval of the relocation arrangements. The
Company will pay directly the relocation expenses that are not
considered compensation, as provided in the relevant tax law. For other
costs, the reimbursement of which will be considered compensation, the
Company will reimburse the Employee the amounts necessary to cover the
expenses as well as the income tax due on such payments. If the
Employee terminates his employment with the Company prior to August 16,
2000, he agrees to reimburse the Company for the full amount of all
relocation expense payments the Company has made, including both direct
payments to service providers and reimbursement payments to the
Employee. The Employee authorizes the Company to withhold the
appropriate amount of reimbursement from his final salary payments. If
that withholding is insufficient to make full reimbursement, the
Employee agrees to repay within 60 days of ceasing employment with the
Company, any amount still due to the Company. The Employee further
agrees to pay all reasonable costs, including reasonable legal fees,
incurred by the Company as a result of any failure to repay the
relocation cost payments.
6. TERMINATION OF EMPLOYMENT.
a. TERMINATION UPON DEATH OR DISABILITY. The Employee's employment and
this Agreement shall terminate immediately upon the Employee's death or
upon the certification by a duly licensed physician that the Employee
is mentally or physically incapable of performing his duties hereunder.
He, or his estate or heirs, as the case may be, shall be entitled to
receive his rights vested as of the date of such termination, prorated
to that date, and, in the case of termination on account of disability,
he, or his
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estate or heirs, as the case may be, shall be entitled to receive
disability benefits as provided under Paragraph 5a(ii), if any.
b. TERMINATION FOR CAUSE. At any time during the Employment Term or any
Extended Employment Term hereunder, the Company shall be entitled to
terminate the Employee's employment for Cause. Such Termination for
Cause shall be effective immediately following the delivery by the
Company to the Employee of a written notice thereof specifying the
Cause. For this purpose, "Cause" shall mean: (i) fraud or embezzlement
by the Employee in the course of employment; (ii) conviction of a
felony or of any crime involving moral turpitude; or (iii) willful
misconduct or gross negligence in the performance of his duties
hereunder. In the event of such termination, the Company shall pay the
Employee his Salary through the date of such termination plus one
week's severance for each month of employment not to exceed 24 weeks,
and the Employee on account of such termination shall automatically be
divested of any Incentive Compensation accruing or owed as of the date
of such termination.
c. TERMINATION WITHOUT CAUSE. Effective at any time from the date hereof
during the Employment Term, or at any time during any Extended
Employment Term, the Company may terminate the Employee's employment
without Cause. In the event of Termination without Cause, the Employee
shall be entitled to receive his Salary through the date of
termination, plus one week's severance for each month, or partial
month, of employment, not to exceed 24 weeks, and with a minimum of 12
weeks, and the Employee shall be entitled to any incentive compensation
earned and accrued as of the date of such termination, pro rated
through the effective date of such termination. During the period of
severance, Company shall continue to provide all benefits to the
Employee that the Employee had been entitled to prior to Termination
(defined in section 5 of this agreement), and continue to pay for such
benefits at the same rate as before. Specifically, this is to include
medical and other such benefits as is typically provided to senior
management. In addition to the severance compensation, Employee shall
be entitled to receive compensation at his standard pay rate for any
unused but accrued vacation days through the date of termination.
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7. DISCOVERIES. The Employee will promptly disclose to the Company each
improvement, discovery, development, idea, and invention, whether
patentable or not, directly or indirectly relating to the business or
products of the Company, made or conceived, in whole or in part, by the
Employee while employed by the Company (whether or not during Company
working hours) if such improvement, discovery, development, idea, or
invention directly or indirectly then results from or was suggested by
such employment, in whole or in part. Each such improvement, discovery,
development, idea, and invention shall be the sole and exclusive
property of, and is hereby assigned to, the Company.
8. COMPETITION. For the period of one year following the last day of his
employment, or for the entire period during which Employee receives
salary or severance compensation under this Agreement, whichever period
is longer, the Employee will not, without prior written consent of the
Company, solicit or engage directly or indirectly in any business or
activity, whether as an employee, officer, director, shareholder,
partner, member, independent contractor, consultant, advisor, owner, or
in any other capacity, including, but not limited to, any capacity
calling for the making of any investment or rendition of personal
services or acts of management, operation, or control, that is
competitive with the Company Business within the geographic area in
which any such Company Business is now being conducted by the Company.
The parties agree that the Company Business is currently being
conducted in the United States and Canada. For purposes of this
Agreement, the term "Company Business" shall mean the business of
providing integrated customer management services, including, but not
limited to, outsourced telephone and Internet marketing and customer
service, enhanced by computerized database management and analysis.
9. CONFIDENTIALITY. The Employee agrees not to divulge, furnish or make
accessible to any person or entity, and to keep strictly and absolutely
confidential during the initial Employment Term, each Extended
Employment Term, if any, and forever thereafter, any confidential or
secret aspect of the business of the Company or any related company,
including, but not limited to, the finances, trade secrets, customers,
customer lists, suppliers, supplier lists, sales or distribution agents
and representatives, sales or
6
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distribution agent and representative lists, methods, arts or
processes, and the business plans and marketing strategies of the
Company. All records, files, drawings, documents, models, equipment,
computer software and the like relating to the business of the Company
which the Employee shall prepare or use or come into contact with shall
remain the sole property of the Company.
10. INJUNCTIVE RELIEF. The Employee acknowledges that his compliance with
his agreements in Paragraphs 8 and 9 is necessary to protect the
goodwill and other proprietary interests of the Company. The Employee
acknowledges that a breach of his agreements in Paragraphs 8 or 9 will
result in irreparable and continuing damage to the Company and the
business of the Company for which there will be no adequate remedy at
law, and agrees that, in the event of any breach of the aforesaid
agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as
may be proper.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the Employee's employment by the Company and
supersedes any prior agreements between them, whether oral or written.
12. AMENDMENTS. Any amendment to this Agreement shall be made in writing
and signed by both parties hereto.
13. ENFORCEABILITY. If any provision of this Agreement shall be found by a
court with proper jurisdiction to be invalid or unenforceable, in whole
or in part, then such provision shall be deemed to be modified,
narrowed, or restricted only to the limited extent and in the manner
necessary to render the same valid and enforceable, as the case may
require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law as if such provision had been
originally incorporated herein as so modified, narrowed, or restricted.
14. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
assignable to the
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successors of the business of the Company. This Agreement is personal
to the Employee and may not be assigned by him.
15. WAIVERS. A waiver by one party of any breach of or failure to comply
with any provision of this Agreement by the other party shall not be
construed as a waiver of any other provision, or a waiver of a breach
of any other provision, of this Agreement.
16. NOTICES. Unless otherwise notified in writing to the contrary, any
notice required or permitted by the terms hereof shall be effectively
delivered for all purposes if delivered personally, upon delivery, or
if mailed, upon deposit in the United States mail, registered or
certified, postage prepaid, and if directed to the Company at its
principal business office and in the case of the Employee, to his
address appearing on the records of the Company, or to such other
address as he may designate in writing to the Company.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto to be
effective on the date first above written.
Sky Alland Research, Inc.
d/b/a Sky Alland
By: /s/ Richard T. Hebert /s/ Raymond J. Zukowski
------------------------- -------------------------
Richard T. Hebert Raymond J. Zukowski
Chief Executive Officer Employee
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Exhibit 10.3
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the 15th day of
March 1999, by and between Sky Alland Research, Inc., d/b/a Sky Alland, a
Maryland corporation (the "Company"), and Bradley H. Steer (the "Employee").
W I T N E S S E T H:
The Company desires to employ the Employee and the Employee is willing to accept
such employment with the Company on the terms and subject to the conditions and
limitations contained in this Agreement. Accordingly, in consideration of the
mutual promises and covenants contained in this Agreement, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment with the Company on the terms and conditions
set forth in this Agreement.
2. DUTIES. The Employee shall perform, under the direction of the Chief
Executive Officer, the duties of Senior Vice President of Sales for the
Company. The Employee agrees to be so employed and shall devote his
best efforts and substantially all of his business time to advance the
interests of the Company, subject to reasonable vacations compatible
with his position. The Employee shall perform his duties hereunder in
compliance with all Company policies applicable thereto.
3. EMPLOYMENT TERM. The term of the Employee's employment hereunder (the
"Employment Term") shall commence as of the date hereof and,
unless extended by the terms of this Paragraph 3 or otherwise
modified by separate agreement signed by all parties hereto, or
terminated as otherwise provided herein, shall terminate on March 15,
2000. The term of the Employee's employment shall be renewed and
extended automatically for additional one-year periods thereafter
(each, an "Extended Employment Term"), until terminated pursuant to
Paragraph 6 hereof. Paragraphs 8, 9, and 10 shall continue in force in
accordance with provisions therein and shall survive the expiration of
the Employment Term and each Extended Employment Term.
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4. COMPENSATION. During the Employment Term and each Extended Employment
Term under this Agreement, the Employee shall be paid his entire
compensation for services performed under this Agreement as follows:
a. SALARY. The Employee shall receive a salary ("Salary") paid
at a rate of $150,000.00 annually, which shall be reviewed
at least annually by the Board of Directors and adjusted by
the Board of Directors in its sole discretion. The Salary
shall be paid in such increments as are established by the
Company, but in no event less frequently than once per
calendar month.
b. INCENTIVE COMPENSATION. The Employee will have the ability
to earn annual incentive compensation. The Employee will be
entitled to a $37,500 cash bonus (25% of annual base wage)
if, a) SKY records at least $25MM in FY 1999 revenue, and b)
at the end of one year employment, specific individual
performance objectives set by the Chief Executive Officer
and agreed to by the Employee, have been met. In accordance
with Sky Alland's Employee Stock Option Plan and subject to
Board approval, the Employee will receive an initial grant
to purchase 56,000 shares of Sky Alland stock at $8.00 per
share.
In addition, the Employee will be entitled to revenue-based
incentive payments according to the following schedule of
revenue targets and commensurate payouts for FY 1999:
- ------------------------------------------ ------------------------------------
REVENUE TARGET ANNUAL PAYMENT
- ------------------------------------------ ------------------------------------
Less than @26.8MM - 0-
- ------------------------------------------ ------------------------------------
$26.8MM - $28.3MM $60,000.00
- ------------------------------------------ ------------------------------------
$28.4MM - $29.9MM $85,000.00
- ------------------------------------------ ------------------------------------
$30.0MM - $31.5MM $112,500.00
- ------------------------------------------ ------------------------------------
$31.6MM - $33.1MM $150,000.00
- ------------------------------------------ ------------------------------------
$33.2MM - $34.7MM $190,000.00
- ------------------------------------------ ------------------------------------
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<PAGE>
The Company will guarantee (at the $60,000.00 level) the
revenue-based incentive for the first six months' of the
Employee's initial employment term, and will pay it
quarterly. The Company will continue to pay the
revenue-based incentive quarterly (at the $60,000.00 level)
provided the Company's revenues are at least meeting its
"worst case" budget scenario -- for FY 1999 this is $26.8MM
of revenue, with $5,017MM earned in Q1, $6,443MM in Q2,
$7,618MM in Q3 and $7,733 in Q4.
5. OTHER BENEFITS.
a. In addition to the compensation set forth in Paragraph 4, the
Company shall provide for the Employee, during the Employment Term
and each Extended Employment Term, the following benefits:
(i) payment of premiums for a medical insurance plan
covering the Employee, including hospitalization, major
medical, dental and prescriptions, and payment of the
premiums for his dependents for inclusion in such
medical insurance plan, in such amounts which the
Company will pay on behalf of its other management
officials, if at all;
(ii) disability and life insurance, if any, upon the same
terms and conditions which the Company will grant to
other management officials, if at all;
(iii) the same or similar leave or absence from work on
account of personal illness as is the policy of the
Company to grant to other management officials;
(iv) such number of days of vacation per each calendar year
as the Company grants to other management officials, or
such greater number of days of vacation as may be
determined in the discretion of the Chief Executive
Officer. It is the intention of the parties that the
Employee take all vacation allotted to him within the
calendar year for which the vacation is awarded,
consistent with his duties and the demands on his time
made from the ongoing operation of the Company's
business. Should the Employee not take all of the
allotted days of vacation in a given calendar year
which he is entitled to take, he will lose that
vacation time and will not be entitled either to carry
over the unused vacation to succeeding years or to
receive payment in respect of such unused vacation; and
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<PAGE>
b. REIMBURSEMENT FOR REASONABLE BUSINESS EXPENSES. The Company shall
reimburse the Employee for reasonable ordinary and necessary
expenses incurred by him in connection with the performance of his
duties pursuant to this Agreement.
6. TERMINATION OF EMPLOYMENT.
a. TERMINATION UPON DEATH OR DISABILITY. The Employee's employment
and this Agreement shall terminate immediately upon the Employee's
death or upon the certification by a duly licensed physician that
the Employee is mentally or physically incapable of performing his
duties hereunder. He, or his estate or heirs, as the case may be,
shall be entitled to receive his rights vested as of the date of
such termination, prorated to that date, and, in the case of
termination on account of disability, he, or his estate or heirs,
as the case may be, shall be entitled to receive disability
benefits as provided under Paragraph 5a(ii), if any.
b. TERMINATION FOR CAUSE. At any time during the Employment Term or
any Extended Employment Term hereunder, the Company shall be
entitled to terminate the Employee's employment for Cause. Such
Termination for Cause shall be effective immediately following the
delivery by the Company to the Employee of a written notice
thereof specifying the Cause. For this purpose, "Cause" shall
mean: (i) fraud or embezzlement by the Employee in the course of
employment; (ii) conviction of a felony or of any crime involving
moral turpitude; or (iii) willful misconduct or gross negligence
in the performance of his duties hereunder. In the event of such
termination, the Company shall pay the Employee his Salary through
the date of such termination plus one week's severance for each
month of employment not to exceed 24 weeks, and the Employee on
account of such termination shall automatically be divested of any
Incentive Compensation accruing or owed as of the date of such
termination.
c. TERMINATION WITHOUT CAUSE. Effective at any time from the date
hereof during the Employment Term, or at any time during any
Extended Employment Term, the Company may terminate the Employee's
employment without Cause. In the event of Termination without
Cause, the Employee shall be entitled to receive his Salary
through the date of
4
<PAGE>
termination, plus one week's severance for each month, or partial
month, of employment, not to exceed 24 weeks, and with a minimum
of 12 weeks, and the Employee shall be entitled to any incentive
compensation earned and accrued as of the date of such
termination, pro rated through the effective date of such
termination. During the period of severance, Company shall
continue to provide all benefits to the Employee that the Employee
had been entitled to prior to Termination (defined in section 5 of
this agreement), and continue to pay for such benefits at the same
rate as before. Specifically, this is to include medical and other
such benefits as is typically provided to senior management. In
addition to the severance compensation, Employee shall be entitled
to receive compensation at his standard pay rate for any unused
but accrued vacation days through the date of termination.
7. DISCOVERIES. The Employee will promptly disclose to the Company each
improvement, discovery, development, idea, and invention, whether
patentable or not, directly or indirectly relating to the business or
products of the Company, made or conceived, in whole or in part, by the
Employee while employed by the Company (whether or not during Company
working hours) if such improvement, discovery, development, idea, or
invention directly or indirectly then results from or was suggested by
such employment, in whole or in part. Each such improvement, discovery,
development, idea, and invention shall be the sole and exclusive
property of, and is hereby assigned to, the Company.
8. COMPETITION. For the period following the last day of employment, and
for the entire time in which Employee shall receive Salary or Severance
compensation under this Agreement the Employee will not, without the
prior written consent of the Company, solicit or engage directly or
indirectly in any business or activity (either financially or as a
shareholder, employee, officer, partner, independent contractor,
consultant, advisor or owner, or in any other capacity, including, but
not limited to, any capacity calling for the making of any investment
or rendition of personal services or acts of management, operation or
control) which is competitive with the "Company Business" within the
geographic area in which any such Company Business is now being
conducted by the Company. For purposes of the Agreement, the term
"Company Business" shall mean the business of providing integrated
customer management services,
5
<PAGE>
including but not limited to outsourced telephone and Internet
marketing and customer service, enhanced by computerized database
management and analysis.
9. CONFIDENTIALITY. The Employee agrees not to divulge, furnish or make
accessible to any person or entity, and to keep strictly and absolutely
confidential during the initial Employment Term, each Extended
Employment Term, if any, and forever thereafter, any confidential or
secret aspect of the business of the Company or any related company,
including, but not limited to, the finances, trade secrets, customers,
customer lists, suppliers, supplier lists, sales or distribution agents
and representatives, sales or distribution agent and representative
lists, methods, arts or processes, and the business plans and marketing
strategies of the Company. All records, files, drawings, documents,
models, equipment, computer software and the like relating to the
business of the Company which the Employee shall prepare or use or come
into contact with shall remain the sole property of the Company.
10. INJUNCTIVE RELIEF. The Employee acknowledges that his compliance with
his agreements in Paragraphs 8 and 9 is necessary to protect the
goodwill and other proprietary interests of the Company. The Employee
acknowledges that a breach of his agreements in Paragraphs 8 or 9 will
result in irreparable and continuing damage to the Company and the
business of the Company for which there will be no adequate remedy at
law, and agrees that, in the event of any breach of the aforesaid
agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as
may be proper.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the Employee's employment by the Company and
supersedes any prior agreements between them, whether oral or written.
12. AMENDMENTS. Any amendment to this Agreement shall be made in writing
and signed by both parties hereto.
13. ENFORCEABILITY. If any provision of this Agreement shall be found by a
court with proper jurisdiction to be invalid or unenforceable, in whole
or in part, then such provision shall be
6
<PAGE>
deemed to be modified, narrowed, or restricted only to the limited
extent and in the manner necessary to render the same valid and
enforceable, as the case may require, and this Agreement shall be
construed and enforced to the maximum extent permitted by law as if
such provision had been originally incorporated herein as so modified,
narrowed, or restricted.
14. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
assignable to the successors of the business of the Company. This
Agreement is personal to the Employee and may not be assigned by him.
15. WAIVERS. A waiver by one party of any breach of or failure to comply
with any provision of this Agreement by the other party shall not be
construed as a waiver of any other provision, or a waiver of a breach
of any other provision, of this Agreement.
16. NOTICES. Unless otherwise notified in writing to the contrary, any
notice required or permitted by the terms hereof shall be effectively
delivered for all purposes if delivered personally, upon delivery, or
if mailed, upon deposit in the United States mail, registered or
certified, postage prepaid, and if directed to the Company at its
principal business office and in the case of the Employee, to his
address appearing on the records of the Company, or to such other
address as he may designate in writing to the Company.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto to be
effective on the date first above written.
Sky Alland Research, Inc.
d/b/a Sky Alland
By:/s/ Richard T. Hebert /s/ Bradley H. Steer
---------------------------- -------------------------
Richard T. Hebert Bradley H. Steer
Chief Executive Officer Employee
7
<PAGE>
Exhibit 10.4
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made effective as of the 16th day of
March, 1998, by and between Sky Alland Research, Inc., d/b/a Sky Alland
Marketing a Maryland corporation (the "Company"), and Steven G. Krumenaker (the
"Employee").
W I T N E S S E T H:
The Company desires to employ the Employee and the Employee is willing to accept
such employment with the Company on the terms and subject to the conditions and
limitations contained in this Agreement. Accordingly, in consideration of the
mutual promises and covenants contained in this Agreement, the parties agree as
follows:
1. EMPLOYMENT. The Company hereby employs the Employee and the Employee
hereby accepts employment with the Company on the terms and conditions
set forth in this Agreement.
2. DUTIES. The Employee shall perform, under the direction of the
President and the Board of Directors, the duties of Senior Vice
President and General Manager of the Database Technologies Unit for the
Company. The Employee agrees to be so employed and shall devote his
best efforts and substantially all of his business time to advance the
interests of the Company, subject to reasonable vacations compatible
with his position. The Employee shall perform his duties hereunder in
compliance with all Company policies applicable thereto.
3. EMPLOYMENT TERM. The term of the Employee's employment hereunder (the
"Employment Term") shall commence as of the date hereof and, unless
extended by the terms of this Paragraph 3 or otherwise modified by
separate agreement signed by all parties hereto, or terminated as
otherwise provided herein, shall terminate on March 16, 1999. The term
of the Employee's employment shall be renewed and extended
automatically for additional one-year periods thereafter (each, an
"Extended Employment Term"), until terminated pursuant to Paragraph 6
hereof. Paragraphs 8, 9, and 10 shall continue in force in accordance
with
1
<PAGE>
provisions therein and shall survive the expiration of the Employment
Term and each Extended Employment Term.
4. COMPENSATION. During the Employment Term and each Extended Employment
Term under this Agreement, the Employee shall be paid his entire
compensation for services performed under this Agreement as follows:
a. SALARY. The Employee shall receive a salary ("Salary") paid at
a rate of $12,500 per month, which shall be reviewed at least
annually by the Board of Directors and adjusted by the Board
of Directors in its sole discretion. The Salary shall be paid
in such increments as are established by the Company, but in
no event less frequently than once per calendar month.
b. INCENTIVE COMPENSATION. The Employee will have the ability to
earn a first year success fee of $15k based on accomplishing
mutually agreed upon objectives for the Database Unit. The
Employee will participate in the executive bonus plan, which
will enable him to earn up to 25% of his 1998 base pay if the
Company achieves its 1998 objectives. In accordance with Sky
Alland's Employee Stock Option Plan and subject to Board
approval, the Employee will receive 40,000 options at the
"current market" exercise price of S6.00 per share.
5. OTHER BENEFITS.
a. In addition to the compensation set forth in Paragraph 4. the
Company shall provide for the Employee, during the Employment Term
and each Extended Employment Term, the following benefits:
(i) payment of premiums for a medical insurance plan
covering the Employee, including hospitalization, major
medical, dental and prescriptions, and payment of the
premiums for his dependents for inclusion in such
medical insurance plan, in such amounts which the
Company will pay on behalf of its other management
officials, if at all;
2
<PAGE>
(ii) disability and life insurance, if any, upon the same
terms and conditions which the Company will grant to
other management officials, if at all;
(iii) the same or similar leave or absence from work on
account of personal illness as is the policy of the
Company to grant to other management officials;
(iv) such number of days of vacation per each calendar year
as the Company grants to other management officials, or
such greater number of days of vacation as may be
determined in the discretion of the Board of Directors.
It is the intention of the parties that the Employee
take all vacation allotted to him within the calendar
year for which the vacation is awarded, consistent with
his duties and the demands on his time made from the
ongoing operation of the Company's business. Should the
Employee not take all of the allotted days of vacation
in a given calendar year which he is entitled to take,
he will lose that vacation time and will not be entitled
either to carry over the unused vacation to succeeding
years or to receive payment in respect of such unused
vacation; and
b. REIMBURSEMENT FOR REASONABLE BUSINESS EXPENSES. The Company shall
reimburse the Employee for reasonable ordinary and necessary
expenses incurred by him in connection with the performance of his
duties pursuant to this Agreement.
6. TERMINATION OF EMPLOYMENT.
a. TERMINATION UPON DEATH OR DISABILITY. The Employee's employment
and this Agreement shall terminate immediately upon the Employee's
death or upon the certification by a duly licensed physician that
the Employee is mentally or physically incapable of performing his
duties hereunder. He, or his estate or heirs, as the case may be,
shall be entitled to receive his rights vested as of the date of
such termination, prorated to that date, and, in the case of
termination on account of disability, he, or his estate or heirs,
as the case may be, shall be entitled to receive disability
benefits as provided under Paragraph 5a(ii), if any.
b. TERMINATION FOR CAUSE. At any time during the Employment Term or
any Extended Employment Term hereunder, the Company shall be
entitled to terminate the Employee's
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employment for Cause. Such Termination for Cause shall be
effective immediately following the delivery by the Company to the
Employee of a written notice thereof specifying the Cause. For
this purpose, "Cause" shall mean: (i) fraud or embezzlement by the
Employee in the course of employment; (ii) conviction of a felony
or of any crime involving moral turpitude; or (iii) willful
misconduct or gross negligence in the performance of his duties
hereunder. In the event of such termination, the Company shall pay
the Employee his Salary through the date of such termination plus
one week's severance for each month of employment not to exceed 24
weeks, and the Employee on account of such termination shall
automatically be divested of any Incentive Compensation accruing
or owed as of the date of such termination.
c. TERMINATION WITHOUT CAUSE. Effective at any time from the date
hereof during the Employment Term, or at any time during any
Extended Employment Term, the Company may terminate the Employee's
employment without Cause. In the event of Termination without
Cause, the Employee shall be entitled to receive his Salary
through the date of termination, plus one week's severance for
each month, or partial month, of employment, not to exceed 24
weeks, and with a minimum of 12 weeks, and the Employee shall be
entitled to any incentive compensation earned and accrued as of
the date of such termination, pro rated through the effective date
of such termination. During the period of severance, Company shall
continue to provide all benefits to the Employee that the Employee
had been entitled to prior to Termination (defined in section 5 of
this agreement), and continue to pay for such benefits at the same
rate as before. Specifically, this is to include medical and other
such benefits as is typically provided to senior management. In
addition to the severance compensation, Employee shall be entitled
to receive compensation at his standard pay rate for any unused
but accrued vacation days through the date of termination.
In the event that Termination without Cause is due to the Company
shutting down either the Database Unit or the Company's New Jersey
Office, and that Company and Employee can not come to an agreement
as to duties following such a closure, the severance shall be set
at 24 weeks, regardless of the number of weeks otherwise accrued
in this section.
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<PAGE>
7. DISCOVERIES. The Employee will promptly disclose to the Company each
improvement, discovery, development, idea, and invention, whether
patentable or not, directly or indirectly relating to the business or
products of the Company, made or conceived, in whole or in part, by the
Employee while employed by the Company (whether or not during Company
working hours) if such improvement, discovery, development, idea, or
invention directly or indirectly then results from or was suggested by
such employment, in whole or in part. Each such improvement, discovery,
development, idea, and invention shall be the sole and exclusive
property of, and is hereby assigned to, the Company.
8. COMPETITION. For the period following the last day of employment, and
for the entire time in which Employee shall receive Salary or Severance
compensation under this Agreement (except if Severance is a result of
shutting either the New Jersey Office or the Database Unit, as
described in section 5c), the Employee will not, without the prior
written consent of the Company, solicit or engage directly or
indirectly in any business or activity (either financially or as a
shareholder, employee, officer, partner, independent contractor,
consultant, advisor or owner, or in any other capacity, including, but
not limited to, any capacity calling for the making of any investment
or rendition of personal services or acts of management, operation or
control) which is competitive with the "Company Business" within the
geographic area in which any such Company Business is now being
conducted by the Company. For purposes of the Agreement, the term
Company Business" shall mean the business of providing integrated
customer management services, including but not limited to outsourced
telephone and Internet marketing and customer service, enhanced by
computerized database management.
9. CONFIDENTIALITY. The Employee agrees not to divulge, furnish or make
accessible to any person or entity, and to keep strictly and absolutely
confidential during the initial Employment Term, each Extended
Employment Term, if any, and forever thereafter, any confidential or
secret aspect of the business of the Company or any related company,
including, but not limited to, the finances, trade secrets, customers,
customer lists, suppliers, supplier lists, sales or
5
<PAGE>
distribution agents and representatives, sales or distribution agent
and representative lists, methods, arts or processes, and the business
plans and marketing strategies of the Company. All records, files,
drawings, documents, models, equipment, computer software and the like
relating to the business of the Company which the Employee shall
prepare or use or come into contact with shall remain the sole property
of the Company.
10. INJUNCTIVE RELIEF. The Employee acknowledges that his compliance with
his agreements in Paragraphs 8 and 9 is necessary to protect the
goodwill and other proprietary interests of the Company. The Employee
acknowledges that a breach of his agreements in Paragraphs 8 or 9 will
result in irreparable and continuing damage to the Company and the
business of the Company for which there will be no adequate remedy at
law, and agrees that, in the event of any breach of the aforesaid
agreements, the Company and its successors and assigns shall be
entitled to injunctive relief and to such other and further relief as
may be proper.
11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the
parties with respect to the Employee's employment by the Company and
supersedes any prior agreements between them, whether oral or written.
12. AMENDMENTS. Any amendment to this Agreement shall be made in writing
and signed by both parties hereto.
13. ENFORCEABILITY. If any provision of this Agreement shall be found by a
court with proper jurisdiction to be invalid or unenforceable, in whole
or in part, then such provision shall be deemed to be modified,
narrowed, or restricted only to the limited extent and in the manner
necessary to render the same valid and enforceable, as the case may
require, and this Agreement shall be construed and enforced to the
maximum extent permitted by law as if such provision had been
originally incorporated herein as so modified, narrowed, or restricted.
14. SUCCESSORS. This Agreement shall inure to the benefit of and shall be
assignable to the successors of the business of the Company. This
Agreement is personal to the Employee and
6
<PAGE>
may not be assigned by him.
15. WAIVERS. A waiver by one party of any breach of or failure to comply
with any provision of this Agreement by the other party shall not be
construed as a waiver of any other provision, or a waiver of a breach
of any other provision, of this Agreement.
16. NOTICES. Unless otherwise notified in writing to the contrary, any
notice required or permitted by the terms hereof shall be effectively
delivered for all purposes if delivered personally, upon delivery, or
if mailed, upon deposit in the United States mail, registered or
certified, postage prepaid, and if directed to the Company' at its
principal business office and in the case of the Employee, to his
address appearing on the records of the Company, or to such other
address as he may designate in writing to the Company.
17. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto to be
effective on the date first above written.
Sky Alland Research, Inc.
d/b/a Sky Alland Marketing
By:/s/ Richard T. Hebert
-------------------------
Richard T. Hebert
Chief Executive
/s/ Steven G. Krumenaker
---------------------------
Steven G. Krumenaker
7
<PAGE>
Exhibit 10.5
ISKY, INC.
AMENDED AND RESTATED STOCK INCENTIVE PLAN
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
iSky, Inc., a Maryland corporation, formerly Sky Alland Research, Inc.
(the "Company"), hereby amends and restates the Sky Alland Research, Inc.
Amended and Restated Stock Incentive Plan as set forth herein (the "Plan"). The
purpose of the Plan is to promote the long-term growth and profitability of the
Company by (i) providing key people with incentives to improve stockholder value
and to contribute to the growth and financial success of the Company, and (ii)
enabling the Company to attract, retain and reward the best-available persons.
The Plan permits the granting of stock options (including incentive
stock options qualifying under Code section 422 and nonqualified stock options),
stock appreciation rights, restricted or unrestricted stock awards, phantom
stock, performance awards, other stock-based awards, or any combination of the
foregoing.
2. DEFINITIONS
Under this Plan, except where the context otherwise indicates, the
following definitions apply:
(a) "AFFILIATE" shall mean any entity, whether now or hereafter
existing, which controls, is controlled by, or is under common control with, the
Company (including, but not limited to, joint ventures, limited liability
companies, and partnerships). For this purpose, "control" shall mean ownership
of 50% or more of the total combined voting power or value of all classes of
stock or interests of the entity.
(b) "AWARD" shall mean any stock option, stock appreciation right,
stock award, phantom stock award, performance award, or other stock-based award.
(c) "BOARD" shall mean the Board of Directors of the Company.
(d) "CODE" shall mean the Internal Revenue Code of 1986, as amended,
and any regulations promulgated thereunder.
(e) "COMMON STOCK" shall mean shares of common stock of the Company,
par value of $0.01 per share.
(f) "FAIR MARKET VALUE" shall mean, with respect to a share of the
Company's Common Stock for any purpose on a particular date, the value
determined by the Administrator in good faith. However, if the Common Stock is
registered under Section 12(b) of the Securities Exchange Act of 1934, as
amended, "FAIR MARKET VALUE" shall mean, as applicable, (i) either the closing
price or the average of the high and low sale price on the relevant date, as
determined in the Administrator's discretion, quoted on the New York Stock
Exchange, the American Stock Exchange, or the Nasdaq National Market; (ii) the
last sale price on the relevant date quoted on the Nasdaq SmallCap Market; (iii)
the average of the high bid and low asked prices on the relevant date quoted on
the Nasdaq OTC Bulletin Board Service or by the National Quotation Bureau, Inc.
or a comparable service as determined in the Administrator's discretion; or (iv)
if the Common Stock is not quoted by any of the above, the average of the
closing bid and asked prices on the relevant date furnished by a professional
market maker for the Common Stock, or by such other source, selected by the
Administrator. If no
<PAGE>
public trading of the Common Stock occurs on the relevant date, then Fair Market
Value shall be determined as of the next preceding date on which trading of the
Common Stock does occur. For all purposes under this Plan, the term "relevant
date" as used in this Section 2.1(f) shall mean either the date as of which Fair
Market Value is to be determined or the next preceding date on which public
trading of the Common Stock occurs, as determined in the Administrator's
discretion.
(g) "GRANT AGREEMENT" shall mean a written document memorializing the
terms and conditions of an Award granted pursuant to the Plan and shall
incorporate the terms of the Plan.
3. ADMINISTRATION
(a) ADMINISTRATION OF THE PLAN. The Plan shall be administered by the
Board or by such committee or committees as may be appointed by the Board from
time to time (the Board, committee or committees hereinafter referred to as the
"Administrator").
(b) POWERS OF THE ADMINISTRATOR. The Administrator shall have all the
powers vested in it by the terms of the Plan, such powers to include authority,
in its sole and absolute discretion, to grant Awards under the Plan, prescribe
Grant Agreements evidencing such Awards and establish programs for granting
Awards.
The Administrator shall have full power and authority to take all other
actions necessary to carry out the purpose and intent of the Plan, including,
but not limited to, the authority to: (i) determine the eligible persons to
whom, and the time or times at which Awards shall be granted; (ii) determine the
types of Awards to be granted; (iii) determine the number of shares to be
covered by or used for reference purposes for each Award; (iv) impose such
terms, limitations, restrictions and conditions upon any such Award as the
Administrator shall deem appropriate; (v) modify, amend, extend or renew
outstanding Awards, or accept the surrender of outstanding Awards and substitute
new Awards (provided however, that, except as provided in Section 7(d) of the
Plan, any modification that would materially adversely affect any outstanding
Award shall not be made without the consent of the holder); (vi) accelerate or
otherwise change the time in which an Award may be exercised or becomes payable
and to waive or accelerate the lapse, in whole or in part, of any restriction or
condition with respect to such Award, including, but not limited to, any
restriction or condition with respect to the vesting or exercisability of an
Award following termination of any grantee's employment or other relationship
with the Company; and (vii) establish objectives and conditions, if any, for
earning Awards and determining whether Awards will be paid after the end of a
performance period.
The Administrator shall have full power and authority, in its sole and
absolute discretion, to administer and interpret the Plan and to adopt and
interpret such rules, regulations, agreements, guidelines and instruments for
the administration of the Plan and for the conduct of its business as the
Administrator deems necessary or advisable.
(c) NON-UNIFORM DETERMINATIONS. The Administrator's determinations
under the Plan (including without limitation, determinations of the persons to
receive Awards, the form, amount and timing of such Awards, the terms and
provisions of such Awards and the Grant Agreements evidencing such Awards) need
not be uniform and may be made by the Administrator selectively among persons
who receive, or are eligible to receive, Awards under the Plan, whether or not
such persons are similarly situated.
(d) LIMITED LIABILITY. To the maximum extent permitted by law, no
member of the Administrator shall be liable for any action taken or decision
made in good faith relating to the Plan or any Award thereunder.
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<PAGE>
(e) INDEMNIFICATION. To the maximum extent permitted by law and by the
Company's charter and by-laws, the members of the Administrator shall be
indemnified by the Company in respect of all their activities under the Plan.
(f) EFFECT OF ADMINISTRATOR'S DECISION. All actions taken and decisions
and determinations made by the Administrator on all matters relating to the Plan
pursuant to the powers vested in it hereunder shall be in the Administrator's
sole and absolute discretion and shall be conclusive and binding on all parties
concerned, including the Company, its stockholders, any participants in the Plan
and any other employee, [consultant,] or director of the Company, and their
respective successors in interest.
4. SHARES AVAILABLE FOR THE PLAN; MAXIMUM AWARDS
Subject to adjustments as provided in Section 7(d) of the Plan, the
shares of Common Stock that may be issued with respect to Awards granted under
the Plan shall not exceed an aggregate of 3,877,519 shares. The Company shall
reserve such number of shares for Awards under the Plan, subject to adjustments
as provided in Section 7(d) of the Plan. If any Award, or portion of an Award,
under the Plan expires or terminates unexercised, becomes unexercisable or is
forfeited or otherwise terminated, surrendered or canceled as to any shares, or
if any shares of Common Stock are surrendered to the Company in connection with
any Award (whether or not such surrendered shares were acquired pursuant to any
Award), or if any shares are withheld by the Company, the shares subject to such
Award and the surrendered and withheld shares shall thereafter be available for
further Awards under the Plan; provided, however, that any such shares that are
surrendered to or withheld by the Company in connection with any Award or that
are otherwise forfeited after issuance shall not be available for purchase
pursuant to incentive stock options intended to qualify under Code section 422.
5. PARTICIPATION
Participation in the Plan shall be open to all employees, officers, and
directors of the Company, or of any Affiliate of the Company, as may be selected
by the Administrator from time to time.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement. The Administrator may permit or require a
recipient of an Award to defer such individual's receipt of the payment of cash
or the delivery of Common Stock that would otherwise be due to such individual
by virtue of the exercise of, payment of, or lapse or waiver of restrictions
respecting, any Award. If any such payment deferral is required or permitted,
the Administrator shall, in its sole discretion, establish rules and procedures
for such payment deferrals.
(a) STOCK OPTIONS. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the Company
or of any current or hereafter existing "parent corporation" or "subsidiary
corporation," as defined in Code sections 424(e) and (f), respectively, of the
Company. Options intended to qualify as incentive stock options under Code
section 422 must have an exercise price at least equal to Fair Market Value as
of the date of grant, but nonqualified stock options may be granted with an
exercise price less than Fair Market Value. No stock option shall be an
incentive stock option unless so designated by the Administrator at the time of
grant or in the Grant Agreement evidencing such stock option.
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<PAGE>
(b) STOCK APPRECIATION RIGHTS. The Administrator may from time to time
grant to eligible participants Awards of Stock Appreciation Rights ("SAR"). An
SAR entitles the grantee to receive, subject to the provisions of the Plan and
the Grant Agreement, a payment having an aggregate value equal to the product of
(i) the excess of (A) the Fair Market Value on the exercise date of one share of
Common Stock over (B) the base price per share specified in the Grant Agreement,
times (ii) the number of shares specified by the SAR, or portion thereof, which
is exercised. Payment by the Company of the amount receivable upon any exercise
of an SAR may be made by the delivery of Common Stock or cash, or any
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator. If upon settlement of the exercise of an SAR a grantee is to
receive a portion of such payment in shares of Common Stock, the number of
shares shall be determined by dividing such portion by the Fair Market Value of
a share of Common Stock on the exercise date. No fractional shares shall be used
for such payment and the Administrator shall determine whether cash shall be
given in lieu of such fractional shares or whether such fractional shares shall
be eliminated.
(c) STOCK AWARDS. The Administrator may from time to time grant
restricted or unrestricted stock Awards to eligible participants in such
amounts, on such terms and conditions, and for such consideration, including no
consideration or such minimum consideration as may be required by law, as it
shall determine. A stock Award may be paid in Common Stock, in cash, or in a
combination of Common Stock and cash, as determined in the sole discretion of
the Administrator.
(d) PHANTOM STOCK. The Administrator may from time to time grant Awards
to eligible participants denominated in stock-equivalent units ("phantom stock")
in such amounts and on such terms and conditions as it shall determine. Phantom
stock units granted to a participant shall be credited to a bookkeeping reserve
account solely for accounting purposes and shall not require a segregation of
any of the Company's assets. An Award of phantom stock may be settled in Common
Stock, in cash, or in a combination of Common Stock and cash, as determined in
the sole discretion of the Administrator. Except as otherwise provided in the
applicable Grant Agreement, the grantee shall not have the rights of a
stockholder with respect to any shares of Common Stock represented by a phantom
stock unit solely as a result of the grant of a phantom stock unit to the
grantee.
(e) PERFORMANCE AWARDS. The Administrator may, in its discretion, grant
performance awards which become payable on account of attainment of one or more
performance goals established by the Administrator. Performance awards may be
paid by the delivery of Common Stock or cash, or any combination of Common Stock
and cash, as determined in the sole discretion of the Administrator. Performance
goals established by the Administrator may be based on the Company's or an
Affiliate's operating income or one or more other business criteria selected by
the Administrator that apply to an individual or group of individuals, a
business unit, or the Company or an Affiliate as a whole, over such performance
period as the Administrator may designate.
(f) OTHER STOCK-BASED AWARDS. The Administrator may from time to time
grant other stock-based awards to eligible participants in such amounts, on such
terms and conditions, and for such consideration, including no consideration or
such minimum consideration as may be required by law, as it shall determine.
Other stock-based awards may be denominated in cash, in Common Stock or other
securities, in stock-equivalent units, in stock appreciation units, in
securities or debentures convertible into Common Stock, or in any combination of
the foregoing and may be paid in Common Stock or other securities, in cash, or
in a combination of Common Stock or other securities and cash, all as determined
in the sole discretion of the Administrator.
7. MISCELLANEOUS
(a) WITHHOLDING OF TAXES. Grantees and holders of Awards shall pay to
the Company or its Affiliate, or make provision satisfactory to the
Administrator for payment of, any taxes required to be withheld
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<PAGE>
in respect of Awards under the Plan no later than the date of the event creating
the tax liability. The Company or its Affiliate may, to the extent permitted by
law, deduct any such tax obligations from any payment of any kind otherwise due
to the grantee or holder of an Award. In the event that payment to the Company
or its Affiliate of such tax obligations is made in shares of Common Stock, such
shares shall be valued at Fair Market Value on the applicable date for such
purposes.
(b) LOANS. The Company or its Affiliate may make or guarantee loans to
grantees to assist grantees in exercising Awards and satisfying any withholding
tax obligations.
(c) TRANSFERABILITY. Except as otherwise determined by the
Administrator, and in any event in the case of an incentive stock option or a
stock appreciation right granted with respect to an incentive stock option, no
Award granted under the Plan shall be transferable by a grantee otherwise than
by will or the laws of descent and distribution. Unless otherwise determined by
the Administrator in accord with the provisions of the immediately preceding
sentence, an Award may be exercised during the lifetime of the grantee, only by
the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) ADJUSTMENTS; BUSINESS COMBINATIONS.
(i) Upon a stock dividend of, or stock split or reverse stock
split affecting, the Common Stock of the Company, (A) the maximum number of
shares reserved for issuance or with respect to which Awards may be granted
under the Plan and the maximum number of shares with respect to which Awards may
be granted during any one fiscal year of the Company to any individual, as
provided in Section 4 of the Plan, and (B) the number of shares covered by and
the exercise price and other terms of outstanding Awards, shall, without further
action of the Board, be adjusted to reflect such event unless the Board
determines, at the time it approves such stock dividend, stock split or reverse
stock split, that no such adjustment shall be made. The Administrator may make
adjustments, in its discretion, to address the treatment of fractional shares
and fractional cents that arise with respect to outstanding Awards as a result
of the stock dividend, stock split or reverse stock split.
(ii) In the event of any other changes affecting the Company,
the capitalization of the Company or the Common Stock of the Company by reason
of any spin-off, split-up, dividend, recapitalization, merger, consolidation,
business combination or exchange of shares and the like, the Administrator, in
its discretion and without the consent of holders of Awards, shall make: (A)
appropriate adjustments to the maximum number and kind of shares reserved for
issuance or with respect to which Awards may be granted under the Plan, in the
aggregate and with respect to any individual during any one fiscal year of the
Company, as provided in Section 4 of the Plan, and to the number, kind and price
of shares covered by outstanding Awards; and (B) any other adjustments in
outstanding Awards, including but not limited to reducing the number of shares
subject to Awards or providing or mandating alternative settlement methods such
as settlement of the Awards in cash or in shares of Common Stock or other
securities of the Company or of any other entity, or in any other matters which
relate to Awards as the Administrator shall, in its sole discretion, determine
to be necessary or appropriate.
(iii) Notwithstanding anything in the Plan to the contrary and
without the consent of holders of Awards, the Administrator, in its sole
discretion, may make any modifications to any Awards, including but not limited
to cancellation, forfeiture, surrender or other termination of the Awards in
whole or in part regardless of the vested status of the Award, in order to
facilitate any business combination that is authorized by the Board to comply
with requirements for treatment as a pooling of interests transaction for
accounting purposes under generally accepted accounting principles.
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(iv) The Administrator is authorized to make, in its
discretion and without the consent of holders of Awards, adjustments in the
terms and conditions of, and the criteria included in, Awards in recognition of
unusual or nonrecurring events affecting the Company, or the financial
statements of the Company or any Affiliate, or of changes in applicable laws,
regulations, or accounting principles, whenever the Administrator determines
that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Plan and outstanding Awards.
(e) SUBSTITUTION OF AWARDS IN MERGERS AND ACQUISITIONS. Awards may be
granted under the Plan from time to time in substitution for Awards held by
employees, officers, consultants or directors of entities who become or are
about to become employees, officers, consultants or directors of the Company or
an Affiliate as the result of a merger or consolidation of the employing entity
with the Company or an Affiliate, or the acquisition by the Company or an
Affiliate of the assets or stock of the employing entity. The terms and
conditions of any substitute Awards so granted may vary from the terms and
conditions set forth herein to the extent that the Administrator deems
appropriate at the time of grant to conform the substitute Awards to the
provisions of the awards for which they are substituted.
(f) TERMINATION, AMENDMENT AND MODIFICATION OF THE PLAN. The Board may
terminate, amend or modify the Plan or any portion thereof at any time.
(g) NON-GUARANTEE OF EMPLOYMENT OR SERVICE. Nothing in the Plan or in
any Grant Agreement thereunder shall confer any right on an individual to
continue in the service of the Company or shall interfere in any way with the
right of the Company to terminate such service at any time with or without cause
or notice.
(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company and a grantee or any other person. To
the extent that any grantee or other person acquires a right to receive payments
from the Company pursuant to an Award, such right shall be no greater than the
right of any unsecured general creditor of the Company.
(i) GOVERNING LAW. The validity, construction and effect of the Plan,
of Grant Agreements entered into pursuant to the Plan, and of any rules,
regulations, determinations or decisions made by the Administrator relating to
the Plan or such Grant Agreements, and the rights of any and all persons having
or claiming to have any interest therein or thereunder, shall be determined
exclusively in accordance with applicable federal laws and the laws of the State
of Maryland, without regard to its conflict of laws principles.
(j) EFFECTIVE DATE; TERMINATION DATE. The Plan is effective as of the
date on which the Plan is adopted by the Board, subject to approval of the
stockholders within twelve months before or after such date. No Award shall be
granted under the Plan after the close of business on the day immediately
preceding the tenth anniversary of the effective date of the Plan, or if
earlier, the tenth anniversary of the date this Plan is approved by the
stockholders. Subject to other applicable provisions of the Plan, all Awards
made under the Plan prior to such termination of the Plan shall remain in effect
until such Awards have been satisfied or terminated in accordance with the Plan
and the terms of such Awards.
Date Approved by the Board: February 4, 2000
---------------------------------
Date Approved by the Stockholders: February 4, 2000
---------------------------
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APPENDIX A
PROVISIONS FOR CALIFORNIA RESIDENTS
With respect to Awards granted to California residents prior to a public
offering of capital stock of the Company that is effected pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933 and only to the extent
required by applicable law, the following sections shall be substituted for the
sections set forth in the Plan:
1. ESTABLISHMENT, PURPOSE AND TYPES OF AWARDS
iSky, Inc., a Maryland corporation (the "Company"), hereby amends and
restates the Sky Alland Research, Inc. Amended and Restated Stock Incentive Plan
(the "Plan"). The purpose of the Plan is to promote the long-term growth and
profitability of the Company by (i) providing key people with incentives to
improve stockholder value and to contribute to the growth and financial success
of the Company, and (ii) enabling the Company to attract, retain and reward the
best-available persons. The Plan is intended to be a written compensatory
benefit plan within the meaning of Rule 701 promulgated under the Securities Act
of 1933, as amended.
The Plan permits the granting of stock options (including incentive
stock options qualifying under Code section 422 and nonqualified stock options),
restricted or unrestricted stock awards or any combination of the foregoing.
6. AWARDS
The Administrator, in its sole discretion, establishes the terms of all
Awards granted under the Plan. Awards may be granted individually or in tandem
with other types of Awards. All Awards are subject to the terms and conditions
provided in the Grant Agreement.
(a) STOCK OPTIONS. The Administrator may from time to time grant to
eligible participants Awards of incentive stock options as that term is defined
in Code section 422 or nonqualified stock options; provided, however, that
Awards of incentive stock options shall be limited to employees of the Company
or of any Parent or Subsidiary of the Company. No stock option shall be an
incentive stock option unless so designated by the Administrator at the time of
grant or in the Grant Agreement evidencing such stock option.
(i) EXERCISE PRICE. Options intended to qualify as incentive
stock options under Code section 422 must have an exercise price at least equal
to Fair Market Value on the date of grant; PROVIDED, HOWEVER, THAT the exercise
price of any incentive stock option granted to a person who directly or by
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Parent or Subsidiary of the
Company (a "Ten Percent Stockholder") must not be less than one hundred ten
percent (110%) of the Fair Market Value on the date of grant. The exercise price
of a nonqualified stock option granted to anyone other than a Ten Percent
Stockholder must not be less than eighty-five percent (85%) of the Fair Market
Value on the date of grant, and the exercise price of a nonqualified stock
option granted to a Ten Percent Stockholder must not be less than one hundred
ten percent (110%) of the Fair Market Value on the date of grant.
(ii) EXERCISE PERIOD. No option will be exercisable after the
expiration of ten (10) years from the date the option is granted. Subject to
earlier termination of the option as provided herein, each optionee who is not
an officer, director or consultant of the Company or of a Parent or Subsidiary
of the Company shall have
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the right to exercise an option granted hereunder at the rate of no less than
twenty percent (20%) per year over five (5) years from the date such option is
granted.
(b) STOCK AWARDS. The Administrator may from time to time grant
restricted or unrestricted stock Awards to eligible participants in such amounts
and on such terms and conditions as it shall determine. The purchase price of
shares sold pursuant to a restricted or unrestricted stock Award shall be at
least eighty-five percent (85%) of the Fair Market Value on the date of grant or
at the time the purchase is consummated; provided, however, that the purchase
price of shares sold to a Ten Percent Stockholder must be at least one hundred
percent (100%) of the Fair Market Value on the date of grant or at the time the
purchase is consummated.
7. MISCELLANEOUS
(a) [SAME AS PLAN]
(b) [SAME AS PLAN]
(c) TRANSFERABILITY. No Award granted under the Plan shall be
transferable by a grantee otherwise than by will or the laws of descent and
distribution. An Award may be exercised during the lifetime of the grantee, only
by the grantee or, during the period the grantee is under a legal disability, by
the grantee's guardian or legal representative.
(d) [SAME AS PLAN]
(e) [SAME AS PLAN]
(f) [SAME AS PLAN]
(g) [SAME AS PLAN]
(h) [SAME AS PLAN]
(i) COMPLIANCE WITH SECURITIES LAWS; LISTING AND REGISTRATION. This
Plan is intended to comply with Section 25102(o) of the California Corporations
Code. Any provision of this Plan which is inconsistent with Section 25102(o),
including without limitation any provision of this Plan that is more restrictive
than would be permitted by Section 25102(o) as amended from time to time, shall,
without further act or amendment by the Administrator, be reformed to comply
with the requirements of Section 25102(o). If at any time the Administrator
determines that the delivery of Common Stock under the Plan is or may be
unlawful under the laws of any applicable jurisdiction, or federal or state
securities laws, the right to exercise an Award or receive shares of Common
Stock pursuant to an Award shall be suspended until the Administrator determines
that such delivery is lawful. The Company shall have no obligation to effect any
registration or qualification of the Common Stock under federal or state laws.
The Company may require that a grantee, as a condition to exercise of
an Award, and as a condition to the delivery of any share certificate, make such
written representations (including representations to the effect that such
person will not dispose of the Common Stock so acquired in violation of federal
or state securities laws) and furnish such information as may, in the opinion of
counsel for the Company, be appropriate to permit the Company to issue the
Common Stock in compliance with applicable federal and state securities laws.
The stock certificates for any shares of Common Stock issued pursuant to this
Plan may bear a legend restricting
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transferability of the shares of Common Stock unless such shares are registered
or an exemption from registration is available under the Securities Act of 1933,
as amended, and applicable state securities laws.
(j) [SAME AS PLAN]
(k) [SAME AS PLAN]
(l) [SAME AS PLAN]
(m) FINANCIAL STATEMENTS. The Company will provide financial statements
to each Award recipient annually during the period such individual has Awards
outstanding, or as otherwise required under Section 260.140.46 of Title 10 of
the California Code of Regulations. Notwithstanding the foregoing, the Company
will not be required to provide such financial statements to Award recipients
when issuance is limited to key employees whose services in connection with the
Company assure them access to equivalent information.
(n) VOTING RIGHTS. The Company will comply with Section 260.140.1 of
Title 10 of the California Code of Regulations with respect to the voting rights
of Common Stock.
8. TERMINATION OF EMPLOYMENT OR SERVICE.
(a) EXERCISE PERIOD FOLLOWING CESSATION OF EMPLOYMENT OR SERVICE, IN
GENERAL. If an optionee's employment or other service relationship with the
Company is terminated voluntarily by the optionee for any reason (excluding
death or total and permanent disability (as defined in Section 8(b) below)), (i)
the optionee's stock options granted hereunder shall terminate immediately upon
such cessation of relationship to the extent of any unvested shares and (ii) the
optionee's stock options granted hereunder shall be exercisable during the
30-day period, or such longer period as may be specified in the relevant grant
agreement, following such cessation of relationship with respect to any vested
shares, but in no event after the expiration date. Unless sooner terminated,
stock options granted hereunder shall terminate upon the expiration of such
30-day or longer-specified period, as applicable.
If the optionee's employment or other service relationship with the
Company is terminated involuntarily by the Company for any reason other than
death, total and permanent disability (as defined in Section 8(b) below) or
discharge for "Cause" (as defined in Section 8(d) below), (i) the optionee's
stock options granted hereunder shall terminate immediately upon such cessation
of relationship to the extent of any unvested shares and (ii) the optionee's
stock options granted hereunder shall be exercisable during the 90-day period,
or such longer period as may be specified in the relevant grant agreement,
following such cessation of relationship with respect to any vested shares, but
in no event after the expiration date. Unless sooner terminated, stock options
granted hereunder shall terminate upon the expiration of such 90-day or
longer-specified period, as applicable.
(b) DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section
8(a) above, if the optionee ceases his employment or other service relationship
with the Company as a result of his or her total and permanent disability, (i)
the optionee's stock options granted hereunder shall terminate immediately upon
such cessation to the extent of any unvested shares and (ii) the optionee's
stock options granted hereunder shall be exercisable during the 180-day period,
or such longer period as may be specified in the relevant grant agreement,
following such cessation with respect to any vested shares, but in no event
after the expiration date. Unless sooner terminated, stock options granted
hereunder shall terminate upon the expiration of such 180-day or
longer-specified period, as applicable.
For purposes of this Plan, "total and permanent disability"
shall mean the inability to engage in any substantial gainful activity by reason
of any medically determinable physical or mental impairment which
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can be expected to result in death or which has lasted or can be expected to
last for a continuous period of not less than twelve months. The Administrator
may require such proof of total and permanent disability as the Administrator in
its sole discretion deems appropriate and the Administrator's good faith
determination as to whether the optionee is totally and permanently disabled
shall be final and binding on all parties concerned.
(c) DEATH OF OPTIONEE. If the optionee dies prior to the expiration
date or other termination of a stock option granted hereunder, (i) the
optionee's stock options granted hereunder shall terminate immediately upon the
optionee's death to the extent of any unvested shares and (ii) the optionee's
stock options granted hereunder shall be exercisable during the one-year period
following the death of the optionee with respect to any vested shares, but in no
event after the expiration date, by the optionee's executor, personal
representative, or the person(s) to whom the option is transferred by will or
the laws of descent and distribution. Unless sooner terminated, the optionee's
stock options granted hereunder shall terminate upon the expiration of such
one-year period.
(d) CAUSE. Notwithstanding anything to the contrary herein, an
optionee's stock options granted hereunder shall terminate in their entirety,
regardless of whether such options are vested in whole or in part, immediately
upon the optionee's discharge of employment or other service relationship by the
Company for Cause. For purposes of this Agreement, if the optionee is a party to
a written employment agreement or other service agreement with the Company which
contains a definition of "cause", "termination for cause" or any other similar
term or phrase, whether the optionee is terminated for Cause pursuant to this
Section 8 shall be determined according to the terms of and in a manner
consistent with the provisions of such written agreement. If the optionee is not
party to such a written employment agreement or other service agreement with the
Company, then for purposes of this Section 8, "Cause" shall mean (i) conviction
of, or plea of nolo contendere to, a felony or crime involving moral turpitude;
(ii) fraud on or misappropriation of any funds or property of the Company; (iii)
personal dishonesty, incompetence, willful misconduct, willful violation of any
law, rule or regulation (other than minor traffic violations or similar
offenses) or breach of fiduciary duty which involves personal profit; (iv)
willful misconduct in connection with the optionee's duties or willful failure
to perform his responsibilities in the best interests of the Company; (v) breach
of any provision of any employment, non-disclosure, non-competition,
non-solicitation or other similar agreement executed by the optionee for the
benefit of the Company. The good faith determination by the Administrator of
whether the optionee's employment or other service relationship was terminated
by the Company for Cause shall be final and binding for all purposes hereunder.
9. COMPANY'S REPURCHASE OPTION.
At the discretion of the Administrator, the Company may reserve to
itself and/or its assignee(s) in the Grant Agreement or Stock Restriction
Agreement a right to repurchase shares held by an Award recipient following such
Award recipient's termination at any time within ninety (90) days after such
Award recipient's termination date (or in the case of securities issued upon
exercise of an option after the termination date, within ninety (90) days after
the date of such exercise) for cash and/or cancellation of purchase money
indebtedness, at: (A) with respect to vested shares, the Fair Market Value of
such shares on the Award recipient's termination date, PROVIDED, that such right
to repurchase vested shares terminates when the Company's securities become
publicly traded; or (B) with respect to unvested shares, the Award recipient's
exercise price, PROVIDED, that to the extent the Award recipient is not an
officer, director or consultant of the Company or of a Parent or Subsidiary of
the Company such right to repurchase unvested shares at the exercise price
lapses at the rate of at least twenty percent (20%) per year over five (5) years
from the date of grant of the option.
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Exhibit 10.6
iSKY, INC.
EMPLOYEE STOCK PURCHASE PLAN
The iSky, Inc. Employee Stock Purchase Plan (the "PLAN") provides
eligible employees of iSky, Inc., Inc., a Delaware corporation (the "COMPANY"),
and certain of its subsidiaries with opportunities to purchase shares of the
Company's Common Stock, $0.01 par value per share (the "COMMON STOCK"). The Plan
is intended to benefit the Company by increasing the employees' interest in the
Company's growth and success and encouraging employees to remain in the employ
of the Company or its participating subsidiaries. The Plan is intended to
constitute an "employee stock purchase plan" within the meaning of section 423
of the Internal Revenue Code of 1986, as amended (the "CODE"), and shall be so
applied and interpreted.
1. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 13, the aggregate number of shares of Common Stock that may be made
available for purchase under the Plan is 1,388,760 shares. The shares purchased
under the Plan may, in the discretion of the Board of Directors of the Company
(the "BOARD"), be authorized but unissued shares of Common Stock, shares
purchased on the open market, or shares from any other proper source.
2. ADMINISTRATION. The Plan is administered by the Board or by a
committee appointed by the Board (the "ADMINISTRATOR"). The Administrator has
authority to interpret the Plan, to make, amend and rescind all rules and
regulations for the administration and operation of the Plan, and to make all
other determinations necessary or desirable in administering and operating the
Plan. All actions taken and decisions and determinations made by the
Administrator pursuant to the powers vested in the Administrator under this Plan
shall be in the Administrator's sole and absolute discretion and shall be
conclusive and binding on all parties concerned. No member of the Administrator
shall be liable for any action or determination made in good faith with respect
to the Plan.
3. ELIGIBILITY. All employees of the Company, including directors who
are employees, and all employees of any subsidiary of the Company (as defined in
Code section 424(f)), now or hereafter existing, that is designated by the
Administrator from time to time as a participating employer under the Plan
("DESIGNATED SUBSIDIARY"), are eligible to participate in the Plan, subject to
such further eligibility requirements as may be specified by the Administrator
consistent with Code section 423.
4. OPTIONS TO PURCHASE COMMON STOCK.
(a) Options ("OPTIONS") are granted pursuant to the Plan to each
eligible employee on the first day on which the National Association of
Securities Dealers Automated Quotation ("NASDAQ") system is open for trading
("TRADING DAY") on or after January 1 of each year commencing on or after the
Effective Date (as defined in Section 18), or such other date coincident with or
after the Effective Date as specified by the Administrator. Each Option
terminates on the last Trading Day of a period specified by the Administrator
(each period, an "OPTION PERIOD"). No Option Period may be longer than 27
months. Unless the Administrator determines otherwise, subsequent Option Periods
of equal duration will follow consecutively thereafter, each commencing on the
first Trading Day after the expiration of the preceding Option Period.
(b) An individual must be employed as an eligible employee by the
Company or a Designated Subsidiary on the first Trading Day of an Option Period
in order to be granted an Option for that Option Period. However, the
Administrator may designate any subsequent Trading Day(s) (each
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such designated Trading Day referred to herein as an "INTERIM TRADING DAY") in
an Option Period upon which Options will be granted to eligible employees who
first commence employment with, or first become eligible employees of, the
Company or a Designated Subsidiary after the first Trading Day of the Option
Period. In such event, the Interim Trading Day shall constitute the first
Trading Day of the Option Period for all Options granted on such day for all
purposes under the Plan.
(c) Each Option represents a right to purchase, on the last Trading Day
of the Option Period or one or more Trading Days within the Option Period
designated by the Administrator (each, including the last Trading Day of the
Option Period, a "PURCHASE DATE"), at the Purchase Price hereinafter provided
for, whole shares of Common Stock up to such maximum number of shares specified
by the Administrator on or before the first day of the Option Period. All
eligible employees granted Options under the Plan for an Option Period shall
have the same rights and privileges with respect to such Options. The purchase
price of each share of Common Stock (the "PURCHASE PRICE") subject to an Option
will be determined by the Administrator, in its discretion, on or before the
beginning of the Option Period; provided, however, that the Purchase Price for
an Option with respect to any Option Period shall never be less than the lesser
of 85 percent of the Fair Market Value of the Common Stock on the (i) first
Trading Day of the Option Period or (ii) the Purchase Date, and shall never be
less than the par value of the Common Stock.
(d) For purposes of the Plan, "FAIR MARKET VALUE" on a Trading Day
means the average of the high and low sale prices per share of Common Stock as
reflected on the principal consolidated transaction reporting system for
securities listed on any national securities exchange or other market quotation
system on which the Common Stock may be principally listed or quoted or, if
there are no transactions on a Trading Day, then such average for the preceding
Trading Day upon which transactions occurred. However, for the Trading Day that
occurs on the date of the initial public offering of the Common Stock, "Fair
Market Value" shall mean the initial offering price of the Common Stock to the
public as indicated in the Company's final prospectus in connection with such
offering and as such price is negotiated between the Company and the managing
underwriters.
(e) No employee shall be granted an Option under this Plan if such
employee, immediately after the Option would otherwise be granted, would own 5%
or more of the total combined voting power or value of the stock of the Company
or any subsidiary. For purposes of the preceding sentence, the attribution rules
of Code section 424(d) will apply in determining the stock ownership of an
employee, and all stock which the employee has a contractual right to purchase
will be treated as stock owned by the employee.
(f) No employee may be granted an Option which permits his rights to
purchase Common Stock under this Plan and all other stock purchase plans of the
Company and its subsidiaries to accrue at a rate which exceeds $25,000 of the
fair market value of such Common Stock (determined at the time such Option is
granted) for each calendar year in which the Option is outstanding at any time,
as required by Code section 423.
5. PAYROLL DEDUCTIONS AND CASH CONTRIBUTIONS.
To facilitate payment of the Purchase Price of Options, the
Administrator, in its discretion, may permit eligible employees to authorize
payroll deductions to be made on each payday during the Option Period, and/or to
contribute cash or cash-equivalents to the Company, up to a maximum amount
determined by the Administrator. The Company will maintain bookkeeping accounts
for all employees who authorize payroll deduction or make cash contributions.
Interest will not be paid on any employee
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accounts, unless the Administrator determines otherwise. The Administrator shall
establish rules and procedures, in its discretion, from time to time regarding
elections to authorize payroll deductions, changes in such elections, timing and
manner of cash contributions, and withdrawals from employee accounts. Amounts
credited to employee accounts as of the Purchase Date will be applied to the
payment of the Purchase Price of outstanding Options pursuant to Section 6
below.
6. EXERCISE OF OPTIONS; PURCHASE OF COMMON STOCK. Options shall be
exercised on the close of business on the Purchase Date. In accordance with
rules established by the Administrator, the Purchase Price of Common Stock
subject to an option shall be paid (i) from funds credited to an eligible
employee's account, (ii) by a broker-assisted cashless exercise in accordance
with Regulation T of the Board of Governors of the Federal Reserve System, or
(iii) by such other method as the Administrator shall determine from time to
time. Options shall be exercised only to the extent the Purchase Price is paid
with respect to whole shares of Common Stock. Any balance remaining in an
employee's account on the Purchase Date after such purchase of Common Stock will
be carried forward automatically into the employee's account for the next
Purchase Date, unless the employee is not an eligible employee with respect to
the next Purchase Date, in which case such amount will be promptly refunded.
7. ISSUANCE OF CERTIFICATES. As soon as practicable following each
Purchase Date, certificates representing shares of Common Stock purchased under
the Plan will be issued only in the name of the employee, in the name of the
employee and another person of legal age as joint tenants with rights of
survivorship, or (in the Administrator's sole discretion) in the street name of
a brokerage firm, bank or other nominee holder designated by the employee or the
Administrator.
8. RIGHTS ON RETIREMENT, DEATH, TERMINATION OF EMPLOYMENT, OR
TERMINATION OF STATUS AS ELIGIBLE EMPLOYEE. In the event of an employee's
termination of employment or termination of status as an eligible employee prior
to the Purchase Date (whether as a result of the employee's voluntary or
involuntary termination, retirement, death or otherwise), any outstanding Option
granted to him will immediately terminate, no further payroll deduction will be
taken from any pay due and owing to the employee and the balance in the
employee's account will be paid to the employee or, in the event of the
employee's death, (a) to the executor or administrator of the employee's estate
or (b) if no such executor or administrator has been appointed to the knowledge
of the Administrator, to such other person(s) as the Administrator may, in its
discretion, designate. If, prior to the Purchase Date, the Designated Subsidiary
by which an employee is employed will cease to be a subsidiary of the Company,
or if the employee is transferred to a subsidiary of the Company that is not a
Designated Subsidiary, the employee will be deemed to have terminated employment
for the purposes of this Plan.
9. OPTIONEES NOT STOCKHOLDERS. Neither the granting of an Option to an
employee nor the deductions from his pay will constitute such employee a
stockholder of the shares of Common Stock covered by an Option under this Plan
until such shares have been purchased by and issued to him.
10. OPTIONS NOT TRANSFERABLE. Options under this Plan are not
transferable by a participating employee other than by will or the laws of
descent and distribution, and are exercisable during the employee's lifetime
only by the employee.
11. WITHHOLDING OF TAXES. To the extent that a participating employee
realizes ordinary income in connection with the purchase, sale or other transfer
of any shares of Common Stock purchased under the Plan or the crediting of
interest to the employee's account, the Company may withhold amounts needed to
cover such taxes from any payments otherwise due and owing to the participating
employee or from shares that would otherwise be issued to the participating
employee hereunder. Any participating
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employee who sells or otherwise transfers shares purchased under the Plan must,
within 30 days of such sale or transfer, notify the Company in writing of the
sale or transfer.
12. APPLICATION OF FUNDS. All funds received or held by the Company
under the Plan may be used for any corporate purpose until applied to the
purchase of Common Stock and/or refunded to participating employees and can be
commingled with other general corporate funds. Participating employees' accounts
will not be segregated.
13. EFFECT OF CHANGES IN CAPITALIZATION.
(a) CHANGES IN STOCK. If the number of outstanding shares of Common
Stock is increased or decreased or the shares of Common Stock are changed into
or exchanged for a different number or kind of shares or other securities of the
Company by reason of any recapitalization, reclassification, stock split,
reverse split, combination of shares, exchange of shares, stock dividend, or
other distribution payable in capital stock, or other increase or decrease in
such shares effected without receipt of consideration by the Company occurring
after the Effective Date of the Plan, the number and kind of shares that may be
purchased under the Plan shall be adjusted proportionately and accordingly by
the Company. In addition, the number and kind of shares for which Options are
outstanding shall be similarly adjusted so that the proportionate interest, if
any, of a participating employee immediately following such event shall, to the
extent practicable, be the same as immediately prior to such event. Any such
adjustment in outstanding Options shall not change the aggregate Purchase Price
payable by a participating employee with respect to shares subject to such
Options, but shall include a corresponding proportionate adjustment in the
Purchase Price per share.
(b) REORGANIZATION IN WHICH THE COMPANY IS THE SURVIVING COMPANY.
Subject to Subsection (c) of this Section 13, if the Company shall be the
surviving corporation in any reorganization, merger or consolidation of the
Company with one or more other corporations, all outstanding Options under the
Plan shall pertain to and apply to the securities to which a holder of the
number of shares of Common Stock subject to such Options would have been
entitled immediately following such reorganization, merger or consolidation,
with a corresponding proportionate adjustment of the Purchase Price per share so
that the aggregate Purchase Price thereafter shall be the same as the aggregate
Purchase Price of the shares subject to such Options immediately prior to such
reorganization, merger or consolidation.
(c) REORGANIZATION IN WHICH THE COMPANY IS NOT THE SURVIVING COMPANY OR
SALE OF ASSETS OR STOCK. Upon any dissolution or liquidation of the Company, or
upon a merger, consolidation or reorganization of the Company with one or more
other corporations in which the Company is not the surviving corporation, or
upon a sale of all or substantially all of the assets of the Company to another
corporation, or upon any transaction (including, without limitation, a merger or
reorganization in which the Company is the surviving corporation) approved by
the Board that results in any person or entity owning more than 50 percent of
the combined voting power of all classes of stock of the Company, the Plan and
all Options outstanding hereunder shall terminate, except to the extent
provision is made in writing in connection with such transaction for the
continuation of the Plan and/or the assumption of the Options theretofore
granted, or for the substitution for such Options of new Options covering the
stock of a successor corporation, or a parent or subsidiary thereof, with
appropriate adjustments as to the number and kinds of shares and exercise
prices, in which event the Plan and Options theretofore granted shall continue
in the manner and under the terms so provided. In the event of any such
termination of the Plan, the Option Period shall be deemed to have ended on the
last Trading Day prior to such termination, and, unless the Administrator
determines otherwise in its discretion, each participating employee shall have
the
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ability to choose either to (i) have all monies then credited to such employee's
account (including interest, to the extent any has accrued) returned to such
participating employee or (ii) exercise his Options in accordance with Section 6
on such last Trading Day; provided, however, that if a participating employee
does not exercise his right of choice, his Options shall be deemed to have been
automatically exercised in accordance with Section 6 on such last Trading Day.
The Administrator shall send written notice of an event that will result in such
a termination to all participating employees not later than the time at which
the Company gives notice thereof to its stockholders.
(d) ADJUSTMENTS. Adjustments under this Section 13 related to stock or
securities of the Company shall be made by the Committee, whose determination in
that respect shall be final, binding, and conclusive.
(e) NO LIMITATIONS ON COMPANY. The grant of an Option pursuant to the
Plan shall not affect or limit in any way the right or power of the Company to
make adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge, consolidate, dissolve or liquidate, or to
sell or transfer all or any part of its business or assets.
14. AMENDMENT OF THE PLAN. The Board may at any time, and from time to
time, amend this Plan in any respect, except that (a) if the approval of any
such amendment by the stockholders of the Company is required by Code section
423, such amendment will not be effected without such approval, and (b) in no
event may any amendment be made which would cause the Plan to fail to comply
with Code section 423 unless expressly so provided by the Board.
15. INSUFFICIENT SHARES. In the event that the total number of shares
of Common Stock specified in elections to be purchased under any Option plus the
number of shares purchased under all Options previously granted under this Plan
exceeds the maximum number of shares issuable under this Plan, the Administrator
will allot the shares then available on a pro rata basis. Any funds then
remaining in a participating employee's account after purchase of the employee's
pro-rata number of shares will be refunded.
16. TERMINATION OF THE PLAN. This Plan may be terminated at any time by
the Board. Except as otherwise provided in Section 13(c) hereof, upon
termination of this Plan all outstanding Options shall immediately terminate and
amounts in the employees' accounts will be promptly refunded.
17. GOVERNMENTAL REGULATIONS.
(a) The Company's obligation to sell and deliver Common Stock under
this Plan is subject to listing on a national stock exchange or quotation on
Nasdaq and the approval of all governmental authorities required in connection
with the authorization, issuance or sale of such stock.
(b) The Plan will be governed by the laws of the State of Delaware,
without regard to the conflict of laws principles thereof, except to the extent
that such law is preempted by federal law.
18. EFFECTIVE DATE. The Plan is effective as of January 1, 2000 (the
"EFFECTIVE DATE"), subject to the approval of the stockholders of the Company
within 12 months of the Effective Date.
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Exhibit 10.7
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
SKY ALLAND RESEARCH, INC.,
THE DATA GROUP II, INC., as Borrowers
And
SILICON VALLEY BANK, as Bank
February 14, 1997
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is entered into as of February 14,
1997, by and among SILICON VALLEY BANK, a California chartered bank ("Bank")
with its principal place of business at 3003 Tasman Drive, Santa Clara,
California 95054 and with a loan production office located at One Central
Plaza, 11300 Rockville Pike, Suite 1205, Rockville, Maryland and SKY ALLAND
RESEARCH, INC., a Maryland corporation and THE DATA GROUP II, INC., a
Maryland corporation (each a "Borrower" and collectively, the "Borrowers").
RECITALS
Borrowers wish to obtain credit from time to time from Bank, and Bank
desires to extend credit to Borrowers. This Agreement sets forth the terms on
which Bank will advance credit to Borrowers, and Borrowers will repay the
amounts owing to Bank.
AGREEMENT
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 DEFINITIONS. As used in this Agreement, the following
terms shall have the following definitions:
"Accounts" means all presently existing and hereafter
arising accounts, contract rights, and all other forms of obligations owing to
either Borrower arising out of the sale or lease of goods (including, without
limitation, the licensing of software and other technology) or the rendering of
services by either Borrower, whether or not earned by performance, and any and
all credit insurance, guaranties, and other security therefor, as well as all
merchandise returned to or reclaimed by either Borrower and Borrower's Books
relating to any of the foregoing.
"Advance" or "Advances" means a loan advance under the
Committed Revolving Line.
"Affiliate" means, with respect to any Person, any Person
that owns or controls directly or indirectly such Person, any Person that
controls or is controlled by or is under common control with such Person, and
each of such Person's senior executive officers, directors,
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partners and, for any Person that is a limited liability company, such Person's,
managers and members.
"Bank Expenses" means all reasonable costs or expenses
(including reasonable attorneys' fees and expenses) incurred in connection with
the preparation, negotiation, administration, and enforcement of the Loan
Documents; and Bank's reasonable attorneys' fees and expenses incurred in
amending, enforcing or defending the Loan Documents, (including fees and
expenses of appeal or review, or those incurred in any Insolvency Proceeding)
whether or not suit is brought.
"Borrower's Books" means all of each Borrower's books and
records including, without limitation: ledgers; records concerning each
Borrower's assets or liabilities, the Collateral, business operations or
financial condition; and all computer programs, or tape files, and the
equipment, containing such information.
"Borrowing Base" means an amount equal to eighty percent
(80%) of Eligible Accounts, as determined by Bank with reference to the most
recent Borrowing Base Certificate delivered by Borrowers.
"Business Day" means any day that is not a Saturday,
Sunday, or other day on which banks in the State of California or the State of
Maryland are authorized or required to close.
"Closing Date" means the date of this Agreement.
"Code" means the Maryland Uniform Commercial Code.
"Collateral" means the property described on EXHIBIT A
attached hereto.
"Committed Revolving Line" means a credit extension of up
to Three Million Five Hundred Thousand Dollars ($3,500,000).
"Committed Equipment Line" means a credit extension of up
to Two Million Dollars ($2,000,000), provided, however, until such time as the
Minimum Equity Requirement is met, the maximum amount of the Committed Equipment
Line shall not exceed One Million Dollars ($1,000,000).
"Contingent Obligation" means, as applied to any Person,
any direct or indirect liability, contingent or otherwise, of that Person with
respect to (i) any indebtedness, lease, dividend, letter of credit or other
obligation of another, including, without limitation, any such obligation
directly or indirectly guaranteed, endorsed, co-made or discounted or sold with
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recourse by that Person, or in respect of which that Person is otherwise
directly or indirectly liable; (ii) any obligations with respect to undrawn
letters of credit issued for the account of that Person; and (iii) all
obligations arising under any interest rate, currency or commodity swap
agreement, interest rate cap agreement, interest rate collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; provided, however,
that the term "Contingent Obligation" shall not include endorsements for
collection or deposit in the ordinary course of business. The amount of any
Contingent Obligation shall be deemed to be an amount equal to the stated or
determined amount of the primary obligation in respect of which such Contingent
Obligation is made or, if not stated or determinable, the maximum reasonably
anticipated liability in respect thereof as determined by such Person in good
faith; provided, however, that such amount shall not in any event exceed the
maximum amount of the obligations under the guarantee or other support
arrangement.
"Credit Extension" means each Advance, Equipment Advance,
Letter of Credit, or any other extension of credit by Bank for the benefit of
any Borrower hereunder.
"Current Assets" means, as of any applicable date, all
amounts that should, in accordance with GAAP, be included as current assets on
the consolidated balance sheet of Borrowers and their Subsidiaries as at such
date.
"Current Liabilities" means, as of any applicable date,
all amounts that should, in accordance with GAAP, be included as current
liabilities on the consolidated balance sheet of Borrower and its Subsidiaries,
as at such date, plus, to the extent not already included therein, all
outstanding Credit Extensions made under this Agreement, including all
Indebtedness that is payable upon demand or within one year from the date of
determination thereof unless such Indebtedness is renewable or extendable at the
option of any Borrower or any Subsidiary to a date more than one year from the
date of determination.
"Debt Service Coverage Ratio" shall mean for any period,
the sum of Borrowers' net income (net of capitalized development expenses), plus
depreciation and amortization, plus interest expense, divided by the sum of
interest expense and scheduled maturities of long term debt.
"Eligible Accounts" means those Accounts that arise in the
ordinary course of either Borrower's business that comply with all of each
Borrower's representations and warranties to Bank set forth in Section 5.4;
PROVIDED, that standards of eligibility may be fixed and revised from time to
time by Bank in Bank's reasonable judgment and upon sixty (60) days prior
written notification thereof to Borrower in accordance with the provisions
hereof. Unless otherwise agreed to by Bank in writing, Eligible Accounts shall
not include the following:
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(a) Accounts that the account debtor has failed to pay
within ninety (90) days of invoice date;
(b) Accounts with respect to an account debtor, fifty
percent (50%) of whose Accounts the account debtor has failed to pay within
ninety (90) days of invoice date;
(c) Accounts with respect to an account debtor, including
Affiliates, whose total obligations to Borrowers exceed twenty-five percent
(25%) of all Accounts, to the extent such obligations exceed the aforementioned
percentage, except as approved in writing by Bank;
(d) Accounts with respect to which the account debtor does
not have its principal place of business in the United States;
(e) Accounts with respect to which the account debtor is a
federal, state, or local governmental entity or any department, agency, or
instrumentality thereof;
(f) Accounts with respect to which any Borrower is liable
to the account debtor, but only to the extent of any amounts owing to the
account debtor (sometimes referred to as "contra" accounts, e.g. accounts
payable, customer deposits, credit accounts etc.);
(g) Accounts generated by demonstration or promotional
equipment, or with respect to which goods are placed on consignment, guaranteed
sale, sale or return, sale on approval, bill and hold, or other terms by reason
of which the payment by the account debtor may be conditional;
(h) Accounts with respect to which the account debtor is
an Affiliate, officer, employee, or agent of either Borrower;
(i) Accounts with respect to which the account debtor
disputes liability or makes any claim with respect thereto as to which Bank
believes, in its sole discretion, that there may be a basis for dispute (but
only to the extent of the amount subject to such dispute or claim), or is
subject to any Insolvency Proceeding, or becomes insolvent, or goes out of
business; and
(j) Accounts the collection of which Bank reasonably
determines after inquiry and consultation with Borrowers to be doubtful, and
Bank will endeavor to give Borrowers written notice of the reasons for any such
decision.
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"Equipment" means all present and future machinery,
equipment, tenant improvements, furniture, fixtures, vehicles, tools, parts and
attachments in which Borrower has any interest.
"Equipment Note" means each of Equipment Term Note No. 1
and Equipment Term Note No. 2 and "Equipment Notes" means collectively Equipment
Term Note No. 1 and Equipment Term Note No. 2.
"Equipment Advance" has the meaning set forth in Section
2.2.
"ERISA" means the Employment Retirement Income Security
Act of 1974, as amended, and the regulations thereunder.
"GAAP" means generally accepted accounting principles as
in effect in the United States from time to time.
"Indebtedness" means (a) all indebtedness for borrowed
money or the deferred purchase price of property or services, including without
limitation reimbursement and other obligations with respect to surety bonds and
letters of credit, (b) all obligations evidenced by notes, bonds, debentures or
similar instruments, (c) all capital lease obligations and (d) all Contingent
Obligations.
"Insolvency Proceeding" means any proceeding commenced by
or against any person or entity under any provision of the United States
Bankruptcy Code, as amended, or under any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, formal or informal
moratoria, compositions, extension generally with its creditors, or proceedings
seeking reorganization, arrangement, or other relief.
"Inventory" means all present and future inventory in
which Borrower has any interest, including merchandise, raw materials, parts,
supplies, packing and shipping materials, work in process and finished products
intended for sale or lease or to be furnished under a contract of service, of
every kind and description now or at any time hereafter owned by or in the
custody or possession, actual or constructive, of any Borrower, including such
inventory as is temporarily out of its custody or possession or in transit and
including any returns upon any accounts or other proceeds, including insurance
proceeds, resulting from the sale or disposition of any of the foregoing and any
documents of title representing any of the above.
"Investment" means any beneficial ownership of (including
stock, partnership interest or other securities) any Person, or any loan,
advance or capital contribution to any Person.
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"IRC" means the Internal Revenue Code of 1986, as amended,
and the regulations thereunder.
"Letter of Credit" means a letter of credit or similar
undertaking issued by Bank pursuant to Section 2.1.2.
"Letter of Credit Reserve" has the meaning set forth in
Section 2.1.1.
"Lien" means any mortgage, lien, deed of trust, charge,
pledge, security interest or other encumbrance.
"Loan Documents" means, collectively, this Agreement, the
Notes, any note or notes executed by any Borrower, and any other present or
future agreement entered into between any Borrower and/or for the benefit of
Bank in connection with this Agreement, all as amended, extended or restated
from time to time.
"Material Adverse Effect" means a material adverse effect
on (i) the business operations or condition (financial or otherwise) of any
Borrower and its Subsidiaries taken as a whole or (ii) the ability of any
Borrower to repay the Obligations or otherwise perform its obligations under the
Loan Documents.
"Maturity Date" means later of the Revolving Maturity Date
or maturity date of the Committed Equipment Line.
"Minimum Equity Requirement" means the receipt by the
Borrowers of additional equity in an amount equal to not less than Five Million
Dollars ($5,000,000).
"Negotiable Collateral" means all of Borrowers' present
and future letters of credit of which it is a beneficiary, notes, drafts,
instruments, securities, documents of title, and chattel paper.
"Notes" means collectively, the Equipment Notes and the
Revolving Promissory Note.
"Obligations" means all debt, principal, interest, Bank
Expenses and other amounts owed to Bank by any Borrower pursuant to this
Agreement or any other agreement, whether absolute or contingent, due or to
become due, now existing or hereafter arising, including any interest that
accrues after the commencement of an Insolvency Proceeding and including any
debt, liability, or obligation owing from any Borrower to others that Bank may
have obtained by assignment or otherwise.
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"Payment Date" means the fifth calendar day of each month
commencing on the first such date after the Closing Date and ending on the
Maturity Date.
"Permitted Indebtedness" means:
(a) Indebtedness of Borrowers in favor of Bank arising
under this Agreement or any other Loan Document;
(b) Indebtedness existing on the Closing Date and
disclosed in the Schedule;
(c) Indebtedness to trade creditors incurred in the
ordinary course of business; and
(d) Indebtedness secured by Permitted Liens.
"Permitted Investment" means:
(a) Investments existing on the Closing Date disclosed in
the Schedule; and
(b) (i) marketable direct obligations issued or
unconditionally guaranteed by the United States of America or any agency or any
State thereof maturing within one (1) year from the date of acquisition thereof,
(ii) commercial paper maturing no more than one (1) year from the date of
creation thereof and currently having the highest rating obtainable from either
Standard & Poor's Corporation or Moody's Investors Service, Inc., and (iii)
certificates of deposit maturing no more than one (1) year from the date of
investment therein issued by Bank.
"Permitted Liens" means the following:
(a) Any Liens existing on the Closing Date and disclosed
in the Schedule or arising under this Agreement or the other Loan Documents;
(b) Liens for taxes, fees, assessments or other
governmental charges or levies, either not delinquent or being contested in good
faith by appropriate proceedings and as to which adequate reserves are
maintained on each Borrower's Books in accordance with GAAP, PROVIDED the same
have no priority over any of Bank's security interests;
(c) Liens (i) upon or in any Equipment acquired or held by
any Borrower or any of its Subsidiaries to secure the purchase price of such
Equipment or
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indebtedness incurred solely for the purpose of financing the acquisition of
such Equipment, or (ii) existing on such equipment at the time of its
acquisition, PROVIDED that the Lien is confined solely to the property so
acquired and improvements thereon, and the proceeds of such equipment; and
(d) Liens incurred in connection with the extension,
renewal or refinancing of the indebtedness secured by Liens of the type
described in clauses (a) through (c) above, PROVIDED that any extension, renewal
or replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the indebtedness being extended, renewed or
refinanced does not increase.
"Person" means any individual, sole proprietorship,
partnership, limited liability company, joint venture, trust, unincorporated
organization, association, corporation, institution, public benefit corporation,
firm, joint stock company, estate, entity or governmental agency.
"Prime Rate" means the variable rate of interest, per
annum, most recently announced by Bank, as its "prime rate," whether or not such
announced rate is the lowest rate available from Bank.
"Quick Assets" means, as of any applicable date, the
consolidated cash, cash equivalents, accounts receivable and investments with
maturities of fewer than ninety (90) days of Borrowers determined in accordance
with GAAP.
"Responsible Officer" means each of the Chief Executive
Officer, the President, the Chief Financial Officer and the Controller of
Borrower.
"Revolving Maturity Date" means April 13, 1999.
"Revolving Promissory Note" means that certain Revolving
Promissory Note of even date herewith in substantially the form of Exhibit E
hereto in the maximum principal amount of $3,500,000 from Borrowers in favor of
Bank, together with all renewals, amendments, modifications and substitutions
therefore.
"Senior Management" shall mean the Chief Executive
Officer, Chief Financial Officer and Board of Directors of Sky Alland.
"Schedule" means the schedule of exceptions attached
hereto, if any.
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<PAGE>
"Subordinated Debt" means any debt incurred by any
Borrower that is subordinated to the debt owing by Borrowers to Bank on terms
acceptable to Bank (and identified as being such by Borrowers and Bank).
"Subsidiary" means with respect to any Person,
corporation, partnership, company association, joint venture, or any other
business entity of which more than fifty percent (50%) of the voting stock or
other equity interests is owned or controlled, directly or indirectly, by such
Person or one or more Affiliates of such Person.
"Tangible Net Worth" means as of any applicable date, the
consolidated total assets, plus Subordinated Debt of each Borrower and its
Subsidiaries MINUS, without duplication, (i) the sum of any amounts attributable
to (a) goodwill, (b) intangible items such as unamortized debt discount and
expense, patents, trade and service marks and names, copyrights and research and
development expenses except prepaid expenses, and (c) all reserves not already
deducted from assets, AND (ii) Total Liabilities.
"Total Liabilities" means as of any applicable date, any
date as of which the amount thereof shall be determined, all obligations that
should, in accordance with GAAP be classified as liabilities on the consolidated
balance sheet of Borrowers, including in any event all Indebtedness, but
specifically excluding Subordinated Debt.
1.2 ACCOUNTING AND OTHER TERMS. All accounting terms not
specifically defined herein shall be construed in accordance with GAAP and all
calculations and determinations made hereunder shall be made in accordance with
GAAP. When used herein, the term "financial statements" shall include the notes
and schedules thereto. The terms "including"/ "includes" shall always be read as
meaning "including (or includes) without limitation", when used herein or in any
other Loan Document.
2. LOAN AND TERMS OF PAYMENT
2.1 ADVANCES. Borrowers jointly and severally promise to pay
to the order of Bank, in lawful money of the United States of America, the
aggregate unpaid principal amount of all Advances made by Bank to Borrowers
hereunder. Borrowers shall also pay interest on the unpaid principal amount of
such Advances at rates in accordance with the terms hereof. On the Closing Date,
Borrowers shall execute and deliver to Bank the Revolving Promissory Note.
(a) Subject to and upon the terms and conditions of this
Agreement, Bank agrees to make Advances to Borrowers in an aggregate outstanding
amount not to exceed (i) the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the face amount of all outstanding Letters of
Credit (including drawn but unreimbursed Letters of Credit).
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<PAGE>
Subject to the terms and conditions of this Agreement, amounts borrowed pursuant
to this Section 2.1 may be repaid and reborrowed at any time during the term of
this Agreement.
(b) Whenever Borrowers desire an Advance, Borrowers will
notify Bank by facsimile transmission or telephone no later than 3:00 p.m.
Washington, D.C. time, on the Business Day that the Advance is to be made. Each
such notification shall be promptly confirmed by a Payment/Advance Form in
substantially the form of EXHIBIT B hereto. Bank is authorized to make Advances
under this Agreement, based upon instructions received from a Responsible
Officer or a designee of a Responsible Officer, or without instructions if in
Bank's discretion such Advances are necessary to meet Obligations which have
become due and remain unpaid. Bank will use its best efforts to notify Borrowers
of any Advance made hereunder after such advance is made, but shall not be
liable for any failure to so notify the Borrowers. Bank shall be entitled to
rely on any telephonic notice given by a person who Bank reasonably believes to
be a Responsible Officer or a designee thereof, and Borrower shall indemnify and
hold Bank harmless for any damages or loss suffered by Bank as a result of such
reliance. Bank will credit the amount of Advances made under this Section 2.1 to
Borrowers' deposit account.
(c) The Committed Revolving Line shall terminate on the
Revolving Maturity Date, at which time all Advances under this Section 2.1 and
other amounts due under this Agreement (except as otherwise expressly specified
herein) shall be immediately due and payable.
2.1.1 LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the account of
one or more of Borrowers in an aggregate outstanding face amount not to exceed
(i) the lesser of the Committed Revolving Line or the Borrowing Base, whichever
is less, minus (ii) the then outstanding principal balance of the Advances;
PROVIDED that the face amount of outstanding Letters of Credit (including drawn
but unreimbursed Letters of Credit and any Letter of Credit Reserve) shall not
in any case exceed Five Hundred Thousand Dollars ($500,000). Each Letter of
Credit shall have an expiry date no later than one hundred eighty (180) days
after the Revolving Maturity Date, provided, that Borrowers' Letter of Credit
reimbursement obligations shall be secured by cash on terms acceptable to bank
at any time after the Revolving Maturity Date, if the term of this Agreement is
note extended by Bank. All Letters of Credit shall be, in form and substance,
acceptable to Bank in its sole discretion and shall be subject to the terms and
conditions of Bank's form of standard Application and Letter of Credit
Agreement.
(b) The joint and several obligation of Borrowers to
immediately reimburse Bank for drawings made under Letters of Credit shall be
absolute, unconditional and irrevocable, and shall be performed strictly in
accordance with the terms of this Agreement and such Letters
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<PAGE>
of Credit, under all circumstances whatsoever. Borrowers shall indemnify,
defend, protect, and hold Bank harmless from any loss, cost, expense or
liability, including, without limitation, reasonable attorneys' fees, arising
out of or in connection with any Letters of Credit.
(c) Borrowers may request that Bank issue a Letter of Credit
payable in a currency other than United States Dollars. If a demand for payment
is made under any such Letter of Credit, Bank shall treat such demand as an
Advance to Borrowers of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate of exchange in
San Francisco, California, for sales of that other currency for cable transfer
to the country of which it is the currency.
(d) Upon the issuance of any Letter of Credit payable in a
currency other than United States Dollars, Bank shall create a reserve under the
Committed Revolving Line for Letters of Credit against fluctuations in currency
exchange rates, in an amount equal to ten percent (10%) of the face amount of
such letter of credit. The amount of such reserve may be amended by Bank from
time to time to account for fluctuations in the exchange rate. The availability
of funds under the Committed Revolving Line shall be reduced by the amount of
such reserve for so long as such Letter of Credit remains outstanding.
2.2 EQUIPMENT ADVANCES.
(a) At any time from the date hereof through October 31, 1998
(the "Equipment Availability End Date One"), Borrowers may from time to time
request advances (each, together with the advances described in subsection (b)
below, an "Equipment Advance" and collectively, the "Equipment Advances") from
Bank in an aggregate amount not to exceed the Committed Equipment Line. Amounts
borrowed pursuant to this Section 2.2(a) may not be readvanced.
All Equipment Advances made prior to the Equipment
Availability End Date One shall be evidenced by an Equipment Term Note
("Equipment Term Note No. 1") to be executed and delivered by Borrowers to Bank
on the Closing Date. All Equipment Advances prior to the Equipment Availability
End Date shall be repaid in accordance with the terms of Equipment Term Note No.
1.
(b) At any time from November 1, 1998 through March 31, 1999
(the "Equipment Availability End Date Two"), Borrowers may from time to time
request advances from Bank in an aggregate amount not to exceed the Committed
Equipment Line. Amounts borrowed pursuant to this Section 2.2(b) may not be
readvanced.
All Equipment Advances made after the Equipment Availability
End Date One, but prior to the Equipment Availability End Date Two shall be
evidenced by an Equipment
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Term Note ("Equipment Term Note No. 2") to be executed and delivered by
Borrowers to Bank on the Closing Date. All Equipment Advances shall be repaid in
accordance with the terms of Equipment Term Note No. 2.
(c) Borrowers shall deliver to Bank, at the time of each
Equipment Advance an invoice for the equipment to be purchased. The Equipment
Advances shall be used by Borrowers only to purchase equipment and shall not
exceed ninety percent (90%) of the invoice amount of such equipment approved
from time to time by Bank, excluding taxes, shipping, warranty charges, freight
discounts and installation expense. Software may, however, constitute up to Five
Hundred Thousand Dollars ($500,000) of the aggregate Equipment Advances.
(d) Interest shall accrue from the date of each Equipment
Advance at the rate specified in the applicable Equipment Term Note and shall be
payable monthly as provided therein. Any Equipment Advances that are outstanding
on the Equipment Availability End Date One will be payable in Thirty-Six (36)
equal monthly installments of principal, and accrued interest, beginning on the
first Payment Date of each month following the Equipment Availability End Date
One. Any Equipment Advances that are outstanding on the Equipment Availability
End Date Two will be payable in Thirty-Six (36) equal monthly installments of
principal, and accrued interest, beginning on the first Payment Date of each
month following the Equipment Availability End Date Two.
(e) When Borrowers desire to obtain an Equipment Advance,
Borrowers shall notify Bank (which notice shall be irrevocable) by facsimile
transmission to be received no later than 1:00 p.m. Washington, D.C. time one
(1) Business Day before the day on which the Equipment Advance is to be made.
Such notice shall be substantially in the form of EXHIBIT B. The notice shall be
signed by a Responsible Officer and include a copy of the invoice for the
Equipment to be financed.
(f) NOTWITHSTANDING ANYTHING SET FORTH HEREIN OR IN ANY OF THE
LOAN DOCUMENTS TO THE CONTRARY, THE BORROWERS AND THE BANK AGREE THAT THE
MAXIMUM AMOUNT OUTSTANDING UNDER THE COMMITTED EQUIPMENT LINE OF CREDIT MAY NOT
EXCEED ONE MILLION DOLLARS ($1,000,000), UNTIL SUCH TIME AS THE BORROWERS HAVE
RECEIVED A WRITTEN CONFIRMATION FROM BANK THAT THE BORROWERS HAVE SATISFIED THE
MINIMUM EQUITY REQUIREMENT.
2.3 OVERADVANCES. If, at any time or for any reason, the
amount of Obligations owed by Borrowers to Bank pursuant to Section 2.1 of this
Agreement is greater than the lesser of (i) the Committed Revolving Line or (ii)
the Borrowing Base, Borrowers shall immediately pay to Bank, in cash, the amount
of such excess.
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2.4 INTEREST RATES, PAYMENTS AND CALCULATIONS.
(a) INTEREST RATE. All Advances shall bear interest, on the
average Daily Balance, at the rate or rates set forth in the Notes.
(b) DEFAULT RATE. All Obligations shall bear interest, from
and after the occurrence of an Event of Default, at a rate equal to five (5)
percentage points above the interest rate applicable immediately prior to the
occurrence of the Event of Default.
(c) PAYMENTS. Interest under each Note shall be due and
payable on the Payment Date of each month during the term thereof. Borrowers
hereby authorize Bank to debit any accounts with Bank, including, without
limitation, Account Number _____________________ for payments of principal and
interest due on the Obligations and any other amounts owing by Borrowers to
Bank. Bank will notify Borrowers of all debits which Bank makes against
Borrowers' accounts. Any such debits against Borrowers' accounts in no way shall
be deemed a set-off. Any interest not paid when due shall be compounded by
becoming a part of the Obligations, and such interest shall thereafter accrue
interest at the rate then applicable hereunder.
(d) COMPUTATION. In the event the Prime Rate is changed from
time to time hereafter, the applicable rate of interest under the Notes shall be
increased or decreased effective as of 12:01 a.m. on the day the Prime Rate is
changed, by an amount equal to such change in the Prime Rate. All interest
chargeable under the Loan Documents shall be computed on the basis of a three
hundred sixty (360) day year for the actual number of days elapsed.
2.4 CREDITING PAYMENTS. Prior to the occurrence of an Event of
Default, Bank shall credit a wire transfer of funds, check or other item of
payment to such deposit account or Obligation as Borrowers specify. After the
occurrence of an Event of Default, the receipt by Bank of any wire transfer of
funds, check, or other item of payment shall be immediately applied to
conditionally reduce Obligations, but shall not be considered a payment on
account unless such payment is of immediately available federal funds or unless
and until such check or other item of payment is honored when presented for
payment. Notwithstanding anything to the contrary contained herein, any wire
transfer or payment received by Bank after 12:00 noon, Washington, D.C. time
shall be deemed to have been received by Bank as of the opening of business on
the immediately following Business Day. Whenever any payment to Bank under the
Loan Documents would otherwise be due (except by reason of acceleration) on a
date that is not a Business Day, such payment shall instead be due on the next
Business Day, and additional fees or interest, as the case may be, shall accrue
and be payable for the period of such extension.
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2.5 FEES. Borrowers shall pay to Bank the following:
(a) FACILITY FEE. A Facility Fee equal to Twenty Thousand Six
Hundred Twenty Five Dollars ($20,625.00) which fee shall be due on the Closing
Date and shall be fully earned and non-refundable;
(b) FINANCIAL EXAMINATION AND APPRAISAL FEES. Bank's customary
fees and out-of-pocket expenses for Bank's audits of Borrower's Accounts, and
for each appraisal of Collateral and financial analysis and examination of
Borrower performed from time to time by Bank or its agents;
(c) BANK EXPENSES. Upon demand from Bank, including, without
limitation, upon the date hereof, all Bank Expenses incurred through the date
hereof, including reasonable attorneys' fees and expenses, and, after the date
hereof, all Bank Expenses, including reasonable attorneys' fees and expenses, as
and when they become due.
2.6 ADDITIONAL COSTS. In case any law, regulation, treaty or
official directive or the interpretation or application thereof by any court or
any governmental authority charged with the administration thereof or the
compliance with any guideline or request of any central bank or other
governmental authority (whether or not having the force of law):
(a) subjects Bank to any tax with respect to payments of
principal or interest or any other amounts payable hereunder by Borrowers or
otherwise with respect to the transactions contemplated hereby (except for taxes
on the overall net income of Bank imposed by the United States of America or any
political subdivision thereof);
(b) imposes, modifies or deems applicable any deposit
insurance, reserve, special deposit or similar requirement against assets held
by, or deposits in or for the account of, or loans by, Bank; or
(c) imposes upon Bank any other condition with respect to its
performance under this Agreement,
and the result of any of the foregoing is to increase the cost to Bank, reduce
the income receivable by Bank or impose any expense upon Bank with respect to
any loans, Bank shall notify Borrowers thereof. Borrowers jointly and severally
agree to pay to Bank the amount of such increase in cost, reduction in income or
additional expense as and when such cost, reduction or expense is incurred or
determined, upon presentation by Bank of a statement of the amount and setting
forth Bank's calculation thereof, all in reasonable detail, which statement
shall be deemed true and correct absent manifest error.
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<PAGE>
2.7 TERM. Except as otherwise set forth herein, this Agreement
shall become effective on the Closing Date and, subject to Section 12.7, shall
continue in full force and effect for a term ending on the Maturity Date.
Notwithstanding the foregoing, Bank shall have the right to terminate its
obligation to make Credit Extensions under this Agreement immediately and
without notice upon the occurrence and during the continuance of an Event of
Default. Notwithstanding termination of this Agreement, Bank's lien on the
Collateral shall remain in effect for so long as any Obligations are
outstanding.
3. CONDITIONS OF LOANS
3.1 CONDITIONS PRECEDENT TO INITIAL ADVANCE. The obligation of
Bank to make the initial Advance is subject to the condition precedent that Bank
shall have received, in form and substance satisfactory to Bank, the following:
(a) this Agreement;
(b) the Notes;
(c) an opinion of each Borrower's counsel;
(d) payment of the fees and Bank Expenses then due specified
in Section 2.5 hereof; and
(e) such other documents, and completion of such other
matters, as Bank may reasonably deem necessary or appropriate.
3.2 CONDITIONS PRECEDENT TO ALL ADVANCES. The obligation of
Bank to make each Advance, including the initial Advance, is further subject to
the following conditions:
(a) timely receipt by Bank of the Payment/Advance Form as
provided in Section 2.1; and
(b) the representations and warranties contained in
Section 5 shall be true and correct in all material respects on and as of the
date of such Payment/Advance Form and on the effective date of each Advance as
though made at and as of each such date, and no Event of Default shall have
occurred and be continuing, or would result from such Advance. The making of
each Advance shall be deemed to be a representation and warranty by Borrowers on
the date of such Advance as to the accuracy of the facts referred to in this
Section 3.2(b).
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4. CREATION OF SECURITY INTEREST
4.1 GRANT OF SECURITY INTEREST. Each Borrower grants and
pledges to Bank a continuing security interest in all presently existing and
hereafter acquired or arising Collateral in order to secure prompt payment of
any and all Obligations and in order to secure prompt performance by each
Borrower of each of its covenants and duties under the Loan Documents. Except as
set forth in the Schedule, such security interest constitutes a valid, first
priority security interest in the presently existing Collateral, and will
constitute a valid, first priority security interest in Collateral acquired
after the date hereof. Each Borrower acknowledges that Bank may place a "hold"
on any Deposit Account pledged as Collateral to secure the Obligations.
Notwithstanding termination of this Agreement, Bank's Lien on the Collateral
shall remain in effect for so long as any Obligations are outstanding.
4.2 DELIVERY OF ADDITIONAL DOCUMENTATION REQUIRED. Borrowers
shall from time to time execute and deliver to Bank, at the request of Bank, all
Negotiable Collateral, all financing statements and other documents that Bank
may reasonably request, in form satisfactory to Bank, to perfect and continue
perfected Bank's security interests in the Collateral and in order to fully
consummate all of the transactions contemplated under the Loan Documents.
4.3 RIGHT TO INSPECT. Bank (through any of its officers,
employees, or agents) shall have the right, upon reasonable prior notice, from
time to time during Borrowers' usual business hours, to inspect Borrowers' Books
and to make copies thereof and to check, test, and appraise the Collateral in
order to verify each Borrower's financial condition or the amount, condition of,
or any other matter relating to, the Collateral.
5. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants as follows:
5.1 DUE ORGANIZATION AND QUALIFICATION. Each Borrower and each
Subsidiary is a corporation duly existing and in good standing under the laws of
its state of incorporation and qualified and licensed to do business in, and is
in good standing in, any state in which the failure to so qualify could have a
Material Adverse Effect.
5.2 DUE AUTHORIZATION; NO CONFLICT. The execution, delivery,
and performance of the Loan Documents are within each Borrower's powers, have
been duly authorized, and are not in conflict with nor constitute a breach of
any provision contained in either Borrower's Articles/Certificate of
Incorporation or Bylaws, nor will they constitute an event of default under any
material agreement to which any Borrower is a party or by which any
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Borrower is bound. Borrowers are not in default under any agreement to which
either Borrower is a party or by which it is bound, which default could have a
Material Adverse Effect.
5.3 NO PRIOR ENCUMBRANCES. Each Borrower has good and
indefeasible title to the Collateral, free and clear of Liens, except for
Permitted Liens.
5.4 BONA FIDE ELIGIBLE ACCOUNTS. The Eligible Accounts are
bona fide existing obligations. The service or property giving rise to such
Eligible Accounts has been performed or delivered to the account debtor or to
the account debtor's agent for immediate shipment to and unconditional
acceptance by the account debtor. Borrowers have not received notice of actual
or imminent Insolvency Proceeding of any account debtor whose accounts are
included in any Borrowing Base Certificate as an Eligible Account.
5.5 NAME; LOCATION OF CHIEF EXECUTIVE OFFICE. Except as
disclosed in the Schedule, no Borrower has done business and will not without at
least thirty (30) days prior written notice to Bank do business under any name
other than that specified on the signature page hereof. The chief executive
office of each Borrower is located at the address indicated in Section 10
hereof.
5.6 LITIGATION. Except as set forth in the Schedule, there are
no actions or proceedings pending, or, to Borrower's knowledge, threatened by or
against any Borrower or any Subsidiary before any court or administrative agency
in which an adverse decision could have a Material Adverse Effect or a material
adverse effect on any Borrower's interest or Bank's security interest in the
Collateral
5.7 NO MATERIAL ADVERSE CHANGE IN FINANCIAL STATEMENTS. All
consolidated financial statements related to each Borrower and any Subsidiary
that have been delivered by each Borrower to Bank fairly present in all material
respects Borrowers' consolidated financial condition as of the date thereof and
Borrowers' consolidated results of operations for the period then ended. There
has not been a material adverse change in the consolidated financial condition
of any Borrower since the date of the most recent of such financial statements
submitted to Bank on or about the Closing Date.
5.8 SOLVENCY. Subject to the contribution rights set forth in
Section 12.8, the fair saleable value of each Borrower's assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities; no
Borrower is left with unreasonably small capital after the transactions
contemplated by this Agreement; and each Borrower is able to pay its debts
(including trade debts) as they mature.
5.9 REGULATORY COMPLIANCE. Each Borrower and each Subsidiary
has met the minimum funding requirements of ERISA with respect to any employee
benefit plans subject to ERISA. No event has occurred resulting from any
Borrower's failure to comply with ERISA that
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<PAGE>
is reasonably likely to result in any Borrower's incurring any liability that
could have a Material Adverse Effect. No Borrower is an "investment company" or
a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940. No Borrower is engaged principally, or as one of
its important activities, in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulations G, T and
U of the Board of Governors of the Federal Reserve System). Each Borrower has
complied with all the provisions of the Federal Fair Labor Standards Act. No
Borrower has violated any statutes, laws, ordinances or rules applicable to it,
violation of which could have a Material Adverse Effect.
5.10 ENVIRONMENTAL CONDITION. None of any Borrower's or any
Subsidiary's properties or assets has ever been used by any Borrower or any
Subsidiary or, to the best of any Borrower's knowledge, by previous owners or
operators, in the disposal of, or to produce, store, handle, treat, release, or
transport, any hazardous waste or hazardous substance other than in accordance
with applicable law; to the best of each Borrower's knowledge, none of either
Borrower's properties or assets has ever been designated or identified in any
manner pursuant to any environmental protection statute as a hazardous waste or
hazardous substance disposal site, or a candidate for closure pursuant to any
environmental protection statute; no lien arising under any environmental
protection statute has attached to any revenues or to any real or personal
property owned by any Borrower or any Subsidiary; and neither any Borrower nor
any Subsidiary has received a summons, citation, notice, or directive from the
Environmental Protection Agency or any other federal, state or other
governmental agency concerning any action or omission by any Borrower or any
Subsidiary resulting in the release, or other disposition of hazardous waste or
hazardous substances into the environment.
5.11 TAXES. Each Borrower and each Subsidiary has filed or
caused to be filed all tax returns required to be filed on a timely basis, and
has paid, or has made adequate provision for the payment of, all taxes reflected
therein.
5.12 SUBSIDIARIES. Borrowers do not own any stock, partnership
interest or other equity securities of any Person, except for Permitted
Investments.
5.13 GOVERNMENT CONSENTS. Each Borrower and each Subsidiary
has obtained all consents, approvals and authorizations of, made all
declarations or filings with, and given all notices to, all governmental
authorities that are necessary for the continued operation of each Borrower's
business as currently conducted.
5.14 FULL DISCLOSURE. No representation, warranty or other
statement made by any Borrower in any certificate or written statement furnished
to Bank contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained in such
certificates or statements not misleading.
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<PAGE>
6. AFFIRMATIVE COVENANTS
Each Borrower covenants and agrees that, until payment in full
of all outstanding Obligations, and for so long as Bank may have any commitment
to make a Credit Extension hereunder, each Borrower shall do all of the
following:
6.1 GOOD STANDING. Each Borrower shall maintain its and each
of its Subsidiaries' corporate existence and good standing in its jurisdiction
of incorporation and maintain qualification in each jurisdiction in which the
failure to so qualify could have a Material Adverse Effect. Borrower shall
maintain, and shall cause each of its Subsidiaries to maintain, to the extent
consistent with prudent management of each Borrower's business, in force all
licenses, approvals and agreements, the loss of which could have a Material
Adverse Effect.
6.2 GOVERNMENT COMPLIANCE. Each Borrower shall meet, and shall
cause each Subsidiary to meet, the minimum funding requirements of ERISA with
respect to any employee benefit plans subject to ERISA. Each Borrower shall
comply, and shall cause each Subsidiary to comply, with all statutes, laws,
ordinances and government rules and regulations to which it is subject,
noncompliance with which could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral.
6.3 FINANCIAL STATEMENTS, REPORTS, CERTIFICATES. Each Borrower
shall deliver to Bank: (a) as soon as available, but in any event within thirty
(30) days after the end of each month, a company prepared consolidated balance
sheet and income statement covering each Borrower's consolidated operations
during such period, in a form and certified by an officer of Borrower reasonably
acceptable to Bank; (b) as soon as available, but in any event within ninety
(90) days after the end of Borrower's fiscal year, audited consolidated
financial statements of Borrower prepared in accordance with GAAP, consistently
applied, together with an unqualified opinion on such financial statements of an
independent certified public accounting firm reasonably acceptable to Bank; (c)
as soon as available, but in any event within thirty (30)days after the end of
each fiscal quarter, an internally prepared aging of accounts payable in form
and detail satisfactory to Bank; (d) within five (5) Business Days of receipt of
notice thereof, a report of any legal actions pending or threatened against
Borrower or any Subsidiary that could result in damages or costs to Borrower or
any Subsidiary of One Hundred Thousand Dollars ($100,000) or more; and (e) such
budgets, sales projections, operating plans or other financial information as
Bank may reasonably request from time to time.
Within thirty (30) days after the last day of each month, Borrowers
shall deliver to Bank a Borrowing Base Certificate signed by a Responsible
Officer in substantially the form of EXHIBIT C hereto, together with an aged
listings of accounts receivable.
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<PAGE>
Within thirty (30) days after the last day of each month, Borrowers
shall deliver to Bank with the monthly financial statements a Compliance
Certificate signed by a Responsible Officer in substantially the form of EXHIBIT
D hereto.
Bank shall have a right from time to time hereafter to audit Borrowers'
Accounts at Borrowers' expense, provided that such audits will be conducted no
more often than every six (6) months at a cost not to exceed $1,750 per audit,
unless an Event of Default has occurred and is continuing.
6.4 INVENTORY; RETURNS. Borrowers shall keep all Inventory in
good and marketable condition, free from all material defects. Returns and
allowances, if any, as between Borrowers and its account debtors shall be on the
same basis and in accordance with the usual customary practices of Borrowers, as
they exist at the time of the execution and delivery of this Agreement.
Borrowers shall promptly notify Bank of all returns and recoveries and of all
disputes and claims, where the return, recovery, dispute or claim involves more
than Fifty Thousand Dollars ($50,000).
6.5 TAXES. Borrowers shall make, and shall cause each
Subsidiary to make, due and timely payment or deposit of all material federal,
state, and local taxes, assessments, or contributions required of it by law, and
will execute and deliver to Bank, on demand, appropriate certificates attesting
to the payment or deposit thereof; and Borrowers will make, and will cause each
Subsidiary to make, timely payment or deposit of all material tax payments and
withholding taxes required of it by applicable laws, including, but not limited
to, those laws concerning F.I.C.A., F.U.T.A., state disability, and local,
state, and federal income taxes, and will, upon request, furnish Bank with proof
satisfactory to Bank indicating that each Borrower or a Subsidiary has made such
payments or deposits; provided that each Borrower or a Subsidiary need not make
any payment if the amount or validity of such payment is (i) contested in good
faith by appropriate proceedings , (ii) is reserved against (to the extent
required by GAAP) by such Borrower and (iii) no lien other than a Permitted Lien
results.
6.6 INSURANCE.
(a) Each Borrower, at its expense, shall keep the Collateral
insured against loss or damage by fire, theft, explosion, sprinklers, and all
other hazards and risks, and in such amounts, as ordinarily insured against by
other owners in similar businesses conducted in the locations where each
Borrower's business is conducted on the date hereof. Borrower shall also
maintain insurance relating to each Borrower's ownership and use of the
Collateral in amounts and of a type that are customary to businesses similar to
each Borrower's.
(b) All such policies of insurance shall be in such form, with
such companies, and in such amounts as are reasonably satisfactory to Bank. All
such policies of property
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<PAGE>
insurance shall contain a lender's loss payable endorsement, in a form
satisfactory to Bank, showing Bank as an additional loss payee thereof and all
liability insurance policies shall show the Bank as an additional insured, and
shall specify that the insurer must give at least twenty (20) days notice to
Bank before canceling its policy for any reason. At Bank's request, Borrowers
shall deliver to Bank certified copies of such policies of insurance and
evidence of the payments of all premiums therefor. All proceeds payable under
any such policy shall, at the option of Bank, be payable to Bank to be applied
on account of the Obligations.
6.7 PRINCIPAL DEPOSITORY. Borrowers shall maintain its
operating accounts with Bank and invest a majority of their investible funds
with Bank.
6.8 QUICK RATIO. Borrowers shall maintain, as of the last day
of each calendar month, a ratio of (i) Quick Assets to (ii) Current Liabilities
less deferred revenue of at least the following amounts at the following times:
<TABLE>
<CAPTION>
QUICK RATIO PERIOD:
<S> <C>
1.00 to 1.0 From April 30, 1998 through June 30, 1998; and
1.25 to 1.0 At all times thereafter.
</TABLE>
6.9 TOTAL LIABILITIES - NET WORTH RATIO. Borrowers shall
maintain, as of the last day of each calendar month, a ratio of Total
Liabilities, less deferred revenue to Tangible Net Worth of not more than the
following amounts at the following times:
<TABLE>
<CAPTION>
RATIO PERIOD:
<S> <C>
2.0 to 1.0 From April 30, 1998 through June 30, 1998; and
1.0 to 1.0 At all times thereafter
</TABLE>
6.10 TANGIBLE NET WORTH. Borrowers shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not less than the
following amounts at the following times:
<TABLE>
<CAPTION>
TANGIBLE NET WORTH: PERIOD:
<S> <C>
$3,500,000 From April 30, 1998 through June 30, 1998;
$8,000,000 From July 1, 1998 through September 30, 1998; and
$9,000,000 At all times thereafter.
</TABLE>
6.11 DEBT SERVICE. The Borrowers shall maintain a ratio of (a)
cash, plus eligible Accounts, less Advances under the Committed Revolving Line,
to (b) the outstanding Equipment Advances of not less than 2.0 to 1.0.,
provided, however, that at such times as the Borrowers' Debt Service Coverage
Ratio is greater than 1.50 to 1.0 for any two (2) consecutive
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<PAGE>
fiscal quarters, the Borrowers shall maintain a Debt Service Coverage Ratio
equal to or greater than 1.50 to 1.0.
6.12 FURTHER ASSURANCES. At any time and from time to time
Borrowers shall execute and deliver such further instruments and take such
further action as may reasonably be requested by Bank to effect the purposes of
this Agreement.
7. NEGATIVE COVENANTS
Borrowers jointly and severally covenant and agree that, so
long as any Credit Extension hereunder shall be available and until payment in
full of the outstanding Obligations or for so long as Bank may have any
commitment to make any Advances, Borrower will not do any of the following:
7.1 DISPOSITIONS. Convey, sell, lease, transfer or otherwise
dispose of (collectively, a "Transfer"), or permit any of its Subsidiaries to
Transfer, all or any part of its business or property, other than Transfers: (i)
of inventory in the ordinary course of business, (ii) of non-exclusive licenses
and similar arrangements for the use of the property of Borrower or its
Subsidiaries in the ordinary course of business; (iii) that constitute payment
of normal and usual operating expenses in the ordinary course of business; or
(iv) of worn-out or obsolete Equipment.
7.2 CHANGES IN BUSINESS, OWNERSHIP, OR MANAGEMENT, BUSINESS
LOCATIONS. Engage in any business, or permit any of its Subsidiaries to engage
in any business, other than the businesses currently engaged in by any Borrower
and any business substantially similar or related thereto (or incidental
thereto), or suffer a change in any Borrower's ownership by more than ten
percent (10%) in the aggregate, or suffer any change in the Senior Management of
Sky Alland. Each Borrower will not, without at least thirty (30) days prior
written notification to Bank, relocate its chief executive office or add any new
offices or business locations.
7.3 MERGERS OR ACQUISITIONS. Merge or consolidate, or permit
any of its Subsidiaries to merge or consolidate, with or into any other business
organization, or acquire, or permit any of its Subsidiaries to acquire, all or
substantially all of the capital stock or property of another Person, unless the
Borrowers obtain the Bank's prior written consent to such merger, acquisition or
consolidation, and further provided that (a) no Event of Default has occurred
and is continuing hereunder, (b) no event which with the giving of notice or the
passage of time would constitute a default has occurred, (c) after the
completion of such merger, acquisition, or consolidation, the Borrowers shall be
in compliance with all of the material terms of this Agreement and no Event of
Default shall have occurred under this Agreement; and (d) the entity acquired is
in a similar line of business
7.4 INDEBTEDNESS. Create, incur, assume or be or remain liable
with respect to any Indebtedness, or permit any Subsidiary so to do, other than
Permitted Indebtedness.
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<PAGE>
7.5 ENCUMBRANCES. Create, incur, assume or suffer to exist any
Lien with respect to any of its property, or assign or otherwise convey any
right to receive income, including the sale of any Accounts, or permit any of
its Subsidiaries so to do, except for Permitted Liens.
7.6 DISTRIBUTIONS. Pay any dividends or make any other
distribution or payment on account of or in redemption, retirement or purchase
of any capital stock.
7.7 INVESTMENTS. Directly or indirectly acquire or own, or
make any Investment in or to any Person, or permit any of its Subsidiaries so to
do, other than Permitted Investments.
7.8 TRANSACTIONS WITH AFFILIATES. Directly or indirectly enter
into or permit to exist any material transaction with any Affiliate of any
Borrower except for transactions that are in the ordinary course of any
Borrower's business, upon fair and reasonable terms that are no less favorable
to any Borrower than would be obtained in an arm's length transaction with a
nonaffiliated Person.
7.9 INVENTORY. Store the Inventory with a bailee,
warehouseman, or similar party unless Bank has received a pledge of any
warehouse receipt covering such Inventory. Except for Inventory sold in the
ordinary course of business and except for such other locations as Bank may
approve in writing, each Borrower shall keep the Inventory only at the location
set forth in Section 10 hereof and such other locations of which Borrowers give
Bank prior written notice and as to which Borrowers sign and file a financing
statement where needed to perfect Bank's security interest.
7.10 COMPLIANCE. Become an "investment company" or a company
controlled by an "investment company," within the meaning of the Investment
Company Act of 1940, or become principally engaged in, or undertake as one of
its important activities, the business of extending credit for the purpose of
purchasing or carrying margin stock, or use the proceeds of any Advance for such
purpose; fail to meet the minimum funding requirements of ERISA; permit a
Reportable Event or Prohibited Transaction, as defined in ERISA, to occur; fail
to comply with the Federal Fair Labor Standards Act or violate any other law or
regulation, which violation could have a Material Adverse Effect or a material
adverse effect on the Collateral or the priority of Bank's Lien on the
Collateral; or permit any of its Subsidiaries to do any of the foregoing.
8. EVENTS OF DEFAULT
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<PAGE>
Any one or more of the following events shall constitute an
Event of Default by Borrowers under this Agreement:
8.1 PAYMENT DEFAULT. If Borrowers fail to pay, when due, any
of the Obligations, provided, however, that the Borrowers will have a five (5)
day grace period on the payment of all Bank Expenses.
8.2 COVENANT DEFAULT.
(a) If any Borrower fails to perform any obligation under
Sections 6.3, 6.6, 6.7, 6.8, 6.9, 6.10, 6.11 or 6.12 or violates any of the
covenants contained in Article 7 of this Agreement, or
(b) If any Borrower fails or neglects to perform, keep, or
observe any other material term, provision, condition, covenant, or agreement
contained in this Agreement, in any of the Loan Documents, or in any other
present or future agreement between any Borrower and Bank and as to any default
under such other term, provision, condition, covenant or agreement that can be
cured, has failed to cure such default within ten (10) days after the Bank
notifies the Borrowers thereof; provided, however, that if the default cannot by
its nature be cured within the ten (10) day period or cannot after diligent
attempts by Borrowers be cured within such ten (10) day period, and such default
is likely to be cured within a reasonable time, then Borrowers shall have an
additional reasonable period (which shall not in any case exceed thirty (30)
days) to attempt to cure such default, and within such reasonable time period
the failure to have cured such default shall not be deemed an Event of Default
(provided that no Advances will be required to be made during such cure period);
8.3 MATERIAL ADVERSE CHANGE. If there (i) occurs a material
adverse change in the business, operations, or condition (financial or
otherwise) of the Borrowers on a consolidated basis, or (ii) is a material
impairment of the value or priority of Bank's security interests in the
Collateral;
8.4 ATTACHMENT. If any material portion of any Borrower's
assets is attached, seized, subjected to a writ or distress warrant, or is
levied upon, or comes into the possession of any trustee, receiver or person
acting in a similar capacity and such attachment, seizure, writ or distress
warrant or levy has not been removed, discharged or rescinded within ten (10)
days, or if Borrower is enjoined, restrained, or in any way prevented by court
order from continuing to conduct all or any material part of its business
affairs, or if a judgment or other claim becomes a lien or encumbrance upon any
material portion of such Borrower's assets, or if a notice of lien, levy, or
assessment is filed of record with respect to any Borrower's assets by the
United States Government, or any department, agency, or instrumentality thereof,
or by any state, county, municipal, or governmental agency, and the same is not
paid within ten (10) days after any
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<PAGE>
Borrower receives notice thereof, provided that none of the foregoing shall
constitute an Event of Default where such action or event is stayed or an
adequate bond has been posted pending a good faith contest by such Borrower
(provided that no Credit Extensions will be required to be made during such cure
period);
8.5 INSOLVENCY. If any Borrower becomes insolvent, or if an
Insolvency Proceeding is commenced by Borrower, or if an Insolvency Proceeding
is commenced against any Borrower and is not dismissed or stayed within thirty
(30) days (provided that no Advances will be made prior to the dismissal of such
Insolvency Proceeding);
8.6 OTHER AGREEMENTS. If there is a default in any agreement
to which any Borrower is a party with a third party or parties resulting in a
right by such third party or parties, whether or not exercised, to accelerate
the maturity of any Indebtedness in an amount in excess of One Hundred Thousand
Dollars ($100,000) or that could have a Material Adverse Effect;
8.7 JUDGMENTS. If a judgment or judgments for the payment of
money in an amount, individually or in the aggregate, of at least Fifty Thousand
Dollars ($50,000) shall be rendered against any Borrower and shall remain
unsatisfied and unstayed for a period of ten (10) days (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment); or
8.8 MISREPRESENTATIONS. If any material misrepresentation or
material misstatement exists now or hereafter in any warranty or representation
set forth herein or in any certificate or writing delivered to Bank by any
Borrower or any Person acting on Borrower's behalf pursuant to this Agreement or
to induce Bank to enter into this Agreement or any other Loan Document.
9. BANK'S RIGHTS AND REMEDIES
9.1 RIGHTS AND REMEDIES. Upon the occurrence and during the
continuance of an Event of Default, Bank may, at its election, without notice of
its election and without demand, do any one or more of the following, all of
which are authorized by Borrowers:
(a) Declare all Obligations, whether evidenced by this
Agreement, by any of the other Loan Documents, or otherwise, immediately due and
payable (provided that upon the occurrence of an Event of Default described in
Section 8.5 all Obligations shall become immediately due and payable without any
action by Bank);
(b) Cease advancing money or extending credit to or for the
benefit of Borrowers under this Agreement or under any other agreement between
Borrowers and Bank;
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<PAGE>
(c) Demand that Borrowers (i) deposit cash with Bank in an
amount equal to the amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrower shall forthwith deposit and pay such amounts, and (ii)
pay in advance all Letters of Credit fees scheduled to be paid or payable over
the remaining term of the Letters of Credit;
(d) Settle or adjust disputes and claims directly with account
debtors for amounts, upon terms and in whatever order that Bank reasonably
considers advisable;
(e) Make such payments and do such acts as Bank considers
necessary or reasonable to protect its security interest in the Collateral. Each
Borrower agrees to assemble the Collateral if Bank so requires, and to make the
Collateral available to Bank as Bank may designate. Each Borrower authorizes
Bank to enter the premises where the Collateral is located, to take and maintain
possession of the Collateral, or any part of it, and to pay, purchase, contest,
or compromise any encumbrance, charge, or lien which in Bank's determination
appears to be prior or superior to its security interest and to pay all expenses
incurred in connection therewith. With respect to any Borrower's premises, each
Borrower hereby grants Bank a license to enter such premises and to occupy the
same, without charge in order to exercise any of Bank's rights or remedies
provided herein, at law, in equity, or otherwise;
(f) Set off and apply to the Obligations any and all (i)
balances and deposits of any Borrower held by Bank, or (ii) indebtedness at any
time owing to or for the credit or the account of any Borrower held by Bank;
(g) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale, and sell (in the manner provided for
herein) the Collateral. Bank is hereby granted a non-exclusive, royalty-free
license or other right, solely pursuant to the provisions of this Section 9.1,
to use, without charge, Borrowers' labels, patents, copyrights, mask works,
rights of use of any name, trade secrets, trade names, trademarks, service
marks, and advertising matter, or any property of a similar nature, as it
pertains to the Collateral, in completing production of, advertising for sale,
and selling any Collateral and, in connection with Bank's exercise of its rights
under this Section 9.1, Borrowers' rights under all licenses and all franchise
agreements shall inure to Bank's benefit;
(h) Sell the Collateral at either a public or private sale, or
both, by way of one or more contracts or transactions, for cash or on terms, in
such manner and at such places (including Borrowers' premises) as Bank
determines is commercially reasonable, and apply the proceeds thereof to the
Obligations in whatever manner or order it deems appropriate;
(i) Bank may credit bid and purchase at any public sale, or at
any private sale as permitted by law; and
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<PAGE>
(j) Any deficiency that exists after disposition of the
Collateral as provided above will be paid immediately by Borrowers.
9.2 POWER OF ATTORNEY. Effective only upon the occurrence and
during the continuance of an Event of Default, each Borrower hereby irrevocably
appoints Bank (and any of Bank's designated officers, or employees) as each
Borrower's true and lawful attorney to: (a) send requests for verification of
Accounts or notify account debtors of Bank's security interest in the Accounts;
(b) endorse Borrower's name on any checks or other forms of payment or security
that may come into Bank's possession; (c) sign Borrower's name on any invoice or
bill of lading relating to any Account, drafts against account debtors,
schedules and assignments of Accounts, verifications of Accounts, and notices to
account debtors; (d) make, settle, and adjust all claims under and decisions
with respect to each Borrower's policies of insurance which pertain to the
Collateral; and (e) settle and adjust disputes and claims respecting the
accounts directly with account debtors, for amounts and upon terms which Bank
determines to be reasonable; provided Bank may exercise such power of attorney
to sign the name of any Borrower on any of the documents described in Section
4.2 regardless of whether an Event of Default has occurred. The appointment of
Bank as each Borrower's attorney in fact, and each and every one of Bank's
rights and powers, being coupled with an interest, is irrevocable until all of
the Obligations have been fully repaid and performed and Bank's obligation to
provide advances hereunder is terminated.
9.3 ACCOUNTS COLLECTION. Upon the occurrence and during the
continuance of an Event of Default, Bank may notify any Person owing funds to
any Borrower of Bank's security interest in such funds and verify the amount of
such Account. Each Borrower shall collect all amounts owing to any Borrower for
Bank, receive in trust all payments as Bank's trustee, and if requested or
required by Bank, immediately deliver such payments to Bank in their original
form as received from the account debtor, with proper endorsements for deposit.
9.4 BANK EXPENSES. If any Borrower fails to pay any amounts or
furnish any required proof of payment due to third persons or entities, as
required under the terms of this Agreement, then Bank may do any or all of the
following: (a) make payment of the same or any part thereof; (b) set up such
reserves under the Committed Revolving Line as Bank deems necessary to protect
Bank from the exposure created by such failure; or (c) obtain and maintain
insurance policies of the type discussed in Section 6.6 of this Agreement, and
take any action with respect to such policies as Bank deems prudent. Any amounts
so paid or deposited by Bank shall constitute Bank Expenses, shall be
immediately due and payable, and shall bear interest at the then applicable rate
hereinabove provided, and shall be secured by the Collateral. Any payments made
by Bank shall not constitute an agreement by Bank to make similar payments in
the future or a waiver by Bank of any Event of Default under this Agreement.
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<PAGE>
9.5 BANK'S LIABILITY FOR COLLATERAL. So long as Bank complies
with reasonable banking practices, Bank shall not in any way or manner be liable
or responsible for: (a) the safekeeping of the Collateral; (b) any loss or
damage thereto occurring or arising in any manner or fashion from any cause; (c)
any diminution in the value thereof; or (d) any act or default of any carrier,
warehouseman, bailee, forwarding agency, or other person whomsoever. Except as
provided in Section 12.2 hereof, all risk of loss, damage or destruction of the
Collateral shall be borne by Borrowers.
9.6 REMEDIES CUMULATIVE. Bank's rights and remedies under this
Agreement, the Loan Documents, and all other agreements shall be cumulative.
Bank shall have all other rights and remedies not expressly set forth herein as
provided under the Code, by law, or in equity. No exercise by Bank of one right
or remedy shall be deemed an election, and no waiver by Bank of any Event of
Default on each Borrower's part shall be deemed a continuing waiver. No delay by
Bank shall constitute a waiver, election, or acquiescence by it. No waiver by
Bank shall be effective unless made in a written document signed on behalf of
Bank and then shall be effective only in the specific instance and for the
specific purpose for which it was given.
9.7 DEMAND; PROTEST. Each Borrower waives demand, protest,
notice of protest, notice of default or dishonor, notice of payment and
nonpayment, notice of any default, nonpayment at maturity, release, compromise,
settlement, extension, or renewal of accounts, documents, instruments, chattel
paper, and guarantees at any time held by Bank on which any Borrower may in any
way be liable.
10. NOTICES
Unless otherwise provided in this Agreement, all notices or
demands by any party relating to this Agreement or any other agreement entered
into in connection herewith shall be in writing and (except for financial
statements and other informational documents which may be sent by first-class
mail, postage prepaid) shall be personally delivered or sent by a recognized
overnight delivery service, by certified mail, postage prepaid, return receipt
requested, or by telefacsimile to Borrowers or to Bank, as the case may be, at
its addresses set forth below:
If to Borrowers: Sky Alland Research, Inc.
6740 Alexander Bell Drive
Columbia, Maryland 21046
Mr. Thomas Hohman
Chief Financial Officer
FAX: (410) 312-4970
with a copy to: Piper & Marbury, L.L.P.
1200 Nineteenth Street, N.W.
Washington, D.C. 20036-2430
Attn: Anthony H. Rickert, Esquire
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<PAGE>
Fax: (202) 223-2085
If to Bank: Silicon Valley Bank
One Central Plaza
11300 Rockville Pike, Suite 1205
Rockville, Maryland 20852
Attn: Peter McDonald, Assistant Vice President
FAX: (301) 984-6282
With a Copy to: Silicon Valley Bank
3003 Tasman Drive
Santa Clara, California 95054
Attn: Loan Services
FAX: (408) 496-2421
and: Ober, Kaler, Grimes & Shriver, P.C.
1401 H Street, N.W., Suite 500
Washington, D.C. 20005
Attn: Richard M. Pollak, Esq.
FAX: (202) 408-0640
The parties hereto may change the address at which they are to receive
notices hereunder, by notice in writing in the foregoing manner given to the
other.
11. CHOICE OF LAW AND VENUE
The Loan Documents shall be governed by, and construed in
accordance with, the internal laws of the State of Maryland without regard to
principles of conflicts of law. Each of Borrower and Bank hereby submits to the
exclusive jurisdiction of the state and Federal courts located in the State of
Maryland. BORROWER AND BANK EACH HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF ANY OF THE
LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR
STATUTORY CLAIMS. EACH PARTY RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH
PARTY REPRESENTS AND WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL
COUNSEL AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL.
- 30 -
<PAGE>
12. GENERAL PROVISIONS
12.1 SUCCESSORS AND ASSIGNS. This Agreement shall bind and
inure to the benefit of the respective successors and permitted assigns of each
of the parties; PROVIDED, HOWEVER, that neither this Agreement nor any rights
hereunder may be assigned by any Borrower without Bank's prior written consent,
which consent may be granted or withheld in Bank's sole discretion. Bank shall
have the right without the consent of or notice to any Borrower to sell,
transfer, negotiate, or grant participation in all or any part of, or any
interest in, Bank's obligations, rights and benefits hereunder.
12.2 INDEMNIFICATION. Borrowers shall, indemnify, defend,
protect and hold harmless Bank and its officers, employees, and agents against:
(a) all obligations, demands, claims, and liabilities claimed or asserted by any
other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses in any way suffered, incurred, or
paid by Bank as a result of or in any way arising out of, following, or
consequential to transactions between Bank and Borrowers whether under the Loan
Documents, or otherwise (including without limitation reasonable attorneys fees
and expenses), except for losses caused by Bank's gross negligence or willful
misconduct.
12.3 TIME OF ESSENCE. Time is of the essence for the
performance of all obligations set forth in this Agreement.
12.4 SEVERABILITY OF PROVISIONS. Each provision of this
Agreement shall be severable from every other provision of this Agreement for
the purpose of determining the legal enforceability of any specific provision.
12.5 AMENDMENTS IN WRITING, INTEGRATION. This Agreement cannot
be amended or terminated except by a writing signed by Borrowers and Bank. All
prior agreements, understandings, representations, warranties, and negotiations
between the parties hereto with respect to the subject matter of this Agreement,
if any, are merged into this Agreement and the Loan Documents.
12.6 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties on separate counterparts, each
of which, when executed and delivered, shall be deemed to be an original, and
all of which, when taken together, shall constitute but one and the same
Agreement.
12.7 SURVIVAL. All covenants, representations and warranties
made in this Agreement shall continue in full force and effect so long as any
Obligations remain outstanding. The obligations of Borrowers to indemnify Bank
with respect to the expenses, damages, losses,
- 31 -
<PAGE>
costs and liabilities described in Section 12.2 shall survive until all
applicable statute of limitations periods with respect to actions that may be
brought against Bank have run.
12.8 RIGHT OF CONTRIBUTION. The Borrowers and the Bank agree
that on and after the Closing Date, each Borrower (an "Entitled Borrower") shall
be entitled to contribution from each other Borrower to the extent, if any, that
(a) an Entitled Borrower incurs any Obligations in excess of such Entitled
Borrowers Net Valuation (as hereinafter defined) or (b) the Obligations incurred
by such Entitled Borrower would leave such Entitled Borrower with an
unreasonably small amount of capital to enable the Entitled Borrower to operate
the business in which it is engaged, and/or the Obligations incurred by such
Entitled Borrower prevent such Entitled Borrower from paying its debts as such
debts mature; provided, however, that such right of contribution shall be
subordinated to the payment of the Obligations and may not be exercised by any
Borrower until all of the Obligations have been paid in full. Nothing in this
Section shall be deemed to in any manner impair the joint and several liability
of each Borrower for any and all of the Obligations. The provisions of this
Section shall be in addition to and shall in no manner limit any other rights of
contribution available to any Borrower. The term "Net Valuation" as used in this
Section means the amount by which (1) an Entitled Borrower's property at a fair
valuation exceeds (2) such Entitled Borrower's debts.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS/ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Cynthia M. By: /s/ Robert W. Gross (SEAL)
- ------------------------ --------------------------
Name: Robert W. Gross
Title: Chief Financial Officer
WITNESS/ATTEST: THE DATA GROUP II, INC.
/s/ Cynthia M. By: /s/ Richard T. Hebert (SEAL)
- ------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
SILICON VALLEY BANK
By: /s/ Pete McDonald
-------------------------
Pete McDonald
Assistant Vice President
- 32 -
<PAGE>
EXHIBIT A
The Collateral shall consist of all right, title and interest of each Borrower
in and to the following:
(a) All goods and equipment now owned or hereafter acquired, including,
without limitation, all machinery, fixtures, vehicles (including motor vehicles
and trailers), and any interest in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions, and
improvements to any of the foregoing, wherever located;
(b) All inventory, now owned or hereafter acquired, including, without
limitation, all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products including such
inventory as is temporarily out of any Borrower's custody or possession or in
transit and including any returns upon any accounts or other proceeds, including
insurance proceeds, resulting from the sale or disposition of any of the
foregoing and any documents of title representing any of the above, and
Borrower's Books relating to any of the foregoing;
(c) All contract rights and general intangibles now owned or hereafter
acquired, including, without limitation, goodwill, leases, license agreements,
franchise agreements, blueprints, drawings, purchase orders, customer lists,
route lists, claims, literature, reports, catalogs, income tax refunds, payments
of insurance and rights to payment of any kind;
(d) All now existing and hereafter arising accounts, contract rights,
royalties, license rights and all other forms of obligations owing to any
Borrower arising out of the sale or lease of goods, the licensing of technology
or the rendering of services by any Borrower, whether or not earned by
performance, and any and all credit insurance, guaranties, and other security
therefor, as well as all merchandise returned to or reclaimed by any Borrower
and each Borrower's Books relating to any of the foregoing;
(e) All documents, cash, deposit accounts, securities, letters of
credit, certificates of deposit, instruments and chattel paper now owned or
hereafter acquired and Borrowers' Books relating to the foregoing; and
(f) Any and all claims, rights and interests in any of the above and
all substitutions for, additions and accessions to and proceeds thereof.
Notwithstanding the foregoing, the Collateral shall not be deemed to include any
copyright rights, copyright applications, copyright registrations and like
protections in each work of authorship and derivative work thereof, whether
published or unpublished, now owned or hereafter acquired; any patents,
trademarks, servicemarks and applications therefor; any trade
- 33 -
<PAGE>
secret rights, including any rights to unpatented inventions, know-how,
operating manuals, license rights and agreements and confidential information,
now owned or hereafter acquired; or any claims for damages by way of any past,
present and future infringement of any of the foregoing.
- 34 -
<PAGE>
EXHIBIT B
LOAN PAYMENT/ADVANCE TELEPHONE REQUEST FORM
DEADLINE FOR SAME DAY PROCESSING IS 3:00 P.M., E.S.T.
TO: CENTRAL CLIENT SERVICE DIVISION DATE: _______________________
FAX#: (408) __________ TIME: ____________________
FROM:__________________________________________________________________________
BORROWER'S NAME
FROM:__________________________________________________________________________
AUTHORIZED SIGNER'S NAME
_______________________________________________________________________________
AUTHORIZED SIGNATURE
PHONE:_________________________________________________________________________
FROM ACCOUNT #_____________________________ TO ACCOUNT#________________________
<TABLE>
<CAPTION>
REQUESTED TRANSACTION TYPE REQUEST DOLLAR AMOUNT
<S> <C>
PRINCIPAL INCREASE (ADVANCE) $
PRINCIPAL PAYMENT (ONLY) $
INTEREST PAYMENT (ONLY) $
PRINCIPAL AND INTEREST (PAYMENT) $
</TABLE>
OTHER INSTRUCTIONS:
All representations and warranties of Borrower stated in the Loan and
Security Agreement are true, correct and complete in all material respects as of
the date of the telephone request for and Advance confirmed by this Advance
Request; provided, however, that those representations and warranties expressly
referring to another date shall be true, correct and complete in all material
respects as of such date.
BANK USE ONLY:
TELEPHONE REQUEST:
The following person is authorized to request the loan payment transfer/loan
advance on the advance designated account and is known to me.
__________________________________________
Authorized Requester
___________________________________
Authorized Signature (Bank)
Phone #____________________________
- 35 -
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Sky Alland Research, Inc. Bank: Silicon Valley Bank
Commitment Amount: $3,500,000
<TABLE>
ACCOUNTS RECEIVABLE
<S> <C> <C>
1. Accounts Receivable Book Value as of $
-------- ----------------------
2. Additions (please explain on reverse) $
----------------------
3. TOTAL ACCOUNTS RECEIVABLE $
----------------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
----------------------
5. Balance of 50% over 90 day accounts $
----------------------
6. Concentration Limits $
----------------------
7. Foreign Accounts $
----------------------
8. Governmental Accounts $
----------------------
9. Contra Accounts $
----------------------
10. Promotion or Demo Accounts $
----------------------
11. Intercompany/Employee Accounts $
----------------------
12. Other (please explain on reverse) $
----------------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
---------------------
14. Eligible Accounts (#3 minus #13) $
----------------------
15. Maximum Loan Amount $3,500,000
16. Total Funds Available [Lesser of #15 or 14] $
----------------------
17. Present balance owing on Line of Credit $
----------------------
18. Outstanding under Sublimits (____ ) $
----------------------
19. RESERVE POSITION (#16 minus #17 and #18) $
----------------------
</TABLE>
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE FOREGOING IS TRUE, COMPLETE AND
CORRECT, AND THAT THE INFORMATION REFLECTED IN THIS BORROWING BASE CERTIFICATE
COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE LOAN AND
SECURITY AGREEMENT BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK.
COMMENTS:
BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
_____________________________________
By: _______________________
Authorized Signer
EXHIBIT D
- 36 -
<PAGE>
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: SKY ALLAND RESEARCH, INC.
The undersigned authorized officer of SKY ALLAND RESEARCH, INC. hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrowers and Bank (the "Agreement"), (i) Borrowers
are in complete compliance for the period ending with all required covenants
except as noted below and (ii) all representations and warranties of Borrowers
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the required documents supporting the above
certification. The Officer further certifies that these are prepared in
accordance with Generally Accepted Accounting Principles (GAAP) and are
consistently applied from one period to the next except as explained in an
accompanying letter or footnotes. The Officer expressly acknowledges that no
borrowings may be requested by the Borrower at any time or date of determination
that Borrowers are not in compliance with any of the terms of the Agreement, and
that such compliance is determined not just at the date this certificate is
delivered.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Quarterly financial statements Quarterly within 30 days Yes No
Annual (CPA Audited)
FYE within 90 days Yes No
A/R Agings Monthly within 30 days Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio:
4/30/98- 6/30/98 1.00:1.0 ____:1.0 Yes No
Thereafter 1.25:1.0 ____:1.0 Yes No
Minimum Tangible Net Worth
4/30/98- 6/30/98 $3,500,000 $__________ Yes No
7/1/98 - 9/30/98 $8,000,000 $__________ Yes No
At all times thereafter $9,000,000 $__________ Yes No
Debt Service Coverage:
1.50:1.0 __:1.0 Yes No
2.00:1.0 __:1.0 Yes No
Liabilities/Tangible Net Worth
4/30/98- 6/30/98 2.0 to 1.0 _____:1.0 Yes No
At all times thereafter 1.0 to 1.0 _____:1.0 Yes No
</TABLE>
======================================================
BANK USE ONLY
Received By:____________________
Date:________________
Reviewed By:____________________
Compliance Status: Yes / No
======================================================
- 37 -
<PAGE>
Comments Regarding Exceptions:
Sincerely,
_______________________ Date:_______________
SIGNATURE
_________________________
TITLE
- 38 -
<PAGE>
Exhibit 10.7.1
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement")
is entered into as of September 1, 1997, by and among SILICON VALLEY BANK, a
California-chartered bank ("Bank") with its principal place of business at 3003
Tasman Drive, Santa Clara, California 95054 and with a loan production office
located at One Central Plaza, 11300 Rockville Pike, Suite 701, Rockville,
Maryland 20852, doing business under the name "Silicon Valley East" ("Bank") and
SKY ALLAND RESEARCH, INC., a Maryland corporation ("Sky Alland"), MARCOM
HOLDINGS, INC., a Maryland corporation and THE DATA GROUP II, INC., a Maryland
corporation (each a "Borrower" and collectively, the "Borrowers").
RECITALS.
A. Borrowers and Bank have entered into that certain Loan and Security
Agreement dated February 14, 1997 (the "Loan Agreement"), pursuant to which Bank
has agreed to establish a Committed Equipment Line in favor of Borrowers in the
maximum principal amount of $750,000.
B. Borrowers have requested that Bank increase the maximum principal
amount available under the Committed Equipment Line available to purchase
software from One Hundred Fifty Thousand and No/100 Dollars ($150,000) to Two
Hundred Fifty Thousand and No/100 Dollars ($250,000) and Bank has agreed on the
condition, among others, that this Agreement be executed and delivered by
Borrowers to Bank.
-1-
<PAGE>
C. Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrowers and Bank do hereby agree as follows:
1. RECITALS. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. EQUIPMENT LINE. Section 2.1.3(c) of the Loan Agreement is hereby
deleted in its entirety and the following is inserted in substitution thereof:
(c) To evidence the Equipment Advance or Equipment Advances,
Borrowers shall deliver to Bank, at the time of each Equipment Advance
request, an invoice for the Eligible Equipment to be purchased. The
Equipment Advances shall be used only to purchase Eligible Equipment
and shall not exceed eighty percent (80%) of the invoice amount of such
Eligible Equipment, excluding taxes, shipping, warranty charges,
freight discounts and installation expense, and further provided that
Eligible Equipment which is used shall not constitute more than Fifty
Thousand Dollars ($50,000) of the aggregate amount of all Equipment
Advances. Software may, however, constitute up to Two Hundred and Fifty
Thousand Dollars ($250,000) of aggregate Equipment Advances. Each
Equipment Advance must be in a minimum amount of Ten Thousand Dollars
($10,000).
3. CONDITIONS PRECEDENT. This Agreement shall become effective on the
date Bank receives the following documents, each of which shall be satisfactory
in form and substance to Bank:
-2-
<PAGE>
(a) Proof that Borrowers have paid all costs and expenses to
Bank in connection with this Agreement, including but not limited to Bank's
reasonable attorneys fees; and
(b) Such other information, instruments, opinions, documents,
certificates and reports as Bank may deem necessary.
4. REPRESENTATIONS. Borrowers hereby confirm that the covenants set
forth in Section 5 of the Loan Agreement as hereby amended, are true and correct
as of the date hereof, and that no Event of Default has occurred or is
continuing immediately prior to or upon the execution of this Agreement.
5. COUNTERPARTS. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
6. LOAN DOCUMENTS; GOVERNING LAW; ETC. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance with the laws of the State of Maryland. The headings and captions
in this Agreement are for the convenience of the parties only and are not a part
of this Agreement.
7. ACKNOWLEDGMENTS. Borrowers hereby confirm to Bank the enforceability
and validity of each of the Loan Documents. In addition, Borrowers hereby agree
to the execution and delivery of this Agreement and the terms and provisions,
covenants or agreements contained in this Agreement shall not in any manner
release, impair, lessen, modify, waive or otherwise limit the joint and several
liability and obligations of Borrowers under the terms of any of the
-3-
<PAGE>
Loan Documents, except as otherwise specifically set forth in this Agreement.
Borrowers issue, ratify and confirm the representations, warranties and
covenants contained in the Loan Documents.
8. MODIFICATIONS. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS OR ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Cynthia M. By: /s/ Robert W. Gross (SEAL)
- ------------------------------ --------------------------
Name: Robert W. Gross
Title: Chief Financial Officer
-4-
<PAGE>
WITNESS OR ATTEST: MARCOM HOLDINGS, INC.
/s/ Cynthia M. By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
WITNESS OR ATTEST: THE DATA GROUP II, INC.
/s/ Cynthia M. By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
SILICON VALLEY BANK, doing business as
SILICON VALLEY EAST
By: /s/ Pete McDonald
--------------------------
Pete McDonald
Assistant Vice President
-5-
<PAGE>
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement")
is entered into as of December 22, 1997, by and among SILICON VALLEY BANK, a
California-chartered bank ("Bank") with its principal place of business at 3003
Tasman Drive, Santa Clara, California 95054 and with a loan production office
located at One Central Plaza, 11300 Rockville Pike, Suite 1205, Rockville,
Maryland 20852 ("Bank") and SKY ALLAND RESEARCH, INC., a Maryland corporation
("Sky Alland") and THE DATA GROUP II, INC., a Maryland corporation (each a
"Borrower" and collectively, the "Borrowers").
RECITALS.
A. Borrowers, MARCOM HOLDINGS, INC., a Maryland corporation ("Marcom")
and Bank have entered into that certain Loan and Security Agreement dated
February 14, 1997 (the "Original Loan Agreement"), pursuant to which Bank has
agreed to establish a line of credit in the amount of $2,250,000 and a committed
equipment line in favor of Borrowers in the maximum principal amount of
$750,000. The Original Loan Agreement was amended by that certain First
Amendment to Loan and Security Agreement dated September 1, 1997 (the "First
Amendment") by and among the Borrowers and the Bank (the Original Loan Agreement
as amended by the First Amendment is hereinafter called the "Loan Agreement").
Marcom was merged into Sky Alland on December 18, 1997, with Sky Alland being
the surviving corporation.
-1-
<PAGE>
B. Borrowers have failed to comply with the requirements of Sections
6.9 and 6.11 of the Loan Agreement and have requested that Bank forbear with
respect to Section 6.9 and temporarily waive the requirements of Section 6.11
and Bank has agreed on the condition, among others, that this Agreement be
executed and delivered by Borrowers to Bank.
C. Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrowers and Bank do hereby agree as follows:
1. RECITALS. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. ACKNOWLEDGMENTS OF BORROWERS. The Borrowers hereby acknowledge and
agree that the Borrowers are currently in default under the Loan Documents, for
among other reasons, the Borrowers' failure to comply with Section 6.9 and
Section 6.11 of the Loan Agreement. In addition, the Borrowers anticipate that
they will not be in compliance with the Debt-Net Worth requirement of Section
6.9 for the periods ending November 30, 1997, December 31, 1997 and January 31,
1998.
3. DEBT-NET WORTH RATIO. The Bank hereby waives the Borrowers'
compliance with the requirements of Section 6.9 for the periods ending August
31, 1997, September 30, 1997 and October 31, 1997. In addition, subject to the
terms and conditions of this Agreement, the
-2-
<PAGE>
Bank agrees to forbear from exercising any rights or remedies under the Loan
Agreement by virtue of the Borrowers' failure to comply with the requirements of
Section 6.9 for the periods ending November 30, 1997, December 31, 1997 and
January 31, 1998.
4. PROFITABILITY. The Bank hereby waives the Borrowers' compliance with
the requirements of Section 6.11 for the period ending September 30, 1997.
Notwithstanding anything in this Agreement to the contrary, commencing with the
fiscal quarter ending December 31, 1997 and at all times thereafter, Borrowers
shall be profitable on a consolidated basis.
5. CONDITIONS PRECEDENT. This Agreement shall become effective on the
date Bank receives the following documents, each of which shall be satisfactory
in form and substance to Bank:
(a) Proof that Borrowers have paid all costs and expenses to
Bank in connection with this Agreement, including but not limited to Bank's
reasonable attorneys fees; and
(b) Such other information, instruments, opinions, documents,
certificates and reports as Bank may deem necessary.
6. REPRESENTATIONS. Borrowers hereby confirm that:
(a) The covenants set forth in Section 5 of the Loan Agreement
as hereby amended, are true and correct as of the date hereof;
(b) The Borrowers have no defenses, rights of setoff, claims,
counterclaims, or causes of action of any kind or nature whatsoever against the
Bank or any agent, attorney, legal representative, predecessor-in-interest, or
affiliate of the Bank, directly or indirectly in any
-3-
<PAGE>
manner connected with, pursuant to, or by virtue of the Obligations or any of
the Loan Documents, and TO THE EXTENT ANY SUCH DEFENSES, RIGHTS OF SETOFF,
CLAIMS, COUNTERCLAIMS, OR CAUSES OF ACTION EXIST, SUCH DEFENSES, RIGHTS, CLAIMS,
COUNTERCLAIMS, AND CAUSES OF ACTION ARE HEREBY FOREVER WAIVED, DISCHARGED AND
RELEASED; and
(c) Other than the defaults described in Paragraph 2 above, no
defaults exist under the Loan Documents.
7. NO WAIVER OF RIGHTS OR REMEDIES. The parties hereto acknowledge and
agree that the Bank (i) shall retain all rights and remedies it may have with
respect to the Obligations under the Loan Documents and the Borrowers' failure
to honor or otherwise comply with said Obligations (collectively, "Default
Rights"), and (ii) shall have the right to exercise and enforce such Default
Rights upon termination of this Agreement. The parties further agree that the
exercise of any Default Rights by the Bank upon termination of this Agreement
shall not be affected by reason of this Agreement, and the Borrowers shall not
assert as a defense thereto the passage of time, estoppel, laches or any statute
of limitations to the extent that the exercise of any Default Rights was
precluded by this Agreement.
8. COUNTERPARTS. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
9. LOAN DOCUMENTS; GOVERNING LAW; ETC. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance
-4-
<PAGE>
with the laws of the State of Maryland. The headings and captions in this
Agreement are for the convenience of the parties only and are not a part of this
Agreement.
10. ACKNOWLEDGMENTS. Borrowers hereby confirm to Bank the
enforceability and validity of each of the Loan Documents. In addition,
Borrowers hereby agree to the execution and delivery of this Agreement and the
terms and provisions, covenants or agreements contained in this Agreement shall
not in any manner release, impair, lessen, modify, waive or otherwise limit the
joint and several liability and obligations of Borrowers under the terms of any
of the Loan Documents, except as otherwise specifically set forth in this
Agreement. Borrowers issue, ratify and confirm the representations, warranties
and covenants contained in the Loan Documents.
11. MODIFICATIONS. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
[REMAINDER OF PAGE LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS OR ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Cynthia M. By: /s/ Robert W. Gross (SEAL)
- ------------------------------ --------------------------
Name: Robert W. Gross
Title: Chief Financial Officer
WITNESS OR ATTEST: THE DATA GROUP II, INC.
/s/ Cynthia M. By: /s/ Robert W. Gross (SEAL)
- ------------------------------ --------------------------
Name: Robert W. Gross
Title: Chief Financial Officer
SILICON VALLEY BANK
By: /s/ Pete McDonald
--------------------------
Pete McDonald
Assistant Vice President
-6-
<PAGE>
THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement")
is entered into as of March 19, 1998, but effective as of February 13, 1998, by
and among SILICON VALLEY BANK, a California-chartered bank ("Bank") with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and with a loan production office located at One Central Plaza, 11300 Rockville
Pike, Suite 1205, Rockville, Maryland 20852 ("Bank") and SKY ALLAND RESEARCH,
INC., a Maryland corporation ("Sky Alland") and THE DATA GROUP II, INC., a
Maryland corporation (each a "Borrower" and collectively, the "Borrowers").
RECITALS.
A. Borrowers and MARCOM HOLDINGS, INC., a Maryland corporation
("Marcom") and Bank have entered into that certain Loan and Security Agreement
dated February 14, 1997 (the "Original Loan Agreement"), pursuant to which Bank
has agreed to establish a line of credit in the amount of $2,250,000 and a
committed equipment line in favor of Borrowers in the maximum principal amount
of $750,000. The Original Loan Agreement was amended by that certain First
Amendment to Loan and Security Agreement dated September 1, 1997 (the "First
Amendment") by and among the Borrowers and the Bank, and was further amended by
that certain Second Amendment to Loan and Security Agreement dated December 22,
1997 (the "Second Amendment") by and among the Borrowers and the Bank (the
Original Loan Agreement as amended by the First Amendment and the Second
Amendment is hereinafter
-1-
<PAGE>
called the "Loan Agreement"). Marcom was merged into Sky Alland on December 18,
1997, with Sky Alland being the surviving corporation.
B. The Loan has matured and Borrowers have requested that Bank extend
the maturity of the Loan and modify certain covenants set forth in the Loan
Agreement and Bank has agreed on the condition, among others, that this
Agreement be executed and delivered by Borrowers to Bank.
C. Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrowers and Bank do hereby agree as follows:
1. RECITALS. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. DEFINITIONS. The definition of "Revolving Maturity Date" in Section
1.1 of the Loan Agreement is hereby deleted in its entirety and the following is
inserted in substitution thereof:
"Revolving Maturity Date" means April 13, 1998."
Except as amended hereby, Section 1.1 shall remain unchanged.
3. FINANCIAL COVENANTS. From and after the effective date hereof
Sections 6.8 and 6.10 of the Loan Agreement are hereby amended and restated in
their entirety to read as follows:
-2-
<PAGE>
6.8 QUICK RATIO. Borrowers shall maintain, as of the last day
of each calendar month, a ratio of Quick Assets to Current Liabilities,
less deferred revenues, of at least 1.0 to 1.0 through March 31, 1998
and at least 1.25 to 1.0, at all times thereafter.
6.9 DEBT-NET WORTH RATIO. Borrowers shall maintain, as of the
last day of each calendar month, a ratio of Total Liabilities, less
deferred revenues, to Tangible Net Worth plus Subordinated Debt of not
more than 2.0 to 1.0. through March 31, 1998 and 1.0 to 1.0, at all
times thereafter.
6.10 TANGIBLE NET WORTH. Borrowers shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not less than
the following amounts at the following times:
(a) Three Million Five Hundred Thousand Dollars ($3,500,000)
as of the period ending March 31, 1998;
(b) Eight Million Dollars ($8,000,000) for the period
commencing April 1, 1998 through and including June 30,
1998;
(c) Eight Million Five Hundred Thousand Dollars ($8,500,000)
for the period commencing July 1, 1998 through and
including September 30, 1998;
(d) Thereafter the Borrowers shall maintain a minimum
Tangible Net Worth equal to not less than Nine
Million Dollars ($9,000,000).
4. PROFITABILITY. From and after the effective date hereof, Section
6.11 of the Loan Agreement is deleted in its entirety.
5. REPLACEMENT NOTE. The Borrowers shall execute and deliver to the
Bank on the date hereof that certain Amended and Restated Revolving Promissory
Note in the form of EXHIBIT E attached hereto and incorporated herein by
reference (the "Replacement Revolving Promissory Note") in substitution for and
not satisfaction of, the issued and outstanding Revolving Promissory Note dated
as of February 14, 1997, and the Replacement Revolving
-3-
<PAGE>
Promissory Note shall be the "Revolving Promissory Note" or the "Note" for all
purposes of the Loan Documents. The Replacement Revolving Promissory Note shall
not operate as a novation of any of the Obligations or nullify, discharge, or
release any such Obligations or the continuing contractual relationship of the
Borrowers in accordance with the provisions of the Loan Documents.
6. CONDITIONS PRECEDENT. This Agreement shall become effective on the
date the Bank receives the following documents, each of which shall be
satisfactory in form and substance to the Bank:
(a) The Replacement Revolving Promissory Note issued and
delivered by the Borrowers;
(b) Proof that the Borrowers have paid all costs and expenses
to the Bank in connection with this Agreement, including but not limited to, the
Bank's reasonable attorneys fees; and
(c) Such other information, instruments, opinions, documents,
certificates and reports as the Bank may deem necessary.
7. REPRESENTATIONS. Borrowers hereby confirm that:
(a) The covenants set forth in Section 5 of the Loan Agreement
as hereby amended, are true and correct as of the date hereof;
(b) The Borrowers have no defenses, rights of setoff, claims,
counterclaims, or causes of action of any kind or nature whatsoever against the
Bank or any agent, attorney, legal representative, predecessor-in-interest, or
affiliate of the Bank, directly or indirectly in any
-4-
<PAGE>
manner connected with, pursuant to, or by virtue of the Obligations or any of
the Loan Documents, and TO THE EXTENT ANY SUCH DEFENSES, RIGHTS OF SETOFF,
CLAIMS, COUNTERCLAIMS, OR CAUSES OF ACTION EXIST, SUCH DEFENSES, RIGHTS, CLAIMS,
COUNTERCLAIMS, AND CAUSES OF ACTION ARE HEREBY FOREVER WAIVED, DISCHARGED AND
RELEASED; and
(c) No defaults exist under the Loan Documents.
8. NO WAIVER OF RIGHTS OR REMEDIES. The parties hereto acknowledge and
agree that the Bank (i) shall retain all rights and remedies it may have with
respect to the Obligations under the Loan Documents and the Borrowers' failure
to honor or otherwise comply with said Obligations (collectively, "Default
Rights"), and (ii) shall have the right to exercise and enforce such Default
Rights upon termination of this Agreement. The parties further agree that the
exercise of any Default Rights by the Bank upon termination of this Agreement
shall not be affected by reason of this Agreement, and the Borrowers shall not
assert as a defense thereto the passage of time, estoppel, laches or any statute
of limitations to the extent that the exercise of any Default Rights was
precluded by this Agreement.
9. COUNTERPARTS. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
10. LOAN DOCUMENTS; GOVERNING LAW; ETC. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance
-5-
<PAGE>
with the laws of the State of Maryland. The headings and captions in this
Agreement are for the convenience of the parties only and are not a part of this
Agreement.
11. ACKNOWLEDGMENTS. Borrowers hereby confirm to Bank the
enforceability and validity of each of the Loan Documents. In addition,
Borrowers hereby agree to the execution and delivery of this Agreement and the
terms and provisions, covenants or agreements contained in this Agreement shall
not in any manner release, impair, lessen, modify, waive or otherwise limit the
joint and several liability and obligations of Borrowers under the terms of any
of the Loan Documents, except as otherwise specifically set forth in this
Agreement. Borrowers issue, ratify and confirm the representations, warranties
and covenants contained in the Loan Documents.
12. MODIFICATIONS. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
[REMAINDER OF PAGE LEFT BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS OR ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Julianna Poff By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
WITNESS OR ATTEST: THE DATA GROUP II, INC.
/s/ Julianna Poff By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
SILICON VALLEY BANK
By: /s/ Pete McDonald
---------------------------
Pete McDonald
Assistant Vice President
-7-
<PAGE>
Exhibit 10.7.4
FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement")
effective as of June 13, 1999, by and among SILICON VALLEY BANK, a
California-chartered bank ("Bank") with its principal place of business at 3003
Tasman Drive, Santa Clara, California 95054 and doing business in Virginia as
"Silicon Valley East, Inc. with a loan production office located at 11600
Sunrise Valley Drive, Suite 400, Reston, Virginia 20191 and SKY ALLAND RESEARCH,
INC., a Maryland corporation ("Sky Alland") and THE DATA GROUP II, INC., a
Maryland corporation (each a "Borrower" and collectively, the "Borrowers").
RECITALS.
A. Borrowers and Bank have entered into that certain Loan and Security
Agreement dated May 28, 1998 (the Loan and Security Agreement as amended from
time to time, is called the "Loan Agreement"), pursuant to which Bank has agreed
to establish a line of credit in the amount of $3,500,000 and a committed
equipment line in favor of Borrowers in the maximum principal amount of
$2,000,000.
B. Borrowers have requested that Bank extend the maturity date of the
committed line of credit and Bank has agreed on the condition, among others,
that this Agreement be executed and delivered by Borrowers to Bank.
C. Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrowers and Bank do hereby agree as follows:
1. RECITALS. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. REVOLVING MATURITY DATE. From and after the effective date of this
Agreement, all references in the Loan Agreement and the Loan Documents to
"Revolving Maturity Date" shall mean September 13, 1999.
3. ACKNOWLEDGMENTS OF BORROWERS. The Borrowers hereby acknowledge and
agree that the Borrowers are currently in violation of the requirements of
Section 6.10 of the Loan Agreement.
4. LETTERS OF CREDIT. From and after the effective date hereof, Section
2.1.1(a) of the Loan Agreement is amended and restated in its entirety:
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the
account of one or more of Borrowers in an aggregate outstanding face
amount not to exceed (i) the lesser of the Committed Revolving Line or
the Borrowing Base, whichever is less, minus (ii) the then outstanding
principal balance of the Advances; PROVIDED that the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit and any Letter of Credit Reserve) shall not in any case
exceed One Million Dollars ($1,000,000). Each Letter of Credit shall
have an expiry date no later than one hundred eighty (180) days after
the Revolving Maturity Date, provided, that Borrowers' Letter of Credit
reimbursement obligations shall be secured by cash on terms acceptable
to bank at any time after the Revolving Maturity Date, if the term of
this Agreement is note extended by Bank. All Letters of Credit shall
be, in form and substance, acceptable to Bank
-2-
<PAGE>
in its sole discretion and shall be subject to the terms and conditions
of Bank's form of standard Application and Letter of Credit Agreement.
5. TANGIBLE NET WORTH DEFAULT. The Bank hereby waives the Borrowers'
compliance with the requirements of Section 6.10 for the periods ending April
30, 1999, May 31, 1999 and June 30, 1999. Notwithstanding anything in this
Agreement to the contrary, commencing with the month ending July 31, 1999 and at
all times thereafter, Borrowers shall comply with the provisions of Section 6.8.
6. TANGIBLE NET WORTH. From and after the effective date hereof Section
6.10 of the Loan Agreement is hereby amended and restated in its entirety to
read as follows:
6.10 TANGIBLE NET WORTH. Borrowers shall maintain, as of the
last day of each calendar month, a Tangible Net Worth of not less than
$8,500,000.
7. LETTERS OF CREDIT. From and after the effective date hereof, Section
2.1.1(a) of the Loan Agreement is amended and restated in its entirety:
(a) Subject to the terms and conditions of this Agreement,
Bank agrees to issue or cause to be issued Letters of Credit for the
account of one or more of Borrowers in an aggregate outstanding face
amount not to exceed (i) the lesser of the Committed Revolving Line or
the Borrowing Base, whichever is less, minus (ii) the then outstanding
principal balance of the Advances; PROVIDED that the face amount of
outstanding Letters of Credit (including drawn but unreimbursed Letters
of Credit and any Letter of Credit Reserve) shall not in any case
exceed One Million Dollars ($1,000,000). Each Letter of Credit shall
have an expiry date no later than one hundred eighty (180) days after
the Revolving Maturity Date, provided, that Borrowers' Letter of Credit
reimbursement obligations shall be secured by cash on terms acceptable
to bank at any time after the Revolving Maturity Date, if the term of
this Agreement is note extended by Bank. All Letters of Credit shall
be, in form and substance, acceptable to Bank in its sole discretion
and shall be subject to the terms and conditions of Bank's form of
standard Application and Letter of Credit Agreement.
-3-
<PAGE>
8. CONDITIONS PRECEDENT. This Agreement shall become effective on the
date Bank receives the following documents, each of which shall be satisfactory
in form and substance to Bank:
(a) A Third Amended and Restated Revolving Promissory Note
issued and delivered by the Borrowers in the form of EXHIBIT "E" attached hereto
and incorporated herein by reference, payable to the order of the Lender in the
maximum principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000.00) (which Second Amended and Restated Revolving Promissory Note is
sometimes referred to herein as the "Replacement Revolving Note");
(b) Proof that Borrowers have paid all costs and expenses to
Bank in connection with this Agreement, including but not limited to Bank's
reasonable attorneys fees; and
(c) Such other information, instruments, opinions, documents,
certificates and reports as Bank may deem necessary.
9. REPLACEMENT NOTE. EXHIBIT E to the Loan Agreement is hereby replaced
in its entirety with EXHIBIT "E" attached hereto. The Borrowers shall execute
and deliver to the Lender on the date hereof the Replacement Revolving
Promissory Note in substitution for and not satisfaction of, the issued and
outstanding Revolving Promissory Note and the Replacement Revolving Promissory
Note shall be the "Revolving Promissory Note" for all purposes of the Loan
Documents. The Replacement Revolving Note shall not operate as a novation of the
joint and several Obligations of the Borrowers, or nullify, discharge, or
release any such Obligations
-4-
<PAGE>
or the continuing contractual relationship of the Borrowers in accordance with
the provisions of the Loan Documents. All references in the Financing Agreements
to the "Revolving Promissory Note" shall be deemed to refer to the Replacement
Revolving Note.
10. REPRESENTATIONS. Borrowers hereby confirm that:
(a) The covenants set forth in Sections 5 and 7 of the Loan
Agreement as hereby amended, are true and correct as of the date hereof;
(b) The Borrowers have no defenses, rights of setoff, claims,
counterclaims, or causes of action of any kind or nature whatsoever against the
Bank or any agent, attorney, legal representative, predecessor-in-interest, or
affiliate of the Bank, directly or indirectly in any manner connected with,
pursuant to, or by virtue of the Obligations or any of the Loan Documents, and
TO THE EXTENT ANY SUCH DEFENSES, RIGHTS OF SETOFF, CLAIMS, COUNTERCLAIMS, OR
CAUSES OF ACTION EXIST, SUCH DEFENSES, RIGHTS, CLAIMS, COUNTERCLAIMS, AND CAUSES
OF ACTION ARE HEREBY FOREVER WAIVED, DISCHARGED AND RELEASED; and
(c) No defaults exist under the Loan Documents.
11. COUNTERPARTS. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
12. LOAN DOCUMENTS; GOVERNING LAW; ETC. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance
-5-
<PAGE>
with the laws of the State of Maryland. The headings and captions in this
Agreement are for the convenience of the parties only and are not a part of this
Agreement.
13. ACKNOWLEDGMENTS. Borrowers hereby confirm to Bank the
enforceability and validity of each of the Loan Documents. In addition,
Borrowers hereby agree to the execution and delivery of this Agreement and the
terms and provisions, covenants or agreements contained in this Agreement shall
not in any manner release, impair, lessen, modify, waive or otherwise limit the
joint and several liability and obligations of Borrowers under the terms of any
of the Loan Documents, except as otherwise specifically set forth in this
Agreement. Borrowers issue, ratify and confirm the representations, warranties
and covenants contained in the Loan Documents.
14. MODIFICATIONS. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
[REMAINDER OF PAGE LEFT BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS OR ATTEST: SKY ALLAND RESEARCH, INC.
By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
WITNESS OR ATTEST: THE DATA GROUP II, INC.
By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
SILICON VALLEY EAST, INC.
By: /s/ Pete McDonald
--------------------------
Pete McDonald
Vice President
SILICON VALLEY BANK
By: /s/ Pete McDonald
--------------------------
Pete McDonald
Vice President
-7-
<PAGE>
Exhibit 10.7.5
FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIFTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement")
effective as of September 13, 1999, by and among SILICON VALLEY BANK, a
California-chartered bank ("Bank") with its principal place of business at 3003
Tasman Drive, Santa Clara, California 95054 and doing business in Virginia as
"Silicon Valley East" with a loan production office located at 11600 Sunrise
Valley Drive, Suite 400, Reston, Virginia 20191 and SKY ALLAND RESEARCH, INC., a
Maryland corporation ("Sky Alland") and THE DATA GROUP II, INC., a Maryland
corporation (each a "Borrower" and collectively, the "Borrowers").
RECITALS.
A. Borrowers and Bank have entered into that certain Loan and Security
Agreement dated May 28, 1998 (the Loan and Security Agreement as amended from
time to time, is called the "Loan Agreement"), pursuant to which Bank has agreed
to establish a line of credit in the maximum principal amount of Three Million
Five Hundred Thousand Dollars ($3,500,000) and a committed equipment line in
favor of Borrowers in the maximum principal amount of Two Million Dollars
($2,000,000).
B. Borrowers have requested that Bank extend the maturity date of the
line of credit and Bank has agreed on the condition, among others, that this
Agreement be executed and delivered by Borrowers to Bank.
<PAGE>
C. Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, Borrowers and Bank do hereby agree as follows:
1. RECITALS. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. REVOLVING MATURITY DATE. From and after the effective date of this
Agreement, all references in the Loan Agreement and the Loan Documents to
"Revolving Maturity Date" shall mean October 13, 1999.
4. FEES. In consideration of the Bank's agreement to enter into this
Agreement Borrower has agreed to pay Bank on the date a fee in the amount of One
Thousand Dollars ($1,000).
5. CONDITIONS PRECEDENT. This Agreement shall become effective on the
date Bank receives the following documents, each of which shall be satisfactory
in form and substance to Bank:
(a) A Fourth Amended and Restated Revolving Promissory Note
issued and delivered by the Borrowers in the form of EXHIBIT "E" attached hereto
and incorporated herein by reference, payable to the order of the Lender in the
maximum principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000.00) (which Fourth Amended and Restated
-2-
<PAGE>
Revolving Promissory Note is sometimes referred to herein as the "Replacement
Revolving Note");
(b) Proof that Borrowers have paid all costs and expenses to
Bank in connection with this Agreement, including but not limited to Bank's
reasonable attorneys fees; and
(c) Such other information, instruments, opinions, documents,
certificates and reports as Bank may deem necessary.
6. REPLACEMENT NOTE. EXHIBIT E to the Loan Agreement is hereby replaced
in its entirety with EXHIBIT "E" attached hereto. The Borrowers shall execute
and deliver to the Lender on the date hereof the Replacement Revolving Note in
substitution for and not satisfaction of, the issued and outstanding Revolving
Promissory Note and the Replacement Revolving Note shall be the "Revolving
Promissory Note" for all purposes of the Loan Documents. The Replacement
Revolving Note shall not operate as a novation of the joint and several
Obligations of the Borrowers, or nullify, discharge, or release any such
Obligations or the continuing contractual relationship of the Borrowers in
accordance with the provisions of the Loan Documents. All references in the
Financing Agreements to the "Revolving Promissory Note" shall be deemed to refer
to the Replacement Revolving Note.
7. REPRESENTATIONS. Borrowers hereby confirm that:
(a) The covenants set forth in Sections 6 and 7 of the Loan
Agreement, are true and correct as of the date hereof;
-3-
<PAGE>
(b) The Borrowers have no defenses, rights of setoff, claims,
counterclaims, or causes of action of any kind or nature whatsoever against the
Bank or any agent, attorney, legal representative, predecessor-in-interest, or
affiliate of the Bank, directly or indirectly in any manner connected with,
pursuant to, or by virtue of the Obligations or any of the Loan Documents, and
TO THE EXTENT ANY SUCH DEFENSES, RIGHTS OF SETOFF, CLAIMS, COUNTERCLAIMS, OR
CAUSES OF ACTION EXIST, SUCH DEFENSES, RIGHTS, CLAIMS, COUNTERCLAIMS, AND CAUSES
OF ACTION ARE HEREBY FOREVER WAIVED, DISCHARGED AND RELEASED; and
(c) No defaults exist under the Loan Documents.
8. COUNTERPARTS. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
9. LOAN DOCUMENTS; GOVERNING LAW; ETC. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance with the laws of the State of Maryland. The headings and captions
in this Agreement are for the convenience of the parties only and are not a part
of this Agreement.
10. ACKNOWLEDGMENTS. Borrowers hereby confirm to Bank the
enforceability and validity of each of the Loan Documents. In addition,
Borrowers hereby agree to the execution and delivery of this Agreement and the
terms and provisions, covenants or agreements contained in this Agreement shall
not in any manner release, impair, lessen, modify, waive or otherwise limit the
joint and several liability and obligations of Borrowers under the terms of any
of the
-4-
<PAGE>
Loan Documents, except as otherwise specifically set forth in this Agreement.
Borrowers issue, ratify and confirm the representations, warranties and
covenants contained in the Loan Documents.
11. MODIFICATIONS. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
[REMAINDER OF PAGE LEFT BLANK]
-5-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS OR ATTEST: SKY ALLAND RESEARCH, INC.
By: /s/ Raymond J. Zukowski (SEAL)
- ------------------------------ --------------------------
Name: Raymond J. Zukowski
Title: Chief Operating Officer
WITNESS OR ATTEST: THE DATA GROUP II, INC.
By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
SILICON VALLEY BANK
By: /s/ Pete McDonald
--------------------------
Pete McDonald
Vice President
-6-
<PAGE>
Exhibit 10.7.6
SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SIXTH AMENDMENT TO LOAN AND SECURITY AGREEMENT (this "Agreement")
is entered into as of November 5, 1999, but effective as of October 15, 1999 by
and among SILICON VALLEY BANK, a California-chartered bank ("Bank") with its
principal place of business at 3003 Tasman Drive, Santa Clara, California 95054
and doing business in Virginia as "Silicon Valley East" with a loan production
office located at 11600 Sunrise Valley Drive, Suite 400, Reston, Virginia 20191
and SKY ALLAND RESEARCH, INC., a Maryland corporation ("Sky Alland") and THE
DATA GROUP II, INC., a Maryland corporation (each a "Borrower" and collectively,
the "Borrowers").
RECITALS.
A. The Borrowers and the Bank have entered into that certain Loan and
Security Agreement dated May 28, 1998 (as amended from time to time, the "Loan
Agreement"), pursuant to which the Bank has agreed to establish a line of credit
in the maximum principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000) (the "Committed Revolving Line") and a committed equipment line in
favor of Borrowers (the "Committed Equipment Line") in the maximum principal
amount of Two Million Dollars ($2,000,000).
B. The Borrowers have requested that the Bank (i) increase the maximum
principal amount and extend the maturity of the Committed Revolving Line, and
(ii) amend and restated the Committed Equipment Line, and the Bank has agreed,
on the condition, among others, that this Agreement be executed and delivered by
the Borrowers to the Bank.
C. Unless otherwise defined herein, capitalized terms used herein shall
have the respective meanings set forth in the Loan Agreement.
<PAGE>
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Borrowers and the Bank do hereby agree as follows:
1. RECITALS. The parties hereto acknowledge and agree that the above
Recitals are true and correct in all material respects and that the same are
incorporated herein and made a part hereof by reference.
2. DEFINED TERMS. From and after the date hereof, the definitions of
"Committed Equipment Line", "Committed Revolving Line", "Equipment Note",
"Revolving Maturity Date" and "Revolving Promissory Note" set forth in Section
1.1 of the Loan Agreement are hereby amended and restated in its entirety as
follows:
"Committed Equipment Line" means a credit extension
of up to One Million Dollars ($1,000,000).
"Committed Revolving Line" means a credit extension
of up to Five Million Dollars ($5,000,000).
"Equipment Note" means each of the Second Amended and
Restated Equipment Term Note No. 1 and the Second Amended and
Restated Equipment Term Note No. 2, each dated November 5,
1999 in substantially the form of EXHIBIT F attached hereto in
the maximum principal amount of One Million Dollars
($1,000,000) from the Borrowers in favor of the Bank, and
"Equipment Notes" means collectively the Second Amended and
Restated Equipment Term Note No. 1 and the Second Amended and
Restated Equipment Term Note No. 2, together with all
renewals, amendments, modifications and substitutions
therefor.
"Revolving Maturity Date" means October 13, 2000.
"Revolving Promissory Note" means that certain Fifth
Amended and Restated Revolving Promissory Note dated November
5, 1999 in substantially the form of EXHIBIT E attached hereto
in the maximum principal amount of Five Million Dollars
($5,000,000) from the Borrowers in favor of the Bank, together
with all renewals, amendments, modifications and substitutions
therefore.
- 2 -
<PAGE>
From and after the date hereof, the definition of "Eligible Equipment"
is added to Section 1.1 of the Loan Agreement as set forth below:
"Eligible Equipment" means general purpose computer
equipment, office equipment, test and laboratory equipment,
furnishings, and, subject to the limitations set forth below,
which complies with all of Borrower's representations and
warranties to Bank and which is acceptable to Bank in all
respects.
3. LETTERS OF CREDIT. Section 2.1.1 of the Loan Agreement is amended
and restated in its entirety as follows:
(a) Subject to the terms and conditions of this
Agreement, Bank agrees to issue or cause to be issued Letters
of Credit for the account of one or more of Borrowers in an
aggregate outstanding face amount not to exceed (i) the lesser
of the Committed Revolving Line or the Borrowing Base,
whichever is less, minus (ii) the then outstanding principal
balance of the Advances; PROVIDED that the face amount of
outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit and any Letter of Credit
Reserve) shall not in any case exceed One Million Dollars
($1,000,000). Each Letter of Credit shall have an expiration
date no later than one hundred eighty (180) days after the
Revolving Maturity Date, provided, that Borrowers' Letter of
Credit reimbursement obligations shall be secured by cash on
terms acceptable to bank at any time after the Revolving
Maturity Date, if the term of this Agreement is note extended
by Bank. All Letters of Credit shall be, in form and
substance, acceptable to Bank in its sole discretion and shall
be subject to the terms and conditions of Bank's form of
standard Application and Letter of Credit Agreement.
(b) The joint and several obligation of Borrowers to
immediately reimburse Bank for drawings made under Letters of
Credit shall be absolute, unconditional and irrevocable, and
shall be performed strictly in accordance with the terms of
this Agreement and such Letters of Credit, under all
circumstances whatsoever. Borrowers shall indemnify, defend,
protect, and hold Bank harmless from any loss, cost, expense
or liability, including, without limitation, reasonable
attorneys' fees, arising out of or in connection with any
Letters of Credit.
(c) Borrowers may request that Bank issue a Letter of
Credit payable in a currency other than United States Dollars.
If a demand for payment is made under any such Letter of
Credit, Bank shall treat such demand as an Advance to
Borrowers of the equivalent of the amount thereof (plus cable
charges) in United States currency at the then prevailing rate
of exchange in San Francisco, California, for sales of that
other currency for cable transfer to the country of which it
is the currency.
- 3 -
<PAGE>
(d) Upon the issuance of any Letter of Credit payable
in a currency other than United States Dollars, Bank shall
create a reserve under the Committed Revolving Line for
Letters of Credit against fluctuations in currency exchange
rates, in an amount equal to ten percent (10%) of the face
amount of such letter of credit. The amount of such reserve
may be amended by Bank from time to time to account for
fluctuations in the exchange rate. The availability of funds
under the Committed Revolving Line shall be reduced by the
amount of such reserve for so long as such Letter of Credit
remains outstanding.
4. EQUIPMENT ADVANCES. Section 2.2 of the Loan Agreement is hereby
amended and restated in its entirety as follows:
(a) At any time from the date hereof through February
28, 2000 (the "Tranche One End Date"), Borrowers may from time
to time request advances to be used solely to reimburse
Borrowers for the purchase of equipment purchased after August
30, 1999 (each, together with the advances described in
subsection (b) below, an "Equipment Advance" and collectively,
the "Equipment Advances") from Bank in an aggregate amount not
to exceed the Committed Equipment Line. Amounts borrowed
pursuant to this Section 2.2(a) may not be readvanced.
All Equipment Advances made prior to the Tranche One
End Date shall be evidenced by an Equipment Term Note
("Equipment Term Note No. 1") to be executed and delivered by
Borrowers to Bank as of the date hereof. All Equipment
Advances prior to the Tranche One End Date shall be repaid in
accordance with the terms of Equipment Term Note No. 1.
(b) At any time from March 1, 2000 through August 31,
2000 (the "Tranche Two End Date"), Borrowers may from time to
time request advances to be used solely to reimburse Borrowers
for the purchase of equipment purchased after January 31, 2000
from Bank in an aggregate amount not to exceed the Committed
Equipment Line. Amounts borrowed pursuant to this Section
2.2(b) may not be readvanced.
All Equipment Advances made after the Tranche One End
Date, but prior to the Tranche Two End Date Two shall be
evidenced by an Equipment Term Note ("Equipment Term Note No.
2") to be executed and delivered by Borrowers to Bank as of
the date hereof. All Equipment Advances shall be repaid in
accordance with the terms of Equipment Term Note No. 2.
(c) Borrowers shall deliver to Bank, at the time of
each Equipment Advance an invoice for the Eligible Equipment
to be purchased. The Equipment Advances shall be used by
Borrowers only to purchase Eligible Equipment and
- 4 -
<PAGE>
shall not exceed ninety percent (90%) of the invoice amount of
such Eligible Equipment approved from time to time by Bank,
excluding taxes, shipping, and installation expense. Software
may, however, constitute up to Two Hundred Fifty Thousand
Dollars ($250,000) of the aggregate Equipment Advances.
(d) Interest shall accrue from the date of each
Equipment Advance at the rate specified in the applicable
Equipment Term Note and shall be payable monthly as provided
therein. Any Equipment Advances that are outstanding on the
Tranche One End Date will be payable in Thirty-Six (36) equal
monthly installments of principal, and accrued interest,
beginning on the first Payment Date of each month following
the Tranche One End Date. Any Equipment Advances that are
outstanding on the Tranche Two End Date will be payable in
Thirty-Six (36) equal monthly installments of principal, and
accrued interest, beginning on the first Payment Date of each
month following the Tranche Two End Date.
(e) When Borrowers desire to obtain an Equipment
Advance, Borrowers shall notify Bank (which notice shall be
irrevocable) by facsimile transmission to be received no later
than 1:00 p.m. Washington, D.C. time one (1) Business Day
before the day on which the Equipment Advance is to be made.
Such notice shall be substantially in the form of EXHIBIT B.
The notice shall be signed by a Responsible Officer and
include a copy of the invoice for the Equipment to be
financed.
5. FINANCIAL COVENANTS. Sections 6.8 through 6.11 of the Loan
Agreement are amended and restated in their entirety as follows:
6.8. QUICK RATIO. Borrowers shall maintain, as of the last day
of each calendar month, a ratio of (i) Quick Assets to (ii) Current
Liabilities less deferred revenue of at least 1.50 to 1.
6.9. [OMITTED]
6.10. TANGIBLE NET WORTH. Borrowers shall maintain as of the
last day of each calendar month, a minimum Tangible Net Worth of not
less than $8,500,000, plus ninety percent (90%) of all earnings of
Borrower for the prior fiscal quarter, plus one hundred percent (100%)
of all equity raised by either Borrower.
6.11 DEBT SERVICE. The Borrowers shall maintain a ratio of (a)
cash, plus Eligible Accounts, less Advances under the Committed
Revolving Line, to (b) the outstanding Equipment Advances of not less
than 1.5 to 1.0 until such time as the Borrowers can maintain a Debt
Service Coverage Ratio of greater than 1.50 to 1.0 for two
- 5 -
<PAGE>
(2) consecutive fiscal quarters whereupon the Borrowers shall at all
times thereafter maintain a Debt Service Coverage Ration equal to
greater than 1.50 to 1.0.
6. EXHIBITS. From and after the date hereof, EXHIBITS C and D to the.
Loan Agreement are placed in their entirety with EXHIBITS C and D attached
hereto.
7. FEES. In consideration of the Bank's agreement to enter into this
Agreement, Borrowers have agreed to pay Bank a non-refundable fee in connection
with the Committed Revolving Line equal to $12,500 and a non-refundable fee in
connection with the Committed Equipment Line equal to $2,500.
8. REPLACEMENT PROMISSORY NOTE. The Revolving Promissory Note
referenced in the Loan Agreement is being replaced in its entirety with EXHIBIT
E attached hereto. The Borrowers shall execute and deliver to the Bank on the
date hereof their Fifth Amended and Restated Revolving Promissory Note in the
form of EXHIBIT E attached hereto and incorporated herein by reference (the
"Replacement Promissory Note"), in substitution for and not satisfaction of, the
issued and outstanding revolving promissory note, and the Replacement Promissory
Note shall be the "Revolving Promissory Note" for all purposes of the Loan
Documents. The promissory note being substituted pursuant to this Agreement
shall be marked "Replaced" and returned to the Borrowers promptly after the
execution and delivery of the Replacement Promissory Note.
9. REPLACEMENT EQUIPMENT NOTES. The Equipment Notes referenced in the
Loan Agreement are being replaced in their entirety with EXHIBIT F attached
hereto. The Borrowers shall execute and deliver to the Bank on the date hereof
their Second Amended and Restated Equipment Term Note No. 1 and their Second
Amended and Restated Equipment Term Note No. 2 in the form of EXHIBIT F attached
hereto and incorporated herein by reference (the "Replacement Equipment Notes"),
in substitution for and not satisfaction of, the issued and
- 6 -
<PAGE>
outstanding equipment term notes, and the Replacement Equipment Notes shall be
the "Equipment Notes" for all purposes of the Loan Documents. The equipment
notes being substituted pursuant to this Agreement shall be marked "Replaced"
and returned to the Borrowers promptly after the execution and delivery of the
Replacement Equipment Notes.
10. CONDITIONS PRECEDENT. This Agreement shall become effective on the
date Bank receives the following documents, each of which shall be satisfactory
in form and substance to Bank:
(a) The fully executed Replacement Promissory Note;
(b) The fully executed Replacement Equipment Notes;
(c) Proof that Borrowers have paid all costs and expenses to
Bank in connection with this Agreement, including but not limited to, Bank's
reasonable attorneys fees; and
(d) Such other information, instruments, opinions, documents,
certificates and reports as Bank may deem necessary.
11. REPRESENTATIONS. Borrowers hereby confirms that the representations
set forth in Section 5 of the Loan Agreement, are true and correct as of the
date hereof, and that no Event of Default has occurred or is continuing
immediately prior to or upon the execution of this Agreement.
12. ADDITIONAL DEFAULTS. In addition to those Events of Default
specifically enumerated in the Loan Agreement if the Borrowers shall fail to
comply with the terms of any covenant or agreement contained herein, such
failure shall constitute an Event of Default and shall entitle the Bank to
exercise all rights and remedies provided in the Notes and the Loan
- 7 -
<PAGE>
Agreement, as well as all other rights and remedies provided to the Bank under
the terms of any of the other Loan Documents.
13. COUNTERPARTS. This Agreement may be executed in any number of
duplicate originals or counterparts, each of which duplicate original or
counterpart shall be deemed to be an original and all taken together shall
constitute one and the same instrument.
14. LOAN DOCUMENTS; GOVERNING LAW; ETC. This Agreement is one of the
Loan Documents defined in the Loan Agreement and shall be governed and construed
in accordance with the laws of the State of Maryland. The headings and captions
in this Agreement are for the convenience of the parties only and are not a part
of this Agreement.
15. ACKNOWLEDGMENTS. The Borrowers hereby confirm to Bank the
enforceability and validity of each of the Loan Documents. In addition, the
Borrowers hereby agree that the execution and delivery of this Agreement and the
terms and provisions, covenants or agreements contained in this Agreement shall
not in any manner release, impair, lessen, modify, waive or otherwise limit the
liability and obligations of Borrowers under the terms of any of the Loan
Documents, except as otherwise specifically set forth in this Agreement.
Borrowers issue, ratify and confirm the representations, warranties and
covenants contained in the Loan Documents.
16. MODIFICATIONS. This Agreement may not be supplemented, changed,
waived, discharged, terminated, modified or amended, except by written
instrument executed by the parties.
[SIGNATURES ON NEXT PAGE]
- 8 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
WITNESS/ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Karen M. Dozier By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
WITNESS OR ATTEST: THE DATA GROUP, II, INC.
/s/ Karen M. Dozier By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
SILICON VALLEY BANK
By: /s/ Pete McDonald
--------------------------
Name: Pete McDonald
Title: Vice President
- 9 -
<PAGE>
EXHIBIT C
BORROWING BASE CERTIFICATE
Borrower: Sky Alland Research, Inc. Bank: Silicon Valley Bank
Commitment Amount: $5,000,000
<TABLE>
ACCOUNTS RECEIVABLE
<S> <C>
1. Accounts Receivable Book Value as of $
-------- ----------------------
2. Additions (please explain on reverse) $
----------------------
3. TOTAL ACCOUNTS RECEIVABLE $
----------------------
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days due $
----------------------
5. Balance of 50% over 90 day accounts $
----------------------
6. Concentration Limits $
----------------------
7. Foreign Accounts $
----------------------
8. Governmental Accounts $
----------------------
9. Contra Accounts $
----------------------
10. Promotion or Demo Accounts $
----------------------
11. Intercompany/Employee Accounts $
----------------------
12. Other (please explain on reverse) $
----------------------
13. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $
----------------------
14. Eligible Accounts (#3 minus #13) $
----------------------
15. Maximum Loan Amount $5,000,000
16. Total Funds Available [Lesser of #15 or 14] $
----------------------
17. Present balance owing on Line of Credit $
----------------------
18. Outstanding under Sublimits (____ ) $
----------------------
19. RESERVE POSITION (#16 minus #17 and #18) $
----------------------
</TABLE>
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE FOREGOING IS TRUE, COMPLETE AND
CORRECT, AND THAT THE INFORMATION REFLECTED IN THIS BORROWING BASE CERTIFICATE
COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE LOAN AND
SECURITY AGREEMENT BETWEEN THE UNDERSIGNED AND SILICON VALLEY BANK.
COMMENTS:
BANK USE ONLY
RECEIVED BY:____________________
DATE:________________
REVIEWED BY:____________________
COMPLIANCE STATUS: YES / NO
___________________________________
By: _______________________
Authorized Signer
- 10 -
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
TO: SILICON VALLEY BANK
FROM: SKY ALLAND RESEARCH, INC.
The undersigned authorized officer of SKY ALLAND RESEARCH, INC.
hereby certifies that in accordance with the terms and conditions of the Loan
and Security Agreement between Borrowers and Bank (the "Agreement"), (i)
Borrowers are in complete compliance for the period ending with all
required covenants except as noted below and (ii) all representations and
warranties of Borrowers stated in the Agreement are true and correct in all
material respects as of the date hereof. Attached herewith are the required
documents supporting the above certification. The Officer further certifies
that these are prepared in accordance with Generally Accepted Accounting
Principles (GAAP) and are consistently applied from one period to the next
except as explained in an accompanying letter or footnotes. The Officer
expressly acknowledges that no borrowings may be requested by the Borrowers
at any time or date of determination that Borrowers are not in compliance
with any of the terms of the Agreement, and that such compliance is
determined not just at the date this certificate is delivered.
Please indicate compliance status by circling Yes/No under "Complies" column.
<TABLE>
<CAPTION>
REPORTING COVENANT REQUIRED COMPLIES
<S> <C> <C>
Monthly financial statements Monthly within 30 days Yes No
Quarterly financial statements Quarterly within 30 days Yes No
Annual (CPA Audited) FYE within 90 days Yes No
A/R Agings Monthly within 30 days Yes No
Compliance Certificate Monthly within 30 days Yes No
Borrowing Base Certificate Monthly within 30 days Yes No
Collateral Audit Annual Yes No
</TABLE>
<TABLE>
<CAPTION>
FINANCIAL COVENANT REQUIRED ACTUAL COMPLIES
<S> <C> <C> <C>
Maintain on a Monthly Basis:
Minimum Quick Ratio: 1.50:1.0 _______ Yes No
Minimum Tangible Net Worth: $8,500,000 Yes No
(plus 90% of all quarterly earnings
and 100% of all equity raised)
Debt Service Coverage: 1.50:1.0 __:1.0 Yes No
</TABLE>
- 11 -
<PAGE>
======================================================
BANK USE ONLY
Received By:____________________
Date:________________
Reviewed By:____________________
Compliance Status: Yes / No
======================================================
Comments Regarding Exceptions:
Sincerely,
_______________________ Date:_______________
SIGNATURE
_______________________
TITLE
- 12 -
<PAGE>
FIFTH AMENDED AND RESTATED
REVOLVING PROMISSORY NOTE
$5,000,000 Reston, Virginia
November 5, 1999,
but effective as of October 13, 1999
FOR VALUE RECEIVED, the undersigned, SKY ALLAND RESEARCH, INC., a
Maryland corporation and THE DATA GROUP II, INC., a Maryland corporation
(collectively, the "Borrowers" and each a "Borrower"), jointly and severally,
promise to pay to the order of SILICON VALLEY BANK, a California-chartered bank,
doing business in Virginia as "Silicon Valley East" ("Bank"), at such place as
the holder hereof may designate, in lawful money of the United States of
America, the aggregate unpaid principal amount of all advances ("Advances") made
by Bank to Borrowers in accordance with the terms and conditions of the Loan and
Security Agreement among Borrowers and Bank dated as of May 28, 1998 (as amended
from time to time, the "Loan Agreement"), up to a maximum principal amount of
Five Million Dollars ($5,000,000) (the "Principal Sum"), or so much thereof as
may be advanced or readvanced and remains unpaid. Borrowers shall also pay
interest on the aggregate unpaid principal amount of such Advances, as follows:
Commencing as of the date hereof and continuing until repayment in full
of all sums due hereunder, the unpaid Principal Sum shall bear interest at the
variable rate of interest, per annum, most recently announced by Bank as its
"prime rate," whether or not such announced rate is the lowest rate available
from Bank (the "Prime Rate"). The rate of interest charged under this Note shall
change immediately and contemporaneously with any change in the Prime Rate. All
interest payable under the terms of this Note shall be calculated on the basis
of a 360-day year and the actual number of days elapsed.
The unpaid Principal Sum, together with interest thereon at the rate or
rates provided above, shall be due and payable as follows:
(a) Interest only on the unpaid principal amount shall be due
and payable monthly in arrears, commencing December 5, 1999, and continuing on
the same day of each calendar month thereafter to maturity; and
(b) Unless sooner paid, the unpaid Principal Sum, together
with interest accrued and unpaid thereon, shall be due and payable in full on
October 13, 2000.
<PAGE>
The fact that the balance hereunder may be reduced to zero from time to
time pursuant to the Loan Agreement will not affect the continuing validity of
this Note or the Loan Agreement, and the balance may be increased to the
Principal Sum after any such reduction to zero.
This Note increases, amends and restates in its entirety that certain
Fourth Amended and Restated Revolving Promissory Note (the "Restated Note") in
the maximum principal amount of Three Million Five Hundred Thousand Dollars
($3,500,000) dated as of September 13, 1999 from the Borrowers in favor of the
Bank. It is expressly agreed that the indebtedness evidenced by the Restated
Note has not been extinguished or discharged hereby. The Borrowers agree that
the execution of this Agreement is not intended to and shall not cause or result
in a novation with respect to the Restated Note. This Note is secured as
provided in the Loan Agreement. All capitalized terms used herein and not
otherwise defined shall have the meanings given to such terms in the Loan
Agreement.
Borrowers irrevocably waive the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of
Borrowers and Borrowers irrevocably agree that Bank shall have the continuing
exclusive right to apply any and all such payments against the then due and
owing obligations of Borrowers as Bank may deem advisable. In the absence of a
specific determination by Bank with respect thereto, all payments shall be
applied in the following order: (a) then due and payable fees and expenses; (b)
then due and payable interest payments and mandatory prepayments; and (c) then
due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrowers to endorse on Bank's books and
records each Advance made by Bank under this Note and the amount of each payment
or prepayment of principal of each such Advance received by Bank; it being
understood, however, that failure to make any such endorsement (or any error in
notation) shall not affect the obligations of Borrowers with respect to Advances
made hereunder, and payments of principal by Borrowers shall be credited to
Borrowers notwithstanding the failure to make a notation (or any errors in
notation) thereof on such books and records.
The occurrence of any one or more of the following events shall
constitute an event of default (individually, an "Event of Default" and
collectively, the "Events of Default") under the terms of this Note:
(a) The failure of Borrowers to pay to Bank when due any and
all amounts payable by Borrowers to Bank under the terms of this Note; or
(b) The occurrence of an event of default (as defined therein)
under the terms and conditions of any of the other Loan Documents.
-2-
<PAGE>
Upon the occurrence of an Event of Default, at the option of Bank, all
amounts payable by Borrowers to Bank under the terms of this Note shall
immediately become due and payable by Borrowers to Bank without notice to
Borrowers or any other person, and Bank shall have all of the rights, powers,
and remedies available under the terms of this Note, any of the other Loan
Documents and all applicable laws. Borrowers and all endorsers, guarantors, and
other parties who may now or in the future be primarily or secondarily liable
for the payment of the indebtedness evidenced by this Note hereby severally
waive presentment, protest and demand, notice of protest, notice of demand and
of dishonor and non-payment of this Note and expressly agree that this Note or
any payment hereunder may be extended from time to time without in any way
affecting the liability of Borrowers, guarantors and endorsers.
Upon the occurrence of an Event of Default, Borrowers hereby authorize
any attorney designated by Bank or any clerk of any court of record to appear
for Borrowers in any court of record and confess judgment without prior hearing
against Borrowers in favor of Bank for and in the amount of the unpaid Principal
Sum, all interest accrued and unpaid thereon, all other amounts payable by
Borrowers to Bank under the terms of this Note or any of the other Loan
Documents, costs of suit, and attorneys' fees of fifteen percent (15%) of the
unpaid Principal Sum and interest then due hereunder. Borrowers hereby release,
to the extent permitted by applicable law, all errors and all rights of
exemption, appeal, stay of execution, inquisition, and other rights to which
Borrowers may otherwise be entitled under the laws of the United States of
America or of any state or possession of the United States of America now in
force and which may hereafter be enacted. The authority and power to appear for
and enter judgment against Borrowers shall not be exhausted by one or more
exercises thereof or by any imperfect exercise thereof and shall not be
extinguished by any judgment entered pursuant thereto. Such authority may be
exercised on one or more occasions or from time to time in the same or different
jurisdictions as often as Bank shall deem necessary or desirable, for all of
which this Note shall be a sufficient warrant.
Borrowers, jointly and severally, promise to pay all costs and expense
of collection of this Note and to pay all reasonable attorneys' fees incurred in
such collection, whether or not there is a suit or action, or in any suit or
action to collect this Note or in any appeal thereof. Borrowers waive
presentment, demand, protest, notice of protest, notice of dishonor, notice of
nonpayment, and any and all other notices and demands in connection with the
delivery, acceptance, performance default or enforcement of this Note, as well
as any applicable statutes of limitations. No delay by Bank in exercising any
power or right hereunder shall operate as a waiver of any power or right. Time
is of the essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of Borrowers with respect to all obligations
hereunder.
-3-
<PAGE>
Borrowers acknowledge and agree that this Note shall be governed by the
laws of the State of Maryland, excluding conflicts of laws principles, even
though for the convenience and at the request of Borrowers, this Note may be
executed elsewhere.
EACH BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT OF
COMPETENT JURISDICTION IN THE STATE OF MARYLAND IN ANY ACTION, SUIT, OR
PROCEEDING OF ANY KIND, AGAINST IT WHICH ARISES OUT OF OR BY REASON OF THIS
AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL ITSELF OF
THE COURTS OF MARYLAND, EACH BORROWER ACCEPTS JURISDICTION OF THE COURTS AND
VENUE IN SANTA CLARA COUNTY, CALIFORNIA. EACH BORROWER AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Until such time as the Bank is not committed to extend further credit
to the Borrowers and all Obligations of the Borrowers to the Bank have been
indefeasibly paid in full in cash, and subject to and not in limitation of the
provisions set forth in the next following paragraph below, no Borrower shall
have any right of subrogation (whether contractual, arising under the Bankruptcy
Code or otherwise), reimbursement or contribution from any Borrower or any
guarantor, nor any right of recourse to its security for any of the debts and
obligations of any Borrower which are the subject of this Note. Except as
otherwise expressly permitted by the Financing Agreement, any and all present
and future debts and obligations of any Borrower to any other Borrower are
hereby subordinated to the full payment and performance of all present and
future debts and obligations to the Bank under this Note and the Financing
Agreement and the Loan Documents, provided, however, notwithstanding anything
set forth in this Note to the contrary, prior to the occurrence of a payment
Default, the Borrowers shall be permitted to make payments on account of any of
such present and future debts and obligations from time to time in accordance
with the terms thereof.
Each Borrower further agrees that, if any payment made by any Borrower
or any other person is applied to this Note and is at any time annulled, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or
otherwise required to be refunded or repaid, or the
-4-
<PAGE>
proceeds of any property hereafter securing this Note is required to be returned
by the Bank to any Borrower, its estate, trustee, receiver or any other party,
including, without limitation, such Borrower, under any bankruptcy law, state or
federal law, common law or equitable cause, then, to the extent of such payment
or repayment, such Borrower's liability hereunder (and any lien, security
interest or other collateral securing such liability) shall be and remain in
full force and effect, as fully as if such payment had never been made, or, if
prior thereto any such lien, security interest or other collateral hereafter
securing such Borrower's liability hereunder shall have been released or
terminated by virtue of such cancellation or surrender, this Note (and such
lien, security interest or other collateral) shall be reinstated in full force
and effect, and such prior cancellation or surrender shall not diminish,
release, discharge, impair or otherwise affect the obligations of such Borrower
in respect of the amount of such payment (or any lien, security interest or
other collateral securing such obligation).
The JOINT AND SEVERAL obligations of each Borrower under this Note
shall be absolute, irrevocable and unconditional and shall remain in full force
and effect until the outstanding principal of and interest on this Note and all
other Obligations or amounts due hereunder and under the Loan Agreement and the
Loan Documents shall have been indefeasibly paid in full in cash in accordance
with the terms thereof and this Note shall have been canceled.
(SIGNATURES ARE ON THE NEXT PAGE)
-5-
<PAGE>
IN WITNESS WHEREOF, Borrowers have caused this Note to be executed
under seal by their duly authorized officers as of the date first written above.
WITNESS/ATTEST: SKY ALLAND RESEARCH, INC.
By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
WITNESS/ATTEST: THE DATA GROUP II, INC.
By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Name: Richard T. Hebert
Title: Chief Executive Officer
-6-
<PAGE>
Exhibit 10.9
SECOND AMENDED AND RESTATED
EQUIPMENT TERM NOTE NO. 1 OF 2
Not to Exceed $1,000,000 Reston, Virginia
November 5, 1999
FOR VALUE RECEIVED, the undersigned, SKY ALLAND RESEARCH, INC., a
Maryland corporation, and THE DATA GROUP II, INC., a Maryland corporation,
(collectively the "Borrowers" and each a "Borrower"), jointly and severally,
promise to pay to the order of SILICON VALLEY BANK, a California-chartered bank
("Bank"), at such place as the holder hereof may designate, in lawful money of
the United States of America, the aggregate unpaid principal amount of all
advances ("Equipment Advances") made by Bank to Borrowers in accordance with the
terms and conditions of the Loan and Security Agreement among Borrowers and Bank
dated as of May 28, 1998 (as amended from time to time, the "Loan Agreement"),
up to a maximum principal amount of One Million and No/100 Dollars
($1,000,000.00) ("Principal Sum"), or so much thereof as may be advanced.
Equipment Advances may be made under this Note only after the date hereof and on
or before February 28, 2000 (the "Tranche One End Date").
Borrowers shall pay interest on the outstanding Principal Sum, as
follows:
Commencing as of the date hereof and continuing until repayment in full
of all sums due hereunder, the unpaid Principal Sum shall bear interest at the
variable rate of interest, per annum, most recently announced by Bank as its
"prime rate," whether or not such announced rate is the lowest rate available
from Bank (the "Prime Rate"), plus three quarters of one percent (.75%) per
annum. The rate of interest charged under this Note shall change immediately and
contemporaneously with any change in the Prime Rate. All interest payable under
the terms of this Note shall be calculated on the basis of a 360-day year and
the actual number of days elapsed.
The unpaid Principal Sum, together with interest thereon at the rate or
rates provided above, shall be payable as follows:
(a) Interest only on the unpaid principal amount shall be due and
payable monthly in arrears, commencing on December 5, 1999, and continuing on
the fifth day of each calendar month thereafter to maturity; and
<PAGE>
(b) In addition to the monthly payments of interest as set forth above,
the unpaid Principal Sum shall be due and payable in equal consecutive monthly
installments in an amount equal to one-thirty sixth (1/36) of the unpaid
Principal Sum as of the Tranche One End Date, commencing on March 5, 2000 and
continuing on the same day of each calendar month thereafter to maturity; and
(c) Unless sooner paid, the unpaid Principal Sum, together with
interest accrued and unpaid thereon, shall be due and payable in full on
February 5, 2003.
This Note reduces, amends and restates in its entirety that certain
Amended and Restated Equipment Note No. 1 of 2 (the "Amended Equipment Term Note
No. 1") in the maximum principal amount of Two Million Dollars ($2,000,000)
dated as of December ___, 1998 from the Borrowers in favor of the Bank. It is
expressly agreed that the indebtedness evidenced by the Amended Equipment Term
Note No. 1 has not been extinguished or discharged hereby. The Borrowers agree
that the execution of this Agreement is not intended to and shall not cause or
result in a novation with respect to Amended Equipment Term Note No. 1. As of
the date hereof, the unpaid principal balance of Equipment Term Note No. 1 is
$0, and the Borrowers have no set offs or defenses to the payment thereof.
From and after the date hereof, this Note shall be the "Equipment Term
Note No. 1" described in the Loan Agreement, to which reference is hereby made
for a more complete statement of the terms and conditions under which the loans
and advances evidenced hereby are made. This Note is secured as provided in the
Loan Agreement. All capitalized terms used herein and not otherwise defined
shall have the meanings given to such terms in the Loan Agreement.
Borrowers irrevocably waive the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of the
Borrowers and the Borrowers irrevocably agree that Bank shall have the
continuing exclusive right to apply any and all such payments against the then
due and owing obligations of the Borrowers as Bank may deem advisable. In the
absence of a specific determination by Bank with respect thereto, all payments
shall be applied in the following order: (a) then due and payable fees and
expenses; (b) then due and payable interest payments and mandatory prepayments;
and (c) then due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrowers to endorse on Bank's books and
records each Equipment Advance made by Bank under this Note and the amount of
each payment or prepayment of principal of each such Equipment Advance received
by Bank; it being understood, however, that failure to make any such endorsement
(or any error in notation) shall not affect the obligations of the Borrowers
with respect to Equipment Advances made hereunder, and
- 2 -
<PAGE>
payments of principal by Borrowers shall be credited to Borrowers
notwithstanding the failure to make a notation (or any errors in notation)
thereof on such books and records.
The occurrence of any one or more of the following events shall
constitute an event of default (individually, an "Event of Default" and
collectively, the "Events of Default") under the terms of this Note:
(a) The failure of Borrowers to pay to Bank when due any and all
amounts payable by Borrowers to Bank under the terms of this Note; or
(b) The occurrence of an Event of Default (as defined therein) under
the terms and conditions of any of the other Loan Documents.
Upon the occurrence of an Event of Default, at the option of Bank, all
amounts payable by Borrowers to Bank under the terms of this Note shall
immediately become due and payable by Borrowers to Bank without notice to
Borrowers or any other Person, and Bank shall have all of the rights, powers,
and remedies available under the terms of this Note, any of the other Loan
Documents and all applicable laws. Borrowers and all endorsers, guarantors, and
other parties who may now or in the future be primarily or secondarily liable
for the payment of the indebtedness evidenced by this Note hereby severally
waive presentment, protest and demand, notice of protest, notice of demand and
of dishonor and non-payment of this Note and expressly agree that this Note or
any payment hereunder may be extended from time to time without in any way
affecting the liability of Borrowers, guarantors and endorsers.
Upon the occurrence of an Event of Default, Borrowers hereby authorize
any attorney designated by Bank or any clerk of any court of record to appear
for Borrowers in any court of record and confess judgment without prior hearing
against Borrowers in favor of Bank for and in the amount of the unpaid Principal
Sum, all interest accrued and unpaid thereon, all other amounts payable by
Borrowers to Bank under the terms of this Note or any of the other Loan
Documents, costs of suit, and attorneys' fees of fifteen percent (15%) of the
unpaid Principal Sum and interest then due hereunder. Borrowers hereby release,
to the extent permitted by applicable law, all errors and all rights of
exemption, appeal, stay of execution, inquisition, and other rights to which
Borrowers may otherwise be entitled under the laws of the United States of
America or of any state or possession of the United States of America now in
force and which may hereafter be enacted. The authority and power to appear for
and enter judgment against Borrowers shall not be exhausted by one or more
exercises thereof or by any imperfect exercise thereof and shall not be
extinguished by any judgment entered pursuant thereto. Such authority may be
exercised on one or more occasions or from time to time in the same or different
jurisdictions as often as Bank shall deem necessary or desirable, for all of
which this Note shall be a sufficient warrant.
- 3 -
<PAGE>
Borrowers jointly and severally promise to pay all costs and expense of
collection of this Note and to pay all reasonable attorneys' fees incurred in
such collection, whether or not there is a suit or action, or in any suit or
action to collect this Note or in any appeal thereof. Borrowers waive
presentment, demand, protest, notice of protest, notice of dishonor, notice of
nonpayment, and any and all other notices and demands in connection with the
delivery, acceptance, performance default or enforcement of this Note, as well
as any applicable statutes of limitations. No delay by Bank in exercising any
power or right hereunder shall operate as a waiver of any power or right. Time
is of the essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of the Borrowers with respect to all obligations
hereunder.
The Borrowers acknowledge and agree that this Note shall be governed by
the laws of the State of Maryland, excluding conflicts of laws principles, even
though for the convenience and at the request of Borrowers, this Note may be
executed elsewhere.
BORROWERS ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF MARYLAND IN ANY ACTION,
SUIT, OR PROCEEDING OF ANY KIND, AGAINST THEM WHICH ARISES OUT OF OR BY REASON
OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL
ITSELF OF THE COURTS OF MARYLAND, BORROWERS ACCEPT JURISDICTION OF THE COURTS
AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWERS AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Until such time as the Bank is not committed to extend further credit
to the Borrowers and all Obligations of the Borrowers to the Bank have been
indefeasibly paid in full in cash, and subject to and not in limitation of the
provisions set forth in the next following paragraph below, no Borrower shall
have any right of subrogation (whether contractual, arising under the Bankruptcy
Code or otherwise), reimbursement or contribution from any Borrower or any
guarantor, nor any right of recourse to its security for any of the debts and
obligations of any
- 4 -
<PAGE>
Borrower which are the subject of this Note. Except as otherwise expressly
permitted by the Financing Agreement, any and all present and future debts and
obligations of any Borrower to any other Borrower are hereby subordinated to the
full payment and performance of all present and future debts and obligations to
the Bank under this Note and the Financing Agreement and the Loan Documents,
provided, however, notwithstanding anything set forth in this Note to the
contrary, prior to the occurrence of a payment Default, the Borrowers shall be
permitted to make payments on account of any of such present and future debts
and obligations from time to time in accordance with the terms thereof.
Each Borrower further agrees that, if any payment made by any Borrower
or any other person is applied to this Note and is at any time annulled, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or
otherwise required to be refunded or repaid, or the proceeds of any property
hereafter securing this Note is required to be returned by the Bank to any
Borrower, its estate, trustee, receiver or any other party, including, without
limitation, such Borrower, under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
such Borrower's liability hereunder (and any lien, security interest or other
collateral securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, or, if prior thereto
any such lien, security interest or other collateral hereafter securing such
Borrower's liability hereunder shall have been released or terminated by virtue
of such cancellation or surrender, this Note (and such lien, security interest
or other collateral) shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, release, discharge, impair
or otherwise affect the obligations of such Borrower in respect of the amount of
such payment (or any lien, security interest or other collateral securing such
obligation).
The JOINT AND SEVERAL obligations of each Borrower under this Note
shall be absolute, irrevocable and unconditional and shall remain in full force
and effect until the outstanding principal of and interest on this Note and all
other Obligations or amounts due hereunder and under the Loan Agreement and the
Loan Documents shall have been indefeasibly paid in full in cash in accordance
with the terms thereof and this Note shall have been canceled.
(SIGNATURES ARE ON THE NEXTPAGE)
- 5 -
<PAGE>
IN WITNESS WHEREOF, Borrowers have caused this Note to be executed
under seal by their duly authorized officers as of the date first written above.
WITNESS/ATTEST: SKY ALLAND RESEARCH, INC.
By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
, Secretary Name: Richard T. Hebert
Title: Chief Executive Officer
WITNESS/ATTEST: THE DATA GROUP II, INC.
By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
, Secretary Name: Richard T. Hebert
Title: Chief Executive Officer
- 6 -
<PAGE>
Exhibit 10.10
SECOND AMENDED AND RESTATED
EQUIPMENT TERM NOTE NO. 2 OF 2
Not to Exceed $1,000,000 Reston, Virginia
November 5, 1999
FOR VALUE RECEIVED, the undersigned, SKY ALLAND RESEARCH, INC., a
Maryland corporation, and THE DATA GROUP II, INC., a Maryland corporation,
(collectively the "Borrowers" and each a "Borrower"), jointly and severally,
promise to pay to the order of SILICON VALLEY BANK, a California-chartered bank
("Bank"), at such place as the holder hereof may designate, in lawful money of
the United States of America, the aggregate unpaid principal amount of all
advances ("Equipment Advances") made by Bank to Borrowers in accordance with the
terms and conditions of the Loan and Security Agreement among Borrowers and Bank
dated May 28, 1998 (as amended from time to time, the "Loan Agreement"), up to a
maximum principal amount of One Million and No/100 Dollars ($1,000,000.00)
("Principal Sum"), or so much thereof as may be advanced, provided, however that
the maximum available under this Note shall be reduced by any and all amounts
advanced under Equipment Term Note No. 1. Equipment Advances may be made under
this Note only after March 1, 2000 and on or before August 31, 2000 (the
"Tranche Two End Date").
Borrowers shall pay interest on the outstanding Principal Sum, as
follows:
Commencing as of March 1, 2000 and continuing until repayment in full
of all sums due hereunder, the unpaid Principal Sum shall bear interest at the
variable rate of interest, per annum, most recently announced by Bank as its
"prime rate," whether or not such announced rate is the lowest rate available
from Bank (the "Prime Rate") plus three quarters of one percent (.75%) per
annum. The rate of interest charged under this Note shall change immediately and
contemporaneously with any change in the Prime Rate. All interest payable under
the terms of this Note shall be calculated on the basis of a 360-day year and
the actual number of days elapsed.
The unpaid Principal Sum, together with interest thereon at the rate or
rates provided above, shall be payable as follows:
(a) Interest only on the unpaid principal amount shall be due and
payable monthly in arrears, commencing March 5, 2000, and continuing on the same
day of each calendar month thereafter to maturity; and
<PAGE>
(b) In addition to the monthly payments of interest as set forth above,
the unpaid Principal Sum shall be due and payable in equal consecutive monthly
installments in an amount equal to one-thirty sixth (1/36) of the unpaid
Principal Sum as of the Tranche Two End Date, commencing on September 5, 2000
and continuing on the same day of each calendar month thereafter to maturity;
and
(c) Unless sooner paid, the unpaid Principal Sum, together with
interest accrued and unpaid thereon, shall be due and payable in full on August
5, 2003.
This Note reduces, amends and restates in its entirety that certain
Amended and Restated Equipment Note No. 2 of 2 (the "Amended Equipment Term Note
No. 2") in the maximum principal amount of Two Million Dollars ($2,000,000)
dated as of December ___, 1998 from the Borrowers in favor of the Bank. It is
expressly agreed that the indebtedness evidenced by the Amended Equipment Term
Note No. 2 has not been extinguished or discharged hereby. The Borrowers agree
that the execution of this Agreement is not intended to and shall not cause or
result in a novation with respect to Amended Equipment Term Note No. 2. As of
the date hereof, the unpaid principal balance of Equipment Term Note No. 2 is
$0, and the Borrowers have no set offs or defenses to the payment thereof.
From and after the date hereof, this Note shall be "Equipment Term Note
No. 2" described in the Loan Agreement, to which reference is hereby made for a
more complete statement of the terms and conditions under which the loans and
advances evidenced hereby are made. This Note is secured as provided in the Loan
Agreement. All capitalized terms used herein and not otherwise defined shall
have the meanings given to such terms in the Loan Agreement.
Borrowers irrevocably waive the right to direct the application of any
and all payments at any time hereafter received by Bank from or on behalf of the
Borrowers and the Borrowers irrevocably agree that Bank shall have the
continuing exclusive right to apply any and all such payments against the then
due and owing obligations of the Borrowers as Bank may deem advisable. In the
absence of a specific determination by Bank with respect thereto, all payments
shall be applied in the following order: (a) then due and payable fees and
expenses; (b) then due and payable interest payments and mandatory prepayments;
and (c) then due and payable principal payments and optional prepayments.
Bank is hereby authorized by Borrowers to endorse on Bank's books and
records each Equipment Advance made by Bank under this Note and the amount of
each payment or prepayment of principal of each such Equipment Advance received
by Bank; it being understood, however, that failure to make any such endorsement
(or any error in notation) shall not affect the obligations of Borrowers with
respect to Equipment Advances made hereunder, and payments of
-2-
<PAGE>
principal by Borrowers shall be credited to Borrowers notwithstanding the
failure to make a notation (or any errors in notation) thereof on such books and
records.
The occurrence of any one or more of the following events shall
constitute an event of default (individually, an "Event of Default" and
collectively, the "Events of Default") under the terms of this Note:
(a) The failure of Borrowers to pay to Bank when due any and all
amounts payable by Borrowers to Bank under the terms of this Note; or
(b) The occurrence of an Event of Default (as defined therein) under
the terms and conditions of any of the other Loan Documents.
Upon the occurrence of an Event of Default, at the option of Bank, all
amounts payable by Borrowers to Bank under the terms of this Note shall
immediately become due and payable by Borrowers to Bank without notice to
Borrowers or any other Person, and Bank shall have all of the rights, powers,
and remedies available under the terms of this Note, any of the other Loan
Documents and all applicable laws. Borrowers and all endorsers, guarantors, and
other parties who may now or in the future be primarily or secondarily liable
for the payment of the indebtedness evidenced by this Note hereby severally
waive presentment, protest and demand, notice of protest, notice of demand and
of dishonor and non-payment of this Note and expressly agree that this Note or
any payment hereunder may be extended from time to time without in any way
affecting the liability of Borrowers, guarantors and endorsers.
Upon the occurrence of an Event of Default, Borrowers hereby authorize
any attorney designated by Bank or any clerk of any court of record to appear
for Borrowers in any court of record and confess judgment without prior hearing
against Borrowers in favor of Bank for and in the amount of the unpaid Principal
Sum, all interest accrued and unpaid thereon, all other amounts payable by
Borrowers to Bank under the terms of this Note or any of the other Loan
Documents, costs of suit, and attorneys' fees of fifteen percent (15%) of the
unpaid Principal Sum and interest then due hereunder. Borrowers hereby releases,
to the extent permitted by applicable law, all errors and all rights of
exemption, appeal, stay of execution, inquisition, and other rights to which
Borrowers may otherwise be entitled under the laws of the United States of
America or of any state or possession of the United States of America now in
force and which may hereafter be enacted. The authority and power to appear for
and enter judgment against Borrowers shall not be exhausted by one or more
exercises thereof or by any imperfect exercise thereof and shall not be
extinguished by any judgment entered pursuant thereto. Such authority may be
exercised on one or more occasions or from time to time in the same or different
jurisdictions as often as Bank shall deem necessary or desirable, for all of
which this Note shall be a sufficient warrant.
-3-
<PAGE>
Borrowers, jointly and severally, promise to pay all costs and expense
of collection of this Note and to pay all reasonable attorneys' fees incurred in
such collection, whether or not there is a suit or action, or in any suit or
action to collect this Note or in any appeal thereof. Borrowers waive
presentment, demand, protest, notice of protest, notice of dishonor, notice of
nonpayment, and any and all other notices and demands in connection with the
delivery, acceptance, performance default or enforcement of this Note, as well
as any applicable statutes of limitations. No delay by Bank in exercising any
power or right hereunder shall operate as a waiver of any power or right. Time
is of the essence as to all obligations hereunder.
This Note is issued pursuant to the Loan Agreement, which shall govern
the rights and obligations of the Borrowers with respect to all obligations
hereunder.
The Borrowers acknowledge and agree that this Note shall be governed by
the laws of the State of Maryland, excluding conflicts of laws principles, even
though for the convenience and at the request of Borrowers, this Note may be
executed elsewhere.
BORROWERS ACCEPT FOR THEMSELVES AND IN CONNECTION WITH THEIR
PROPERTIES, UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF MARYLAND IN ANY ACTION,
SUIT, OR PROCEEDING OF ANY KIND, AGAINST THEM WHICH ARISES OUT OF OR BY REASON
OF THIS AGREEMENT; PROVIDED, HOWEVER, THAT IF FOR ANY REASON BANK CANNOT AVAIL
ITSELF OF THE COURTS OF MARYLAND, BORROWERS ACCEPT JURISDICTION OF THE COURTS
AND VENUE IN SANTA CLARA COUNTY, CALIFORNIA. BORROWERS AND BANK EACH HEREBY
WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF ANY OF THE LOAN DOCUMENTS OR ANY OF THE
TRANSACTIONS CONTEMPLATED THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS,
BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. EACH PARTY
RECOGNIZES AND AGREES THAT THE FOREGOING WAIVER CONSTITUTES A MATERIAL
INDUCEMENT FOR IT TO ENTER INTO THIS AGREEMENT. EACH PARTY REPRESENTS AND
WARRANTS THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL AND THAT IT
KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION
WITH LEGAL COUNSEL.
Until such time as the Bank is not committed to extend further credit
to the Borrowers and all Obligations of the Borrowers to the Bank have been
indefeasibly paid in full in cash, and subject to and not in limitation of the
provisions set forth in the next following paragraph below, no Borrower shall
have any right of subrogation (whether contractual, arising under the Bankruptcy
Code or otherwise), reimbursement or contribution from any Borrower or any
guarantor, nor any right of recourse to its security for any of the debts and
obligations of any Borrower which are the subject of this Note. Except as
otherwise expressly permitted by the Financing Agreement, any and all present
and future debts and obligations of any
-4-
<PAGE>
Borrower to any other Borrower are hereby subordinated to the full payment and
performance of all present and future debts and obligations to the Bank under
this Note and the Financing Agreement and the Loan Documents, provided, however,
notwithstanding anything set forth in this Note to the contrary, prior to the
occurrence of a payment Default, the Borrowers shall be permitted to make
payments on account of any of such present and future debts and obligations from
time to time in accordance with the terms thereof.
Each Borrower further agrees that, if any payment made by any Borrower
or any other person is applied to this Note and is at any time annulled, set
aside, rescinded, invalidated, declared to be fraudulent or preferential or
otherwise required to be refunded or repaid, or the proceeds of any property
hereafter securing this Note is required to be returned by the Bank to any
Borrower, its estate, trustee, receiver or any other party, including, without
limitation, such Borrower, under any bankruptcy law, state or federal law,
common law or equitable cause, then, to the extent of such payment or repayment,
such Borrower's liability hereunder (and any lien, security interest or other
collateral securing such liability) shall be and remain in full force and
effect, as fully as if such payment had never been made, or, if prior thereto
any such lien, security interest or other collateral hereafter securing such
Borrower's liability hereunder shall have been released or terminated by virtue
of such cancellation or surrender, this Note (and such lien, security interest
or other collateral) shall be reinstated in full force and effect, and such
prior cancellation or surrender shall not diminish, release, discharge, impair
or otherwise affect the obligations of such Borrower in respect of the amount of
such payment (or any lien, security interest or other collateral securing such
obligation).
The JOINT AND SEVERAL obligations of each Borrower under this Note
shall be absolute, irrevocable and unconditional and shall remain in full force
and effect until the outstanding principal of and interest on this Note and all
other Obligations or amounts due hereunder and under the Loan Agreement and the
Loan Documents shall have been indefeasibly paid in full in cash in accordance
with the terms thereof and this Note shall have been canceled.
[SIGNATURES ARE ON THE NEXT PAGE]
-5-
<PAGE>
IN WITNESS WHEREOF, Borrowers have caused this Note to be executed
under seal by their duly authorized officers as of the date first written above.
WITNESS/ATTEST: SKY ALLAND RESEARCH, INC.
/s/ Karen M. Dozier By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Karen M. Dozier, Secretary Name: Richard T. Hebert
Title: Chief Executive Officer
WITNESS/ATTEST: THE DATA GROUP II, INC.
/s/ Karen M. Dozier By: /s/ Richard T. Hebert (SEAL)
- ------------------------------ --------------------------
Karen M. Dozier, Secretary Name: Richard T. Hebert
Title: Chief Executive Officer
-6-
<PAGE>
Exhibit 10.11
SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT (the
"Agreement") is made as of February 3, 2000 by and among Sky Alland Research,
Inc., a Maryland corporation (the "Company"), Advanta Partners LP ("Advanta"),
Internet Capital Group, Inc. ("ICG") and the Purchasers (as defined in that
certain Series BB Preferred Stock Purchase Agreement of even date herewith).
INTRODUCTION
A. Advanta, General Electric Capital Corporation ("GE Capital"), ICG
and the Company were parties to an Amended and Restated Registration Rights
Agreement dated October 14, 1998 (the "Prior Registration Rights Agreement").
B. The Purchasers are concurrently with the execution of this
Agreement, acquiring shares of the Company's Series BB Preferred Stock. The
parties to this Agreement acknowledge that it is in the best interest of the
Company to issue and sell such shares of Series BB Preferred Stock.
C. As partial inducement to the Purchasers to acquire shares of the
Series BB Preferred Stock, the Company has agreed to provide the registration
rights set forth in this Agreement and amend and restate the Prior Registration
Rights Agreement.
D. Unless otherwise provided in this Agreement, capitalized terms used
herein shall have the meanings set forth in SECTION 11 of this Agreement.
Therefore, based upon the mutual promises and covenants set forth
herein, and other good and valuable consideration, the sufficiency of which is
hereby acknowledged, the parties hereto agree that the Prior Registration Rights
Agreement is hereby amended and restated as follows:
1. SERIES BB DEMAND REGISTRATIONS.
1.1. REQUESTS FOR REGISTRATION.
At any time following the earlier of (i) the second
anniversary of the date hereof and (ii)180 days after the Company has completed
a Qualified Public Offering of its Common Stock under the Securities Act
(subject to the provisions of SECTION 5 below), the holders of at least 66-2/3%
of the Series BB Demand Shares may request registration under the Securities Act
of all or part of their Series BB Demand Shares on Form S-1 or any similar
long-form
<PAGE>
registration ("Long-Form Registrations") or on Form S-2 or S-3 or any similar
short-form registration ("Short-Form Registrations") if available. Each request
for a Series BB Demand Registration shall specify the approximate number of
Series BB Demand Shares requested to be registered and the anticipated per share
price range for such offering. All registrations requested by holders of the
Series BB Demand Shares pursuant to this SECTION 1.1 are referred to herein as
"Series BB Demand Registrations". Within 10 days after receipt of any such
request for a Series BB Demand Registration, the Company will give written
notice of such requested registration to all other holders of Registrable
Securities and will include in such registration only those Registrable
Securities held by holders possessing registration rights hereunder and subject
to the provisions hereof with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice.
1.2. LIMIT ON NUMBER OF SERIES BB DEMAND REGISTRATIONS.
Except as provided in SECTION 1.3, the holders of Series BB
Demand Shares shall be limited to a maximum number of three Long-Form
Registrations under this SECTION 1. Except as provided in SECTION 1.4, the
holders of Series BB Demand Shares shall be limited to a maximum number of two
Short-Form Registrations in any one-year period.
1.3. LONG-FORM REGISTRATIONS.
Subject to the limitations under SECTION 1.2 above, the
holders of Series BB Demand Shares will be entitled to request Long-Form
Registrations; provided that the gross aggregate offering value of the Series BB
Demand Shares requested to be registered in any Long-Form Registration must
equal at least (i) $10,000,000 in the event that the Company has not completed a
public offering of shares of its Common Stock pursuant to an effective
registration statement under the Securities Act (such offering, an "Initial
Public Offering") or (ii) $3,000,000 in the event that the Company has completed
an Initial Public Offering. A registration will not count as one of the three
permitted Series BB Demand Registrations unless the holders of Series BB Demand
Shares are able to register and sell at least 50% of the Series BB Demand Shares
requested to be included in such registration.
1.4. SHORT-FORM REGISTRATIONS.
In addition to the Long-Form Registrations provided pursuant
to SECTION 1.3 and subject to the limitations under SECTION 1.2 above, the
holders of Series BB Demand Shares will be entitled to request Short-Form
Registrations; provided that the gross aggregate offering value of the Demand
Shares requested to be registered in any Short-Form Registration must equal at
least $3,000,000. Series BB Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Exchange Act, the Company will use its best efforts to make Short-Form
Registrations available for the sale of the Series BB Demand Shares.
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1.5. PRIORITY ON SERIES BB DEMAND REGISTRATIONS.
The Company will not include in any Series BB Demand
Registration any securities that are not Series BB Demand Shares without the
prior written consent of the holders of at least 66-2/3% of the Series BB Demand
Shares included in such registration. If a Series BB Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that, in their opinion, the number of Registrable Securities exceeds the
number of Registrable Securities that can be sold therein without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the Series BB Demand Shares requested to be included
that in the opinion of such underwriters can be sold without adversely affecting
the marketability of the offering, pro-rata on the basis of the number of Series
BB Demand Shares owned by each such holder; (ii) second, any securities the
Company wishes to include for registration and sale for its own account in such
registration; (iii) third, Series AA Demand Shares, pro-rata among the holders
of such Series AA Demand Shares on the basis of the number of Series AA Demand
Shares owned by each such holder; (iv) fourth, Series G/H Demand Shares,
pro-rata among the holders of such Series G/H Demand Shares on the basis of the
number of Series G/H Demand Shares owned by each such holder; (v) fifth, the
Common Stock issued upon conversion of the Series F Preferred Stock requested to
be included in such registration, pro-rata among the holders of such Series F
Preferred Stock (or Common Stock issued upon conversion of the Series F
Preferred Stock) on the basis of the number of shares of Common Stock issued or
issuable upon conversion of the Series F Preferred Stock owned by each such
holder; and (vi) sixth, the Prior Investors' Shares and the Management Shares
requested to be included in such registration, pro rata among the holders of
such Prior Investors' Shares and Management Shares on the basis of the number of
Prior Investors' Shares and Management Shares owned by each such holder.
1.6. RESTRICTIONS ON SERIES BB DEMAND REGISTRATIONS.
The Company will not be obligated to effect any Series BB
Demand Registration within six months after the effective date of a previous
Series BB Demand Registration or a registration in which the holders of Series
BB Demand Shares were given, and exercised, piggyback rights pursuant to SECTION
4 below and in which there was no reduction cut back in the number of Series BB
Demand Shares requested to be included. The Company may postpone for up to three
months the filing or the effectiveness of a registration statement for a Series
BB Demand Registration if the Company and the holders of at least 66-2/3% of the
Series BB Demand Shares agree that such Series BB Demand Registration would
reasonably be expected to have an adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer or similar transaction.
1.7. SELECTION OF UNDERWRITERS.
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The Company will have the right to select the investment
banker(s) and manager(s) to administer the offering, subject to the approval of
a majority of the Series BB Demand Shares included in any Series BB Demand
Registration. Such approval shall not be unreasonably withheld.
2. SERIES AA DEMAND REGISTRATIONS.
2.1. REQUESTS FOR REGISTRATION.
At any time following the earlier of (i) the second
anniversary of the date hereof and (ii)180 days after the Company has completed
a Qualified Public Offering of its Common Stock under the Securities Act
(subject to the provisions of SECTION 5 below), the holders of at least 66-2/3%
of the Series AA Demand Shares may request registration under the Securities Act
of all or part of their Series AA Demand Shares on Form S-1 or any similar
long-form registration ("Long-Form Registrations") or on Form S-2 or S-3 or any
similar short-form registration ("Short-Form Registrations") if available. Each
request for a Series AA Demand Registration shall specify the approximate number
of Series AA Demand Shares requested to be registered and the anticipated per
share price range for such offering. All registrations requested by holders of
the Series AA Demand Shares pursuant to this SECTION 2.1 are referred to herein
as "Series AA Demand Registrations". Within 10 days after receipt of any such
request for a Series AA Demand Registration, the Company will give written
notice of such requested registration to all other holders of Registrable
Securities and will include in such registration only those Registrable
Securities held by holders possessing registration rights hereunder and subject
to the provisions hereof with respect to which the Company has received written
requests for inclusion therein within 15 days after the receipt of the Company's
notice.
2.2. LIMIT ON NUMBER OF SERIES AA DEMAND REGISTRATIONS.
Except as provided in SECTION 2.3, the holders of Series AA
Demand Shares shall be limited to a maximum number of three Long-Form
Registrations under this SECTION 2. Except as provided in SECTION 2.4, the
holders of Series AA Demand Shares shall be limited to a maximum number of two
Short-Form Registrations in any one-year period.
2.3. LONG-FORM REGISTRATIONS.
Subject to the limitations under SECTION 2.2 above, the
holders of Series AA Demand Shares will be entitled to request Long-Form
Registrations; provided that the gross aggregate offering value of the Series AA
Demand Shares requested to be registered in any Long-Form Registration must
equal at least (i) $10,000,000 in the event that the Company has not completed a
public offering of shares of its Common Stock pursuant to an effective
registration statement under the Securities Act (such offering, an "Initial
Public Offering") or (ii) $3,000,000 in the event that the Company has completed
an Initial Public Offering. A
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registration will not count as one of the three permitted Series AA Demand
Registrations unless the holders of Series AA Demand Shares are able to register
and sell at least 50% of the Series AA Demand Shares requested to be included in
such registration.
2.4. SHORT-FORM REGISTRATIONS.
In addition to the Long-Form Registrations provided pursuant
to SECTION 2.3 and subject to the limitations under SECTION 2.2 above, the
holders of Series AA Demand Shares will be entitled to request Short-Form
Registrations; provided that the gross aggregate offering value of the Series AA
Demand Shares requested to be registered in any Short-Form Registration must
equal at least $3,000,000. Series AA Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Exchange Act, the Company will use its best efforts to make Short-Form
Registrations available for the sale of the Series AA Demand Shares.
2.5. PRIORITY ON SERIES AA DEMAND REGISTRATIONS.
The Company will not include in any Series AA Demand
Registration any securities that are not Series AA Demand Shares without the
prior written consent of the holders of at least 66-2/3% of the Series AA Demand
Shares included in such registration. If a Series AA Demand Registration is an
underwritten offering and the managing underwriters advise the Company in
writing that, in their opinion, the number of Registrable Securities exceeds the
number of Registrable Securities that can be sold therein without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the Series AA Demand Shares requested to be included
that in the opinion of such underwriters can be sold without adversely affecting
the marketability of the offering, pro-rata on the basis of the number of Series
AA Demand Shares owned by each such holder; (ii) second, any securities the
Company wishes to include for registration and sale for its own account in such
registration; (iii) third, Series BB Demand Shares, pro-rata among the holders
of such Series BB Demand Shares on the basis of the number of Series BB Demand
Shares owned by each such holder; (iv) fourth, Series G/H Demand Shares,
pro-rata among the holders of such Series G/H Demand Shares on the basis of the
number of Series G/H Demand Shares owned by each such holder; (v) fifth, the
Common Stock issued upon conversion of the Series F Preferred Stock requested to
be included in such registration, pro-rata among the holders of such Series F
Preferred Stock (or Common Stock issued upon conversion of the Series F
Preferred Stock) on the basis of the number of shares of Common Stock issued or
issuable upon conversion of the Series F Preferred Stock owned by each such
holder; and (vi) sixth, the Prior Investors' Shares and the Management Shares
requested to be included in such registration, pro rata among the holders of
such Prior Investors' Shares and Management Shares on the basis of the number of
Prior Investors' Shares and Management Shares owned by each such holder.
2.6. RESTRICTIONS ON SERIES AA DEMAND REGISTRATIONS.
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The Company will not be obligated to effect any Series AA
Demand Registration within six months after the effective date of a previous
Series AA Demand Registration or a registration in which the holders of Series
AA Demand Shares were given, and exercised, piggyback rights pursuant to SECTION
4 below and in which there was no reduction cut back in the number of Series AA
Demand Shares requested to be included. The Company may postpone for up to three
months the filing or the effectiveness of a registration statement for a Series
AA Demand Registration if the Company and the holders of at least 66-2/3% of the
Series AA Demand Shares agree that such Series AA Demand Registration would
reasonably be expected to have an adverse effect on any proposal or plan by the
Company or any of its subsidiaries to engage in any acquisition of assets (other
than in the ordinary course of business) or any merger, consolidation, tender
offer or similar transaction.
2.7. SELECTION OF UNDERWRITERS.
The Company will have the right to select the investment
banker(s) and manager(s) to administer the offering, subject to the approval of
a majority of the Series AA Demand Shares included in any Series AA Demand
Registration. Such approval shall not be unreasonably withheld.
3. SERIES G/H DEMAND REGISTRATIONS.
3.1. REQUESTS FOR REGISTRATION.
At any time following the earlier of (i) the second
anniversary of the date hereof and (ii) 180 days after the Company has completed
a Qualified Public Offering of its Common Stock under the Securities Act
(subject to the provisions of SECTION 5 below), the holders of at least 66-2/3%
of the Series G/H Demand Shares may request Long Form Registration of all or
part of their Series G/H Demand Shares or Short Form Registration, if available.
Each request for a Series G/H Demand Registration pursuant to this SECTION 3.1
shall specify the approximate number of Series G/H Demand Shares requested to be
registered and the anticipated per share price range for such offering. All
registrations requested by holders of the Series G/H Demand Shares pursuant to
this SECTION 3.1 are referred to herein as "Series G/H Demand Registrations".
Within 10 days after receipt of any such request for a Series G/H Demand
Registration, the Company will give written notice of such requested
registration to all other holders of Registrable Securities and will include in
such registration only those Registrable Securities held by holders possessing
registration rights hereunder and subject to the provisions hereof with respect
to which the Company has received written requests for inclusion therein within
15 days after the receipt of the Company's notice.
3.2. LIMIT ON NUMBER OF SERIES G/H DEMAND REGISTRATIONS.
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Except as provided in SECTION 3.3, the holders of Series G/H
Demand Shares shall be limited to a maximum number of three Series G/H Demand
Registrations under this SECTION 3 and the exercise of the rights of holders of
Series G/H Demand Shares under SECTIONS 3.3 and 3.4 shall be mutually exclusive,
such that, except as provided in SECTION 3.3, the holders of Series G/H Demand
Shares shall not be entitled to request more than three Series G/H Demand
Registrations, whether Long-Form Registrations or Short-Form Registrations.
3.3. LONG-FORM REGISTRATIONS.
Subject to the limitations under SECTION 3.2 above, the
holders of Series G/H Demand Shares will be entitled to request Long-Form
Registrations; provided that the gross aggregate offering value of the Series
G/H Demand Shares requested to be registered in any Long-Form Registration must
equal at least (i) $20,000,000 in the event that the Company has not completed
an Initial Public Offering or (ii) $3,000,000 in the event that the Company has
completed an Initial Public Offering. A registration will not count as one of
the three permitted Series G/H Demand Registrations unless the holders of Series
G/H Demand Shares are able to register and sell at least 50% of the Series G/H
Demand Shares requested to be included in such registration.
3.4. SHORT-FORM REGISTRATIONS.
In addition to the Long-Form Registrations provided pursuant
to SECTION 3.3 and subject to the limitations under SECTION 3.2 above, the
holders of Series G/H Demand Shares will be entitled to request Short-Form
Registrations; provided that the gross aggregate offering value of the Series
G/H Demand Shares requested to be registered in any Short-Form Registration must
equal at least $1,000,000. Series G/H Demand Registrations will be Short-Form
Registrations whenever the Company is permitted to use any applicable short
form. After the Company has become subject to the reporting requirements of the
Exchange Act, the Company will use its best efforts to make Short-Form
Registrations available for the sale of the Series G/H Demand Shares.
3.5. PRIORITY ON SERIES G/H DEMAND REGISTRATIONS.
The Company will not include in any Series G/H Demand
Registration any securities that are not Series G/H Demand Shares without the
prior written consent of the holders of at least 66-2/3% of the Series G/H
Demand Shares included in such registration. If a Series G/H Demand Registration
is an underwritten offering and the managing underwriters advise the Company in
writing that, in their opinion, the number of Registrable Securities exceeds the
number of Registrable Securities that can be sold therein without adversely
affecting the marketability of the offering, the Company will include in such
registration (i) first, the Series G/H Demand Shares requested to be included
that in the opinion of such underwriters can be sold without adversely affecting
the marketability of the offering, pro-rata on the basis of the number
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of Series G/H Demand Shares owned by each such holder; (ii) second, any
securities the Company wishes to include for registration and sale for its own
account in such registration; (iii) third, the Series BB Demand Shares, pro-rata
among the holders of such Series BB Demand Shares on the basis of the number of
Series BB Demand Shares owned by each such holder; (iv) fourth, the Series AA
Demand Shares, pro-rata among the holders of such Series AA Demand Shares on the
basis of the number of Series AA Demand Shares owned by each such holder; (v)
fifth, the Common Stock issued or issuable upon conversion of the Series F
Preferred Stock requested to be included in such registration, pro-rata among
the holders of such Series F Preferred Stock on the basis of the number of
shares of Common Stock issued or issuable upon conversion of the Series F
Preferred Stock owned by each such holder; and (vi) sixth, the Prior Investors'
Shares and the Management Shares requested to be included in such registration,
pro rata among the holders of such Prior Investors' Shares and Management Shares
on the basis of the number of Prior Investors' Shares and Management Shares
owned by each such holder.
3.6. RESTRICTIONS ON SERIES G/H DEMAND REGISTRATIONS.
The Company will not be obligated to effect any Series G/H
Demand Registration within six months after the effective date of a previous
Series G/H Demand Registration or a registration in which the holders of Series
G/H Demand Shares were given, and exercised, piggyback rights pursuant to
SECTION 4 below and in which there was no cut-back in the number of Series G/H
Demand Shares requested to be included. The Company may postpone for up to six
months the filing or the effectiveness of a registration statement for a Series
G/H Demand Registration if the Company and the holders of at least 66-2/3% of
the Series G/H Demand Shares agree that such Series G/H Demand Registration
would reasonably be expected to have an adverse effect on any proposal or plan
by the Company or any of its subsidiaries to engage in any acquisition of assets
(other than in the ordinary course of business) or any merger, consolidation,
tender offer or similar transaction.
3.7. SELECTION OF UNDERWRITERS.
The Company will have the right to select the investment
banker(s) and manager(s) to administer the offering, subject to the approval of
a majority of the Series G/H Demand Shares included in any Series G/H Demand
Registration, which approval shall not be unreasonably withheld.
3.8. CONCURRENT DEMAND REGISTRATIONS.
Notwithstanding anything contained in SECTIONS 1, 2 and 3 to
the contrary, in the event of request for Demand Registration by the holders of
Series BB Demand Shares pursuant to SECTION 1.1 or the holders of Series AA
Demand Shares pursuant to SECTION 2.1 or the holders of Series G/H Demand Shares
pursuant to SECTION 3.1 above, then the non-demanding series of Demand Shares
shall also be entitled to request a Demand Registration, subject to the
limitations
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set forth in SECTIONS 1.2, 2.2, 3.2, 1.6, 2.6 and 3.6, as applicable. The
Company will not include in any such registration any securities that are not
Series BB Demand Shares, Series AA Demand Shares or Series G/H Demand Shares
without the prior written consent of the holders of at least 66-2/3% of the
Series G/H Demand Shares, Series AA Demand Shares and Series BB Demand Shares,
included in such registration, each voting separately as a class. If such
registration is an underwritten offering and the managing underwriters advise
the Company in writing that, in their opinion, the number of Registrable
Securities exceeds the number of Registrable Securities that can be sold therein
without adversely affecting the marketability of the offering, the Company will
include in such registration (i) first, the Series BB Demand Shares, Series AA
Demand Shares and Series G/H Demand Shares requested to be included that in the
opinion of such underwriters can be sold without adversely affecting the
marketability of the offering, pro-rata on the basis of the number of Series BB
Demand Shares, Series AA Demand Shares and Series G/H Demand Shares owned by
each such holder; (ii) second, any securities the Company wishes to include for
registration and sale for its own account in such registration; (iii) third, the
Common Stock issued or issuable upon conversion of the Series F Preferred Stock
requested to be included in such registration, pro-rata among the holders of
such Series F Preferred Stock on the basis of the number of shares of Common
Stock issued or issuable upon conversion of the Series F Preferred Stock owned
by each such holder; and (iv) fourth, the Prior Investors' Shares and the
Management Shares requested to be included in such registration, pro rata among
the holders of such Prior Investors' Shares and Management Shares on the basis
of the number of Prior Investors' Shares and Management Shares owned by each
such holder. In any such offering, the Company will have the right to select the
investment banker(s) and manager(s) to administer the offering, subject to the
approval of a majority of the Series BB Demand Shares, Series AA Demand Shares
and Series G/H Demand Shares included in any Series BB Demand Registration,
Series AA Demand Registration and Series G/H Demand Registration, each voting
separately as a class, which approval shall not be unreasonably withheld.
4. PIGGYBACK REGISTRATIONS.
4.1. RIGHT TO PIGGYBACK.
Subject to the provisions of SECTIONS 1.5, 2.5, 3.5 and 3.8
hereof, whenever the Company proposes to register for sale any of its securities
under the Securities Act and the registration form to be used may be used for
the registration of Registrable Securities (a "Piggyback Registration"), the
Company will give prompt written notice to all holders of Registrable Securities
of its intention to effect such a registration and will include in such
registration all Registrable Securities with respect to which the Company has
received written requests from Persons possessing registration rights hereunder
for inclusion therein within 30 days after the receipt of the Company's notice.
Subject to the provisions of SECTION 4.2 below, the Company shall also be
entitled to include in such registration any other securities requested to be
included in such registration, if any.
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4.2. PRIORITY ON PRIMARY REGISTRATION.
If a Piggyback Registration is an underwritten primary
registration on behalf of the Company, and the managing underwriters advise the
Company in writing that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering, the
Company will include in such registration (i) first, the securities the Company
proposes to sell for its own account; (ii) second, the Series BB Demand Shares,
the Series AA Demand Shares, the Series G/H Demand Shares and the Common Stock
issued or issuable upon conversion of the Series F Preferred Stock requested to
be included in such registration, pro rata among the holders of such Series BB
Demand Shares, the Series AA Demand Shares, Series G/H Demand Shares and Series
F Preferred Stock on the basis of the number of Series BB Demand Shares, the
Series AA Demand Shares, Series G/H Demand Shares and shares of Common Stock
issued or issuable upon conversion of the Series F Preferred Stock owned by each
such holder; and (iii) third, the Prior Investors' Shares and the Management
Shares requested to be included in such registration, pro rata among the holders
of such Prior Investors' Shares and Management Shares on the basis of the number
of Prior Investors' Shares and Management Shares owned by each such holder.
4.3. PRIORITY ON SECONDARY REGISTRATION.
If a Piggyback Registration is an underwritten secondary
registration on behalf of holders of the Company's securities, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company will include in such registration, (i) first, the
Series BB Demand Shares, the Series AA Demand Shares, Series G/H Demand Shares
and the Common Stock issued or issuable upon conversion of the Series F
Preferred Stock requested to be included in such registration, pro rata among
the holders of such Series BB Demand Shares, Series AA Demand Shares, Series G/H
Demand Shares and the Series F Preferred Stock on the basis of the number of
Series BB Demand Shares, Series AA Demand Shares, Series G/H Demand Shares and
shares of Common Stock issued or issuable upon conversion of the Series F
Preferred Stock owned by each such holder and (ii) second, the Prior Investors'
Shares and the Management Shares requested to be included in such registration,
pro rata among the holders of such Prior Investors' Shares and Management Shares
on the basis of the number of Prior Investors' Shares and Management Shares
owned by each such holder.
5. HOLDBACK AGREEMENTS.
5.1. HOLDBACK BY HOLDERS.
Each holder of Registrable Securities agrees not to effect any
public sale or distribution (including sales pursuant to Rule 144) of equity
securities of the Company, or any
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securities convertible into or exchangeable or exercisable for such securities,
during the seven days prior to and ending on the last day of the Lock-Up Period
(as hereinafter defined), unless the underwriters managing such registered
public offering otherwise agree. For purposes hereof, the "Lock-Up Period" shall
mean that period (i) beginning on the effective date of any underwritten Demand
Registration, any underwritten Piggyback Registration in which Registrable
Securities are included (except as part of such underwritten registration) or
any other registration of the Company in connection with a public offering
(except pursuant to registrations on Form S-8 or any successor form), as the
case may be, and (ii) ending on that date which is the lesser of (A) 180 days
after such effective date (in the case of the Initial Public Offering) or 90
days after such effective date (in the case of an offering other than the
Initial Public Offering); or (B) the least number of days after such effective
date that any of the Company's senior management, Board of Directors, key
employees or any other holder of Registrable Securities agrees with the Company
or any underwriter of such registration not to effect public sales or a
distribution of equity securities of the Company (or securities convertible into
or exchangeable or exercisable for such securities); provided that to the extent
such underwriter releases securities of any member of senior management or any
other holder of Registrable Securities from such agreement, an equal amount of
securities of each holder of Registrable Securities shall be similarly released.
5.2. HOLDBACK BY COMPANY AND OTHERS.
The Company agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, (A) in the case of a Demand
Registration, during the period beginning on the date of the request for
registration of any Demand Shares to be registered in connection therewith
through the end of the 180-day period beginning on the effective date of such
Demand Registration and, (B) in the case of an underwritten Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form) during the seven days prior to
and during the 180-day period beginning on the effective date of such Piggyback
Registration (except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form), unless in either case the
underwriters managing the registered public offering otherwise agree, and (ii)
to cause each holder of at least 5% (on a fully-diluted basis) of its Common
Stock, or any securities convertible into or exchangeable or exercisable for
Common Stock, purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to agree not to effect
any public sale or distribution (including sales pursuant to Rule 144) of any
such securities during such period (except as part of such underwritten
registration, if otherwise permitted), unless the underwriters managing the
registered public offering otherwise agree. In the event that any Demand
Registration referred to in clause (i)(A) above is not declared effective by the
Securities and Exchange Commission within 90 days after the date on which it was
filed therewith and such non-effectiveness is the proximate result of any
failure by the holders of Demand Shares being registered thereon or the
underwriters being utilized in connection therewith to proceed with reasonable
diligence toward
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the consummation of the public offering contemplated thereby, then,
notwithstanding the foregoing, for purposes of the restrictions on the Company
set forth in this SECTION 5.2, such Demand Registration shall be considered a
Piggyback Registration.
6. REGISTRATION PROCEDURES.
6.1. COMPANY OBLIGATIONS.
Whenever the holders of Registrable Securities have requested
that any Registrable Securities be registered pursuant to this Agreement, the
Company will use its best efforts to effect the registration of such Registrable
Securities under the Securities Act, and pursuant thereto the Company will as
expeditiously as possible:
(i) prepare and file with the Securities and Exchange
Commission a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become and
remain effective until the earlier of 180 days or such time as the holder or
holders of such Registrable Securities have completed the distribution described
in the registration statement relating thereto (provided that before filing a
registration statement or prospectus or any amendments or supplements thereto,
the Company will furnish to the counsels selected by the holders of the
applicable series of Demand Shares and the holders of a majority of the
Registrable Securities covered by such registration statement copies of all such
documents proposed to be filed);
(ii) prepare and file with the Securities and Exchange
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than six months and
comply with the provisions of the Securities Act with respect to the disposition
of all securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(iii) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including each
preliminary prospectus) and such other documents as such seller may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such seller;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as the managing underwriter reasonably requests and do any and all
other acts and things that may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller (provided that the Company will not
be required to
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(a) qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subsection, (b) subject itself to
taxation in any such jurisdiction or (c) consent to general service of process
in any such jurisdiction);
(v) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will prepare
a supplement or amendment to such prospectus so that, as thereafter delivered to
the purchasers of such Registrable Securities, such prospectus will not contain
an untrue statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(vi) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, use its best efforts to cause such
Registrable Securities to be listed on the Nasdaq National Market;
(vii) provide a transfer agent and registrar and a CUSIP
number for all such Registrable Securities not later than the effective date of
such registration statement;
(viii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
the holders of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(ix) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or other
agent retained by any such seller or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, and cause
the Company's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(x) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning with
the first day of the Company's first full calendar quarter after the effective
date of the registration statement;
(xi) permit any holder of Registrable Securities, which
holder, in its sole and exclusive judgment, might be deemed to be an underwriter
or a controlling person of the
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Company, to participate in the preparation of such registration or comparable
statement and to require the insertion therein of material, furnished to the
Company in writing, which in the reasonable judgment of such holder and its
counsel should be included;
(xii) obtain a cold comfort letter from the Company's
independent public accountants in customary form covering such matters of the
type customarily covered by such cold comfort letters addressed to the sellers
of Registrable Securities;
(xiii) in the event of the issuance of any stop order
suspending the effectiveness of a registration statement, or of any order
suspending or preventing the use of any related prospectus or suspending the
qualification of any common stock included in such registration statement for
sale in any jurisdiction, the Company will use its reasonable best efforts
promptly to obtain the withdrawal of such order; and
(xiv) furnish, at the request of any holder of Demand Shares
requesting registration of Registrable Securities pursuant to this Agreement, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Agreement, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
6.2. CONTROLLING STOCKHOLDERS RIGHTS.
If any such registration statement refers to any holder by
name or otherwise as the holder of any securities of the Company and if, in such
holder's sole and exclusive judgment, such holder is or might be deemed to be a
controlling person of the Company, such holder shall have the right to require
(i) the insertion therein of language, in form and substance satisfactory to
such holder and presented to the Company in writing, to the effect that the
holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any financial requirements of the Company, or (ii) in the
event that such reference to such holder by name or otherwise is not required by
the Securities Act or any similar Federal statute then in force, the deletion of
the reference to such holder; provided that with respect to this clause (ii)
such holder shall furnish to the Company an opinion of counsel to such effect,
which opinion of counsel shall be reasonably satisfactory to the Company.
6.3. WITHDRAWAL OF REGISTRATION.
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Any registration of Registrable Securities undertaken by the
Company pursuant to this Agreement shall be withdrawn by the Company only upon
the request of holders of 66-2/3% of the Registrable Securities and a majority
of the applicable series of Demand Shares tendered for inclusion in such
registration.
7 REGISTRATION EXPENSES.
7.1. COMPANY EXPENSES.
All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all registration
and filing fees, fees and expenses of compliance with securities or blue sky
laws, printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding discounts and commissions) and other
Persons retained by the Company (all such expenses being herein called
"Registration Expenses"), will be borne by the Company. The Company will also
pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual audit or quarterly review, the expense of any
liability insurance and the expenses and fees for listing the securities to be
registered on each securities exchange on which similar securities issued by the
Company are then listed or on the Nasdaq National Market.
7.2. COUNSEL FEES.
In connection with each Demand Registration and each Piggyback
Registration, the Company will reimburse the holders of Registrable Securities
covered by such registration for the reasonable fees and disbursements of one
lead outside counsel chosen by holders of a majority of the Registrable
Securities participating in such registration, provided, however, that in the
event of a Demand Registration pursuant to SECTION 3.8, the holders of the
majority of the Series BB Demand Shares requesting registration shall be
entitled to select one outside counsel, the holders of the majority of the
Series AA Demand Shares requesting registration shall be entitled to select one
outside counsel and the holders of a majority of the Series G/H Demand Shares
requesting registration shall be entitled to select one outside counsel.
Notwithstanding anything to the contrary contained in the foregoing sentence,
the Company shall not be required to pay for any expenses of any registration if
such registration is subsequently withdrawn pursuant to SECTION 6.3 (in which
case all holders requesting the withdrawal of such registration shall bear such
expenses on a pro rata basis).
7.3. UNDERWRITING DISCOUNTS AND COMMISSIONS.
Each holder of Registrable Securities participating in any
registration shall bear its proportionate share (in relation to the aggregate
number of shares included in such registered offering as compared to the number
of Registrable Securities of such holder included in such registered offering)
of all underwriting discounts and commissions.
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8 INDEMNIFICATION.
8.1. COMPANY INDEMNIFICATION.
The Company agrees to indemnify and hold harmless, to the full
extent permitted by law, each seller of Registrable Securities, such seller's
officers and directors, legal counsel and accountants, and each Person who
controls such seller (within the meaning of the Securities Act) against all
losses, claims, damages, liabilities (joint or several) and expenses caused by
or based upon any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law, any untrue or
alleged untrue statement of material fact contained in any registration
statement, prospectus or preliminary prospectus or any amendment thereof or
supplement thereto or any omission or alleged omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as the same are contained in any information
furnished in writing to the Company by such seller expressly for use therein or
by such seller's failure to deliver a copy of the registration statement or
prospectus or any amendments or supplements thereto, to the extent such seller
is required by applicable law to make such deliveries, after the Company has
furnished such seller with a sufficient number of copies of the same. In
connection with any underwritten offering, the Company will indemnify such
underwriters, their officers and directors and each Person who controls such
underwriters (within the meaning of the Securities Act) to the same extent as
provided above with respect to the indemnification of the sellers of Registrable
Securities.
8.2. HOLDER INDEMNIFICATION.
In connection with any registration statement pursuant to
which a holder of Registrable Securities is participating, each such holder will
furnish to the Company in writing such information and affidavits as the Company
reasonably requests for use in connection with any such registration statement
or prospectus and, to the full extent permitted by law, will indemnify the
Company, its directors and officers who have signed the registration statement
and each Person who controls the Company (within the meaning of the Securities
Act) against any losses, claims, damages, liabilities and expenses (a "Company
Loss") resulting from any untrue or alleged untrue statement of material fact
contained in the registration statement, prospectus or preliminary prospectus or
any amendment thereof or supplement thereto or any omission or alleged omission
of a material fact required to be stated therein or necessary to make the
statements therein not misleading, but only in each case to the extent that such
untrue statement or omission occurs in reliance upon and in conformity with
written information or affidavits so furnished in writing by such holder
expressly for use in connection with such registration statement, and provided
that no such indemnification obligation shall arise to the extent such Company
Loss is caused by the Company's or any underwriter's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto, to the extent the Company or any underwriter is required by applicable
law to make such deliveries. The foregoing obligation to indemnify is a separate
obligation of each holder and is not a joint
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obligation with any other holder and will be limited to the net amount of
proceeds received by such holder from the sale of Registrable Securities
pursuant to such registration statement.
8.3. INDEMNIFICATION PROCEDURES.
Any Person entitled to indemnification under this SECTION 8
will (i) give prompt written notice to the indemnifying party of any claim with
respect to which such Person seeks indemnification and (ii) unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or elects
not to, assume the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable judgment
of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim.
8.4. SURVIVAL AND CONTRIBUTION.
The indemnification provided under this SECTION 8 will remain
in full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities.
If the indemnification provided for herein is unavailable to
or insufficient to hold harmless an indemnified party under SECTION 8.1 or 8.2
in respect of any losses, liabilities, claims, damages or expenses (or actions,
inquiries, investigations or proceedings in respect thereof) as contemplated
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, liabilities,
claims, damages or expenses (or actions, inquiries, investigations or
proceedings in respect thereof) in such proportion as is appropriate to reflect
the relative fault of the indemnifying party. If, however, the allocation
provided by the immediately preceding sentence is not permitted by applicable
law, then each indemnifying party shall contribute to such amount paid or
payable by such indemnified party in such proportion as is appropriate to
reflect not only the relative fault of the indemnifying party but also the
relative benefits of the indemnifying party on the one hand and the indemnified
party on the other as well as any other relevant equitable considerations.
The Company agrees that it would not be just and equitable if
contribution pursuant to this SECTION 8.4 were determined by pro rata allocation
or by any other method of allocation that does not take account of the equitable
considerations referred to in the
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immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, liabilities, claims, damages or reasonable
expenses (or actions, inquiries, investigations or proceedings in respect
thereof) referred to in the immediately preceding paragraph shall be deemed to
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this SECTION 8.4, an indemnified holder of
Registrable Securities shall not be required to contribute any amount in excess
of the amount by which the net proceeds to such holder of Registrable Securities
from the sale thereof exceeds the amount of damages which such indemnified
holder has otherwise been required to pay by reason of any untrue or alleged
untrue statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation.
If indemnification is available under SECTION 8.1 or 8.2, an
indemnifying party shall indemnify an indemnified party to the full extent
provided in SECTION 8.1 or 8.2 without regard to the relative fault of such
indemnifying party or the indemnified party or any other equitable consideration
provided for in the two immediately preceding paragraphs.
9 PARTICIPATION IN UNDERWRITTEN REGISTRATIONS.
No Person may participate in any registration hereunder which is
underwritten unless such Person (i) agrees to sell such Person's securities on
the basis provided in any underwriting arrangements approved by the Person or
Persons entitled hereunder to approve such arrangements and (ii) completes and
executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such underwriting
arrangements.
10 RULE 144 REQUIREMENTS.
After the closing of the first sale of securities of the Company
pursuant to a registration statement, the Company agrees to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144, at any time after 90 days after the
effective date of the first registration statement filed by the Company for the
offering of its securities to the general public;
(ii) use its best efforts to file with the Securities and
Exchange Commission in a timely manner all reports and other documents required
of the Company to be filed under the Exchange Act (at any time after it has
become subject to such reporting requirements);
(iii) take such action, including the voluntary registration
of its Common Stock under Section 12 of the Exchange Act, as is necessary to
enable the holders of Demand Shares to
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utilize Form S-3 for the sale of their Registrable Securities, such action to be
taken as soon as practicable after the end of the fiscal year in which the first
registration statement filed by the Company for the offering of its securities
to the general public is declared effective; and
(iv) furnish to any holder of Registrable Securities, upon
request, a (x) written statement by the Company as to its compliance with the
reporting requirements of Rule 144 (at any time after 90 days following the
closing of the first sale of securities by the Company pursuant to a
Registration Statement), and of the Securities Act and the Exchange Act (at any
time after it has become subject to such reporting requirement), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (y) a copy of the most recent annual or
quarterly report filed by the Company with the Securities and Exchange
Commission, and (z) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Securities and Exchange Commission allowing it to sell any such
securities without registration or pursuant to such form.
11 DEFINITIONS.
"ADVANTA" means Advanta Partners LP.
"COMMON STOCK" means the Company's common stock, par value $0.01 per
share.
"DEMAND REGISTRATION" means a Series BB Demand Registration, Series AA
Demand Registration or a Series G/H Demand Registration.
"DEMAND SHARES" means, collectively, the Series BB Demand Shares, the
Series AA Demand Shares and the Series G/H Demand Shares.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended,
or any similar federal law then in force.
"EXERCISING SERIES F HOLDERS" means, collectively, those holders of
Series F Preferred Stock, if any, who exercise their preemptive rights to
purchase their proportionate share of Series BB Preferred Stock.
"GE CAPITAL" means General Electric Capital Corporation.
"ICG" means Internet Capital Group, L.L.C.
"ICG COMMON STOCK" means the 182,500 shares of the Company's Common
Stock purchased by and issued to the predecessor of ICG pursuant to that certain
Common Stock
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Purchase Agreement by and between Original Research Corporation (the Company's
predecessor name) and Safeguard Delaware, dated August 31, 1988.
"JUNIOR PREFERRED STOCK" means the Company's Series C Preferred Stock,
Series D Preferred Stock and Series F Preferred.
"MANAGEMENT SHARES" means the Registrable Securities held by those
individuals who are officers or employees of the Company.
"PERSON" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency, or political
subdivision thereof.
"PRIOR INVESTORS' SHARES" means those Registrable Securities held by
the Prior Investors in respect of the shares of Series C Preferred Stock, shares
of Series D Preferred Stock and shares of ICG Common Stock purchased by the
Advanta and ICG.
"PURCHASERS" has the meaning set forth in that certain Series BB Stock
Purchase Agreement, of even date herewith.
"QUALIFIED PUBLIC OFFERING" is defined in Section 4(b) of that certain
Sky Alland Research, Inc. Articles Supplementary dated February 3, 2000.
"REGISTRABLE SECURITIES" means (i) any shares of Common Stock issued or
issuable to the Purchasers upon the conversion of any Demand Shares; (ii) any
shares of Common Stock issued or issuable upon the conversion of any Junior
Preferred Stock; (iii) any shares of Common Stock issued or issuable to
management of the Company (including any shares of Common Stock issued or
issuable upon the exercise of a stock option agreement); (iv) any shares of the
ICG Common Stock; and (v) any Common Stock issued or issuable with respect to
the securities referred to in clauses (i) through (iv) by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Registrable Securities, such securities will cease to be Registrable
Securities when they have been distributed to the public pursuant to an
effective registration statement under the Securities Act or sold to the public
through a broker, dealer or market maker in compliance with Rule 144 under the
Securities Act (or any similar rule then in force). For purposes of this
Agreement, a Person will be deemed to be a holder of Registrable Securities
whenever such Person has the right to acquire directly or indirectly such
Registrable Securities (upon conversion or exercise in connection with a
transfer of securities or otherwise, but disregarding any restrictions or
limitations upon the exercise of such right), regardless of whether such
acquisition has actually been effected. Notwithstanding the foregoing, prior to
effectiveness of any registration of any Registrable Securities in any
registered offering, the holder thereof, if requested or required by the
managing underwriter, shall exercise all conversion rights or rights
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under warrants so that the Registrable Securities included in such offering
include only shares of Common Stock.
"RULE 144" means Rule 144 promulgated by the Securities and Exchange
Commission under the Securities Act as such rule may be amended from time to
time, or any similar rule then in force.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" means the United States Securities
and Exchange Commission or any governmental body or agency succeeding to the
functions thereof.
"SERIES AA DEMAND SHARES" means those Registrable Securities held by
the Purchasers (or their respective successors and assigns) in respect of the
shares of Series AA Preferred Stock acquired by the Purchasers pursuant to the
terms and conditions of the Preferred Stock Purchase Agreement dated October 14,
1998.
"SERIES BB DEMAND SHARES" means those Registrable Securities held by
the Purchasers (or their respective successors and assigns) in respect of the
shares of Series BB Preferred Stock acquired by the Purchasers pursuant to the
terms and conditions of the Preferred Stock Purchase Agreement dated the date
hereof.
"SERIES AA PREFERRED STOCK" means the Company's Convertible Preferred
Stock Series AA, par value $0.01 per share.
"SERIES BB PREFERRED STOCK" means the Company's Convertible Preferred
Stock Series BB, par value $0.01 per share.
"SERIES C PREFERRED STOCK" means the Company's Convertible Preferred
Stock, Series C, par value $0.01 per share.
"SERIES D PREFERRED STOCK" means the Company's Convertible Preferred
Stock, Series D, par value $0.01 per share.
"SERIES F PREFERRED STOCK" means the Company's Convertible Preferred
Stock, Series F, par value $0.01 per share.
"SERIES G/H DEMAND SHARES" means those Registrable Securities held by
ICG and Advanta (or their respective successors and assigns) in respect of the
shares of Series G Preferred Stock and Series H Preferred Stock acquired by the
them pursuant to the terms and conditions of the Preferred Stock Purchase
Agreement dated February 13, 1996.
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"SERIES G PREFERRED STOCK" means the Company's Convertible Preferred
Stock, Series G, par value $4.50 per share.
"SERIES H PREFERRED STOCK" means the Company's Convertible Preferred
Stock, Series H, par value $6.00 per share.
12 MISCELLANEOUS.
12.1. NO INCONSISTENT AGREEMENTS.
The Company will not hereafter enter into any agreement with
respect to its securities which is inconsistent with or violates the rights
granted to the holders of Registrable Securities in this Agreement.
12.2. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES.
The Company will not take any action, or permit any change to
occur, with respect to its securities which would materially and adversely
affect the ability of the holders of Registrable Securities to include such
Registrable Securities in a registration undertaken pursuant to this Agreement
or which would materially and adversely affect the marketability of such
Registrable Securities in any such registration (including, without limitation,
effecting a stock split or a combination of shares).
12.3. REMEDIES.
Any Person having rights under any provision of this Agreement
will be entitled to enforce such rights specifically to recover damages caused
by reason of any breach of any provision of this Agreement and to exercise all
other rights granted by law. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or other
security) for specific performance and for other injunctive relief in order to
enforce or prevent violation of the provisions of this Agreement.
12.4. INTENDED BENEFICIARIES; SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the parties
hereto and their respective successors and assigns, to the extent provided in
SECTION 12.5.
12.5. TRANSFERS OF CERTAIN RIGHTS.
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12.5.1. TRANSFERS. The rights granted to an Investor under
this Agreement may be transferred by such Investor to (i) any affiliate of such
Investor or (ii) any other transferee who after such transfer holds at least 20%
of the Investor's Registrable Securities (as adjusted for stock splits,
combinations and the like); PROVIDED, HOWEVER, that the Company is given written
notice by the transferee at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
such rights are being transferred.
12.5.2. TRANSFEREES. Any transferee to whom rights under this
Agreement are transferred shall, as a condition to such transfer, deliver to the
Company a written instrument by which such transferee agrees to be bound by the
obligations imposed upon an Investor under this Agreement to the same extent as
if such transferee were an Investor hereunder.
12.5.3. SUBSEQUENT TRANSFEREES. A transferee to whom rights
are transferred pursuant to this SECTION 12.5 may not again transfer such rights
to any other person or entity, other than as provided in SUBSECTION 12.5.1 or
SUBSECTION 12.5.2 above.
12.6. SEVERABILITY.
Whenever possible, each provision of this Agreement will be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
12.7. COUNTERPARTS.
This Agreement may be executed simultaneously in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts taken together will constitute one and the same
Agreement.
12.8. DESCRIPTIVE HEADINGS.
The descriptive headings of this Agreement are inserted for
convenience only and do not constitute a part of this Agreement.
12.9. GOVERNING LAW.
The corporate law of New York will govern all issues
concerning the relative rights of the Company and its stockholders and all other
questions concerning the construction, validity and interpretation of this
Agreement, without giving effect to the principles of conflicts of law.
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12.10. NOTICES.
All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
recipient, sent to the recipient by reputable express courier service (charges
prepaid) or mailed to the recipient by certified or registered mail, return
receipt requested and postage prepaid. Such notices, demands and other
communications will be sent to each holder of Demand Shares at the address
indicated on Schedule I attached hereto and to the Company at the address
indicated below:
Sky Alland Research, Inc.
6740 Alexander Bell Drive
Columbia, Maryland 21046
Attention: Mr. Richard T. Hebert, President
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
12.11. GRANT OF SUBSEQUENT REGISTRATION RIGHTS; AMENDMENTS AND WAIVERS.
Except for the addition of Exercising Series F Holders to this
Agreement, the Company will not grant to any Person the right to request that
the Company register any equity securities of the Company, or any securities
convertible or exchangeable into or exercisable for such securities, which
rights are on parity with or have priority over the rights of the holders of
Registrable Securities under this Agreement without the prior written approval
(i) of the holders of at least 66-2/3% of the Registrable Securities and (ii)
the holders of at least a majority of the shares of each of the Series AA
Preferred Stock and the Series BB Preferred Stock. Except as otherwise provided
herein, the provisions of this Agreement may be amended or waived only upon the
prior written consent of (i) the Company; (ii) the holders of at least 66-2/3%
of the Registrable Securities; and (iii) the holders of at least a majority of
the shares of each of the Series AA Preferred Stock and the Series BB Preferred
Stock.
12.12. ENTIRE AGREEMENT; TERMINATION OF PRIOR RIGHTS.
This amends and restates that certain Amended and Restated
Registration Rights Agreement by and among the Company and certain of the
Investors and Prior Investors (each as defined therein) dated October 14, 1998,
and all other terms, conditions and provisions contained therein are hereby
terminated concurrently with the execution of this Agreement. Other than the
agreements entered into on the date hereof in connection with the issuance of
the Series BB Preferred Stock, each of Advanta and ICG hereby represents,
acknowledges and agrees that all terms, conditions and provisions of any
agreements, understandings or arrangements relating to
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or in connection with the issuance to Advanta, ICG or any of their predecessors
or affiliates of any securities of the Company have been terminated prior to the
date hereof and, if any such agreement, understanding or arrangement has not
been terminated, all terms, conditions and provisions contained therein are
hereby terminated concurrently with the execution of this Agreement and shall be
of no further force and effect.
{Signatures on next page.}
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
COMPANY
SKY ALLAND RESEARCH, INC.
By: /s/ Richard T. Hebert
-------------------------------------
Richard T. Hebert, President
INVESTORS
ADVANTA PARTNERS LP
By: Advanta GP Corp., general partner
By:
-------------------------------------
Name:
-----------------------------------
Its: Vice President
INTERNET CAPITAL GROUP, INC.
By:/s/ David D. Gathman
-------------------------------------
Name: David D. Gathman
-----------------------------------
Its: Chief Financial Officer
-----------------------------------
1999 INTERNET CAPITAL L.P.
By: ICG Holdings, Inc.
Its: General Partner
By: /s/ David D. Gathman
---------------------------
Name: David D. Gathman
-------------------------
Its: Chief Financial Officer
--------------------------
<PAGE>
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ David Gibbs
-------------------------------------
Name: David Gibbs
-----------------------------------
Its: Region Operations Manager
-----------------------------------
GILBERT GLOBAL EQUITY PARTNERS, L.P.
By: /s/ Steven J. Gilbert
-------------------------------------
Name: Steven J. Gilbert
Its: Authorized Signatory
GILBERT GLOBAL EQUITY PARTNERS (BERMUDA), L.P.
By: /s/ Steven J. Gilbert
-------------------------------------
Name: Steven J. Gilbert
Its: Authorized Signatory
FG - SKY, L.L.C.
By: /s/ Kathleen Shepphird
-------------------------------------
Name: Kathleen Shepphird
Its: Authorized Signatory
INGRAM INDUSTRIES INC.
By: /s/ John R. Ingram
-------------------------------------
Name: John R. Ingram
Its: Vice Chairman
<PAGE>
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By: /s/ Theodore H. Paraskevas
-------------------------------------
Name: Theodore H. Paraskevas
Its: Vice President
<PAGE>
CONSENT OF KPMG LLP
EXHIBIT 23.1
ACCOUNTANT'S CONSENT
The Board of Directors
iSky, Inc.
We consent to the use of our reports included herein and the reference to our
firm under the heading "Experts" in the prospectus.
KPMG LLP
McLean, Virginia
February 7, 2000
<PAGE>
Exhibit 23.3
The Board of Directors
iSky, Inc.
The audits referred to in our report dated February 4, 2000 included the
related financial statement schedule for each of the years in the three-year
period ended December 31, 1999, included in the registration statement. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is the express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the combined financial
statements taken as a whole, present fairly in all material respects the
information set forth herein.
KPMG LLP
McLean, Virginia
February 4, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM I SKY, INC.
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1
<CASH> 1,612
<SECURITIES> 0
<RECEIVABLES> 5,648
<ALLOWANCES> 221
<INVENTORY> 0
<CURRENT-ASSETS> 7,390
<PP&E> 11,952
<DEPRECIATION> 5,351
<TOTAL-ASSETS> 14,482
<CURRENT-LIABILITIES> 5,380
<BONDS> 0
1,421
5,520
<COMMON> 8
<OTHER-SE> 1,516
<TOTAL-LIABILITY-AND-EQUITY> 14,482
<SALES> 24,011
<TOTAL-REVENUES> 24,011
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (25,418)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (157)
<INCOME-PRETAX> (1,564)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,564)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,564)
<EPS-BASIC> (3.81)
<EPS-DILUTED> (3.81)
</TABLE>
