EXHIBIT NO. 10.1
CONFIDENTIAL MATERIALS OMITTED AND FILED SEPARATELY WITH THE
SECURITIES AND EXCHANGE COMMISSION. ASTERISKS DENOTE OMISSIONS.
FLEET NATIONAL BANK
COMMERCIAL LOAN AGREEMENT
▇▇▇▇▇▇▇▇▇' NAMES AND ADDRESSES: DESCRIPTION OF LOAN:
SKILLSOFT CORPORATION Revolving Line of Credit Loan:
▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ $25,000,000.00
Nashua, New Hampshire 03062
SKILLSOFT PUBLIC LIMITED COMPANY
Belfield Office Park
Clonskeagh, Dublin, Ireland
DATE OF THIS AGREEMENT: June 24, 2003
REVOLVING LINE OF CREDIT
LOAN MATURITY DATE: June 23, 2004
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THIS COMMERCIAL LOAN AGREEMENT (this "Agreement"), is made as of the date set
forth above, between the above-named borrowers, SKILLSOFT CORPORATION, a
Delaware corporation, having its principal office at ▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, and SKILLSOFT PUBLIC LIMITED COMPANY, a company
incorporated in Ireland under number 148924, having its registered office at
Belfield Office Park, Clonskeagh, Dublin 4 Ireland (collectively, the
"BORROWER"), and FLEET NATIONAL BANK, a national banking association organized
under the laws of the United States of America with an address of Mail Stop NH
DE 01102A, ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (the "BANK"). The
BANK has agreed, at the BORROWER's request, to extend to the BORROWER the
Revolving Line of Credit Loan described above, and may from time to time
hereafter continue such loan or extend other loans and credit facilities to
BORROWER (each individually, a "Loan" and, collectively, the "Loans"). All of
the Loans are, together with all other debts, liabilities and obligations of
BORROWER to the BANK arising in connection with the Loans, the Loan Agreement,
the other Loan Document, or any other credit relationship or credit agreement
between the BANK and the BORROWER, direct or indirect, absolute or contingent,
now existing or hereafter arising, hereinafter sometimes collectively referred
to as the "Obligations"
(but excluding from the "Obligations" hereunder any debts, liabilities or other
obligations of the BORROWER to any third party which are acquired by the BANK).
Each Loan is or shall be evidenced by a promissory note (individually a "Note"
and collectively the "Notes"). Each Loan of BORROWER and all of the other
Obligations of BORROWER shall be secured pursuant to a Security Agreement of
SKILLSOFT CORPORATION in favor of the BANK of even date herewith (the "Security
Agreement"). The BORROWER may hereafter execute certain other documents,
certificates and agreements with or to the benefit of the BANK, all of which
are, together with this Agreement, each Note, and the Security Agreement, and as
all of the same may be hereafter amended, modified, replaced, revised, renewed,
or extended, sometimes collectively referred to herein as the "Loan Documents".
Each Loan, whether now existing or hereafter arising, is made upon and subject
to the terms and conditions set forth in the Note evidencing such Loan, the
Security Agreement, the other Loan Documents, and this Agreement. The terms,
conditions, representations, warranties, and covenants set forth in this
Agreement are in addition to, and not in limitation of, the terms, conditions,
representations, warranties, and covenants set forth in the other Loan
Documents. In the event of any conflict between the terms, conditions,
representations, warranties, and covenants contained in the Loan Documents, this
Agreement shall control. Where there is more than one BORROWER or guarantor
hereunder and a term is used that covers such entities generally and not
specifically (e.g., regarding bank accounts), all of the terms, conditions,
representations, warranties, and covenants set forth herein and in the other
Loan Documents shall apply to, be binding upon, and be deemed to be made by each
BORROWER and guarantor, jointly, severally, separately, and individually.
IN CONSIDERATION OF the Loans made or to be made by BANK to the BORROWER, and of
all other Obligations of the BORROWER to the BANK, BORROWER and BANK hereby
agree as follows:
I. REVOLVING LINE OF CREDIT LOAN. The Revolving Line of Credit Loan first
described above (the "Revolving Line of Credit Loan") made available by the BANK
to the BORROWER shall be upon and subject to the terms and conditions set forth
in the Revolving Line of Credit Note evidencing such Loan, the other Loan
Documents, and this Agreement.
A. Maximum Available Amount; Sublimits.
(i) The maximum amount available to the BORROWER from time to time under the
Revolving Line of Credit Loan shall be the LESSER of (1) Twenty-five Million
Dollars ($25,000,000.00), being the stated principal amount set forth in the
Note evidencing such Revolving Line of Credit Loan (the "Revolving Line of
Credit Note"), or (2) the sum of (A) the then Cash Collateral Amount maintained
with the BANK pursuant to Section V below and (B) an amount equal to
seventy-five percent (75%) of BORROWER's Acceptable Accounts (as defined below).
The maximum amount available to BORROWER under the Revolving Line of Credit Loan
as determined from time to time under this subparagraph (i) of Paragraph A of
Section I is hereinafter referred to as the BORROWER's "Borrowing Base". The
BORROWER agrees that the BANK may, at any time or times, with thirty (30) days
prior written notice to the BORROWER, lower the applicable percentage of
Acceptable Accounts for purposes of determining the Borrowing Base to such
percentages as the BANK may determine in a
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commercially reasonable manner to be appropriate based upon any material
deterioration of the BORROWER's condition, financial or otherwise, and/or of the
condition or quality of the Collateral (as hereinafter defined). The term
"Acceptable Accounts" means those of the BORROWER's accounts and accounts
receivable as the BANK determines to be satisfactory, in the BANK's reasonable
discretion. Subject to the foregoing, "Acceptable Accounts" shall be accounts of
the BORROWER: (i) which arise in the ordinary course of ▇▇▇▇▇▇▇▇'s business from
▇▇▇▇▇▇▇▇'s performance of services or sale or licensing of goods which have been
performed, sold or licensed; (ii) which are not more than forty-five (45) days
old from the due date of such invoice (in the event that twenty-five percent
(25%) of the accounts receivable from a particular account debtor are over
forty-five (45) days past the due date of the respective invoices, all of the
accounts receivable from that particular account debtor shall be excluded from
Acceptable Accounts); (iii) which are not evidenced by a promissory note or
other instrument; (iv) which are payable in U.S. Dollars; (v) which are owed by
any customer whose principal place of business is within the United States or
any foreign accounts which are FCIA-insured or payable by an acceptable letter
of credit and which are not more than forty-five (45) days old from due date
under the invoice therefor; (vi) which are owed by any corporation or other
entity other than one which is related to the BORROWER, or is of Common
Ownership with the BORROWER, or could be treated as a member of the same
controlled group of corporations of which the BORROWER is a member; (vii) which
constitute valid, binding, and enforceable obligations of account debtors which
are not subject to any claim, counterclaim, set off, credit, allowance,
chargeback, or "debit memo" balances (collectively, "Adjustments"), but which
shall only be excluded to the extent of the Adjustments; (viii) as to which the
BORROWER has received no notice and has no knowledge as to whether the account
debtor (or any guarantor or endorser thereof) is bankrupt or insolvent, or any
other facts which make the collection of the account doubtful; (ix) which are
not owed by any person employed by, or salesman of, the BORROWER; (x) which do
not arise out of the sale by the BORROWER of goods consigned or delivered to the
BORROWER on "sell or return" terms (whether or not compliance has been made with
Section 2-326 of the UCC); and (xi) which do not arise out of any sale made on a
"bill and hold", dating, or delayed shipping basis (without duplication of any
Adjustments). Accounts payable by BORROWER to any account debtor shall be netted
against accounts due from such debtor. The acceptance of or characterization by
the BANK of any account as an Acceptable Account shall not be deemed a
determination by the BANK as to its actual value nor in any way obligate BANK to
accept any account arising subsequently from such debtor to be, or to continue
to deem such account to be, an Acceptable Account. All accounts of BORROWER,
whether Acceptable Accounts or not, shall constitute Collateral under the
Security Agreement. "Common Ownership" means any shareholder which owns greater
than 25% of the equity securities of the BORROWER or any entity in which
BORROWER owns greater than 25% of the equity securities of such entity.
(ii) The BORROWER may from time to time enter into separate contracts with the
BANK for the purchase or sale of foreign currency in an aggregate value not to
exceed Five Million Dollars ($5,000,000.00) (collectively, all such agreements
being the "Currency Contracts"), all upon the terms, conditions and limitations
set forth in such Currency Contracts and under the Loan Documents. The aggregate
maximum daily settlement obligations (as determined under the Currency
Contracts) of the BORROWER under all outstanding Currency Contracts shall reduce
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the amount available to the BORROWER under the Revolving Line of Credit Loan as
determined under subparagraph (i) of this Paragraph A of Section I above.
(iii) The BANK may from time to time issue credit cards to the BORROWER. The
aggregate credit limit established from time to time under such credit cards by
the BANK , which is currently set at One Hundred Fifty Thousand Dollars
($150,000.00), shall reduce the amount available to the BORROWER under the
Revolving Line of Credit Loan as determined under subparagraph (i) of this
Paragraph A of Section I above.
B. Advances. The Revolving Line of Credit Loan shall be disbursed, advanced,
re-advanced, and repaid as provided in the Note evidencing the Revolving Line of
Credit Loan and this Agreement. The BORROWER may request advances and
re-advances be made to the BORROWER (each such advance or re-advance an
"Advance") orally or in writing from time to time in accordance with such
procedures as BANK may reasonably impose in an amount such that the aggregate
amounts outstanding under the Revolving Line of Credit Loan do not exceed the
maximum available amount as determined under Paragraph A of this Section I
above. BORROWER shall immediately repay all outstanding principal under the
Revolving Line of Credit Loan which at any time exceeds the maximum available
amount as determined under Paragraph A of this Section I above. Notwithstanding
any other provision of this Agreement, no Advance shall be made by BANK to the
BORROWER at any time an Event of Default (as hereinafter defined) exists under
this Agreement or the Loan Documents, or any condition exists which, if not
cured, would with the passage of time or the giving of notice, or both,
constitute such an Event of Default. At the time of each Advance under the
Revolving Line of Credit Loan the BORROWER shall immediately become indebted to
the BANK for the amount thereof. Each such Advance may be credited by the BANK
to any deposit account of BORROWER with the BANK, or in such other reasonable
manner as may be designated in writing by the BANK to the BORROWER, and shall
constitute a binding obligation of the BORROWER to the BANK.
C. Payment of Principal. The BORROWER shall make payments of principal under the
Revolving Line of Credit Loan from time to time in such amounts as is required
to maintain the outstanding principal thereunder at or below the maximum
available amount as determined under Section I. A. above. THE ENTIRE AMOUNT OF
OUTSTANDING PRINCIPAL, ACCRUED INTEREST AND OTHER CHARGES PAYABLE UNDER THE
REVOLVING LINE OF CREDIT LOAN SHALL BE DUE AND PAYABLE BY BORROWER IN FULL ON
June 23, 2004 (the "Maturity Date").
D. Interest. The outstanding principal balance of the Revolving Line of Credit
Loan shall bear interest at the following rates, at BORROWER's selection,
subject to the conditions and limitations provided in Section II below and in
the Note evidencing such Loan: (i) Prime Rate (defined below), or (ii) LIBOR
Rate (defined below). Interest shall be calculated and charged daily, based on
the actual days elapsed over a three hundred sixty (360) day banking year, on
the unpaid principal balance outstanding from time to time under the Revolving
Line of Credit Loan.
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E. Purposes. Amounts advanced under the Revolving Line of Credit Loan shall be
used solely for financing (i) BORROWER's ordinary working capital requirements
and (ii) general corporate purposes.
II. INTEREST, LATE CHARGES AND PREPAYMENT PROVISIONS; CERTAIN DEFINITIONS
A. Interest Rate and Late Charges
1. Selection of Interest Rate. BORROWER shall select, and thereafter may
change the selection of, the applicable interest rate, from the alternatives
provided herein, for the Revolving Line of Credit Loan by giving BANK a Notice
of Rate Selection: (i) prior to each Loan Advance, (ii) prior to the end of each
Interest Period applicable to a LIBOR Advance, or (iii) on any Business Day on
which BORROWER desires to convert an outstanding Prime Rate Advance to a LIBOR
Advance.
2. Notice. A "Notice of Rate Selection" shall be a written notice, given
by cable, tested telex, telecopier (with authorized signature), or by telephone
if immediately confirmed by such a written notice, from an Authorized
Representative of BORROWER which: (i) is irrevocable; (ii) is received by BANK
not later than 10:00 o'clock A.M. Eastern Time: (a) if a LIBOR Rate is selected,
at least two (2) Business Days prior to the first day of the Interest Period to
which such selection is to apply, or (b) if a Prime Rate is selected, on the
first day of the Interest Period to which it applies; and (iii) as to each
selected interest rate option, sets forth the aggregate principal amount(s) to
which such interest rate option(s) shall apply and the Interest Period(s)
applicable to each LIBOR Advance.
3. If No Notice. If BORROWER fails to select an interest rate option in
accordance with the foregoing prior to a Loan Advance, or prior to the last day
of the applicable Interest Period of an outstanding LIBOR Advance, or if a LIBOR
Advance is selected but is not available, any new Loan Advance made shall be
deemed to be a Prime Rate Advance, and on the last day of the applicable
Interest Period all outstanding principal amounts shall be deemed converted to a
Prime Rate Advance.
4. Telephonic Notice. Without any way limiting ▇▇▇▇▇▇▇▇'s obligation to
confirm in writing any telephonic notice, BANK may act without liability upon
the basis of telephonic notice believed by BANK in good faith to be from
BORROWER prior to receipt of written confirmation. In each case BORROWER hereby
waives the right to dispute BANK's record of the terms of such telephonic Notice
of Rate Selection in the absence of manifest error.
5. Limits On Options; One Selection Per Month. Each LIBOR Advance shall be
in a minimum amount of $500,000.00 and in increments above such amount of
$100,000.00. At no time shall there be outstanding a total of more than four (4)
LIBOR Advances at any time with respect to any Loan. BORROWER shall not be
entitled to select a LIBOR Advance after the occurrence of an Event of Default.
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6. Default Rate. BANK shall have the option of imposing, and BORROWER
shall pay upon billing therefor, an interest rate which is four percent (4%) per
annum above the interest rate otherwise payable with respect to each Loan
("Default Rate"): (a) while any Event of Default exists and is continuing,
during that period between the due date and the date of payment; (b) following
any Event of Default, unless and until the Event of Default is waived by BANK;
and (c) after Maturity.
7. Late Charges. BORROWER shall pay with respect to any Loan, upon billing
therefor, a "Late Charge" equal to five percent (5%) of the amount of any
payment of principal, other than principal due at Maturity, interest, or both,
which is not paid within ten (10) days of the due date thereof. Late charges
are: (a) payable in addition to, and not in limitation of, the Default Rate, (b)
intended to compensate BANK for administrative and processing costs incident to
late payments, (c) are not interest, and (d) shall not be subject to refund or
rebate or credited against any other amount due. Notwithstanding the foregoing,
BORROWER shall have no liability hereunder for any Late Charge arising as a
result of any payment to be made hereunder by automatic charge to be made by the
BANK of the BORROWER's accounts with the BANK provided that sufficient funds or
availability under the Revolving Line of Credit Loan exist to make such charge.
B. Prepayment Provisions.
1. Prepayment. Each Prime Rate Advance or any portion thereof may be
prepaid in full or in part at any time, upon two (2) days' prior written notice
to the holder of the Note evidencing the Loan, without premium or penalty. Each
LIBOR Advance or any portion thereof may be prepaid in full or in part at any
time, upon fifteen (15) days' prior written notice to the holder of the Note
evidencing the Loan, subject to the make-whole provision set forth below and
payment of a Yield Maintenance Fee determined as provided below.
2. Calculation of Yield Maintenance Fee.
(i) In the event that any LIBOR Advance, or portion thereof, is paid prior
to the last day of the applicable Interest Period, the Yield Maintenance Fee for
such LIBOR Advance shall be calculated separately for each installment of
principal on such LIBOR Advance which is repaid prior to the end of the
applicable Interest Period in accordance with the following: The current rate
for United States Treasury securities (bills on a discounted basis shall be
converted to a bond equivalent) with a maturity date closest to the last day of
the current Interest Period, shall be subtracted from the applicable LIBOR Rate
in effect at the time of prepayment. If the result is zero or a negative number,
there shall be no Yield Maintenance Fee. If the result is a positive number,
then the resulting percentage shall be multiplied by the amount of the principal
balance being prepaid. The resulting amount shall be divided by 360 and
multiplied by the number of days remaining in the Interest Period during which
the prepayment is made. Said amount shall be reduced to present value calculated
by using the above referenced United States Treasury securities rate and the
number of days remaining in the current Interest Period. The resulting
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amount shall be the Yield Maintenance Fee due to BANK upon the prepayment of the
LIBOR Advance.
(ii) Neither all nor any portion of the principal which bears interest at
the LIBOR Rate may or shall be prepaid prior to the last day of the applicable
Interest Period, except upon fifteen (15) days' prior written notice to BANK and
the payment to BANK of a Yield Maintenance Fee computed in accordance with
clause (i) above.
(iii) The Yield Maintenance Fee shall be payable in respect of all
prepayments of principal with respect to LIBOR Advances, whether voluntary or
involuntary, including, without limitation, prepayments made upon acceleration
of the Loan, or application of insurance or eminent domain proceeds. BANK agrees
that any prepayments resulting from an application of insurance or eminent
domain proceeds, and not otherwise involving an Event of Default, shall be
applied first to payment of Prime Rate Advances, and thereafter to payment of
LIBOR Advances.
(iv) Once written notice of intention to prepay is given, the Loan, or the
applicable portion thereof, shall become due and payable in full on the date
specified in the notice of prepayment and the failure to so prepay the Loan on
such date, together with any applicable Yield Maintenance Fee, shall constitute
an Event of Default.
3. Make Whole Provision. BORROWER shall pay to BANK, immediately upon
request and notwithstanding contrary provisions contained in any of the Loan
Documents, such amounts as shall, in the conclusive judgment of BANK (in the
absence of manifest error), compensate BANK for the loss, cost or expense which
it may reasonably incur as a result of (i) any payment or prepayment, under any
circumstances whatsoever, whether voluntary or involuntary, of all or any
portion of a LIBOR Advance on a date other than the last day of the applicable
Interest Period of the LIBOR Advance, (ii) the conversion, for any reason
whatsoever, whether voluntary or involuntary, of any LIBOR Advance to a Prime
Rate Advance on a date other than the last day of the applicable Interest
Period, (iii) the failure of all or a portion of a Loan Advance which was to
have borne interest at the LIBOR Rate pursuant to the request of BORROWER to be
made under the Loan Agreement (except as a result of a failure by BANK to
fulfill BANK's obligations to fund), or (iv) the failure of BORROWER to borrow
in accordance with any request submitted by it for a LIBOR Advance. Such amounts
payable by BORROWER shall be equal to any administrative costs actually
incurred, plus any amounts required to compensate for any loss, cost or expense
incurred by reason of the liquidation or re-employment of deposits or other
funds acquired by BANK to fund or maintain a LIBOR Advance, but without
duplication of a Yield Maintenance Fee.
C. Certain Definitions Relating To Interest Rate.
1. Banking Day. The term "Banking Day" means in respect of any city, any
date on which commercial banks are open for business in that city.
2. Business Day; Same Calendar Month. The term "Business Day" means any
Banking Day and, with respect to determining or selecting a LIBOR Rate, any
London Banking Day. If
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any day on which a payment is due is not a Business Day, then the payment shall
be due on the next day following which is a Business Day, unless, with respect
to a LIBOR Advance, the effect would be to make the payment due in the next
calendar month, in which event such payment shall be due on the next preceding
day which is a Business Day. Further, if there is no corresponding day for a
payment in the given calendar month (i.e., there is no "February 30th"), the
payment shall be due on the last Business Day of the calendar month.
3. Dollars. The term "Dollars" or "$" means lawful money of the United
States.
4. Interest Period.
(A) The term "Interest Period" means with respect to each LIBOR Advance a
period of one (1) month or two (2) consecutive months, subject to availability,
as selected, or deemed selected, by BORROWER at least two (2) Business Days
prior to a Loan Advance, or if an advance is already outstanding, at least two
(2) Business Days prior to the end of the current Interest Period. Each such
Interest Period shall commence on the Business Day so selected, or deemed
selected, by BORROWER and shall end on the numerically corresponding day in the
first or second month thereafter, as applicable. Provided, however: (i) if there
is no such numerically corresponding day, such Interest Period shall end on the
last Business Day of the applicable month, (ii) if the last day of such an
Interest Period would otherwise occur on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day; but (iii)
if such extension would otherwise cause such last day to occur in a new calendar
month, then such last day shall occur on the next preceding Business Day.
(B) The term "Interest Period" shall mean with respect to each Prime Rate
Advance consecutive periods of one (1) day each.
(C) No Interest Period may be selected which would end beyond the then
Maturity Date of the Loan. If the last day of an Interest Period would otherwise
occur on a day which is not a Business Day, such last day shall be extended to
the next succeeding Business Day, except as provided above in clause (A)
relative to a LIBOR Advance.
5. LIBOR. The term "LIBOR" means, with respect to any LIBOR Advance, the
interest rate per annum (rounded upward, if necessary, to the nearest 1/32 of
one percent), as determined on the basis of the offered rates for deposits in
Dollars for a period of time comparable to the Interest Period selected by
BORROWER for such LIBOR Advance which appears on the Telerate page 3750 as of
11:00 a.m. London time on the day that is two (2) London Banking Days preceding
the first day of such Interest Period. If such rate does not appear on the
Telerate System on any applicable interest determination date, LIBOR shall be
the rate (rounded upward as described above, if necessary) for deposits in
Dollars for a period substantially equal to the Interest Period on the Reuters
Page "LIBO" (or such other page as may replace the LIBO Page on that service for
the purpose of displaying such rates), as of 11:00 a.m. (London time), on the
day that is two (2) London Banking Days prior to the beginning of such Interest
Period. If both the Telerate and Reuters system are unavailable, then the rate
for that date will be determined on the basis of the offered rates for deposits
in Dollars for a period of time comparable to the Interest
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Period selected by BORROWER for such LIBOR Advance which are offered by four
major banks in the London interbank market at approximately 11:00 a.m. London
time, on the day that is two (2) London Banking Days preceding the first day of
such Interest Period. The principal London office of each of the four major
London banks will be requested to provide a quotation of its Dollar deposit
offered rate. If at least two such quotations are provided, the rate for that
date will be the arithmetic mean of the quotations. If fewer than two quotations
are provided as requested, the rate for that date will be determined on the
basis of the rates quoted for loans in Dollars to leading European banks for a
period of time comparable to such Interest Period offered by major banks in New
York City at approximately 11:00 a.m. New York City time, on the day that is two
(2) London Banking Days preceding the first day of such LIBOR Advance. In the
event that the BANK is unable to obtain any such quotation as provided above, it
will be deemed that LIBOR for such Interest Period cannot be determined. In the
event that the Board of Governors of the Federal Reserve System shall impose a
Reserve Percentage (as defined below) with respect to LIBOR deposits of the
BANK, then for any period during which such Reserve Percentage shall apply,
LIBOR shall be equal to the amount determined above divided by an amount equal
to 1 minus the Reserve Percentage. "Reserve Percentage" shall mean the maximum
aggregate reserve requirement (including all basic, supplemental, marginal and
other reserves) which is imposed on member banks of the Federal Reserve System
against "Euro-currency Liabilities" as defined in Regulation D.
6. LIBOR Advance. The term "LIBOR Advance" means any principal outstanding
under the Revolving Line of Credit Loan which bears interest at the LIBOR Rate.
7. LIBOR Rate. The term "LIBOR Rate" means, with respect to any LIBOR
Advance, the interest rate per annum equal to (a) LIBOR plus 1.25% with respect
to outstanding principal under the Revolving Line of Credit Loan in an amount up
to the then current Cash Collateral Amount and (b) LIBOR plus 2.75% with respect
to all outstanding principal under the Revolving Line of Credit Loan which
exceeds the then current Cash Collateral Amount. For purposes of the foregoing,
in determining the amount of outstanding principal under the Revolving Line of
Credit Loan at any time, all outstanding Prime Rate Advances shall first be
included in the amount determined to be outstanding and next all LIBOR Advances
shall be included in the amount determined to be outstanding such that the
interest rate under clause (b) above shall apply to all principal under LIBOR
Advances which exceed the Cash Collateral Amount after including all Prime Rate
Advance and then LIBOR Advances.
8. London Banking Day. The term "London Banking Day" means any day on
which dealings in deposits in Dollars are transacted in the London interbank
market
9. Maturity. The term "Maturity" means the Maturity Date or the maturity
upon acceleration of the Loan, if the Loan has been accelerated by BANK
following the occurrence of an Event of Default.
10. Present Value. The term "Present Value" means the value at the
applicable maturity discounted to the date of prepayment using the Treasury
Rate.
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11. Prime Rate. The term "Prime Rate" means the per annum rate of interest
so designated from time to time by BANK as its prime rate. The Prime Rate is a
reference rate and does not necessarily represent the lowest or best rate being
charged to any customer. Changes in the rate of interest resulting from changes
in the Prime Rate shall take place immediately without notice or demand of any
kind.
12. Treasury Rate. The term "Treasury Rate" means, as of the date of any
calculation or determination, the latest published rate for United States
Treasury Notes or Bills (but the rate on Bills issued on a discounted basis
shall be converted to a bond equivalent) as published weekly in the Federal
Reserve Statistical Release H.15(519) of Selected Interest Rates in an amount
which approximates (as determined by BANK) the portion of the Loan to which the
Treasury Rate applies for the Interest Period or, in the case of a prepayment of
a LIBOR Advance, the amount prepaid and with a maturity closest to the original
maturity of the installment which is prepaid in whole or in part.
13. Prime Rate Advance. The term "Prime Rate Advance" means any principal
amount outstanding under the Revolving Line of Credit Loan which bears interest
at the Prime Rate.
D. Additional Provisions Related to Interest Rate Selection.
1. Increased Costs. If, due to any one or more of: (i) the introduction of
any applicable law or regulation or any change (other than any change by way of
imposition or increase of reserve requirements already referred to in the above
definition of LIBOR) in the interpretation or application by any authority
charged with the interpretation or application thereof of any law or regulation;
or (ii) the compliance with any guideline or request from any governmental
central bank or other governmental authority (whether or not having the force of
law), there shall be an increase in the cost to BANK of agreeing to make or
making, funding or maintaining LIBOR Advances, including without limitation
changes which affect or would affect the amount of capital or reserves required
or expected to be maintained by BANK, with respect to all or any portion of the
Loan, or any corporation controlling BANK, on account thereof, then BORROWER
from time to time shall, upon written demand by BANK, pay BANK additional
amounts sufficient to indemnify BANK against the increased cost (BANK agreeing
to seek such indemnification fairly and in a manner consistent with its
treatment of other customers). A certificate providing reasonable detail as to
the amount of the increased cost and the reason therefor submitted to BORROWER
by BANK, in the absence of manifest error, shall be conclusive and binding for
all purposes.
2. Illegality. Notwithstanding any other provision of this Agreement or
the applicable Note, if the introduction of or change in or in the
interpretation of any law, treaty, statute, regulation or interpretation thereof
shall make it unlawful, or any central bank or government authority shall assert
by directive, guideline or otherwise, that it is unlawful, for BANK to make or
maintain LIBOR Advances or to continue to fund or maintain the LIBOR Advances
then, on written notice thereof and demand by BANK to BORROWER, (a) the
obligation of BANK to make LIBOR Advances and to convert or continue any
Advances as LIBOR Advances shall terminate and (b) all principal outstanding
under any Note shall bear interest at the Prime Rate.
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3. Additional LIBOR Conditions. The selection by BORROWER of a LIBOR Rate
and the maintenance of LIBOR Advances at such rate shall be subject to the
following additional terms and conditions:
(i) Availability. If, before or after ▇▇▇▇▇▇▇▇ has selected to take or
maintain a LIBOR Advance, BANK notifies BORROWER that:
(a) dollar deposits in the amount and for the maturity requested are not
available to BANK in the London interbank market at the rate specified in the
definition of LIBOR set forth above, or
(b) reasonable means do not exist for BANK to determine LIBOR for the amounts
and maturity requested,
then the principal which would have been a LIBOR Advance shall be a Prime Rate
Advance.
(ii) Payments Net of Taxes. All payments and prepayments of principal and
interest under each Note shall be made net of any taxes and costs resulting from
having principal outstanding at or computed with reference to LIBOR. Without
limiting the generality of the preceding obligation, illustrations of such taxes
and costs are taxes, or the withholding of amounts for taxes, of any nature
whatsoever including income, excise, interest equalization taxes (other than
United States or state income taxes) as well as all levies, imposts, duties or
fees whether now in existence or which become in effect as the result of a
change in or promulgation of any treaty, statute, regulations, or interpretation
thereof or any directive guideline or otherwise by a central bank or fiscal
authority (whether or not having the force of law) or a change in the basis of,
or the time of payment of, such taxes and other amounts resulting therefrom.
4. Prime Rate Advances. Each Prime Rate Advance shall continue as a Prime
Rate Advance until Maturity of the Loan, unless sooner converted, in whole or in
part, to a LIBOR Advance, subject to the limitations and conditions set forth in
this Agreement and the applicable Note.
5. Conversion of Other Advances. At the end of each applicable Interest
Period, the applicable LIBOR Advance shall be converted to a Prime Rate Advance
unless BORROWER selects another option in accordance with the provisions of this
Agreement and the applicable Note.
III. FEES. In addition to such other fees as are provided in this Agreement and
in the other Loan Documents, ▇▇▇▇▇▇▇▇ agrees to pay the BANK the fees set forth
on Schedule A.
IV. PAYMENTS. All payments shall be made by BORROWER to BANK at ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or such other place as BANK may from time to
time specify in writing, in lawful currency of the United States of America in
immediately available funds, without counterclaim or setoff and free and clear
of, and without any deduction or withholding for, any taxes or other payments.
All payments shall be applied first to the payment of all fees,
- 11 -
expenses and other amounts due to the BANK (excluding principal and interest),
then to accrued interest, and the balance on account of outstanding principal;
provided, however, that after demand or default, as the case may be, payments
will be applied to the obligations of BORROWER to BANK as BANK determines in its
sole discretion. The BORROWER authorizes the BANK to automatically debit the
BORROWER's demand deposit account for amounts due for principal, interest or
other charges and fees relating to the Obligations.
V. CASH COLLATERAL AMOUNT; OTHER SECURITY.
A. Cash Collateral. Each of the Loans and all other Obligations of the BORROWER
to the BANK, whether now existing or hereafter arising, shall be secured by cash
deposits or cash equivalents maintained by the BORROWER with the BANK, or such
governmental securities elected by the BORROWER which the BANK deems acceptable
in its reasonable discretion, in the amount of not less than Twenty-five Million
Dollars ($25,000,000.00), subject to reduction in accordance with the provisions
set forth below (the "Cash Collateral Amount"). The Cash Collateral Amount shall
at all times be pledged by the BORROWER to the BANK and shall be subject to the
security interest of and exclusive control by the BANK. Provided that no Event
of Default (as hereinafter defined) then exists under this Agreement or the Loan
Documents, and no condition exists which, if not cured, would with the passage
of time or the giving of notice, or both, constitute such an Event of Default,
then the Cash Collateral Amount required hereunder shall be reduced in
accordance with the following provisions:
(i) Subject to the provisions of clause (ii) below, the Cash Collateral
Amount shall be reduced to Twenty Million Dollars ($20,000,000.00)
in the BORROWER's fiscal quarter ending April 30, 2004, within ten
(10) days of BORROWER's certification to BANK pursuant to clause
(ii) below of BORROWER having met the conditions for such reduction
under this clause (i) and under clause (ii) below; and the Cash
Collateral Amount shall be further reduced to Fifteen Million
Dollars ($15,000,000.00) on the first day of the BORROWER's fiscal
quarter ending July 31, 2004; provided that each such reduction
shall be subject to (a) BORROWER's consolidated operating income for
the BORROWER's fiscal quarter ending October 31, 2003, being equal
to or exceeding $2,500,000.00; (b) BORROWER's consolidated operating
income for the BORROWER's fiscal quarter ending January 31, 2004,
being equal to or exceeding $6,500,000.00; and (c) ▇▇▇▇▇▇▇▇'s
consolidated operating income for the BORROWER's fiscal year ending
January 31, 2004, being equal to or exceeding $1.00.
(ii) For purposes of clause (i) above, "consolidated operating income"
means ▇▇▇▇▇▇▇▇'s consolidated operating income as determined from
BORROWER's financial statements provided to the BANK under this
Agreement, before restructuring charges, amortization expense,
non-cash deferred compensation charges, and interest income. The
Cash Collateral Amount shall be reduced hereunder only if ▇▇▇▇▇▇▇▇
has completed certain matters in accordance with Schedule B attached
hereto. Prior to any reduction of the Cash
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Collateral Amount hereunder, BORROWER shall certify to BANK that the
conditions precedent under clause (i) and this clause (ii) for such
reduction have been achieved and shall provide BANK with such
documentation to evidence the same as BANK may reasonably request.
B. Other Security. In addition to the Cash Collateral Amount, each of the Loans
and all other Obligations of the BORROWER to the BANK, whether now existing or
hereafter arising, shall at all times be secured by perfected security interests
granted by Skillsoft Corporation in the Collateral (as hereinafter defined),
which security interests shall continue until payment in full of all amounts
outstanding under said Loans and the other Obligations. The term "Collateral" as
used herein shall be deemed to include all property and assets of Skillsoft
Corporation secured, pledged, assigned, or otherwise encumbered or covered by
any of the Loan Documents, including, but not limited to the Security Agreement.
The BORROWER covenants and agrees to take such further actions and to execute
such additional documents as may be reasonably necessary from time to time to
enable the BANK to obtain, maintain and perfect the security interests and liens
arising under the Loan Documents.
VI. CONTINUING REPRESENTATIONS AND WARRANTIES. BORROWER warrants and represents
to the BANK that so long as any of the Obligations are outstanding:
A. Good Standing. BORROWER is duly organized, validly existing, and in good
standing under the laws of its jurisdiction of organization and is qualified to
do business in all other jurisdictions where the failure to be so qualified
would cause a material and adverse effect of the financial or business condition
of the BORROWER taken as a whole (a "Material Adverse Effect"). BORROWER has the
power to own its properties and to carry on its business as now being conducted.
B. Authority. ▇▇▇▇▇▇▇▇ has full power and authority to enter into this Agreement
and to borrow under the Loan Documents, to execute and deliver the Loan
Documents and to incur the obligations provided for herein and in the Loan
Documents, all of which have been duly authorized by all proper and necessary
corporate or other action. The persons executing the Loan Documents on behalf of
the BORROWER have been duly authorized to do so.
C. Binding Agreement. This Agreement and the Loan Documents constitute the valid
and legally binding obligations of the BORROWER, enforceable in accordance with
their terms, subject to the laws and principles affecting the rights of
creditors generally.
D. Litigation. There are no suits, proceedings, or investigations of any kind or
nature pending or, to the knowledge of the BORROWER, threatened against or
affecting the BORROWER, its business operations, or its assets which have not
been disclosed in writing to the BANK, except for those matters which would not
have a Material Adverse Effect if adversely determined to the BORROWER.
E. Conflicting Agreements; Consents. There is no charter, bylaw, preference
stock, or trust provision of the BORROWER, and no provision(s) of any existing
material mortgage, indenture,
- 13 -
contract or agreement binding on the BORROWER or affecting its property, which
would conflict with, have a material adverse affect upon, or in any way prevent
the execution, delivery, or performance of the terms of this Agreement or the
Loan Documents. The BORROWER is not required to obtain any order, consent,
approval, authorization of any person, entity, or governmental authority in
connection with or as a condition to the execution, delivery, and performance of
this Agreement or the Loan Documents or the granting of the security interests
and liens in the Collateral, other than as previously obtained as applicable.
F. Financial Condition. The financial statements delivered to the BANK by the
BORROWER have been and shall be prepared in accordance with generally accepted
accounting principles, consistently applied, are and will be complete and
correct in all material respects, and fairly present, as of the applicable dates
thereof, the financial condition and results of the BORROWER (provided that
interim financial statements shall be subject to year end adjustments and
notes). Other than those liabilities disclosed in writing to the BANK or
incurred in the ordinary course of business, there are no liabilities, direct or
indirect, fixed or contingent, of the BORROWER which are not reflected in the
financial statements most recently provided to the BANK or in the notes thereto
which would be required to be disclosed therein and there has been no material
adverse change in the financial condition or operations of the BORROWER since
the date of such financial statements.
G. Taxes. ▇▇▇▇▇▇▇▇ has filed all federal, state and local tax returns required
to be filed by it and has paid all taxes shown by such returns to be due and
payable on or before the due dates thereof unless such taxes are being contested
and the BORROWER has made appropriate reserves therefore or which failure to so
file or pay would not have a Material Adverse Effect.
▇. ▇▇▇▇▇▇▇▇. To the best of ▇▇▇▇▇▇▇▇'s knowledge, the present fair saleable
value of the BORROWER's assets is greater than the amount required to pay its
total liabilities; the amount of the BORROWER's capital is adequate in view of
the type of business in which it is engaged; and ▇▇▇▇▇▇▇▇ would not currently be
deemed insolvent under generally accepted accounting principles.
I. Full Disclosure. None of the information with respect to the BORROWER which
has been furnished to the BANK in connection with the transactions contemplated
hereby is false or misleading with respect to any material fact at the time
made, or omits to state any material fact necessary in order to make the
statements therein not misleading at the time made.
J. Employee Benefit Plans. To BORROWER's knowledge, all Plans (as hereinafter
defined) which are pension plans as defined in Section 3(2) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA"), which are intended
to qualify under Section 401 of the Internal Revenue Code of 1986 (as amended,
the "IRC") do so qualify, and all Plans are in compliance with the provisions of
the IRC and ERISA, and have been administered in accordance with their terms.
The term "Plan" means any U.S. pension plan, as defined in Section 3(2) of ERISA
and any U.S. welfare plan, as defined in Section 3(1) of ERISA, which is
sponsored, maintained or contributed to by BORROWER or any commonly controlled
entity, or in respect of which BORROWER or a commonly controlled entity is an
"employer" as defined
- 14 -
in Section 3(5) of ERISA. To ▇▇▇▇▇▇▇▇'s knowledge, and except with respect to
events which would not have a Material Adverse Effect:
(i) Prohibited Transactions. None of the Plans has participated in,
engaged in or been a party to any non-exempt "prohibited transaction" as defined
in ERISA or the IRC, and no officer, director or employee of ▇▇▇▇▇▇▇▇ has
committed a breach of any of the responsibilities or obligations imposed upon
fiduciaries by Title I or ▇▇▇▇▇.
(ii) Claims. There are no contested claims, pending or threatened,
involving any Plan which is a pension plan by a current or former employee (or
beneficiary thereof) of BORROWER, nor is there any reasonable basis to
anticipate any claims involving any such Plan.
(iii) Reporting and Disclosure Requirements. There have been no violations
of any reporting or disclosure requirements with respect to any Plan and no such
Plan has violated applicable law, including but not limited to ERISA and the
IRC.
(iv) "Accumulated Funding Deficiency"; Reportable Event. No Plan which is
a defined benefit pension plan has (a) incurred an "accumulated funding
deficiency" (within the meaning of Section 412(a) of the IRC), whether or not
waived, (b) been a plan with respect to which a Reportable Event (to the extent
that the reporting of such events to the Pension Benefit Guaranty Corporation
(the "PBGC") within thirty (30) days of the occurrence has not been waived) has
occurred and is continuing, or (c) been a Plan with respect to which there
exists conditions or events which have occurred presenting a risk of termination
by PBGC.
(v) Multiemployer Plan. No Plan which is a multiemployer pension plan (as
defined in Section 414(f) of the IRC) to which BORROWER contributes has been a
plan with respect to which BORROWER has received any notification that such
Multiemployer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA and no such Multiemployer Plan is reasonably
expected to be in reorganization or to be terminated within the meaning of Title
IV of ERISA. BORROWER has not withdrawn from, or incurred any withdrawal
liability to, any multiemployer plan.
(vi) COBRA. There has been no violation of the applicable requirements of
Section 4980B of the IRC pertaining to COBRA continuation coverage with respect
to any Plan.
(vii) Employee Welfare Benefit Plans. Except as disclosed by the BORROWER
to the BANK in writing, no Plan which is a medical, dental, health, disability,
insurance or other plan or arrangement, whether oral or written, which
constitutes an "employee welfare benefit plan" as defined in Section 3(1) of
ERISA, has any unfunded accrued liability or provides benefits to former
employees or retirees (except as may be required by COBRA).
K. Location of Records. All of the material books and records or true and
complete copies thereof relating to the accounts and contracts of the BORROWER
are and will be kept at BORROWER's principal place of business located at the
address first set forth above (the "Premises"), unless notice is otherwise
provided to BANK.
- 15 -
L. Compliance with Laws. The BORROWER is in compliance in all material respects
with all laws and governmental rules and regulations applicable to the
Collateral and to its business, properties and assets, where failure to comply
would have a Material Adverse Effect.
▇. ▇▇▇▇▇▇▇▇▇ Waste. To BORROWER's knowledge, no Hazardous Waste (as hereinafter
defined) has been generated, stored or treated by the BORROWER on any of the
premises occupied by BORROWER, except in compliance with all applicable laws or
which would not have a Material Adverse Effect. To BORROWER's knowledge, no
Hazardous Waste has ever been, is being, is intended to be, or is threatened to
be spilled, released, discharged, disposed, placed or otherwise caused to be
found in the soil or water in, under, or upon any of the premises occupied by
the BORROWER in material violation of any applicable laws. The BORROWER agrees
to indemnify and hold the BANK harmless from and against any claims, damages,
liabilities (whether joint or several), losses and expenses (including, without
limitation, attorneys' fees) incurred by the BANK as a result of the presence of
any Hazardous Waste on the premises occupied by the BORROWER or as a result of
any breach of these representations. For the purpose of this Agreement, the term
"Hazardous Waste" means "hazardous waste", "hazardous material", "hazardous
substance", and "oil" as presently defined in the Resource Conservation and
Recovery Act, the Comprehensive Environmental Response, Compensation and
Liability Act, the Hazardous Material Transportation Act, the Federal Water
Pollution Control Act, and corresponding state and local statutes, ordinances,
and regulations, as such statutes, ordinances and regulations may be amended, or
as defined in any federal or state regulation adopted pursuant to such acts, as
may be applicable to BORROWER.
N. Title to Collateral. BORROWER has and will at all times have good and
marketable title to the Collateral, free and clear from any liens, security
interests, mortgages, encumbrances, pledges or other right, title or interest of
any other person or entity, except those arising under the Loan Documents or
Permitted Encumbrances.
O. Employees. ▇▇▇▇▇▇▇▇ has to the best of its knowledge complied with all laws
relating to the employment of labor, including any provisions thereof relating
to ERISA, wages, hours, collective bargaining, the payment of social security
and similar taxes, equal employment opportunity, employment discrimination and
occupational safety and health, and is not liable for any arrears of wages or
any taxes or penalties for failure to comply with any of the foregoing except in
each case as would not have Material Adverse Effect.
VII. AFFIRMATIVE COVENANTS. Until payment in full of all indebtedness under the
Loans and the other Obligations, BORROWER, to the extent applicable, agrees
that, unless the BANK shall otherwise consent in writing, it will:
A. Prompt Payment. Pay promptly, subject to any applicable cure or grace period,
when due all amounts due and owing to the BANK.
- 16 -
B. Use of Proceeds. Use the proceeds of the Loan only in accordance with the
provisions of this Agreement and will furnish the BANK with such evidence as it
may reasonably require with respect to such use.
C. Financial Statements. Furnish the BANK with such financial statements of
BORROWER as are described on Schedule A attached hereto. All such statements
shall be prepared on a consistent basis in a format reasonably acceptable to the
BANK (which shall be deemed to mean in compliance with the requirements of the
U.S. Securities and Exchange Commission).
D. Maintenance of Existence. Take all necessary action to maintain ▇▇▇▇▇▇▇▇'s
legal existence.
E. Maintenance of Business. Do or cause to be done all things necessary to
maintain and preserve BORROWER's business, as determined in BORROWER's
management's commercially reasonable business judgment.
F. Maintenance of Insurance. Keep all of BORROWER's properties (specifically
including, but not limited to, the Collateral) adequately insured against loss
or damage by fire and such other casualties and hazards as the BANK may
reasonably specify from time to time; maintain adequate ▇▇▇▇▇▇▇'▇ Compensation
Insurance under applicable laws and Comprehensive General Public Liability
Insurance; and maintain adequate insurance covering such other risks as the BANK
may reasonably specify from time to time hereafter. All insurance required
hereunder shall be effected by valid and enforceable policies issued by insurers
of recognized responsibility authorized to transact business within the State of
New Hampshire or Ireland, as applicable, and shall, inter alia, (1) name the
BANK as a loss payee and/or additional insured to the extent of the BANK's
interest as applicable, and (2) provide that the BANK shall be notified in
writing of any proposed cancellation of such policy at least thirty (30) days in
advance thereof and will have the opportunity to correct any deficiencies
justifying such proposed cancellation. For the purposes of this Paragraph, an
insurance policy shall be deemed to be "adequate" if it provides coverage
against such risks and in such amounts as is customarily carried by owners of
similar businesses and properties.
G. Inspection by the BANK. Prior to the BORROWER including Acceptable Accounts
in its Borrowing Base for purposes of Advances under the Revolving Line of
Credit Loan (the "Trigger Event"), ▇▇▇▇▇▇▇▇ agrees that the BANK may conduct an
initial field examination audit of the BORROWER's books, records, accounts, and
inventory. From and after the Trigger Event, BANK may conduct regular field
examination audit up to three (3) times per calendar year. BORROWER shall pay
the BANK all reasonable fees, costs, and expenses charged or incurred by BANK
for such audits up to an aggregate of $20,000.00 per calendar year. BANK agrees
to conduct such audits at such times as are reasonably convenient to the
BORROWER. ▇▇▇▇▇▇▇▇ also agrees that upon prior reasonable notice and during
normal business hours and at reasonable intervals, it shall permit any agent
designated by the BANK to inspect any of BORROWER's properties, including its
books, records, and accounts (and including the making of copies thereof and
extracts therefrom) all at BANK's cost and expense. After and during the
continuance of an Event of ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ also agrees that the BANK may
conduct field
- 17 -
examination audits of the BORROWER's books, records, accounts, inventory, and
other property as often as the BANK deems reasonably necessary and appropriate
in its sole discretion and that BORROWER shall pay the BANK all reasonable fees,
costs, and expenses charged or incurred by BANK for such audits.
H. Prompt Payment of Taxes. Accrue its tax liability (including withholdings for
employee taxes and social security) in accordance with usual accounting practice
and pay or discharge (or cause to be paid or discharged) as they become due all
taxes, assessments, and government charges upon its property, operations, income
and products (as well as all claims for labor, materials or supplies), which, if
unpaid might become a lien upon any of its property; provided, that the BORROWER
shall, prior to payment thereof, have the right to contest such taxes,
assessments and charges in good faith by appropriate proceedings so long as the
BANK's interests are protected by appropriate financial reserves or bond, letter
of credit, escrowed funds or other appropriate security.
I. Notification of Default Under This and Other Loan or Financing Arrangements.
Promptly notify the BANK in writing of the occurrence of any Event of Default
under this Agreement, or under any other loan or financing arrangements
exceeding $250,000.00.
J. Notification of Litigation and Judgments. Promptly notify the BANK in writing
of any litigation, proceedings, or investigation that has been instituted or is
pending or, to BORROWER's knowledge, threatened which if adversely determined
would be reasonably likely to have a material adverse affect on the continued
operations or financial condition of BORROWER and of all judgments rendered
against the BORROWER in an amount exceeding $250,000.00.
K. Notification of Governmental Action. Promptly notify the BANK in writing of
any material governmental investigation or proceeding (which shall not be
construed to mean audits conducted in the ordinary course under governmental
contracts to which the BORROWER is a party) that has been instituted or is
pending or, to BORROWER's knowledge threatened, including without limitation,
matters relating to the federal or state tax returns of the BORROWER, compliance
with the Occupational Safety and Health Act, or proceedings by the Treasury
Department, Labor Department, or Pension Benefit Guaranty Corporation with
respect to matters affecting employee welfare, benefit or retirement programs.
L. Preservation of the Collateral and Financial Condition. Take all reasonably
necessary steps to preserve, protect and defend the Collateral free of
unpermitted liens and give BANK access to and permit it to inspect the
Collateral in accordance with the provisions of paragraph G. above. Take all
reasonably necessary steps to preserve the financial condition of the BORROWER
as evidenced by the most recent financial statements of the BORROWER filed with
the U.S. Securities and Exchange Commission and delivered to the BANK prior to
the execution of this Agreement.
- 18 -
M. Maintenance of Records. Keep adequate records and books of account, in which
complete entries will be made in accordance with generally accepted accounting
principles consistently applied, reflecting all financial transactions of the
BORROWER.
N. Compliance With Laws. Comply in all material respects with all applicable
laws, rules, regulations, and orders, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments, and
governmental charges imposed upon it or upon its property; provided, however,
that BORROWER shall be entitled to contest the same in good faith so long as
such action does not have a material adverse effect upon the BANK's rights
hereunder or the Collateral taken as a whole.
O. Accounts Deposits, and Balances. Skillsoft Corporation shall maintain its
primary operating and deposit accounts with the BANK.
P. Notification of Material Adverse Changes. Promptly notify the BANK in writing
of any conditions or circumstances which might reasonably be expected to have a
material adverse effect on BORROWER's continued operations or financial
condition and which is more likely than not to materially adversely affect the
BORROWER's ability to pay the Obligations.
Q. Additional Financial and Other Covenants. Comply with the additional
financial and other covenants set forth on Schedule A attached hereto.
VIII. NEGATIVE COVENANTS. Until payment in full of all indebtedness under the
Loans and the other Obligations, BORROWER, to the extent applicable, covenants
that the BORROWER will not, without the express prior written consent of the
BANK:
A. Nature and Scope of Business. Enter into any type of business other than
those which are substantially similar or related to the type of business in
which BORROWER is presently engaged or otherwise significantly change in any
material respect the scope or nature of its business.
B. Additional Indebtedness. Incur indebtedness for borrowed money (or issue or
sell any of its bonds, debentures, notes or similar obligations or under capital
leases) except: (1) borrowings under the Loans; (2) other Obligations to the
BANK; (3) borrowings used to prepay in full the Obligations; (4) ordinary
unsecured trade accounts payable; (5) purchase money borrowings and capital
leases which are entered into in the ordinary course of business for purposes of
the acquisition of equipment for use in the BORROWER's business; (6)
intercompany loans to and/or from direct and indirect subsidiaries of Skillsoft
Public Limited Company made in the ordinary course of business to provide
capital which is reasonably necessary for the operations of such entities; and
(7) other loans up to an aggregate principal amount outstanding at any time not
to exceed $500,000.00.
▇. ▇▇▇▇▇ and Mortgages. Incur, create, assume or suffer to exist any pledge,
lien, mortgage, attachment, charge or other encumbrance of any nature whatsoever
on any of the Collateral or any of the BORROWER's real estate, now or hereafter
owned, other than (1) the security
- 19 -
interests or liens granted to the BANK pursuant to the Loan Documents; (2) liens
imposed by law, such as carriers, warehousemen's or mechanic's liens incurred in
good faith in the ordinary course of business, and which do not in the aggregate
have a material adverse effect on the BORROWER's financial condition or the
Collateral; (3) prejudgment judicial attachments, provided that any such
attachment is discharged in full prior to execution thereon, and in any event
within sixty (60) days of the date of the issuance of final judgment in the
lawsuit from which such attachment arises, and BORROWER provides the BANK,
immediately upon the issuance of such attachment, with a description of the
lawsuit giving rise to such attachment and the probable outcome thereof; (4)
liens on equipment acquired pursuant to the provisions of Section VIII. B.(5)
above, (5) security deposits with landlords or other deposits or pledges in the
ordinary course of business; (6) any interest of a licensee or licensor under
any license or sublicense entered into by BORROWER in the ordinary course of
business; (7) liens or rights arising from rights of first refusal, options or
contractual rights in connection with any asset sale or other transaction not
prohibited hereunder; and (8) the liens not otherwise permitted hereunder
provided such liens secure obligations not exceeding $500,000.00 in the
aggregate at any time outstanding (collectively "Permitted Encumbrances").
D. Place of Chief Executive Office. Relocate, close or change its chief
executive office, except upon thirty (30) days prior written notice to the BANK.
▇. ▇▇▇▇▇▇▇, Etc. Without the Consent of the BANK. Merge or consolidate with
(unless it is the survivor corporation but subject to the provisions of
Paragraph K of this Section VIII below) any other person, firm or entity, or
sell, assign, lease, or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets (whether now
owned or hereafter acquired).
F. Leases. Create, incur, assume, or suffer to exist any obligation as lessee
for the rental or hire of any real or personal property, except (i) leases
existing on the date of this Agreement and any extensions, renewals,
replacements or modifications thereof, (ii) operating leases incurred in the
ordinary course of BORROWER business, (iii) leases of equipment acquired
pursuant to the provisions of Section VIII. B.(5) above, and (iv) leases for new
offices or facilities for use by the BORROWER in its business.
G. Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose of, any
of its now owned or hereafter acquired property or assets (including, without
limitation, any of the Collateral), except: (1) for inventory disposed of, and
licensing and other transactions, in the ordinary course of business; (2) the
sale or other disposition of assets no longer used or useful in the conduct of
its business; and (3) the sale or other disposition of assets during any six (6)
months period having a book value of no more than $100,000.00.
H. Guaranties. Etc. Assume, guarantee, endorse, or otherwise be or become
directly or contingently responsible or liable (including, but not limited to,
an agreement to purchase any obligation, stock, assets, goods, or services, or
to supply or advance any funds, assets, goods, or services, or to maintain or
cause such other person, firm, or entity to maintain a minimum working capital
or net worth, or otherwise to assure the creditors of any other person, firm, or
- 20 -
entity against loss) for obligations of any other person, firm, or entity,
except (i) guaranties by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business (product
warranties for purposes of this section shall not be deemed guaranties) and (ii)
standard indemnities in leases, license agreements and other contracts entered
into by BORROWER in the ordinary course of business or in connection with any
asset sale, merger or other transaction not prohibited hereunder.
I. Transactions With Affiliates. Enter into any transaction, including, without
limitation, the purchase, sale, or exchange of property or the rendering of any
service, with any affiliate, or the making of advances to any affiliates, except
in the ordinary course of business upon (1) fair and reasonable terms no less
favorable to the BORROWER than they would obtain in a comparable arm's length
transaction with a person not an affiliate; (2) such other terms as have been
disclosed in writing to the BANK on or before the date of this Agreement; or (3)
such other terms as have been approved in writing by the BANK after the date of
this Agreement. As used herein, an "affiliate" is any person which is under
Common Ownership with BORROWER or the same controlled group as BORROWER.
Notwithstanding the foregoing and Section VIII.J below, BORROWER may make or
receive intercompany loans to or from direct and indirect subsidiaries of
Skillsoft Public Limited Company, subject to the provisions of Section VIII.B
above, and nothing in this Section VIII.I shall be construed to prohibit or
limit wage, compensation, benefit, or similar arrangements as determined by
management.
J. Investments; Acquisitions. Make any loan or advance to any person, firm, or
entity, or purchase or otherwise acquire any capital stock (by merger, exchange,
or otherwise), assets, obligations, or other securities of, make any capital
contribution to, or otherwise invest in or acquire any interest in any person,
firm, or entity, except: (1) direct obligations of the United States of any
agency thereof with maturities of one year or less from the date of acquisition;
(2) commercial paper of a domestic issuer rated at least "A-1" by Standard &
Poor's Corporation or "P-1" by ▇▇▇▇▇'▇ Investor's Service, Inc.; (3)
certificates of deposit with maturities of one year or less from the date of
acquisition issued by any commercial bank having capital and surplus in excess
of One Hundred Million ($100,000,000.00) Dollars; (4) stock, obligations, or
securities received in settlement of debts (created in the ordinary course of
business) owing to the BORROWER; (5) investments made by or on behalf of any
qualified pension or retirement plan maintained by BORROWER; (6) acquisitions by
BORROWER of the capital stock (by merger, exchange, or otherwise) or assets of
another entity which is in the same general line of business as BORROWER
provided that aggregate dollar amount payable in cash or securities by BORROWER
in such acquisition does not exceed $25,000,000.00 and the BORROWER has provided
to BANK pro forma financial projections which demonstrate that BORROWER shall be
in compliance with its financial and other covenants hereunder after completing
such acquisition; (7) investments in accordance with ▇▇▇▇▇▇▇▇'s investment
policy (provided that ▇▇▇▇▇▇▇▇ has provided to BANK a copy of such policy and
the type of investments provided therein are reasonably acceptable to the BANK);
and (8) loans or advances to employees up to $60,000.00 at any time outstanding,
to the extent permitted by applicable law.
IX. CONDITIONS PRECEDENT TO MAKING OF LOANS. The obligation of the BANK to make
any Loan and make disbursements and advances of the proceeds of the same to the
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▇▇▇▇▇▇▇▇ is subject to the satisfaction by the BORROWER or its representatives
of the following conditions precedent with respect to such Loan: (1) the
BORROWER has executed and delivered all of the Loan Documents deemed appropriate
and necessary by the BANK, in form and substance satisfactory to the BANK; (2)
the BORROWER's warranties and representations as contained herein and in the
Loan Documents shall be accurate and complete; (3) BANK has received a
satisfactory opinion of ▇▇▇▇▇▇▇▇'s legal counsel in the case of the initial
advances under or modifications to the Loans; and (4) the BORROWER shall not be
in default under any of the covenants, warranties, representations, terms, or
conditions contained in this Agreement or in the Loan Documents as of the date
of entering into such Loan and as of the date of each disbursement and advance
thereunder.
X. EVENTS OF DEFAULT; ACCELERATION. The occurrence of any one or more of the
following events shall constitute a default under this Agreement, each of the
Loan Documents, and each of the Obligations (individually, an "Event of
Default", and collectively, "Events of Default"): (1) if any statement,
representation or warranty made by the BORROWER in this Agreement or in any of
the Loan Documents, or in connection with any of the same, or if any financial
statement, report, schedule, or certificate furnished by the BORROWER or any of
its officers or accountants to the BANK, shall prove to have been false or
misleading when made (as determined in the BANK's reasonable discretion); (2)
default by the BORROWER in payment on its due date of any principal or interest
called for under any of the Loans or the Loan Documents (excepting any payment
default arising as a result of the BANK's failure to automatically charge the
BORROWER's accounts as authorized by the BORROWER under this Agreement, provided
that there are sufficient funds in such accounts to make such automatic payment,
or there is sufficient availability under the Revolving Line of Credit Loan to
make such automatic payment), or of other amounts due under any other of the
Obligations, or other event of default under the Loan Documents or the other
Obligations, provided in each case such default is not cured within any
applicable grace period thereunder; (3) default by the BORROWER in the
performance or observance of any of the provisions, terms, conditions,
warranties or covenants of this Agreement, the Loan Documents, or any other of
the Obligations; provided that any such default (other than a payment default)
is not cured within fifteen (15) days of the occurrence thereof, and further
provided that no such cure period shall be afforded hereunder with respect to
any default which by its nature cannot be cured (such as a financial covenant
default) or which default has an immediate material adverse effect upon the
rights of the BANK under this Agreement or any of the Loan Documents, or upon
the financial condition of the BORROWER, or upon the Collateral taken as a
whole; (4) the dissolution, termination of existence, merger or consolidation of
the BORROWER or a sale of all or substantially all of the BORROWER's business,
assets or properties or the Collateral not in the ordinary course of business;
(5) the BORROWER shall (a) apply for or consent to the appointment of a
receiver, trustee or liquidator of it or any of its property, (b) make a general
assignment for the benefit of creditors, (c) be adjudicated as bankrupt or
insolvent, (d) file a voluntary petition in bankruptcy, or a petition or an
answer seeking reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation under any law or statute, or an answer admitting the
material allegations of a petition filed against it in any proceeding under any
such law or statute, or (e) offer or enter into any composition, extension or
arrangement seeking relief or extension of its debts generally; (6) proceedings
shall be commenced or an order, judgment or decree shall be
- 22 -
entered, without the application, approval or consent of the BORROWER, as the
case may be, in or by any court of competent jurisdiction, relating to the
bankruptcy, dissolution, liquidation, reorganization or the appointment of a
receiver, trustee or liquidator of the BORROWER, or of all or a substantial part
of its assets, and such proceedings, order, judgment or decree shall continue
undischarged or unstayed for a period of sixty (60) days; (7) BORROWER's
inability to pay its debts as they mature or other act of insolvency, as
determined by the BANK in accordance with generally accepted accounting
principles; (8) a final judgment for the payment of money in excess of $500,000
shall be rendered against the BORROWER and the same shall remain undischarged
for a period of thirty (30) days, during which period execution shall not be
effectively stayed; or (9) if BANK otherwise in good faith reasonably deems
itself insecure within the meaning of New Hampshire RSA 382-A:1-208 (as
amended).
Upon the occurrence of and during the continuance of any Event of Default, the
BANK's commitment to make further Loans under the Loan Documents or any other
agreement with the BORROWER, and to make any advances or disbursements under any
Loan, shall immediately cease and terminate and, at the election of the BANK
(provided that upon an Event of Default under the provisions of Section X (5) or
Section X (6), the Loans shall be automatically accelerated without requirement
of an action by or notice from the BANK), all of the Obligations of the BORROWER
to the BANK, either under this Agreement, the Loan Documents, or otherwise,
shall immediately become due and payable without further demand, notice or
protest, all of which are hereby expressly waived. Thereafter, the BANK may
proceed to protect and enforce its rights, at law, in equity, or otherwise,
against the BORROWER, and any endorser or guarantor of the BORROWER's
Obligations, either jointly or severally, and may proceed to liquidate and
realize upon any of its Collateral in accordance with the rights of a secured
party under the Uniform Commercial Code, under any other applicable law, under
any Loan Documents, under any other agreement between the BORROWER and the BANK,
or under any agreement between any guarantor or endorser of the BORROWER's
Obligations to the BANK, and to apply the proceeds thereof to payment of the
Obligations of the BORROWER to the BANK in such order and in such manner as the
BANK, in its sole discretion, deems appropriate.
[REMAINDER OF ▇▇▇▇ IS INTENTIONALLY BLANK]
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XI. MISCELLANEOUS PROVISIONS.
A. Entire Agreement; Waivers. This Agreement, the Schedules hereto, and the Loan
Documents together constitute the entire agreement among the BORROWER and the
BANK with respect to the subject matter hereof. No covenant, term, condition or
other provision of this Agreement or any of the Loan Documents, nor any default
in connection therewith, may be waived except by an instrument in writing,
signed by the BANK and delivered to the BORROWER. Notwithstanding any other
provision of this Agreement or any of the other Loan Documents to the contrary,
an Event of Default under this Agreement or any of the other Loan Documents,
shall be deemed continuing until such time as such Event of Default is waived by
the BANK in writing. The BANK's failure to exercise or enforce any of its
rights, powers or privileges under this Agreement or the Loan Documents shall
not operate as a waiver thereof. In the event of any conflict between the terms,
covenants, conditions and restrictions contained in the Loan Documents, the
term, covenant, condition or restriction which confers the greatest benefit upon
the BANK shall control. The determination as to which term, covenant, condition
or restriction is more beneficial shall be made by the BANK in its sole
discretion.
B. Remedies Cumulative. All remedies provided under this Agreement and the Loan
Documents or afforded by law shall be cumulative and available to the BANK until
all of the BORROWER'S Obligations to the BANK have been paid in full.
C. Survival of Covenants. All covenants, agreements, representations and
warranties made in this Agreement and in the Loan Documents shall be deemed to
be material and to have been relied on by the BANK, notwithstanding any
investigation made by the BANK or in its behalf, and shall survive the execution
and delivery of this Agreement and the Loan Documents. All such covenants,
agreements, representations and warranties shall bind and inure to the benefit
of the BORROWER's and the BANK's successors and assigns, whether so expressed or
not.
D. Governing Law; Jurisdiction. This Agreement and the Loan Documents shall be
construed and their provisions interpreted under and in accordance with the laws
of the State of New Hampshire. The BORROWER, to the extent it may legally do so,
hereby consents to the jurisdiction of the courts of the State of New Hampshire
and the United States District Court for the State of New Hampshire for the
purpose of any suit, action or other proceeding arising out of any of their
obligations hereunder or with respect to the transactions contemplated hereby,
and expressly waives any and all objections it may have to venue in any such
courts.
E. Assurance of Execution and Delivery of Additional Instruments. The BORROWER
agrees to execute and deliver, or to cause to be executed and delivered, to the
BANK all such further instruments, and to do or cause to be done all such
further acts and things, as the BANK may reasonably request or as may be
necessary to effect further the purposes of this Agreement and the Loan
Documents. Upon receipt of an affidavit of an officer of BANK as to the loss,
theft, destruction or mutilation of any Note or any other of the Loan Documents
which is not of public record, and, in the case of any such loss, theft,
destruction or mutilation, upon surrender and cancellation of such Note or other
of the Loan Documents, and, with respect to such Note, the
- 24 -
provision of indemnity reasonably satisfactory to BORROWER, BORROWER will issue,
in lieu thereof, a replacement Note or other of the Loan Documents in the same
principal amount thereof and otherwise of like tenor.
▇. ▇▇▇▇▇▇▇ and Assents. The BORROWER and any guarantors or endorsers of the
BORROWER's Obligations to the BANK, hereby waive, to the fullest extent
permitted by law, all rights to marshaling of assets and all rights to demand,
notice, protest, notice of acceptance of this Agreement and the Loan Documents,
notice of Loans made, credit extended, Collateral received or delivered or other
action taken in reliance hereon and all other demands and notices of any
description with respect both to the Loan Documents and the Collateral.
G. No Duty of the Bank With Respect to the Collateral. The BANK shall have no
duty as to the collection or protection of Collateral or any income thereon, nor
as to the preservation of rights against prior parties, nor as to the
preservation of any rights pertaining thereto, beyond the safe custody thereof.
H. Election of the Bank. The BANK may exercise its rights with respect to
Collateral without resorting or regard to other collateral or sources of
reimbursement for the Obligations of BORROWER to the BANK.
I. Assignment and Pledge. BANK shall have the unrestricted right at any time or
from time to time, and without BORROWER'S or any guarantor's consent, to assign
all or any portion of its right and obligations under this Agreement and the
Loan Documents to one or more banks or other financial institutions (each, an
"Assignee"), and BORROWER and each guarantor agrees that it shall execute, or
cause to be executed, such documents, including without limitation, amendments
to this Agreement and to any Loan Documents as BANK shall deem necessary to
effect the foregoing. In addition, at the request of BANK and any such Assignee,
and upon the return of the original note issued to the BANK, BORROWER shall
issue one or more new promissory notes, as applicable, to any such Assignee and,
if BANK has retained any of its rights and obligations hereunder following such
assignment, to BANK, which new promissory notes shall be issued in replacement
of, but not in discharge of, the liability evidenced by the promissory note held
by BANK prior to such assignment and shall reflect the amount of the respective
commitments and loans held by such Assignee and BANK after giving effect to such
assignment. Upon the execution and delivery of appropriate assignment
documentation, amendments and any other documentation required by BANK in
connection with such assignment, and the payment by Assignee of the purchase
price agreed to by BANK, and such Assignee, such Assignee shall be a party to
this Agreement and shall have all of the rights and obligations of BANK
hereunder (and under any and all other guaranties, documents, instruments and
agreements executed in connection herewith) to the extent that such rights and
obligations have been assigned by BANK pursuant to the assignment documentation
between BANK and such Assignee, and BANK shall be released from its obligations
hereunder and thereunder to a corresponding extent. This Agreement and the Loan
Documents shall be binding upon and inure to the benefit of the BANK and the
BORROWER, their successors, assigns, heirs and personal representatives;
provided, however, the rights and obligations of the BORROWER are not
assignable, delegable or transferable without the consent of the BANK. BANK may
at any time
- 25 -
pledge all or any portion of its rights under this Agreement and the Loan
Documents, including, but not limited to, any portion of any Note to any of the
twelve (12) Federal Reserve Banks organized under Section 4 of the Federal
Reserve Act, 12 U.S.C. Section 341. No such pledge or enforcement thereof shall
release BANK from its obligations under any of the Loan Documents.
J. Participations. BANK shall have the unrestricted right at any time and from
time to time, and without the consent of or notice to BORROWER or any guarantor,
to grant to one or more banks or other financial institutions (each, a
"Participant") participating interests in BANK's obligations to lend under this
Agreement, the Loan Documents, and/or any or all of the Loans held by BANK
hereunder. In the event of any such grant by BANK of a participating interest to
a Participant, whether or not upon notice to BORROWER, BANK shall remain
responsible for the performance of its obligations hereunder and ▇▇▇▇▇▇▇▇ shall
continue to deal solely and directly with BANK in connection with BANK's rights
and obligations hereunder. BANK may furnish any information concerning BORROWER
in its possession from time to time to prospective Assignees and Participants,
provided that BANK shall require any such prospective Assignees or participant
to agree in writing to maintain the confidentiality of such information.
K. Expenses: Proceeds of Collateral. The BORROWER covenants and agrees that they
shall pay to the BANK, on demand, any and all reasonable out-of-pocket expenses,
including reasonable attorneys' fees, court costs, sheriffs' fees, and other
expenses incurred or paid by the BANK in protecting and enforcing its rights
under this Agreement, the Loan Documents, and the other Obligations, including
the reasonable costs of preparation of this Agreement and the Loan Documents,
and any amendments, modifications, consents, or waivers in respect thereof, and
all reasonable filing, auditing, accounting, and appraisal fees. After deducting
all of said expenses and the reasonable expenses of retaking, holding, preparing
for sale, selling and the like, residue of any proceeds of collections or sale
of Collateral shall be applied to the payment of principal of or interest on
Obligations of the BORROWER to the BANK in such order or preference as the BANK
may determine, and any excess shall be returned to the BORROWER (subject to the
provisions of the Uniform Commercial Code) and the BORROWER shall remain liable
for any deficiency.
L. The Bank's Right of Offset. BORROWER hereby grants to BANK, a continuing
lien, security interest and right of setoff as security for all liabilities and
obligations to BANK, whether now existing or hereafter arising, upon and against
all deposits, credits, collateral and property, including, but not limited to,
the Cash Collateral Amount, now or hereafter in the possession, custody,
safekeeping or control of BANK or any entity under the control of FleetBoston
Financial Corporation and its successors and assigns or in transit to any of
them. At any time, without demand or notice (any such notice being expressly
waived by BORROWER), BANK may setoff the same or any part thereof and apply the
same to any liability or obligation of BORROWER even though unmatured and
regardless of the adequacy of any other collateral securing the Loan. ANY AND
ALL RIGHTS TO REQUIRE BANK TO EXERCISE ITS RIGHTS OR REMEDIES WITH RESPECT TO
ANY OTHER COLLATERAL WHICH SECURES THE LOAN, PRIOR TO EXERCISING ITS RIGHT OF
SETOFF WITH RESPECT TO SUCH DEPOSITS, CREDITS OR OTHER PROPERTY OF BORROWER ARE
HEREBY KNOWINGLY, VOLUNTARILY AND IRREVOCABLY WAIVED.
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M. Notices. All notices, requests, demands and other communications provided for
hereunder shall be in writing (including telegraphic communication) and shall be
either mailed by certified mall, return receipt requested, or delivered by
overnight courier service, to the applicable party at the addresses set forth in
this Agreement.
N. Savings Clause. Any provision of this Agreement or any of the Loan Documents
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or thereof
or affecting the validity or enforceability of such provision in any other
jurisdiction.
O. Term of this Agreement. This Agreement shall remain in full force and effect
until all of the Obligations have been paid in full, and all commitments of the
BANK advance funds under any of the Loans have terminated.
P. Use of Proceeds. No portion of the proceeds of the Loans shall be used, in
whole or in part, for the purpose of purchasing or carrying any "margin stock"
as such term is defined in Regulation U of the Board of Governors of the Federal
Reserve System.
Q. Fees and Expenses. BORROWER shall pay on demand all reasonable expenses of
BANK in connection with the preparation, administration, default, collection,
waiver or amendment of loan terms, or in connection with BANK's exercise,
preservation or enforcement of any of its rights, remedies or options hereunder,
including, without limitation, reasonable fees of outside legal counsel or the
allocated costs of in-house legal counsel, accounting, consulting, brokerage or
other similar professional fees or expenses, and any reasonable fees or expenses
associated with travel or other reasonable costs relating to any appraisals or
examinations conducted in connection with the Loans or any Collateral therefor,
and the amount of all such expenses shall, from thirty (30) days after the date
of demand until paid, bear interest at the rate applicable to principal
hereunder (including any default rate) and be an Obligation secured by any
Collateral.
R. Final Agreement. This Agreement is intended by the parties as the final,
complete and exclusive statement of the transactions evidenced by this
Agreement. All prior or contemporaneous promises, agreements and understandings,
whether oral or written, are deemed to be superceded by this Agreement, and no
party is relying on any promise, agreement or understanding not set forth
herein. This Agreement may not be amended or modified except by a written
instrument describing such amendment or modification executed by ▇▇▇▇▇▇▇▇ and
BANK.
S. Interest Rate Provisions. If, at any time, the rate of interest, together
with all amounts which constitute interest and which are reserved, charged or
taken by BANK as compensation for fees, services or expenses incidental to the
making, negotiating or collection of the Loans, shall be deemed by any competent
court of law, governmental agency or tribunal to exceed the maximum rate of
interest permitted to be charged by BANK to BORROWER under applicable law, then,
during such time as such rate of interest would be deemed excessive, that
portion of each sum
- 27 -
paid attributable to that portion of such interest rate that exceeds the maximum
rate of interest so permitted shall be deemed a voluntary prepayment of
principal. As used herein, the term "applicable law" shall mean the law in
effect as of the date hereof; provided, however, that in the event there is a
change in the law which results in a higher permissible rate of interest, then
the applicable Loan Document shall be governed by such new law as of its
effective date.
T. Confidentiality. The BANK will maintain the confidential nature of all
non-public information furnished to it by the BORROWER in accordance with the
BANK's customary procedures for maintaining its own confidential information of
this nature; provided, however, that such information may be disclosed:
(a) pursuant to any statutory or regulatory requirement or any court
order, subpoena or other legal process and to any regulatory authority, provided
that, in the case of any disclosure pursuant to any court order, subpoena or
other legal process, the BORROWER shall be given five days prior written notice
of any such disclosure in order to seek an appropriate protective order;
(b) to its independent counsel, auditors and other professional advisors
with an instruction to such persons to keep such information confidential; and
(c) with the prior written consent of the BORROWER, to any other person.
U. Reimbursement Obligations. In connection with the Loans, the BORROWER, or any
of them individually, may enter into various agreements from time to time
(collectively, the "Master Agreement") with BANK or an entity under the control
of FleetBoston Financial Corporation for purposes of fixing the rate of interest
payable with respect to outstanding principal balances under such Loans. In the
event that ▇▇▇▇▇▇▇▇ fails to pay any amount that is due and owing under and
pursuant to the Master Agreement (after giving effect to any applicable grace
period), then upon demand therefor, BANK in its sole discretion shall pay such
amount for the account of the BORROWER and the BORROWER hereby agrees,
authorizes and consents to such payment by BANK. BORROWER, jointly and
severally, shall reimburse BANK upon demand for any amount BANK may pay on
account of any amount that is due and owing by BORROWER pursuant to any Master
Agreement. Such obligation shall bear interest at a rate per annum equal to the
Default Rate under the Note from and including the date of payment by BANK to,
but excluding, the date BORROWER reimburses BANK for such obligation.
▇. ▇▇▇▇▇▇ of Jury Trial. ▇▇▇▇▇▇▇▇ AND BANK MUTUALLY HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF
ANY CLAIM BASED HEREON, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENTS CONTEMPLATED TO BE EXECUTED IN CONNECTION
HEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER
VERBAL OR WRITTEN) OR ACTIONS OF ANY PARTY, INCLUDING, WITHOUT LIMITATION, ANY
COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS OR ACTIONS OF BANK RELATING TO
THE ADMINISTRATION OF THE LOAN OR ENFORCEMENT OF
- 28 -
THE LOAN DOCUMENTS, AND AGREE THAT NEITHER PARTY WILL SEEK TO CONSOLIDATE ANY
SUCH ACTION WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT
BEEN WAIVED. EXCEPT AS PROHIBITED BY LAW, BORROWER AND BANK HEREBY WAIVE ANY
RIGHT THEY MAY HAVE TO CLAIM OR RECOVER IN ANY LITIGATION ANY SPECIAL,
EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES OTHER THAN, OR IN
ADDITION TO, ACTUAL DAMAGES. BORROWER CERTIFIES THAT NO REPRESENTATIVE, AGENT OR
ATTORNEY OF BANK HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT BANK WOULD NOT,
IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER. THIS WAIVER
CONSTITUTES A MATERIAL INDUCEMENT FOR BANK TO ENTER INTO THIS AGREEMENT AND MAKE
THE LOAN.
IN WITNESS WHEREOF, the BANK and the BORROWER have executed this Agreement all
as of the day and year first above written.
WITNESSES: FLEET NATIONAL BANK
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. By: /s/▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------- -----------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Vice President
BORROWER:
SKILLSOFT CORPORATION
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------- -----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
SKILLSOFT PUBLIC LIMITED COMPANY
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ By: /s/▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------- -----------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: Chief Financial Officer
- 29 -
FLEET NATIONAL BANK
COMMERCIAL LOAN AGREEMENT
SCHEDULE A
ADDITIONAL TERMS AND CONDITIONS
I. FEES PAYABLE BY ▇▇▇▇▇▇▇▇.
Commitment Fee: BORROWER shall pay BANK a commitment fee for the Revolving Line
of Credit Loan in the amount of $75,000.00, due and payable in full on the date
hereof.
Unused Revolving Line of Credit Loan Commitment Fee: BORROWER shall pay BANK a
fee based upon the daily average of unadvanced amounts under the Revolving Line
of Credit Loan (based upon full availability of $25,000,000), which fee shall be
determined and payable on a quarterly basis in arrears in accordance with
following: (i) during such periods as the Cash Collateral Amount is equal to or
greater than $25,000,000 under Section V of the Agreement, the fee shall be
0.05% per annum; (ii) during such periods as the Cash Collateral Amount is less
than $25,000,000 but greater than zero under Section V of the Agreement, the fee
shall be 0.15% per annum; and (iii) during such periods as the Cash Collateral
Amount is reduced to zero under Section V of the Agreement, the fee shall be
0.25% per annum. During such periods as the BORROWER's fixed income investments
maintained with the BANK equal or exceed $50,000,000.00 (including in the
determination thereof the Cash Collateral Amount), the percentages under clauses
(ii) and (iii) above shall be reduced to 0.10% and 0.20%, respectively.
II. FINANCIAL STATEMENTS TO BE DELIVERED BY ▇▇▇▇▇▇▇▇.
A. Annual consolidated financial statements of BORROWER within one hundred
twenty (120) days after the end of each fiscal year, including balance sheets
and statements of income, retained earnings and surplus, and a statement of cash
flow, together with supporting schedules, setting forth in each case comparative
figures for the preceding fiscal year, and in each case audited by an
independent certified public accountant reasonably acceptable to BANK.
B. Quarterly consolidated financial statements of the BORROWER within forty-five
(45) days after the end of each of BORROWER's fiscal quarters, including balance
sheets and statements of income, together with supporting schedules, all as
prepared by BORROWER.
C. Compliance Certificate. BORROWER shall report and certify to BANK compliance
with the financial covenants in paragraphs A, B and C of Section III of this
Schedule A within forty-five (45) days of each fiscal quarter end by delivery of
such form as may be specified by the BANK from time to time.
III. DESCRIPTION OF ADDITIONAL FINANCIAL AND OTHER COVENANTS.
A. Minimum Quarterly Net Income. Commencing with the fiscal quarter in which the
Cash Collateral Amount is first reduced under Section V of the Agreement, the
BORROWER shall
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have Net Income (as hereinafter defined) of not less than $[**] for such fiscal
quarter and for each fiscal quarter thereafter. As used herein, "Net Income"
means BORROWER's consolidated net income for the applicable fiscal quarter as
determined in accordance with GAAP from the BORROWER's financial statements
delivered to Bank under this Agreement (the "Financial Statements").
B. Minimum Net Worth. Commencing with the fiscal quarter in which the Cash
Collateral Amount is first reduced under Section V of the Agreement, the
BORROWER shall have a minimum Net Worth (as hereinafter defined) of not less
than $[**] as of the end of such fiscal quarter and as of the end of each fiscal
quarter thereafter. "Net Worth" means the BORROWER's total shareholders' equity
as determined in accordance with GAAP from BORROWER's Financial Statements, as
adjusted in accordance with the terms set forth in Schedule B to this Agreement.
C. Minimum Liquidity. BORROWER shall have minimum Liquidity (as hereinafter
defined) of not less than $[**] as of the end of the fiscal quarter ending April
30, 2003, not less than $[**] as of the end of the fiscal quarter ending July
31, 2003, not less than $[**] as of the end of the fiscal quarter ending October
31, 2003, and not less than $[**] as of the end of each fiscal quarter
thereafter. "Liquidity" means ▇▇▇▇▇▇▇▇'s consolidated investments in cash, cash
equivalents, and short term (less than one year) debt instruments (inclusive of
the Cash Collateral Amount), all as reflected in BORROWER's Financial
Statements.
- 31 -
FLEET NATIONAL BANK
COMMERCIAL LOAN AGREEMENT
SCHEDULE B
ADDITIONAL CONDITIONS FOR REDUCTION OF CASH COLLATERAL AMOUNT. BORROWER
shall have completed a final settlement of the [**]lawsuit under which BORROWER
shall not be obligated to pay more than $[**] under the terms of such
settlement, and BORROWER shall have completed a final settlement of the [**]
lawsuits and the aggregate settlement amount of such lawsuits (net of amounts
paid by insurance) shall not exceed $[**]. By way of clarification, the parties
acknowledge and agree that BORROWER may enter into and perform its obligations
under such settlement agreements without the need to obtain the consent of the
BANK under Section VIII.B. of the Agreement or otherwise, provided that such
settlement obligations are unsecured.
CALCULATION OF NET WORTH. Net Worth shall be calculated in Section III.B
of Schedule A to the Agreement by adding to the amount of BORROWER's total
shareholders' equity (as determined in accordance with GAAP from BORROWER's
Financial Statements) any payments made by BORROWER with respect to the [**]
lawsuit, whether as a result of a settlement, judgment or otherwise, up to a
maximum aggregate amount of $[**], but no addition shall be permitted respecting
any payments made by Borrower with respect to the other lawsuits referenced
above, whether as a result of a settlement, judgment or otherwise.
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DISCLOSURE SCHEDULE TO FLEET NATIONAL BANK COMMERCIAL LOAN AGREEMENT, DATED AS
OF JUNE 24, 2003, BY AND AMONG SKILLSOFT CORPORATION, A DELAWARE CORPORATION,
SKILLSOFT PUBLIC LIMITED COMPANY, A CORPORATION ORGANIZED UNDER THE LAWS OF THE
REPUBLIC OF IRELAND, AND FLEET NATIONAL BANK, A NATIONAL BANKING ASSOCIATION
ORGANIZED UNDER THE LAWS OF THE UNITED STATES OF AMERICA. REFERENCES TO "WE",
"US", "OUR" AND "THE COMPANY" REFER TO SKILLSOFT PUBLIC LIMITED COMPANY.
SCHEDULE VI (D)
LITIGATION
The following legal proceedings were disclosed in our Quarterly Report on Form
10-Q for the quarter ended April 30, 2003:
SEC Investigation
On or about February 4, 2003, the Securities Exchange Commission (SEC)
informed us that we are the subject of a formal order of private investigation
relating to our November 19, 2002 announcement that we would restate the
financial statements of SmartForce PLC for the period 1999 through June 2002. We
understand that the SEC's investigation concerns SmartForce's financial
disclosure and accounting during that period, other related matters, compliance
with rules governing reports required to be filed with the SEC, and the conduct
of those responsible for such matters. We continue to cooperate with the SEC in
this matter.
Class Action Lawsuits
Six class action lawsuits have been filed against us and certain of our
current and former officers and directors captioned: (1) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ v.
SmartForce PLC d/b/a SkillSoft, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇; (2) ▇▇▇ ▇.
▇▇▇▇▇▇▇ v. SkillSoft PLC f/k/a SmartForce PLC, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇; (3) ▇▇▇▇▇▇ ▇. ▇▇▇▇ v.
SmartForce PLC d/b/a SkillSoft, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇; (4) ▇▇▇▇▇▇ ▇▇▇▇▇
v. SmartForce PLC d/b/a SkillSoft, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇; (5) ▇▇▇▇▇▇
▇▇▇▇▇▇▇ v. SmartForce PLC d/b/a SkillSoft, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇;
and (6) ▇▇▇▇ ▇'▇▇▇▇▇▇▇▇ ▇. SmartForce PLC d/b/a SkillSoft, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ and
▇▇▇▇ ▇▇▇▇▇▇. Each lawsuit was filed in the United States District Court for the
District of New Hampshire; the first action was filed on November 22, 2002, the
second action was filed on December 4, 2002 and the third and fourth actions
were filed on December 11, 2002, the fifth action was filed on December 23,
2002, and the sixth action was filed on January 16, 2003. These lawsuits allege
that we misrepresented or omitted to state material facts in our SEC filings and
press releases regarding our revenues and earnings and failed to correct such
false and misleading SEC filings and press releases, which are alleged to have
artificially inflated the price of our ADSs. These lawsuits seek unspecified
monetary damages, including punitive damages together with interest, costs, fees
and expenses. These lawsuits have all been assigned to Chief Judge ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇. On March 26, 2003, Judge ▇▇▇▇▇▇▇▇▇ consolidated the lawsuits under
the caption "In re SmartForce Securities Litigation," Civil Action No. 02-544-B,
appointed as lead plaintiffs the Teacher's Retirement
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System of Louisiana and the Louisiana Sheriff's Pension & Relief Fund, and
approved the lead plaintiffs' choice of lead counsel and local counsel. We are
awaiting plaintiffs' consolidated amended complaint. We believe that we have
meritorious defenses to these actions and intend to defend ourselves vigorously.
At the end of our fiscal third quarter of 1998, several purported class
action lawsuits were filed in the United States District Court for the Northern
District of California against us, one of our subsidiaries and certain of our
former and current officers and directors alleging violations of the federal
securities laws. It has been alleged in these lawsuits that we misrepresented or
omitted to state material facts regarding our business and financial condition
and prospects in order to artificially inflate and maintain the price of our
ADSs, and misrepresented or omitted to state material facts in our registration
statement and prospectus issued in connection with our merger with ForeFront,
which also is alleged to have artificially inflated the price of our ADSs. The
court has set a trial date of September 2003. We believe that we have
meritorious defenses to these actions and intend to vigorously defend ourselves
against them. Although we cannot presently determine the outcome of these
actions, an adverse resolution of these matters could significantly negatively
impact our financial position and results of operations.
NETg Litigation
Our subsidiary, SkillSoft Corporation, several of its executive officers
and key employees, and a former major investor of SkillSoft Corporation are
named as defendants in a lawsuit pending in the Circuit Court of Cook County,
Illinois filed by National Education Training Group, Inc. ("NETg"), the former
employer of several of those individuals.
▇▇▇▇'s most recent complaint alleges in substance that:
- ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, as the former President of NETg, breached his
fiduciary duty to NETg by usurping NETg's corporate opportunities, by
commencing a rival business while still employed by NETg and by
soliciting NETg personnel to join his rival business while still
employed by NETg;
- ▇▇▇▇▇▇ ▇. ▇▇▇▇, as the former Vice President of Sales and Marketing of
NETg, breached his fiduciary duty to NETg by assisting ▇▇. ▇▇▇▇▇ in the
creation, commencement and operation of the rival concern prior to Mr.
▇▇▇▇'s resignation from NETg, by assisting ▇▇. ▇▇▇▇▇ in the usurpation
of corporate opportunities, by failing to inform his superiors at NETg
of ▇▇. ▇▇▇▇▇'▇ plans to form a rival business and by otherwise failing
to use his best efforts on behalf of NETg while still employed there;
- SkillSoft Corporation, ▇▇. ▇▇▇▇▇, Mr. ▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, ▇▇▇ ▇. ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ misappropriated trade secrets of
NETg, and SkillSoft Corporation and ▇▇. ▇▇▇▇▇ tortiously
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interfered with ▇▇▇▇'s "prospective economic advantage;"
- ▇▇. ▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇▇▇, Mr. ▇▇▇▇, ▇▇. ▇▇▇▇▇, ▇▇. ▇▇▇▇▇ and ▇▇. ▇▇▇▇▇
breached certain confidentiality and proprietary matters policies of
NETg by misappropriating trade secrets and disclosing confidential and
proprietary information during and after their employment with NETg;
- ▇▇. ▇▇▇▇▇, ▇▇. ▇▇▇▇▇▇▇▇, Mr. ▇▇▇▇, ▇▇. ▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ breached the
conflict of interest policy of NETg's former corporate parent, National
Education Corporation, by failing to disclose that ▇▇. ▇▇▇▇▇ formed and
solicited funding for SkillSoft Corporation, that Messrs. ▇▇▇▇▇▇▇▇,
▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇ had employment-related discussions with SkillSoft
Corporation, and that Mr. ▇▇▇▇ participated in forming and soliciting
funding for SkillSoft Corporation, during their employment with NETg;
- SkillSoft Corporation and ▇▇. ▇▇▇▇▇ tortiously interfered with NETg's
contractual relations with ▇▇. ▇▇▇▇▇▇▇▇, Mr. ▇▇▇▇, ▇▇. ▇▇▇▇▇, ▇▇. ▇▇▇▇▇
and ▇▇. ▇▇▇▇▇ by offering them employment and inducing them to breach
their confidentiality and trade secret obligations to NETg;
- SkillSoft Corporation breached provisions of a license agreement with
NETg relating to the use of NETg's software; and
- Warburg Pincus Ventures, L.P., a former major investor in SkillSoft
Corporation, tortiously interfered with ▇▇. ▇▇▇▇▇'▇ and Mr. ▇▇▇▇'s
fiduciary duties to NETg.
▇▇▇▇ maintains that the trade secrets allegedly misappropriated by the
other defendants and SkillSoft Corporation include, among other things:
- various aspects of the design and functionality of its education and
training software and products;
- customer lists and information;
- relationships with service providers; and
- NETg's soft skills product line business plan.
The claims seek injunctive relief against SkillSoft Corporation and
Messrs. ▇▇▇▇▇, Nine, ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ and ▇▇▇▇▇ and ▇▇. ▇▇▇▇▇ and demand the
return, and no future use by SkillSoft Corporation and these defendants, of the
alleged trade secrets. The claims also seek
- 35 -
compensatory damages of $400 million, exemplary damages in the additional amount
of $400 million, additional compensatory, incidental and consequential damages
in an unspecified amount and punitive damages of $50 million or such other
amount as the court deems just or appropriate. In answers to interrogatories
served on NETg, an expert witness retained by NETg opined that NETg may, based
on certain assumptions provided to the expert by NETg's counsel, be entitled to
two categories of damages, including damages for lost profits of up to $386.8
million and damages for unjust enrichment of up to $616.3 million. On April 30,
2001, the court denied SkillSoft Corporation's motion to dismiss all of NETg's
claims against SkillSoft Corporation and its executive officers and key
employees and granted Warburg, ▇▇▇▇▇▇ Ventures, L.P.'s motion to dismiss claims
related to its alleged tortuous interference with NETg's prospective economic
advantage and unfair competition. The case is currently in discovery and a trial
has been scheduled for February 2004.
In addition, on July 26, 2000, NETg filed suit against SkillSoft
Corporation in the United States District Court for the Northern District of
Illinois alleging that SkillSoft Corporation's educational and training software
products infringe United States Patent No. 6,039,575, which was issued on March
21, 2000 and is allegedly owned by NETg. The complaint seeks both monetary
damages and injunctive relief. SkillSoft Corporation filed its answer and a
counterclaim for a declaration of invalidity of the NETg patent on August 17,
2000. NETg filed its reply and affirmative defenses to SkillSoft Corporation's
counterclaim on February 2, 2001.
On April 17, 2001, SkillSoft Corporation filed a request for reexamination
of the patent in suit with the United States Patent and Trademark Office (the
"PTO"). On May 11, 2001, the United States District Court for the Northern
District of Illinois entered an order staying the proceedings in NETg's patent
infringement action, with certain exceptions, pending resolution of SkillSoft
Corporation's request to the PTO to reexamine the patentability of the claims of
the patent on which NETg bases the lawsuit and any resulting reexamination
proceedings. After a series of interim actions by the PTO and filings by the
patent owner, on April 10, 2002 the PTO issued an Office Action rejecting all of
the claims of the patent. On September 6, 2002, an order was issued dismissing
the Federal Court litigation "without prejudice with leave to reinstate upon
full and final resolution of the reexamination proceedings." ▇▇▇▇'s appeal of
the PTO's Office Action rejecting all of the claims of the patent remains
pending and, on or about September 10, 2002, the patent owner filed with the PTO
its brief in support of its appeal.
SkillSoft Corporation and the other defendants are vigorously defending
themselves against ▇▇▇▇'s allegations, and we believe that both SkillSoft
Corporation and the other defendants have meritorious defenses to the claims
made in the lawsuits. While there have been certain settlement discussions
between the parties in the lawsuits, no settlement has yet been reached and we
intend to continue to vigorously contest NETg's claims. The current progress and
state of the proceedings do not permit an evaluation of the likelihood of an
unfavorable outcome or a fair estimate of the amount or range of potential loss,
if any. None of the defendants in the first lawsuit were bound by written
non-competition or non-solicitation agreements with NETg. We are not yet able to
assess our potential liability or the potential liability of the other
- 36 -
defendants. Nonetheless, SkillSoft Corporation's failure to prevail in this
litigation could have any or all of the following significant adverse effects on
our business and financial performance:
- injunctive relief issued against SkillSoft Corporation and its officers
and employees, which could significantly restrict our ability to
conduct our business;
- an adverse judgment against SkillSoft Corporation for monetary damages;
- a settlement on unfavorable terms;
- obligations SkillSoft Corporation has to indemnify its employees for
liabilities and expenses they incur in connection with the lawsuits;
- obligations to customers for breach of SkillSoft Corporation's warranty
of noninfringement; or
- a requirement to reengineer SkillSoft Corporation's products to avoid
patent infringement, which would likely result in additional expense
and delay.
In addition, this litigation, regardless of its outcome, will continue to result
in significant expenses in defending the lawsuit and may divert the efforts and
attention of our management team from normal business operations.
IP Learn
On April 23, 2002, IP Learn, LLC ("IP Learn") filed a complaint in the
United States District Court for the Northern District of California against us.
The complaint alleges that we infringed on five United States patents assigned
to IP Learn. The complaint was subsequently amended to add an additional patent.
The IP Learn patents in question are U.S. Patent Nos. 6,126,448; 6,118,973;
5,934,909; 5,779,486, 5,743,746; and 6,398,556. We believe that these patents
are related primarily to computer-aided learning methods and systems. In the
complaint, IP ▇▇▇▇▇ asked the court for a preliminary and permanent injunction
as well as unspecified damages. On June 27, 2002, we filed our answer to IP
Learn's amended complaint, denying infringement and asserting counterclaims
seeking declaratory relief that the patents-in-suit are invalid and that we have
not infringed the patents-in-suit.
On July 1, 2002, IP Learn served our subsidiary SkillSoft Corporation with
an amended complaint alleging that SkillSoft Corporation infringed U.S. Patent
Nos. 6,126,448; 6,118,973; 5,934,909; 5,779,486 and 6,398,556. The complaint
seeks both monetary damages and injunctive relief. In response to the amended
complaint, SkillSoft Corporation filed a motion
- 37 -
to dismiss or, in the alternative, for a more definite statement. The United
States District Court for the Northern District of California granted SkillSoft
Corporation's motion to dismiss on October 15, 2002, and on October 25, 2002, IP
Learn filed its Second Amended Complaint alleging again that SkillSoft
Corporation is infringing the five IP United States patents assigned to IP Learn
listed above. The Second Amended Complaint seeks both monetary damages in an
unspecified amount and injunctive relief. On November 8, 2002, SkillSoft
Corporation filed its Answer to the Second Amended Complaint, in which it denied
liability and asserted counterclaims seeking declaratory relief that the
specified patents are invalid and that SkillSoft Corporation has not infringed
the specified patents.
In June 2003, we reached an agreement with IP Learn regarding the
settlement of the pending litigation pursuant to which we obtained a license to
use certain of IP Learn's patents. Under the terms of the settlement agreement,
we are required to make a cash payment and to issue ordinary shares (which will
be represented by ADSs). The lawsuits will be dismissed following completion of
the settlement.
Lionet
On June 13, 2002, Lionet Limited, a limited liability company incorporated
and doing business in Ireland, filed a claim against us in Ireland, alleging,
among other things, that we breached the terms of our software license agreement
with Lionet Limited in that we permitted or failed to prevent the decompilation
of the provided software products and that we have failed to cooperate in audits
to determine the nature of such alleged copying or de-compilation. Lionet
Limited is seeking damages for lost license fees of $6.8 million and seeks other
damages. We intend to vigorously defend ourselves in this matter.
- 38 -
SCHEDULE VI (K)
LOCATION OF RECORDS
Certain books and records of the Company are maintained at (i) Binchys, Irish
counsel to the Company, in Dublin, Ireland and (ii) the Company's facility in
Dublin, Ireland.
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