<PAGE>
EXHIBIT 4.2
THE PATHWAYS GROUP, INC.
INSTRUCTIONS FOR SUBSCRIBING
Two copies of a Subscription Agreement to subscribe to purchase
shares of Series A Preferred Stock of The Pathways Group, Inc. (the "Company")
and to purchase shares of Common Stock (collectively, the "Securities"), par
value $.01, issuable upon exercise of warrants of the Company are at tached.
Please follow these instructions:
1. Please read the entire Subscription Agreement before you sign
it.
2. Please complete and sign the Signature Page on both copies of
the Subscription Agree ment. The signature on both copies must be notarized. Be
sure to indicate in the space provided on the Signature Page the dollar amount
of the Interest for which you wish to subscribe.
3. Please complete and sign the Confidential Offeree Questionnaire.
Please answer all questions.
4. Attach a certified or bank check, payable to the order of "The
Pathways Group, Inc." in the amount of the full subscription price for the
Securities subscribed. Alternatively, you may make arrangements to wire funds to
the Company by contacting Mark T. Schuur.
5. Forward BOTH copies of the Subscription Agreement, the
Confidential Offeree Questionnaire and your check (if paying by check) to: Mark
T. Schuur, The Pathways Group, Inc., 14201 NE 200th Street, Woodinville,
Washington 98072. One fully-executed copy of the Subscription Agreement will be
returned to you.
If you have any questions, please contact Mr. Schuur at (425)
483-3411.
<PAGE>
THE PATHWAYS GROUP, INC.
SUBSCRIPTION AGREEMENT
To: _______________________
Name of Purchaser
This will confirm your agreement to purchase units (the "Units"),
each unit consisting of one share of Series A Preferred Stock (the "Preferred
Shares") of The Pathways Group, Inc. (the "Company") and four Common Stock
Purchase Warrants (the "Warrants") to purchase shares (the "Warrant Shares") of
Common Stock, par value $.01, of the Company issuable upon exercise of the
Warrants (the Preferred Shares and the Warrants to be collectively known as the
"Units").
1. SUBSCRIPTION AND SALE.
1.1 SUBSCRIPTION. Subject to the terms and conditions of this
Agreement, you irrevoc ably subscribe for, and agree to purchase, the Units for
the subscription price indicated on the Signa ture Page of this Agreement. You
are tendering to the Company with this Agreement (i) two completed and signed
copies of this Agreement, (ii) a completed and signed Confidential Offeree
Questionnaire and (iii) a certified or bank check in the amount of the
subscription price (or you are concurrently wire transferring such amount to the
Company).
1.2 ACCEPTANCE OR REJECTION OF SUBSCRIPTION. All funds tendered by
you will be held in a segregated interest-bearing account pending acceptance or
rejection of this Agreement and the closing of your purchase of the Units. This
Agreement will either be accepted, in whole or in part, subject to the prior
sale of Units, or rejected, by the Company as promptly as is practicable. If
this Agreement is accepted only in part, you agree to purchase such smaller
number of Units as the Company determines to sell to you. If this Agreement is
rejected for any reason, including, without limitation, the termination of the
offering of the Units by the Company, this Agreement and all funds tendered with
it promptly will be returned to you, with interest and without deduction of any
kind, and this Agreement will be void and of no further force or effect. Deposit
and collection of the check tendered, or receipt of funds wired, with this
Agreement will not constitute acceptance of this Agreement.
1.3 CLOSING. Subscriptions will be accepted at one or more
Closings, as described in the Offering Memorandum relating to this offering (the
"Memorandum"). On Closing, the subscription evidenced hereby, if not previously
rejected, will be accepted, in whole or in part, and the Company will execute a
copy of this Agreement and return it to you. If your subscription is accepted
only in part, this Agreement will be marked to indicate such fact and the
Company will return to you the portion of the funds tendered by you representing
the unaccepted portion of your subscription, with interest and without deduction
of any kind. The Units subscribed for will not be deemed to be issued to, or
owned by, you until this Agreement has been accepted by the Company.
1.4 PAYMENT OF INTEREST. On Closing, all interest earned on your
subscription funds will be paid to you. Interest will be calculated from the day
such funds are received by the Company to the date of Closing, termination of
the offering or rejection of a subscription, as the case may be.
2
<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER. You represent
and warrant to the Company as follows:
2.1 NON-REGISTRATION. You acknowledge that the Units to be acquired
by you are not and will not be registered under the Securities Act of 1933 (the
"Act") or any state securities law in reliance on exemptions from such
registration, and that such reliance is based in part on your repre sentations
and warranties set forth in this Section 2 and on the information set forth in
the Confidential Offeree Questionnaire tendered by you to the Company with this
Agreement.
2.2 INFORMATION. You have received, carefully read and understood
the Memorandum. You have been provided with the opportunity to ask questions of,
and to receive answers from, representatives of the Company concerning the
Company and the Securities and you have been provided with access to all
information pertaining to the Company to which you have requested access.
2.3 INVESTMENT INTENT; LIMITATIONS ON RESALE. You are acquiring the
Preferred Shares solely for your own account, for investment and not with a view
to, or for resale in connection with, any distribution. You understand that the
Preferred Shares being acquired by you will be an illiquid investment, as it is
unlikely that a market will develop in the Preferred Shares and because the
Preferred Shares may not be sold, transferred or otherwise disposed of except
pursuant to an effective registration statement under the Act or an exemption
from such registration, and that in the absence of such registration or
exemption, or redemption of the Preferred Shares by the Company, the Preferred
Shares must be held indefinitely.
2.4 SPECULATIVE NATURE OF INVESTMENT. You understand that your
investment in the Company is speculative and is subject to certain risks and may
remain so for an indefinite period and that no federal or state agency has
reviewed or made any recommendation or endorsement with respect to the
Securities.
2.5 NO SOLICITATION. At no time in connection with the offer or
sale of the Preferred Shares were you solicited by any leaflet, public
promotional meeting, circular, newspaper or magazine article, radio or
television advertisement or any other form of general advertising.
2.6 INVESTMENT COMPANY ACT NON-REGISTRATION. You understand that
the Company is not and will not be registered as an investment company under the
Investment Company Act of 1940 (the "1940 Act"), by reason of Section 3(c)(1)
thereof which excludes from the definition of an investment company any issuer
which has not made and does not presently propose to make a public offering of
its securities and whose outstanding securities (other than short-term paper)
are beneficially owned by not more than 100 persons. In this regard, you were
not formed for the pur pose of investing in the Company nor did your
stockholders, partners, grantors or participants contri bute additional capital
to you for the purpose of such investment. Further, if you are purchasing
Capital Stock which will constitute more than 10% of all Capital Stock of the
Company at Closing, you are not an investment company, as defined under the 1940
Act, or an entity which would be an investment company for purposes of the 1940
Act if not for the exemption set forth in Section 3(c)(1) or Section 3(c)(7)
thereunder.
2.7 STATUS. If you are a corporation, partnership, trust or other
entity, you are an "accredited investor", as that term is defined in Rule 501(a)
of Regulation D under the Act (see the Confidential Offeree Questionnaire for a
list of the types of accredited investors). If you are a natural person, you are
at least 21 years of age and you either are an "accredited investor" or meet the
experience standards set forth in Section 2.8 below.
2.8 EXPERIENCE; FINANCIAL ABILITY. You, or if you are a
corporation, partnership, trust or other entity, you by and through your
officers, directors, trustees, employees or other advisors, (i) are
3
<PAGE>
experienced in evaluating companies such as the Company, (ii) have determined
that the Securities are a suitable investment for you and (iii) have such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of your investment in the Company. You have the
financial ability to bear the economic risks of your entire investment for an
indefinite period and no need for liquidity with respect to your investment in
the Company, and, if you are a natural person, you have adequate means for
providing for your current needs and personal contingencies.
2.9 FURTHER INFORMATION. The information which you are furnishing
hereunder and in the Confidential Offeree Questionnaire and any information
which you subsequently furnish to the Company with respect to your financial
position and business experience, is correct and complete as of the date of this
Agreement or as of the date it is furnished, whichever is later. If there is any
material change in such information prior to the date that this Agreement is
accepted, you will immediately furnish such revised or corrected information to
the Company.
2.10 DUE AUTHORITY, ETC. If you are a corporation, partnership,
trust or other entity: (a) you are duly organized, validly existing and in good
standing under the laws of the jurisdiction of your formation and have all
requisite power and authority to own your properties and assets and to carry on
your business, (b) you have the requisite power and authority to execute this
Agreement and to carry out the transactions contemplated hereby, (c) your
execution and performance of this Agreement does not and will not result in any
violation of, or conflict with, any term of your charter, by-laws, partnership
agreement or indenture of trust, as the case may be, or any instrument to which
you are a party or by which you are bound or any law or regulation applicable to
you, (d) your execution and performance of this Agreement has been duly
authorized by all necessary corporate or other action, (e) you were not
specifically formed to invest in the Company and (f) the individual who has
executed this Agreement on your behalf was duly authorized to do so by all
requisite corporate or other action and, on request of the Company, you will
furnish appropriate evidence of the authority of such individual to act on your
behalf.
2.11 VALID OBLIGATION. This Agreement has been duly executed and
delivered by or on behalf of you and, if and when accepted by the Company, in
whole or in part, will constitute your legal, valid and binding obligations,
enforceable in accordance with their respective terms (except as may be limited
by principles of equity or bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally).
2.12 RELIANCE ON OWN ADVISORS. You confirm that, in making your
decision to invest in the Company, you have relied, as to legal and tax-related
matters concerning the investment, on independent investigations made by you and
any advisor or representative that you may have consulted, including your own
legal, tax and other advisors, and that you and your advisors or representatives
have investigated your investment in the Company to the extent you and they have
deemed advisable.
2.13 FURTHER ERISA MATTERS. If you are an employee benefit plan
within the meaning of ERISA, you and your plan fiduciaries are not affiliated
with, and are independent of, the Company and are informed of and understand the
Company's investment objectives, policies and strategies. Your plan fiduciaries
believe that the decision to invest your plan assets in the Company is
consistent with the provisions of ERISA that require prudence in investment and
diversification of plan assets and impose other fiduciary responsibilities.
Further, your plan fiduciaries have considered the following factors with
respect to your investment in the Company and have determined that, in view of
such considerations, an investment in the Company is consistent with their
fiduciary responsibilities under ERISA:
(a) the role such investment will play in the portion of your
portfolio that such plan fiduciaries manage;
4
<PAGE>
(b) whether the investment is reasonably designed as part of the
portion of the portfolio managed by such plan fiduciaries to further your
purposes, taking into account both the risk of loss and opportunity for gain
that could result;
(c) the composition of the portion of the portfolio managed by such
plan fiduciaries with regard to diversification;
(d) the liquidity and current rate of return of the portion of the
portfolio managed by such plan fiduciaries relative to your anticipated cash
flow requirements; and
(e) the projected return of the portion of the portfolio managed by
such plan fiduciaries relative to your funding objectives.
This agreement has been executed on your behalf by a duly
designated Named Fiduciary (within the meaning of Section 402(a)(2) of ERISA).
2.14 ADDRESS. The address set forth on the Signature Page of this
Agreement is your true and correct address and you have no present intention of
becoming a resident or domiciliary of any jurisdiction other than the one
indicated by your address.
2.15 FEES AND COMMISSIONS. No fees or commissions have been paid or
are payable by you in connection with this Agreement and the issuance of the
Preferred Shares to you.
3 COVENANTS OF THE ISSUER.
3.1 LIMITATION ON INDEBTEDNESS. Without the consent of a majority
of the holders of the Preferred Shares outstanding at that time, the Company
shall not, and shall not suffer or permit any subsidiary to create, incur,
assume, suffer to exist, or otherwise become or remain directly or indirectly
liable with respect to any Indebtedness other than any Indebtedness outstanding
at the date of the issuance of the Preferred Shares. For the purposes of this
section, "Indebtedness" shall mean (a) all indebtedness of the Company for
borrowed money; (b) all obligations relative to the face amount of all letters
of credit, whether or not drawn, and banker's acceptances issued for the account
of the Company; (c) the present value of all obligations issued, undertaken or
assumed to pay the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (d) all contingent liabilities of the Company in respect of any of the
foregoing; (e) all capital stock and warrants or other options therefor which
have mandatory put or redemption provisions which may be exercised prior to the
maturity date of the Preferred Shares.
4 REGISTRATION RIGHTS.
4.1 REGISTRATION OF COMMON SHARES. As soon as practicable, but in
any event no later than 75 days after August 28, 1999, the Company will file a
registration statement (the "Registration Statement") under the Securities Act
of 1933, as amended, with respect to all of the Warrant Shares, and the Company
shall use its best efforts to cause such Registration Statement to become
effective as soon as practicable after filing. In connection therewith, each
holder of Warrants (each, a "Holder") will provide in a timely manner all such
information and materials pertaining to it as may be required in order to permit
the Company to comply with all applicable requirements of the Commission and to
obtain the acceleration of the effective date of the Registration Statement. In
connection with such registration, the Company shall:
(a) keep the Registration Statement effective until the
earliest of (i) when each Holder has sold its Warrant Shares, (ii) one year
following the effective date of the Registration Statement, or (iii) the date
the Warrant Shares may be sold under Rule 144 under the Securities Act of 1933;
5
<PAGE>
(b) as expeditiously as possible furnish to each Holder such
reasonable numbers of copies of the prospectus as such Holder may reasonably
request in order to facilitate the public sale or other disposition of the
Warrant Shares;
(c) as expeditiously as possible use its best efforts to
register or qualify the Warrant Shares under the securities or Blue Sky laws of
such states as Subscriber shall reasonably request, PROVIDED, HOWEVER, that the
Company shall not be required in connection with this paragraph (c) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction;
(d) pay all costs and expenses incident to registration
hereunder, except as set forth in Section 2.3.
4.2 HOLDER'S FEES. Each Holder shall pay an and all underwriters'
discounts, brokerage fees and transfer taxes incident to the sale of the Warrant
Shares sold by such Holder pursuant to this Section and the fees and expenses of
its counsel.
4.3 INDEMNIFICATION.
(a) In connection with any registration effected pursuant
hereto, the Company will indemnify each Holder, each of such Holder's officers
and directors, and each person controlling such Holder within the meaning of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereto) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus (including any
related registration statement, notification or the like) incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of any rule or
regulation promulgated under the Securities Act applicable to the Company and
relating to action or inaction required of the Company in connection with such
registration, and will reimburse each Holder such, such Holder's officers and
directors, and each person controlling such Holder, for any legal and any other
expenses reasonably incurred in connection with investigating or defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage
or liability arises out of or is based on any untrue statement or omission based
upon written information furnished to the Company by an instrument duly executed
by such Holder specifically for use therein.
(b) In connection with any registration effected pursuant
hereto, each Holder will indemnify the Company, each of the Company's directors
and officers and each person controlling the Company within the meaning of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement or prospectus, or any omission (or alleged omission) to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by such Holder of any rule
or regulation promulgated under the Securities Act applicable to such Holder and
relating to action or inaction required of such Holder in connection with such
registration, and will reimburse the Company, such directors, officers and
persons for any legal or any other expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement or prospectus in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder specifically for use therein.
4.4 FURTHER ACTIONS. In connection with any registration effected
pursuant hereto, each Holder shall execute, deliver, furnish or file with the
Company, the underwriter(s), or the appropriate
6
<PAGE>
regulatory body, any information, representations, undertakings and agreements
necessary to carry out the registration covenant or to otherwise effect the
registration of the Warrant Shares.
5. MISCELLANEOUS.
5.1 ENTIRE AGREEMENT. This Agreement sets forth the entire
understanding of the parties with respect to its subject matter, merges and
supersedes any prior or contemporaneous understanding among them with respect to
its subject matter, and will not be modified, amended or terminated except by
another agreement in writing executed by you and the Company. Failure of a party
to enforce one or more of the provisions of this Agreement or to require at any
time per formance of any of the obligations hereof will not be construed to be a
waiver of such provisions by such party nor to in any way affect the validity of
this Agreement or such party's right thereafter to en force each and every
provision of this Agreement, nor to preclude such party from taking any other
action at any time which it would legally be entitled to take.
5.2 BINDING EFFECT. This Agreement will be binding on and will
inure to the benefit of the parties and their respective successors and
permissible assigns.
5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations, warranties and agreements contained herein will survive the
execution, delivery and performance of this Agreement.
5.4 GOVERNING LAW; CONSTRUCTION. This Agreement will in all
respects be governed by and construed in accordance with the laws of the State
of New York applicable to agreements made and fully to be performed in such
state, without giving effect to conflict of laws principles. References to
Sections herein are to the sections of this Agreement. Headings used in this
Agreement are for convenience only and will not be used in the construction of
this Agreement.
5.5 FOR FLORIDA RESIDENTS. A FLORIDA RESIDENT WHO SUBSCRIBES FOR
THE SECURITIES HAS THE RIGHT TO WITHDRAW HIS SUBSCRIPTION AND TO RECEIVE A FULL
REFUND OF ALL MONIES PAID WITHIN THREE BUSINESS DAYS AFTER THIS SUB SCRIPTION
AGREEMENT IS EXECUTED OR PAYMENT FOR THE INTEREST IS MADE, WHICH EVER IS LATER.
SUCH WITHDRAWAL WILL BE WITHOUT ANY FURTHER LIABILITY TO ANY PERSON. TO
ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER NEED ONLY SEND A LET TER OR TELEGRAM TO
THE COMPANY INDICATING HIS INTENTION TO WITHDRAW. SUCH LETTER OR TELEGRAM SHOULD
BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED THIRD BUSINESS
DAY. A LETTER SHOULD BE MAILED BY CERTIFIED MAIL, RETURN RECEIPT REQUESTED, TO
ENSURE ITS RECEIPT AND TO EVIDENCE THE TIME OF MAILING.
7
<PAGE>
SIGNATURE PAGE
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date noted below.
INDIVIDUALS: ENTITIES:
__________________________________ _________________________________
Print Name Print Name of Subscriber
__________________________________ By ______________________________
Signature Authorized Signature
__________________________________ By ______________________________
Signature (if Joint Tenants Print Name of Signatory and
or Tenants in Common) Capacity in which Signed
SUBSCRIBER INFORMATION
Address (Residence for individuals; Social Security or Tax ID No.:__________
business for others):
________________________________________________________________________________
Street City State Zip Code
Name of Partnership:_____________________________________________
Dollar Amount You Wish to Invest: $__________. This is the amount of your
Interest and your Subscription Price.
================================================================================
FOR THE COMPANY'S USE ONLY
Agreed and Accepted as to $____________________________.
Dated: , 199_.
THE PATHWAYS GROUP, INC.
By_________________________________________
Mark T. Schuur, Senior Vice-President and
Chief Financial Officer and Director
8
<PAGE>
CORPORATE, PARTNERSHIP OR TRUST ACKNOWLEDGMENT
STATE OF )
) ss.:
COUNTY OF )
On this ___ day of ________________, 199_, before the
undersigned, a Notary Public, personally appeared ________________________ known
to me to be the person whose name is subscribed to the foregoing Agreement and
known to me to be the _______ of ___________________________ and acknowledged to
me that he/she executed the same as an official and duly authorized act of such
entity for the purposes and consideration therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal in the State and County and on the day and year first above
written.
(SEAL) ___________________________________
Notary Public
INDIVIDUAL ACKNOWLEDGMENT
STATE OF )
) ss.:
COUNTY OF )
On this ____ day of ___________, 199_ before the undersigned,
a Notary Public, personally appeared __________________________________ known to
me to be the person whose name is subscribed to the foregoing instrument and
acknowledged to me that he/she executed the foregoing Agreement, as his/her free
and voluntary act and deed for the purposes and consideration therein expressed.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal in the State and County and on the day and year first above written.
(SEAL) ___________________________________
Notary Public
