<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
ASYMETRIX LEARNING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 7371 91-1276003
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
INCORPORATION OR
ORGANIZATION)
----------------
110-110TH AVENUE NE
BELLEVUE, WASHINGTON 98004
(425) 462-0501
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
JOHN D. ATHERLY
VICE PRESIDENT, FINANCE AND ADMINISTRATION AND CHIEF FINANCIAL OFFICER
ASYMETRIX LEARNING SYSTEMS, INC.
110-110TH AVENUE NE
BELLEVUE, WASHINGTON 98004
(425) 462-0501
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
MARK C. STEVENS, ESQ. THERESE A. MROZEK, ESQ.
JEFFREY R. VETTER, ESQ. NORA L. GIBSON, ESQ.
MICHAEL J. MCADAM, ESQ. RANDALL M. LAKE, ESQ.
FENWICK & WEST LLP BROBECK, PHLEGER & HARRISON LLP
TWO PALO ALTO SQUARE TWO EMBARCADERO PLACE
PALO ALTO, CALIFORNIA 94306 2200 GENG ROAD
(650) 494-0600 PALO ALTO, CALIFORNIA 94303
(650) 424-0160
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<CAPTION>
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PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, $.01 par value per share..... $40,000,000.00 $11,800.00
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</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
amount of the registration fee.
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED MARCH 31, 1998
SHARES
[LOGO]
COMMON STOCK
All of the shares of Common Stock offered hereby are being sold by Asymetrix
Learning Systems, Inc. ("Asymetrix" or the "Company"). Prior to this offering,
there has been no public market for the Common Stock of the Company. It is
currently estimated that the initial public offering price will be between $
and $ per share. See "Underwriting" for a discussion of the factors to be
considered in determining the initial public offering price. The Company has
applied to have its Common Stock approved for quotation on the Nasdaq National
Market under the symbol "ASYM."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" COMMENCING
ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
<TABLE>
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Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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<S> <C> <C> <C>
Per Share..................................... $ $ $
Total (3)..................................... $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company estimated at
$ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to additional shares of Common Stock, solely to cover over-allotments,
if any. If the Underwriters exercise this option in full, the Price to
Public will total $ , the Underwriting Discount will total $ and the
Proceeds to Company will total $ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of NationsBanc Montgomery Securities LLC on or about , 1998.
-----------
NationsBanc Montgomery Securities LLC
BancAmerica Robertson Stephens
Hambrecht & Quist
, 1998
<PAGE>
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY. SUCH TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF
COMMON STOCK TO COVER SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY
BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
As used in this Prospectus, the "Company" and "Asymetrix" refer to Asymetrix
Learning Systems, Inc., a Delaware corporation, its Washington predecessor and
its wholly-owned subsidiaries. Except as otherwise noted herein, information
in this Prospectus (i) assumes no exercise of the Underwriters' over-allotment
option, (ii) gives effect to the conversion of all outstanding shares of Class
B Stock of the Company into shares of Common Stock of the Company, which will
occur upon the closing of this offering, (iii) reflects the reincorporation of
the Company in Delaware prior to the closing of this offering, (iv) refers to
historical and not pro forma financial information, (v) gives effect to a 3-
for-4 reverse stock split to be effected immediately prior to the consummation
of this offering and (vi) gives effect to the filing, upon the closing of this
offering, of an Amended and Restated Certificate of Incorporation, authorizing
2,000,000 shares of undesignated Preferred Stock.
Asymetrix, Asymetrix Digital Video Producer, IconAuthor and ToolBook are
registered trademarks of the Company and Librarian, ToolBook II Assistant,
ToolBook II Instructor, Librarian and Web 3D are trademarks of the Company.
This Prospectus also includes trademarks of companies other than the Company.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified in
its entirety by, the more detailed information including "Risk Factors" and the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Prospectus. The discussion in this Prospectus contains forward-looking
statements. The outcome of the events described in such forward-looking
statements is subject to risks and uncertainties. The Company's actual results
may differ materially from those discussed in such forward-looking statements.
Factors that may cause or contribute to such differences include those
discussed in sections entitled "Risk Factors," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Business" as
well as those discussed elsewhere in this Prospectus.
THE COMPANY
Asymetrix is a leading provider of online enterprise learning solutions
designed to enable organizations to capture, deploy and manage knowledge more
effectively for use as a competitive advantage. The Company's comprehensive
learning solution consists of an open, standards-based, Internet-centric
technology platform as well as professional services for the online learning
market. The Company's technology platform includes ToolBook II Instructor and
ToolBook II Assistant, products which enable customers to author online
learning applications, and Librarian, a learning management system designed to
enable customers to deploy and manage such applications. The Company's
professional services include a wide range of consulting and custom development
services focused on the online learning market as well as training and customer
support.
Information technology has been successfully used to automate mission
critical business processes, such as manufacturing, human resources, finance,
sales, distribution and customer support. However, a critical function which
technology-based solutions have not adequately addressed is training and
education. The Company believes there is a need for an enterprise learning
solution that enables organizations to improve employee productivity,
coordinate their training efforts, measure the effectiveness of training and
deliver knowledge to employees and business partners more rapidly, broadly and
uniformly. The Company believes the market for enterprise learning solutions
will be fueled by the convergence of trends and technologies that enable
technology-based training solutions, including computer-based training, video-
based training and Internet-based training solutions, to be deployed
increasingly as substitutes for, or complements to, instructor-led and other
traditional forms of training. The primary advantages of technology-based
training over traditional forms of training include performance improvements
and potential cost savings in the form of reduced instructor salaries,
compressed training times and reduced travel costs. Furthermore, the ease and
speed of deployment associated with Internet-based training allows for "just-
in-time" delivery of content, broadens the potential use of training within the
enterprise and offers a cost- and time-effective way to accumulate and retain
company knowledge. According to International Data Corporation ("IDC"),
revenues from all technology-based training applications in the United States
are expected to grow from $1.7 billion in 1997 to $4.1 billion in 2001.
Asymetrix believes that by providing a single source solution, it is well-
positioned to be the leading provider of online enterprise learning products
and services. Beginning in 1996, the Company redirected its focus to its online
learning products, divested several product lines and discontinued development
efforts not directly related to its online enterprise learning solution. A key
component of the Company's strategy is to provide an online learning solution
at the enterprise level. In February 1998, the Company introduced an enhanced
version of Librarian which the Company believes significantly extends the
existing features and functionality of Librarian by enabling enterprise-wide
deployment of online learning applications. In addition, the Company has
significantly expanded its professional services capabilities and, since July
1, 1997, has acquired six professional services companies and the Company may
seek to acquire additional professional services companies in the future.
The Company has licensed its online learning products or provided
professional services to leading companies in a variety of industries. Such
customers include The Boeing Company, Hewlett-Packard Company, IBM Corporation,
Intel Corporation, Lucent Technologies, Inc., MCI Communications Corporation,
Metropolitan Life Insurance Company, Microsoft Corporation, Pfizer, Inc. and
the United States Army.
The Company was incorporated in Washington in December 1984. The Company
intends to reincorporate under the laws of Delaware prior to the closing of
this offering. The Company's executive offices are located at 110-110th Avenue
NE, Bellevue, Washington 98004 and its telephone number is (425) 462-0501.
3
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THE OFFERING
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<S> <C>
Common Stock offered.............................. shares
Common Stock to be outstanding after the
offering......................................... shares (1)
For general corporate purposes, including working capital.
Use of proceeds................................... See "Use of Proceeds."
Proposed Nasdaq National Market symbol............ ASYM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31, YEAR ENDED
---------------------------- DECEMBER 31,
CONSOLIDATED STATEMENT OF OPERATIONS 1995 1996 1997 1997 (5)
DATA: -------- -------- -------- ------------
<S> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products (2)....... $ -- $ 3,135 $ 7,056 $ 7,056
Other products..................... 16,238 11,165 10,425 12,080
Total product revenue............. 16,238 14,300 17,481 19,136
Services revenue.................... 1,926 2,955 6,583 14,784
Total revenue.................... 18,164 17,255 24,064 33,920
Gross margin........................ 13,551 12,073 17,273 20,664
Loss from operations................ (19,063) (23,221) (12,927) (9,182)
Net loss............................ (19,715) (23,555) (13,115) (9,468)
Basic and diluted net loss per share
(3)(4)............................. (4.14) (4.01) (2.17) (1.48)
Shares used to compute basic and
diluted net loss per share (3)(4).. 4,766 5,879 6,038 6,397
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------
ACTUAL AS ADJUSTED (7)
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<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 2,454 $
Working capital........................................ 607
Total assets........................................... 21,564
Long-term obligations.................................. 181
Redeemable Common Stock (6)............................ 1,468
Total stockholders' equity............................. 9,762
</TABLE>
- --------
(1) Based on the number of shares outstanding as of December 31, 1997. Excludes
(i) 3,389,835 shares of Common Stock issuable upon the exercise of options
then outstanding with a weighted average exercise price of $3.46 per share,
(ii) 444,194 shares of Common Stock reserved for issuance under the
Company's 1995 Combined Incentive and Nonqualified Stock Option Plan (the
"1995 Plan") as of such date, (iii) 1,687,500 shares reserved for issuance
under the Company's 1998 Equity Incentive Plan and 1998 Directors Stock
Option Plan, (iv) 14,573 shares of Common Stock subject to an outstanding
option not granted under the 1995 Plan and (v) 13,215 shares of Common
Stock issued subsequent to December 31, 1997 in connection with the
acquisition of Adams Consulting Group, Inc. Includes 331,246 shares of
Common Stock subject to an escrow to secure certain indemnification
obligations of former stockholders of Aimtech Corporation ("Aimtech")
relating to the acquisition of Aimtech. See "Capitalization," "Management--
Employee Benefit Plans" and Note 11 of Notes to the Company's Consolidated
Financial Statements.
(2) The Company's online learning products consist of its Librarian learning
management system, its ToolBook II Instructor and ToolBook II Assistant
authoring products, its ToolBook II Synergy pre-authoring product and the
Allen Communications' Designer's Edge product, for which the Company is a
reseller. See "Business--Products and Services."
(3) See Note 1 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of the number. of shares used to
compute basic and diluted net loss per share.
(4) See Note (f) of Notes to Pro Forma Financial Statements for an explanation
of the determination of the number of pro forma shares used to compute
basic and diluted pro forma net loss per share.
(5) Pro forma consolidated statement of operations data reflects (i) the
acquisitions of Oakes Interactive Incorporated, TopShelf Multimedia, Inc.
and Acorn Associates, Incorporated (collectively, the "Oakes Companies"),
Aimtech and Communications Strategies, Incorporated ("CSI") and (ii) the
dispositions of SuperCede, Inc. ("SuperCede") and Infomodelers, Inc.
("Infomodelers"), in each case as if such transaction had occurred on
January 1, 1997. See Consolidated Condensed Pro Forma Financial Statements.
(6) Redeemable Common Stock represents 191,489 shares of Common Stock issued in
connection with the acquistion of CSI which are subject to a put right held
by the two former shareholders of CSI. See Note 8 of Notes to the Company's
Consolidated Financial Statements.
(7) As adjusted to reflect (i) the conversion of all outstanding shares of
Class B Stock into shares of Common Stock upon the closing of this
offering, (ii) the expiration of a put right held by the former
shareholders of CSI with respect to 191,489 shares of Common Stock issued
in connection with the acquisition of CSI. and (iii) the sale of the
shares of Common Stock offered hereby at an assumed initial public offering
price of $ per share and after deducting estimated underwriting discount
and offering expenses. See "Use of Proceeds" and "Capitalization."
4
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RISK FACTORS
This offering involves a high degree of risk. In addition to the other
information set forth in this Prospectus, the following risk factors should be
considered carefully in evaluating the Company and its business before
purchasing any of the shares of Common Stock of the Company. This Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all forward-looking statements wherever
they appear in this Prospectus. The Company's actual results could differ
materially from the results discussed in this Prospectus. Factors that could
cause or contribute to such differences include those discussed below, as well
as those discussed elsewhere in this Prospectus.
SUBSTANTIAL HISTORICAL OPERATING LOSSES; LIMITED OPERATING HISTORY IN TARGET
MARKET; UNCERTAIN PROFITABILITY
The Company was incorporated in December 1984. Until early 1995, the Company
was engaged in various technology and development activities and in the
development and marketing of multimedia authoring products, database and
Internet tools, World Wide Web publishing products and other ancillary
products, most of which are not included as part of the Company's online
enterprise learning solution. Starting in 1995, the Company recapitalized and
redirected its focus to the development and marketing of authoring products
and a learning management system designed to capitalize on the advantages of
the Internet as a means of delivering technology-based training applications.
Since 1995 the Company has also introduced a variety of professional services.
Accordingly, the Company has only a limited operating history upon which to
base an evaluation of its current business and prospects. The Company's
prospects must be considered in light of the risks and uncertainties
encountered by companies in the early stage of development, particularly
companies in new and rapidly evolving markets such as online enterprise
learning and by companies engaged in a business transition from developing and
marketing software products to offering an integrated product and services
solution. Such risks include, but are not limited to: the demand for
technology-based training and online enterprise learning applications; the
management of both internal and acquisition-based growth; demand for the
Company's products and services; the ability of the Company to meet the needs
of sophisticated corporate customers; and competition. To address these risks,
the Company must, among other things: successfully introduce new products and
services; achieve commercial acceptance of its new products and services,
including the latest release of its Librarian product; continue to expand its
professional services business; successfully identify, acquire and integrate
acquired businesses; respond to competitive developments; attract, integrate,
retain and motivate qualified personnel; and address new or evolving
technologies and standards. There can be no assurance that the Company will be
successful in addressing such risks and the failure to do so could have a
material adverse effect on the Company's business, operating results and
financial condition.
From December 1984, the Company's inception, through 1995, the Company
incurred net losses on an annual basis, and as of December 31, 1997, the
Company had an accumulated deficit of $159.3 million. Such net losses and
accumulated deficit resulted from the Company's lack of substantial revenues
and the significant costs incurred as a result of the Company's focus on a
variety of technology and development activities and the development and
marketing of products which have been sold or discontinued or which are not
part of the Company's online enterprise learning solution. The Company
incurred net losses of $23.6 million and $13.1 million in 1996 and 1997,
respectively, and has yet to achieve profitability under its new business
model. The Company's limited operating history under its new business model,
the emerging nature of the market for online enterprise learning and the
factors described under "--Fluctuations in Quarterly Operating Results;
Unpredictability of Future Revenue; Seasonality," among other factors, make
prediction of the Company's future operating results difficult. Although the
Company has experienced revenue growth in certain recent periods and although
the pro forma financial statements also reflect revenue growth in certain
recent periods, there can be no assurance that such growth rates are
sustainable or indicative of actual growth rates that the Company may
experience. Therefore, they should not be considered indicative of future
operating results. In addition, the Company intends to continue to invest in
acquisitions and research and development, among other things. As a
5
<PAGE>
result, the Company expects to continue to incur operating losses at least
through 1998. There can be no assurance that the Company will achieve
profitability or that, if profitability is achieved, it will be sustained. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business--Asymetrix Strategy."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; UNPREDICTABILITY OF FUTURE
REVENUE; SEASONALITY
The Company's quarterly operating results have varied significantly in the
past and are expected to fluctuate significantly in the future as a result of
a variety of factors, many of which are outside the Company's control. Factors
that may adversely affect the Company's quarterly operating results include:
the demand for technology-based training in general and demand for online
enterprise learning solutions in particular; the size and timing of product
orders and the timing and execution of professional services engagements; the
mix of revenue from products and services; the mix of products sold; the
inability of the Company to meet its own or client project milestones or to
meet client expectations; market acceptance of the Company's or competitors'
products and services; the ability of the Company to develop and market new or
enhanced products and services in a timely manner and market acceptance of
such products, including the latest release of Librarian, and services; the
Company's ability to integrate acquisitions successfully and to identify,
acquire and integrate suitable acquisition candidates; the timing of revenue
recognition; charges related to acquisitions; competitive conditions;
technological changes; personnel changes; general economic conditions; and
economic conditions specific to the technology-based training and online
learning markets. With its new emphasis on providing an online enterprise
learning solution, the Company is targeting its selling and marketing efforts
towards customers with the potential need for enterprise-wide solutions.
Because the Company believes that the implementation of its solutions may
require an enterprise-wide decision by prospective customers, the Company may
be required to provide a significant level of education to prospective
customers regarding the Company's solutions. Therefore, the Company believes
that the period between initial contact and the sale of the Company's
solutions could be lengthy, and the implementation cycle could lengthen
because of increases in the size and complexity of customer implementations.
Uncertainty of timing with respect to sales or implementations could have a
material adverse effect on the Company's business and operations and cause the
Company's operating results to vary significantly from quarter to quarter.
Therefore, the Company's operating results for any particular quarterly period
may not be indicative of future operating results.
The Company's limited operating history under its current business model,
its recent acquisitions and dispositions and the emerging nature of its market
make prediction of future revenue and expenses difficult. The Company's
expense levels are based, in part, on its expectations as to future revenue
and to a large extent are fixed in the short term. There can be no assurance
that the Company will be able to predict its future revenue accurately and the
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall of
revenue in relation to the Company's expectations could cause significant
fluctuations in quarterly operating results, which would have an adverse
effect on the Company's business, operating results and financial condition.
Due to all of the foregoing factors, the Company's quarterly revenue and
operating results are difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future
performance. It is likely that the Company's operating results will fall below
the expectations of the Company, securities analysts or investors in some
future quarter. In such event, the trading price of the Common Stock would
likely be materially and adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Like many companies in the software industry, the Company has experienced
higher revenue in its last quarter as a result of efforts to meet sales quotas
and as many customers complete annual budgetary cycles and lower revenue in
its first quarter. Additionally, the Company believes that many of its
customers in the education and government markets tend to have higher product
purchasing activity during the last few weeks of the third quarter as compared
to other periods. Furthermore, revenue recognized by some components of the
Company's services business is dependent in part upon the number of business
days during the particular period and budget
6
<PAGE>
cycles of its customers. Because of these factors, the Company anticipates
that its professional services and training revenue growth could be slower in
the first and fourth quarters than in other quarters because of this
seasonality. Although the Company has not been able to determine the extent to
which its current business is affected by any seasonal trends because of the
refocusing and growth of its business since 1995, there can be no assurance
that the Company's results in any future quarter will not be negatively
affected by such trends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
NEW BUSINESS MODEL
Although the Company was incorporated in 1984, it is in the process of
transitioning to a new business model which is focused on the online
enterprise learning market. In transitioning to this new business model, the
Company is undergoing many substantial changes in its product emphasis,
distribution channels, business operations, sales and implementation
practices, customer service and support and management focus. These changes
include: the divestiture of a number of product lines, including its consumer
products, database tools and Internet tools, products for which the Company
had previously devoted substantial financial and other resources to develop
and market; the acquisition of eight businesses since July 1, 1997; the change
of the Company's product emphasis from general purpose multimedia authoring
and other multimedia products to products targeted for the development and
management of online learning applications; the change of the Company's prior
product distribution strategy from retail and other indirect distribution
channels to a direct sales model with a current focus on the United States,
which has required the Company to develop a sales infrastructure to market its
products to a new customer base and to introduce customer support services to
address the needs of enterprise customers; and the introduction of
professional services, which are businesses with which the Company has had
limited experience and which typically have lower gross margins than software
product sales businesses and the growth of which are substantially dependent
upon and limited by the number of professional services personnel employed by
the Company.
The Company introduced its most recent version of Librarian in February
1998. The Company believes that this new version significantly extends the
existing features and functionality of Librarian and that market acceptance of
this new version of Librarian is key to its ability to offer an enterprise-
level solution that will satisfy the increasingly complex requirements of
sophisticated corporate customers. See "--Dependence on Online Learning
Products" and "--Rapid Technological Change; Product Development."
The change in the Company's business model has also required the Company to
face new risks and challenges that it previously had not faced, including,
among others: the acquisition-related risks described under "--Risks Related
to Acquisitions;" the need to hire, train, integrate and motivate a larger
direct sales force and a professional services organization; the need to adopt
new and more focused marketing and research and development strategies; the
need to market its solutions successfully to enterprise customers; the need
for the Company to expand further the functionality of its products and
customer support services to address the needs of enterprise customers;
greater potential fluctuations in gross margins resulting from the mix of
products and services sold; less meaningful historic financial data on which
to plan future budgets; competition from a wider range of sources than the
Company had previously faced; and the other factors described under "Risk
Factors." The failure of the Company to address these risks successfully in
completing its transition to a new business model could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--The Asymetrix Solution" and "--
Asymetrix Strategy."
RISKS RELATED TO ACQUISITIONS
Since July 1, 1997, the Company has acquired eight businesses: Oakes
Interactive Incorporated, Acorn Associates Incorporated and TopShelf
Multimedia, Inc. (collectively, the "Oakes Companies"); Aimtech Corporation
("Aimtech"); Communications Strategies, Incorporated ("CSI"); Graham-Wright
Interactive, Inc. ("Graham-Wright"); Socha Computing, Inc. ("Socha"); and
Adams Consulting Group, Inc. ("Adams Consulting"). The
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Company's future performance will depend in part on its ability to integrate
and grow these acquired businesses. Acquisitions involve a number of risks,
including: the integration of acquired products and technologies in a timely
manner; the integration of businesses and employees with the Company's
business; the management of geographically-dispersed operations; adverse
effects on the Company's reported operating results from acquisition-related
charges and amortization of goodwill; potential increases in stock
compensation expense and increased compensation expense resulting from newly-
hired employees; the diversion of management attention; the assumption of
unknown liabilities; potential disputes with the sellers of one or more
acquired entities; the inability of the Company to maintain customers or
goodwill of an acquired business; and the possible failure to retain key
acquired personnel. Client satisfaction or performance problems with an
acquired firm could also have a material adverse effect on the reputation of
the Company as a whole, and any acquired business could significantly
underperform relative to the Company's expectations. In addition, the Oakes
Companies, CSI, Graham-Wright and Adams Consulting were primarily professional
services businesses and prior to acquiring these businesses, the Company had
limited experience in providing professional services. The Company is
currently facing all of these challenges and its ability to meet them over the
long term has not been established. As a result, there can be no assurance
that the Company will be able to integrate acquired businesses, products or
technologies successfully or in a timely manner in accordance with its
strategic objectives, which could have a material adverse effect on the
Company's business, operating results and financial condition.
The Company's past acquisitions have been accounted for using the purchase
method of accounting. Because most software and professional services business
acquisitions involve the purchase of significant amounts of intangible assets,
acquisitions of such businesses also result in goodwill and significant
amortization charges and may also involve charges for acquired research and
development projects. For example, as a result of the acquisitions of Aimtech
and Socha, the Company has incurred charges relating to acquired in-process
research and development of $4.1 million for 1997 and, in connection with all
of its acquisitions from July 1, 1997 through December 31, 1997, has recorded
an aggregate of $8.3 million in goodwill, a portion of which will be amortized
on a straight-line basis over a five year period and the remainder of which
will be amortized over a 15 year period. If the Company were to incur
additional charges for acquired in-process research and development and
amortization of goodwill with respect to future acquisitions, the Company's
business, operating results and financial condition could be materially and
adversely affected.
In order to grow its business, the Company may continue to acquire
businesses that it believes are complementary. The successful implementation
of this strategy depends on the Company's ability to identify suitable
acquisition candidates, acquire such companies on acceptable terms, integrate
their operations and technology successfully with those of the Company, retain
existing customers and maintain the goodwill of the acquired business. There
can be no assurance that the Company will be able to identify additional
suitable acquisition candidates, acquire any such candidates on acceptable
terms, integrate their operations or technology successfully, or retain
customers or maintain the goodwill of the acquired business, particularly in
light of the Company's limited experience with operating a professional
services business. Moreover, in pursuing acquisition opportunities, the
Company may compete for acquisition targets with other companies with similar
growth strategies. Some of these competitors may be larger and have greater
financial and other resources than the Company. Competition for these
acquisition targets likely could also result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. In addition, the Company would likely face the same integration
issues described above with respect to any future acquisitions. If the Company
is unable to manage internal or acquisition-based growth effectively, the
Company's business, operating results and financial condition would be
materially and adversely affected.
Due to all of the foregoing, the Company's execution on an acquisition
strategy or any individual completed or future acquisition may have a material
adverse effect on the Company's business, operating results and financial
condition. Although to date the Company has not used a material amount of cash
for acquisition consideration, to the extent the Company chooses to do so in
the future, the Company may be required to obtain additional financing, and
there can be no assurance that such financing will be available on favorable
terms, if at all. In addition, if the Company issues equity securities as
consideration for any future acquisitions, existing stockholders will
experience further ownership dilution and such equity securities could have
rights, preferences,
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privileges or other rights superior to those of the Common Stock. See "--
Dilution," "--Management of Growth and Expansion" and "--Future Capital Needs;
Uncertainty of Additional Funding," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business--Asymetrix
Strategy."
DEPENDENCE ON ONLINE LEARNING PRODUCTS
In 1997, the Company derived approximately 29% of its total revenue and
approximately 40% of its product revenue from the sale and licensing of its
online learning products, which include ToolBook II Instructor, ToolBook II
Assistant and Librarian. The Company intends to focus its product development
and product sales and marketing efforts on its online learning products, and
therefore any growth in product revenue will be substantially dependent on
increased sales of its online learning products. In addition, the Company
believes it will be particularly dependent upon market acceptance of the most
recent version of its Librarian product because it believes that this new
version is key to its ability to offer an enterprise-level solution and that
market acceptance of Librarian may influence sales of the Company's other
online learning products and professional services. This new version of
Librarian was only recently introduced and the Company intends to devote
significant resources to the sales and marketing of this product. The
Company's shift from the development and marketing of multimedia authoring
products, database and Internet tools, Web publishing products and other
ancillary products to the development and marketing of its online learning
products has required the Company to, among other things, focus its attention
and resources away from its other products, market its products to enterprise
customers and shift its development and marketing efforts to its online
learning products. Accordingly, the Company's future operating results are
substantially dependent on the market acceptance and growth of its online
learning products and enhancements thereto. As a result, a reduction in demand
for or an increase in competition with respect to the Company's online
learning products, including price competition, or a decline in sales, would
have a material adverse effect on the Company's product revenue. See "--Rapid
Technological Change; Product Development" and "Business--Products and
Services."
DEMANDING CUSTOMER REQUIREMENTS; PRODUCT FUNCTIONALITY AND DEFECTS
The online learning market is a developing market characterized by complex
and varied customer expectations and requirements, a lack of technical
standards and frequent introductions or announcements of new products and
services. Because the Company's online learning solution is targeted for
customers with enterprise-wide deployments in an emerging market, customers
and potential customers may have a greater sensitivity to product integration,
interoperability and defects than customers in the market for software
products generally. In addition, these customers may have evolving and rapidly
changing requirements for their online enterprise learning needs, which the
Company must address satisfactorily. The Company has recently released new
versions of Librarian and ToolBook II Assistant. Software products as complex
as those offered by the Company frequently contain errors or failures,
especially when first introduced or when new versions are released. Although
the Company conducts extensive product testing during product development, the
Company has in the past discovered errors in its products after their initial
release. There can be no assurance that, despite testing by the Company and by
current and potential customers, errors will not be found in recently
introduced versions of its online learning products or in other new product
releases after commencement of commercial shipments, resulting in loss of
revenue or delay in market acceptance, diversion of development resources,
damage to the Company's reputation, or increased service and warranty costs,
any of which could have a material adverse effect on the Company's business,
operating results and financial condition.
Many of the Company's professional services engagements require the Company
to develop learning applications to suit unique customer requirements. The
Company's failure or inability to meet a customer's expectations or
requirements in the performance of its services could potentially damage the
Company's reputation or result in a claim for substantial damages against the
Company, regardless of the Company's responsibility for such failure. The
Company attempts to limit contractually its liability for damages arising from
product defects or negligent acts, errors, mistakes or omissions in rendering
professional services; however, there can be no assurance that any contractual
protections will be enforced or would otherwise protect the Company from
liability for damages. Furthermore, certain acquired businesses may not
include limitation of liability
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provisions in their customer agreements. Although the Company maintains
general liability insurance coverage, including coverage for errors and
omissions, there can be no assurance that such coverage will continue to be
available on reasonable terms or will be available in sufficient amounts to
cover one or more large claims, or that the insurer will not disclaim coverage
as to any future claim. The successful assertion of one or more large claims
against the Company that are uninsured, exceed available insurance coverage or
result in changes to the Company's insurance policies, including premium
increases or the imposition of a large deductible or co-insurance
requirements, could have a material adverse effect on the Company's business,
operating results and financial condition. See "Business--Products and
Services" and "--Technology, Research and Development."
MANAGEMENT OF GROWTH AND EXPANSION
The Company is currently experiencing a period of significant expansion. The
Company's historical growth has placed, and any further growth is likely to
continue to place, a significant strain on the Company's managerial,
operational, financial and other resources. The Company has grown from 175
employees at September 30, 1995 to 304 employees at December 31, 1997. During
this period, the Company has also significantly expanded its operations both
internally and through acquisitions. The Company's future success will depend,
in part, upon the ability of its senior management to manage growth
effectively, which will require the Company to implement additional management
information systems, to develop further its operating, administrative,
financial and accounting systems and controls and to maintain close
coordination among its engineering, accounting, finance, marketing, sales,
customer support and professional services organizations. Furthermore, the
Company's future performance will depend in part upon its ability to integrate
recently acquired businesses and future acquisitions, and there can be no
assurance that the Company will be able to integrate such businesses in a
timely manner or in accordance with its strategic objectives. The difficulties
of such integration may be further compounded by the necessity of coordinating
geographically-dispersed divisions and integrating personnel with disparate
backgrounds, all of which could divert management's attention from the day-to-
day business of the Company. The failure of the Company to manage successfully
its historic and future growth could have a material adverse effect on the
Company's business, operating results and financial condition. See "--New
Business Model" and "--Risks Related to Acquisitions" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
DEVELOPING MARKET
The market for online enterprise learning is a new and emerging market.
Corporate training and education has historically been conducted primarily
through classroom instruction and instructor-led training and has
traditionally been performed by in-house personnel. Although technology-based
training applications have been available for several years, they currently
account for only a small portion of the overall training market. Accordingly,
the Company's future success will depend upon, among other factors, the extent
to which companies adopt technology-based training solutions, particularly
online learning solutions, and the extent to which companies utilize the
services or purchase products of third-party providers. There can be no
assurance that the use of technology-based training or online learning
applications will become widespread or that the Company's products and
services will achieve commercial success. In addition, companies that have
already invested substantial resources in other methods of corporate training
may be reluctant to adopt a new strategy that may limit or compete with their
existing investments. Any failure of technology-based training, and online
learning in particular, to gain wider market acceptance would have a material
adverse effect on the Company's business, operating results and financial
condition. Even if companies implement technology-based training or online
learning solutions, they may still choose to design, develop or manage all or
a part of their education and training internally. The failure of companies to
utilize third parties to design, develop or manage their education and
training applications would materially and adversely affect the Company's
services revenue and would also have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Industry Background."
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COMPETITION
The online learning market is highly fragmented and competitive, rapidly
evolving and subject to rapid technological change, with no single competitor
accounting for a dominant market share. Because of the lack of significant
barriers to entry in its market, the Company expects that a number of new
competitors will enter this market in the future.
The Company's competitors vary in size and scope and the breadth of products
and services offered. The Company's online learning authoring products face
competition from developers of multimedia authoring tools. Librarian faces
competition from vendors of other management systems, including those offered
with off-the-shelf technology-based training courses, and the Company's
professional services business faces competition from many small, regional
online learning and technology-based training services businesses as well as
large professional consulting firms and in-house training departments. Because
of the emerging nature of the market for online learning, the Company believes
that being first to achieve market or brand awareness should provide a
competitive advantage. A number of large companies have announced an intention
to enter the market for online learning and technology-based training. There
can be no assurance that additional companies will not enter the online
learning market and offer products and services that are competitive with
those of the Company. Increased competition could result in pricing pressures,
reduced margins or the failure of the Company's products and services to
achieve or maintain market acceptance, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
Several of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company and therefore may be able to respond more
quickly than the Company to new or changing opportunities, technologies,
standards and customer requirements. Many of these competitors also have
broader and more established distribution channels that may be used to deliver
competing products or services directly to customers. If such competitors were
to bundle competing products or services for their customers and offer a
complete online learning solution, the demand for the Company's products and
services might be substantially reduced and the ability of the Company to
market and sell its products and services successfully might be substantially
diminished. In addition, the existence or announcement of collaborative
relationships involving competitors of the Company could adversely affect the
Company's ability to attract and retain customers. As a result of the
foregoing and other factors, there can be no assurance that the Company will
compete effectively with current or future competitors or that competitive
pressures faced by the Company will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Business--
Competition."
ADOPTION OF INTERNET AND INTRANET SOLUTIONS
In order for the Company to be successful, the Internet and intranets must
continue to be adopted as a means of communication, particularly for corporate
training and education. Because information exchange over these networks is
continuing to evolve, it is difficult to estimate with any assurance the size
of this market and its growth rate, if any. To date, many businesses have been
deterred from utilizing these networks for a number of reasons, including but
not limited to potentially inadequate development of network infrastructure,
security concerns, inconsistent quality of service, lack of availability of
cost-effective high-speed service, limited numbers of local access points for
corporate users, the inability to integrate business applications on these
networks, the need to interoperate with multiple and frequently incompatible
products and a lack of tools to simplify access to and use of these networks.
Even if the Internet and intranets are widely adopted, the adoption of these
networks for corporate training and education, particularly by companies that
have relied on traditional means of training their personnel, will require
broad acceptance of new training methods. In addition, companies that have
already
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invested substantial resources in other methods of corporate training and
education may be reluctant to adopt a new strategy that may limit or compete
with their existing investments.
The use of the Internet and intranets may not increase or may increase more
slowly than expected because the infrastructure required to support such
networks may not fully develop. For example, the Internet has experienced, and
may continue to experience, significant growth in its number of users and
amount of traffic. There can be no assurance that the Internet infrastructure
will continue to support the demands placed on it by this continued growth or
that the performance or reliability of the Internet will not be adversely
affected by this continued growth. In addition, the Internet and intranets
could lose their viability due to delays in the development or adoption of new
standards and protocols to handle increased levels of activity or due to
increased governmental regulation. Changes in or insufficient availability of
communications services to support the Internet and intranets could result in
slower response times and could adversely affect their usage. If the use of
the Internet and intranets for information exchange and particularly for
corporate education and training fails to develop or develops more slowly than
expected, or if the Internet infrastructure does not adequately support
continued growth, the Company's business, operating results and financial
condition would be materially and adversely affected. See "Business--Industry
Background" and "--Customers."
RAPID TECHNOLOGICAL CHANGE; PRODUCT DEVELOPMENT
The market for technology-based training and online learning products and
services, particularly Internet or intranet-based products and services, is
characterized by rapid technological advances, changes in customer
requirements and frequent new product introductions and enhancements. The
introduction of products embodying new technologies and the emergence of new
industry standards could render existing products obsolete and unmarketable.
The Company must also respond rapidly to developments related to Internet
technology, hardware platforms and operating systems and applicable
programming languages. Such developments will require the Company to continue
to make substantial product development investments. Any failure by the
Company to anticipate or respond adequately to technological developments or
customer requirements, or any significant delays in product development or
introduction, could result in a loss of competitiveness and revenue, which
could have a material adverse effect on the Company's business, operating
results and financial condition.
The Company's future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products and offer new services that keep pace with competitive product
introductions and technological developments, satisfy diverse and evolving
customer requirements and otherwise achieve market acceptance. In particular,
the Company believes that its future success will be dependent, in large part,
upon market acceptance of the most recent version of Librarian which was
introduced in February 1998. There can be no assurance that the Company will
be successful in developing and marketing on a timely and cost-effective basis
future products or product enhancements, or offer new services that respond to
technological advances. There can also be no assurance that this new product
or any other new products, enhancements or services will achieve market
acceptance. The Company has in the past experienced delays in the development,
introduction and marketing of new or enhanced products, and there can be no
assurance that the Company will not experience similar delays with respect to
other new products or product enhancements. Any failure by the Company to
anticipate or respond adequately to changes in technology and customer
preferences, or any significant delays in other product development efforts,
could have a material adverse effect on the Company's business, operating
results and financial condition. The introduction or announcement of new
product offerings by the Company or its competitors may cause customers to
defer or forego purchases of the Company's products or services, which could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Technology, Research and Development."
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RISKS OF FIXED-PRICE ENGAGEMENTS
The Company has experienced an increased number of professional services
engagements that are billed on a fixed-price basis and intends to pursue such
engagements in the future with the goal of increasing the percentage of
services revenue derived from fixed-price engagements. Prior to its recent
acquisitions, the Company has had limited experience in the professional
services area, and to date the Company has primarily relied upon acquisitions
to develop its professional services business. The Company's failure to
estimate accurately the resources and time required for an engagement, to
manage client expectations effectively regarding the scope of services to be
delivered for the estimated fees or to complete fixed-price engagements within
budget, on time and to clients' satisfaction would expose the Company to risks
associated with cost overruns and may expose the Company, in certain cases, to
penalties, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
RISKS ASSOCIATED WITH CHANGING ECONOMIC CONDITIONS
The Company's revenue is subject to fluctuation as a result of general
economic conditions. A significant portion of the Company's revenue is derived
from the sale of products and services to Fortune 1000 companies, educational
organizations and government agencies, which historically have adjusted their
expenditures for education and training during economic downturns. Should the
economy weaken in any future period, these organizations may not increase or
may reduce their expenditures on education and training generally, and on
technology-based training and online learning in particular, which could have
an adverse effect on the Company's business, operating results and financial
condition. See "Business--Asymetrix Strategy" and "--Sales and Marketing."
DEPENDENCE ON KEY PERSONNEL
The Company's future success will be highly dependent on the performance of
its senior management team and other key employees. The Company's success will
also depend on its ability to attract, integrate, motivate and retain
additional highly skilled technical, sales and marketing and professional
services personnel. Furthermore, the Company's ability to provide a complete
solution to a large number of enterprise customers and therefore to achieve
growth is dependent upon its ability to attract, integrate, motivate and
retain additional professional services personnel. There is intense
competition for such personnel in the areas of the Company's activities. The
Company does not have employment agreements with most of its executives or
other key employees. In addition, the Company does not maintain key person
life insurance for any of its officers or key employees. The loss of the
services of any of the Company's senior management team or other key employees
or the failure of the Company to attract, integrate, motivate and retain
additional key employees, including professional services personnel, could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Business--Employees" and "Management."
INTELLECTUAL PROPERTY; LITIGATION
The Company relies primarily on a combination of copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods to protect its
intellectual property and trade secrets. While the Company also has two
patents, there can be no assurance that these patents will not be invalidated,
circumvented or challenged, or that the rights granted under such patents will
provide competitive advantages to the Company. The Company also enters into
confidentiality agreements with its employees and consultants, and generally
controls access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's intellectual property or
trade secrets without authorization. In addition, there can be no assurance
that others will not independently develop substantially equivalent
intellectual property. There can be no assurance that the precautions taken by
the Company will prevent misappropriation or infringement of its technology. A
failure by the Company to protect its intellectual property in a meaningful
manner could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets or to determine the validity and
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scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management and technical resources, either
of which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company also uses certain licensed third-party technology in some of its
products. In these license agreements, the licensors have generally agreed to
defend, indemnify and hold the Company harmless with respect to any claim by a
third party that the licensed software infringes any patent or other
proprietary right. There can be no assurance that the outcome of any
litigation between such licensors and a third party or between the Company and
a third party will not lead to royalty obligations of the Company for which
the Company is not indemnified or for which such indemnification is
insufficient, or that the Company will be able to obtain any additional
license on commercially reasonable terms or at all. In the future, the Company
may seek to license additional technology to incorporate in its products.
There can be no assurance that any third-party technology licenses that the
Company may be required to obtain in the future will be available to the
Company on commercially reasonable terms or at all. The loss of or inability
to obtain or maintain any of these technology licenses could result in delays
in introduction of the Company's products until equivalent technology, if
available, is identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition.
From time to time the Company has received, and the Company may in the
future receive, notice of claims of infringement of other parties' proprietary
rights. The Company is currently involved in litigation filed in May 1996
relating to a claim that its ToolBook and Multimedia ToolBook products
infringe a patent owned by Richard B. Grant. The plaintiff is seeking an
unspecified amount of damages. This action is still in the discovery stage and
it is not yet possible to assess its outcome or its effect on the Company. An
adverse outcome in this litigation could have a material adverse effect on the
Company's business, operating results and financial condition. Although the
Company has received an opinion from counsel that its Multimedia ToolBook
product does not infringe this patent and that the patent is invalid, the cost
of the Company's defense of this claim, regardless of outcome, could have a
material adverse effect on the Company's business, operating results and
financial condition.
There can be no assurance that additional infringement or other claims will
not be asserted or prosecuted against the Company in the future or that any
assertions or prosecutions will not materially adversely affect the Company's
business, operating results and financial condition. Any such claims, with or
without merit, could be time-consuming, result in costly litigation and
diversion of technical and management personnel, cause product shipment delays
or require the Company to develop non-infringing technology or enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on commercially reasonable terms or at all. In
the event of a successful claim of intellectual property infringement against
the Company and the failure or inability of the Company to develop non-
infringing technology or license the infringed or similar technology on a
timely basis, the Company's business, operating results and financial
condition could be materially and adversely affected. See "Business--
Proprietary Rights" and "--Legal Proceedings."
DILUTION
Investors participating in this offering will incur immediate, substantial
dilution in net tangible book value in the amount of $ per share. To the
extent that outstanding options to purchase the Company's Common Stock are
exercised, there will be further dilution. In addition, the Company intends to
continue its acquisition program for the foreseeable future and in connection
with such acquisitions, the Company generally intends when feasible to issue
shares of Common Stock as acquisition consideration and may grant additional
stock options and stock bonuses to employees of acquired businesses who become
employed by the Company. Accordingly, the Company's acquisition strategy will
result in further ownership dilution to investors participating in this
offering. See "Dilution."
FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING
The Company anticipates that the net proceeds from this offering, together
with cash, cash equivalents and short-term investments will be sufficient to
meet its working capital needs and capital expenditures for at least
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the next 12 months. The Company's long-term liquidity will be affected by
numerous factors, including acquisitions of businesses or technologies, demand
for the Company's online learning products and services, the extent to which
such online learning products and services achieve market acceptance, the
timing of and extent to which the Company invests in new technology, the
expenses of sales and marketing and new product development, the extent to
which competitors are successful in developing their own products and services
and increasing their own market share, the level and timing of revenues, and
other factors. To the extent that resources are insufficient to fund the
Company's activities, the Company may need to raise additional funds. There
can be no assurance that such additional funding, if needed, will be available
on terms attractive to the Company, or at all. If adequate funds are not
available on acceptable terms, the Company may be unable to expand its
business, develop or enhance its products and services, take advantage of
future opportunities or respond to competitive pressures, any of which could
have a material adverse effect on the Company's business, operating results
and financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources."
YEAR 2000 COMPLIANCE
Many currently installed computer systems and software products are coded to
accept only two digit entries in the date code field and cannot distinguish
21st century dates from 20th century dates. These date code fields will need
to distinguish 21st century dates from 20th century dates and, as a result,
many companies' software and computer systems may need to be upgraded or
replaced in order to comply with such "Year 2000" requirements. Although the
Company believes that its products and internal systems are Year 2000
compliant, the Company utilizes third-party equipment and software that may
not be Year 2000 compliant. Failure of such third-party equipment or software
to operate properly with regard to the Year 2000 and thereafter could require
the Company to incur unanticipated expenses to remedy any problems, which
could have a material adverse effect on the Company's business, operating
results and financial condition. Furthermore, the purchasing patterns of
customers or potential customers may be affected by Year 2000 issues as
companies expend significant resources to correct their current systems for
Year 2000 compliance. These expenditures may result in reduced funds available
to purchase products and services such as those offered by the Company, which
could have a material adverse effect on the Company's business, operating
results and financial condition.
CERTAIN ANTI-TAKEOVER PROVISIONS
Upon completion of this offering, the Company's Board of Directors will have
the authority to issue up to 2,000,000 shares of Preferred Stock and to
determine the price, rights, preferences, privileges and restrictions,
including voting rights, of those shares without any further vote or action by
the stockholders. The rights of the holders of Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any
Preferred Stock that may be issued in the future. The issuance of Preferred
Stock, while providing flexibility in connection with possible financings,
acquisitions or other corporate purposes, may have the effect of delaying,
deferring or preventing a change in control of the Company, may discourage
bids for the Company's Common Stock at a premium over the market price of the
Common Stock, and may adversely affect the market price of, and the voting and
other rights of the holders of, the Common Stock. The Company has no current
plans to issue shares of Preferred Stock. In addition, certain provisions of
the Company's Amended and Restated Certificate of Incorporation and Bylaws
which will become effective upon the closing of this offering will have the
effect of delaying, deferring or preventing a change of control of the
Company. These provisions will provide, among other things, that the Board of
Directors is divided into three classes to serve staggered three-year terms,
that stockholders may not take actions by written consent and that the ability
of stockholders to call special meetings will be restricted. In addition, the
Company will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law, which will prohibit the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
became an interested stockholder, unless the business combination is approved
in a prescribed manner. The Company's indemnity agreements provide and the
Company's Certificate of Incorporation and Bylaws will provide that the
Company will indemnify officers and directors against losses that they may
incur in investigations and legal proceedings resulting from their services to
the Company, which may be broad enough to include services in connection with
takeover defense measures. Such provisions may have the effect of preventing
changes in the management of the Company. See "Description of Capital Stock."
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SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock in the public market
following this offering could adversely affect the market price of the
Company's Common Stock. The number of shares of Common Stock available for
sale in the public market is limited by restrictions under the Securities Act
of 1933, as amended (the "Securities Act"), and lock-up agreements executed by
certain of the security holders of the Company under which such security
holders have agreed not to sell or otherwise dispose of any of their shares
for a period of 180 days after the date of this Prospectus without the prior
written consent of NationsBanc Montgomery Securities LLC. NationsBanc
Montgomery Securities LLC may, however, in its sole discretion and at any time
without notice, release all or any portion of the shares subject to lock-up
agreements. In addition to the shares of Common Stock offered hereby
(assuming no exercise of the Underwriters' over-allotment option), there will
be 10,120,866 shares of Common Stock outstanding as of the date of this
Prospectus, all of which are "restricted securities" under the Securities Act.
On the date of this Prospectus, shares, including the shares offered
hereby, will be eligible for sale in the public market. Ninety days after the
date of this Prospectus an additional 337,391 shares will be eligible for
sale. Upon the expiration of lock-up agreements 180 days after the date of
this Prospectus, an additional 3,652,783 shares will become eligible for sale,
subject in the case of 3,512,843 of such shares to the volume limitations and
other conditions of Rule 144 adopted under the Securities Act ("Rule 144").
The remaining 6,122,780 shares will become eligible for sale at various times
from October 29, 1998 to March 16, 1999, subject to the volume limitations and
other conditions of Rule 144. In addition, the Company intends to file a
registration statement on Form S-8 with the Securities and Exchange Commission
shortly after this offering covering (i) the 1,687,500 shares of Common Stock
reserved or to be reserved for issuance under the Company's 1998 Equity
Incentive Plan and 1998 Directors Stock Option Plan, (ii) an additional number
of shares of Common Stock to be reserved for issuance under the Equity
Incentive Plan equal to the number of shares reserved for future issuance
under the Company's 1995 Combined Incentive and Nonqualified Stock Option Plan
(the "1995 Plan") as of the date of this Prospectus (198,152 as of March 31,
1998), and (iii) the shares subject to outstanding options granted under the
Company's 1995 Plan as of the date of this Prospectus (3,582,035 as of March
31, 1998). The holder of 291,294 shares of Common Stock will also be entitled
to certain rights with respect to registration of such shares of Common Stock
for offer or sale to the public. If this holder were to exercise these rights,
the holders of an additional 3,478,597 shares of Common Stock with "piggyback"
registration rights could also include all or a portion of their shares in
such a registration. Such sales could have an adverse effect on the market
price for the Company's Common Stock. See "Management--Director Compensation"
and "--Employee Benefit Plans," "Description of Capital Stock--Registration
Rights" and "Shares Eligible for Future Sale."
NO PRIOR TRADING MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering, there has been no public market for the Common Stock
of the Company and there can be no assurance that an active trading market
will develop or be sustained upon completion of this offering. The initial
public offering price, which will be established by negotiations between the
Company and the representatives of the Underwriters based upon a number of
factors, may not be indicative of prices that will prevail in the trading
market. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price. The stock market from time to
time has experienced significant price and volume fluctuations. In addition,
the market prices of securities of other technology companies, particularly
Internet-related companies, have been highly volatile. Factors such as
fluctuations in the Company's operating results, announcements of
technological innovations or new products by the Company or its competitors,
analysts' reports and projections and general market conditions may have a
significant effect on the market price of the Company's Common Stock. See
"Underwriting." In the past, following periods of volatility in the market
price of a company's securities, securities class action litigation has often
been instituted against such a company. Such litigation could result in
substantial costs and a diversion of management's attention and resources,
which would have a material adverse effect on the Company's business,
operating results and financial condition.
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of this offering, the present executive officers and
directors of the Company and their affiliates will beneficially own
approximately % of the Company's outstanding Common Stock ( %
16
<PAGE>
if the Underwriters' over-allotment option is exercised in full). In
particular, Paul Allen, a director of the Company, will beneficially own
approximately % of the Company's Common Stock upon the completion of this
offering. As a result, these stockholders will be able to control the
management and affairs of the Company and all matters requiring stockholder
approval, including the election of directors and approval of significant
corporate transactions such as a merger, consolidation or sale of
substantially all of the Company's assets. Such concentration of ownership
might have the effect of delaying or preventing a change in control of the
Company, impede a merger, consolidation, takeover or other business
combination involving the Company or discourage a potential acquiror from
making a tender offer or otherwise attempting to obtain control of the
Company, which in turn could have an adverse effect on the market price of the
Company's Common Stock. See "Principal Stockholders."
UNSPECIFIED USE OF PROCEEDS
The Company plans to use substantially all of the net proceeds from this
offering for general corporate purposes, including working capital. The
Company may also use a portion of the net proceeds from this offering to
acquire or invest in businesses, technologies and product lines that are
complementary to the Company's business. In the ordinary course of business,
the Company evaluates potential acquisitions of such businesses, technologies
and product lines. However, the Company has no agreements or commitments and
is not currently engaged in any negotiations with respect to such
transactions. As a result, the Company will have significant discretion as to
the use of the net proceeds from this offering. See "Use of Proceeds."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common
Stock offered hereby are estimated to be approximately $ million
(approximately $ million if the Underwriters' over-allotment option is
exercised in full), at an assumed initial public offering price of $ per
share and after deducting the estimated underwriting discount and offering
expenses. The primary purposes of this offering are to obtain additional
capital, create a public market for the Company's Common Stock and facilitate
future access by the Company to public equity markets.
The Company intends to use the net proceeds for general corporate purposes,
including working capital and other general corporate purposes, including
expansion of sales and marketing activities and its professional services
organization to accommodate anticipated growth in these areas. The amounts
actually expended by the Company for such working capital purposes may vary
significantly and will depend on a number of factors, including the amount of
the Company's future revenues and cash generated by operations and the other
factors described under "Risk Factors." Accordingly, the Company's management
will retain broad discretion in the allocation of the net proceeds of this
offering. A portion of the net proceeds may also be used to acquire or invest
in complementary businesses, technologies, product lines or products. In the
ordinary course of business, the Company evaluates potential acquisitions of
such businesses, technologies and product lines. However, the Company has no
current agreements or commitments with respect to any such acquisition, and
the Company is not currently engaged in any negotiations with respect to any
such transaction. Pending such uses, the net proceeds of this offering will be
invested in short-term, interest-bearing, investment grade securities. See
"Risk Factors--Risks Related to Acquisitions" and "--Unspecified Use of
Proceeds."
DIVIDEND POLICY
The Company has never declared or paid any cash dividends on its capital
stock and does not anticipate paying any cash dividends on its capital stock
in the foreseeable future.
18
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) on an actual basis and (ii) on an as adjusted basis to
give effect to the conversion of each outstanding share of Class B Stock into
approximately 0.75 shares of Common Stock and the expiration of a put right
with respect to 191,489 shares of the Company's Common Stock, both of which
will occur upon the closing of this offering, and the sale of the shares
of Common Stock offered hereby, at an assumed initial public offering price of
$ per share and after deducting estimated underwriting discount and
estimated offering expenses.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Redeemable Common Stock, $.01 par value; 191,489 shares
issued and outstanding, actual; no shares issued and
outstanding, as adjusted(1)............................ $1,468
Stockholders' equity:
Class B Stock, $.01 par value; 5,000,000 shares
authorized, 4,322,289 shares issued and outstanding,
actual; 2,000,000 shares authorized, no shares issued
and outstanding, as adjusted.......................... 43
Common Stock, $.01 par value; 40,000,000 shares
authorized, 6,625,036 shares issued and outstanding
actual; shares issued and outstanding, as
adjusted(2)........................................... 66
Additional paid-in capital............................. 169,075
Accumulated deficit.................................... (159,261)
Translation adjustments................................ (161)
--------- ---
Total stockholders' equity........................... 9,762
--------- ---
Total capitalization................................ $ 11,230 $
========= ===
</TABLE>
- --------
(1) Redeemable Common Stock represents 191,489 shares of Common Stock issued
in connection with the acquisition of CSI which are subject to a put right
held by the two former shareholders of CSI. See Note 8 of Notes to the
Company's Consolidated Financial Statements.
(2) Excludes (i) 3,389,835 shares of Common Stock issuable upon exercise of
options outstanding as of December 31, 1997 under the 1995 Plan with a
weighted average exercise price of $3.46 per share, (ii) 444,194 shares of
Common Stock reserved for issuance under the 1995 Plan as of such date,
(iii) 1,500,000 additional shares of Common Stock reserved for issuance
under the Company's 1998 Equity Incentive Plan, (iv) 187,500 shares of
Common Stock reserved for issuance under the Company's 1998 Directors'
Stock Option Plan, (v) 14,573 shares of Common Stock subject to an
outstanding option not granted under the 1995 Plan and (vi) 13,215 shares
of Common Stock issued subsequent to December 31, 1997 in connection with
the acquisition of Adams Consulting. Includes 331,246 shares of Common
Stock subject to an escrow to secure certain indemnification obligations
of former stockholders of Aimtech relating to the acquisition of Aimtech.
See "Management--Employee Benefit Plans," "Description of Capital Stock"
and Note 10 of Notes to the Company's Consolidated Financial Statements.
19
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of December 31, 1997
was approximately $1.1 million or $0.11 per share of Common Stock. Pro forma
net tangible book value per share represents the amount of total tangible
assets less total liabilities, divided by the pro forma shares of Common Stock
outstanding as of December 31, 1997. After giving effect to the issuance and
sale of the shares of Common Stock offered hereby (at an assumed initial
public offering price of $ per share and after deducting estimated
underwriting discount and estimated offering expenses), the Company's pro
forma net tangible book value as of December 31, 1997 would have been $ , or
$ per share. This represents an immediate increase in pro forma net
tangible book value of $ per share to existing stockholders and an
immediate dilution of $ per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $
Pro forma net tangible book value per share at December 31, 1997... $0.11
Increase in pro forma net tangible book value per share
attributable to new investors.....................................
-----
Pro forma net tangible book value per share after offering..........
----
Dilution per share to new investors................................. $
====
</TABLE>
The foregoing discussion and tables exclude 13,215 shares of Common Stock
issued subsequent to December 31, 1997 in connection with the acquisition of
Adams Consulting and assume no exercise of any stock options outstanding as of
December 31, 1997. As of December 31, 1997, there were (i) options outstanding
to purchase a total of 3,389,835 shares of Common Stock with a weighted
average exercise price of $3.46 per share under the 1995 Plan, (ii) 444,194
shares of Common Stock reserved for issuance under the 1995 Plan and (iii)
14,573 shares of Common Stock subject to an outstanding option not granted
under the 1995 Plan. To the extent that any of these options are exercised,
there will be further dilution to new investors. See "Risk Factors--Dilution,"
"Capitalization," "Management--Employee Benefit Plans" and Note 10 of Notes to
the Company's Consolidated Financial Statements.
20
<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical consolidated financial data is qualified
by reference to, and should be read in conjunction with, the Company's
historical Consolidated Financial Statements and the notes thereto and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" appearing elsewhere in this Prospectus. The selected historical
consolidated statement of operations data for the year ended December 31, 1997
and the historical consolidated balance sheet data as of December 31, 1997 are
derived from historical consolidated financial statements of the Company that
have been audited by KPMG Peat Marwick LLP, independent auditors, and are
included elsewhere in this Prospectus. The selected historical consolidated
statement of operations data presented below for each of the two years in the
period ended December 31, 1996, and the historical consolidated balance sheet
data as of December 31, 1996, are derived from historical consolidated
financial statements of the Company that have been audited by Ernst & Young
LLP, independent auditors, and are included elsewhere in this Prospectus. The
historical consolidated statement of operations data for the two years in the
period ended December 31, 1994 and the historical consolidated balance sheet
data as of December 31, 1993, 1994 and 1995 are derived from audited
historical consolidated financial statements of the Company not included in
this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
STATEMENT OF HISTORICAL
CONSOLIDATED OPERATIONS DATA: (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products
(1)........................ $ -- $ -- $ -- $ 3,135 $ 7,056
Other products.............. 7,178 12,409 16,238 11,165 10,425
-------- -------- -------- -------- --------
Total product revenue...... 7,178 12,409 16,238 14,300 17,481
Services revenue............ 1,140 1,639 1,926 2,955 6,583
-------- -------- -------- -------- --------
Total revenue............. 8,318 14,048 18,164 17,255 24,064
Cost of revenue:
Product revenue:
Online learning products
(1)........................ -- -- -- 136 585
Other products.............. 2,849 4,487 3,343 2,946 2,069
-------- -------- -------- -------- --------
Total cost of product
revenue................... 2,849 4,487 3,343 3,082 2,654
Services revenue............ 484 1,186 1,270 2,100 4,137
-------- -------- -------- -------- --------
Total cost of revenue..... 3,333 5,673 4,613 5,182 6,791
-------- -------- -------- -------- --------
Gross margin................. 4,985 8,375 13,551 12,073 17,273
Operating expenses:
Research and development.... 11,948 16,630 13,315 12,122 8,115
Sales and marketing......... 7,878 13,169 11,984 14,989 13,589
General and administrative.. 4,735 4,432 3,997 4,292 4,432
Loss on impairment of assets
(2)........................ -- 3,836 -- 2,787 --
Restructuring charge (3).... -- -- 3,318 1,104 --
Acquired in-process research
and development (4)........ -- -- -- -- 4,064
-------- -------- -------- -------- --------
Total operating expenses.... 24,561 38,067 32,614 35,294 30,200
-------- -------- -------- -------- --------
Loss from operations......... (19,576) (29,692) (19,063) (23,221) (12,927)
Other income (expense):
Other expense............... -- -- -- (1,128) --
Interest income from
principal stockholder (5).. -- -- 1,222 1,066 436
Interest expense paid by
principal stockholder...... (2,978) (5,007) (1,846) -- --
Other interest income
(expense), net............. (301) (440) 50 36 48
Equity in losses of
Infomodelers, Inc.......... -- -- -- (112) (634)
-------- -------- -------- -------- --------
Total other income
(expense).................. (3,279) (5,447) (574) (138) (150)
-------- -------- -------- -------- --------
Loss before income taxes..... (22,855) (35,139) (19,637) (23,359) (13,077)
Provision for income taxes... 11 32 78 196 38
-------- -------- -------- -------- --------
Net loss..................... $(22,866) $(35,171) $(19,715) $(23,555) $(13,115)
======== ======== ======== ======== ========
Basic and diluted net loss
per share (6).............. $(206.00) $(268.48) $ (4.14) $ (4.01) $ (2.17)
======== ======== ======== ======== ========
Shares used to compute basic
and diluted net loss per
share (6)................... 111 131 4,766 5,879 6,038
</TABLE>
(footnotes appear on next page)
21
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------
1993 1994 1995 1996 1997
------- -------- ------- ------- ------
<S> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE SHEET
DATA:
Cash and cash equivalents................. $ 490 $ 1,296 $ 3,551 $ 3,763 $2,454
Working capital (deficit)................. (64,069) (91,347) 25,323 9,847 607
Total assets.............................. 13,531 16,033 35,259 18,727 21,564
Long-term obligations..................... -- 605 68 -- 181
Redeemable Common Stock (7)............... -- -- -- -- 1,468
Total stockholders' equity (deficit)...... (55,277) (85,368) 29,736 12,310 9,762
</TABLE>
- --------
(1) The Company's online learning products consist of its Librarian learning
management system, its ToolBook II Instructor and ToolBook II Assistant
authoring products, its ToolBook II Synergy pre-authoring product and
Allen Communications' Designer's Edge product, for which the Company is a
reseller. See "Business--Products and Services."
(2) Loss on impairment of assets in 1996 related to products and technologies
written-off as a result of the spin-off of Infomodelers. See Note 9 of
Notes to the Company's Consolidated Financial Statements. Loss on
impairment of assets in 1994 related to asset write-offs related to
products and technologies which were discontinued in 1994.
(3) Restructuring charge in 1995 relates to the Company's restructuring of its
domestic operations and restructuring charge in 1996 relates to the
Company's restructuring of its European operations and a non-cash expense
associated with a modification of stock option plan rights of Asymetrix
employees who transferred to Infomodelers. See Note 9 of Notes to the
Company's Consolidated Financial Statements.
(4) Acquired in-process research and development relates to the costs of in-
process research and development acquired by the Company in connection
with the acquisitions of Aimtech and Socha. See Note 8 of Notes to the
Company's Consolidated Financial Statements.
(5) Interest income on note receivable from stockholder relates to interest
earned on a note receivable from the Company's principal stockholder which
was repaid to the Company in full in October 1997. See "Certain
Transactions" and Note 7 of Notes to the Company's Consolidated Financial
Statements.
(6) See Note 1 of Notes to the Company's Consolidated Financial Statements for
an explanation of the determination of the number of shares used to
compute basic and diluted net loss per share.
(7) Redeemable Common Stock represents 191,489 shares of Common Stock issued
in connection with the acquisition of CSI which are subject to a put right
held by the two former shareholders of CSI. This put right will expire
upon the closing of this offering. See "Capitalization" and Note 8 or
Notes to the Company's Consolidated Financial statements.
22
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of
operations of the Company should be read in conjunction with "Selected
Historical Consolidated Financial Data" and the Company's Consolidated
Financial Statements and related Notes thereto included elsewhere in this
Prospectus. This Prospectus contains forward-looking statements that involve
risks and uncertainties. The Company's actual results may differ significantly
from the results discussed in the forward-looking statements. Factors that may
cause such a difference include, but are not limited to, those discussed in
"Risk Factors."
OVERVIEW
Asymetrix was founded in 1984 by Paul Allen, a co-founder of Microsoft
Corporation, and during the Company's first ten years it operated in large
part as a technology development organization, with less emphasis on the
commercialization of technologies. Starting in 1995, Asymetrix recapitalized
and redirected its focus to the development and marketing of authoring
products and learning management systems designed to capitalize on the
advantages of the Internet as a means of delivering technology-based training
applications. Research and development and product lines not directly related
to this focus were decreased, eliminated or subsequently spun off. In order to
offer a more complete online enterprise learning solution, the Company also
introduced a variety of professional services, including a wide range of
consulting and development services, training programs and customer and
technical support targeted for the online enterprise learning market. The
Company's principal products include its learning management system known as
Librarian, its online learning authoring products, consisting of ToolBook II
Instructor and ToolBook II Assistant and its multimedia products, consisting
of media creation products, and third-party learning titles.
The Company anticipates that future revenue growth, if any, will be
attributable to its online learning products and its professional services. To
the extent these products and services do not achieve commercial acceptance or
that revenue from these products or services do not increase or meet the
Company's expectations, the Company's business, operating results and
financial condition will be materially and adversely affected. To date, the
Company has not realized a substantial amount of its product revenue from its
Librarian product. The Company believes that it will be dependent in large
part on market acceptance of the latest release of its Librarian product for
future growth because the Company believes that market acceptance of Librarian
may influence sales of the Company's other online learning products and
professional services. See "Risk Factors--Dependence on Online Learning
Products."
The Company has acquired several technologies and services businesses in
pursuing the online enterprise learning market. On September 12, 1997, the
Company acquired Aimtech Corporation ("Aimtech"), a developer of multimedia
authoring products and Internet authoring technologies for an aggregate of
2,183,894 shares of its Series 4 Class B Stock valued at $3.1 million (which
are convertible into an aggregate of 1,637,178 shares of Common Stock). On
September 30, 1997, the Company acquired the Oakes Companies, which provide
online learning consulting, custom development and training services and also
distribute certain technology-based training applications. The Company issued
an aggregate of 1,512,500 shares of its Series 5 Class B Stock valued at $2.1
million (which are convertible into an aggregate of 1,134,371 shares of Common
Stock) in connection with the acquisition of the Oakes Companies. On December
23, 1997, the Company acquired CSI, a provider of online learning consulting,
custom development and training services and issued an aggregate of 550,193
shares of its Common Stock valued at $4.8 million. The Company has also
acquired three other small businesses, Socha in July 1997, Graham-Wright
Interactive, Inc. in December 1997 and Adams Consulting Group, Inc. in March
1998. All of these eight acquisitions were accounted for using the purchase
method of accounting. Accordingly, the Company's historical consolidated
financial statements do not include results of operations, financial position
or cash flows of these entities prior to their respective dates of
acquisition. In addition, as a result of the acquisitions of Aimtech and
Socha, the Company has incurred charges relating to the cost of acquired in-
process research and development of $4.1 million for 1997 and, in connection
with all of its acquisitions from July 1, 1997 through December 31, 1997, has
recorded an aggregate of $8.3 million in goodwill, a portion of which will be
amortized on a straight-line basis over a five year period and the remainder
will be amortized over a 15 year
23
<PAGE>
period. If the Company were to incur additional charges for acquired in-
process research and development and amortization of goodwill with respect to
any future acquisitions, the Company's business, operating results and
financial condition could be materially and adversely affected. See "Risk
Factors--New Business Model" and "--Risks Related to Acquisitions."
As part of its strategy to focus on the online enterprise learning market,
the Company divested product lines and technologies which were unrelated to
this market. In October 1996, the Company completed the spin-off of its
Database Tools Division to Infomodelers, Inc. ("Infomodelers") and distributed
a controlling interest in Infomodelers to its stockholders. In March 1998, the
Company sold substantially all of its remaining interest in Infomodelers to
Vulcan Ventures, Inc. for an aggregate purchase price of approximately $2.4
million in cash. See "Certain Transactions." In July 1997, the Company
established SuperCede, Inc. ("SuperCede"), which is now a 50%-owned
subsidiary, and transferred the assets of its Internet Development Tools
Division and SuperCede products to SuperCede. The Company's historical
financial statements do not consolidate the results of operations, financial
position or cash flows of Infomodelers subsequent to October 1996 or of
SuperCede subsequent to September 1997. The Company accounts for its
Infomodelers and SuperCede investments using the equity method of accounting.
See "Certain Transactions" and Note 9 of Notes to the Company's Consolidated
Financial Statements.
The Company incurred net losses of $23.6 million and $13.1 million in 1996
and 1997, respectively, and has yet to achieve profitability under its new
business model. The Company's limited operating history under its new business
model, the emerging nature of the market for online enterprise learning and
the factors described under "Risk Factors--Potential Fluctuations in Quarterly
Operating Results; Unpredictability of Future Revenue; Seasonality," among
other factors, make prediction of the Company's future operating results
difficult. Although the Company has experienced revenue growth in certain
recent periods and although the pro forma financial statements herein also
reflect revenue growth in certain periods there can be no assurance that such
growth rates are sustainable or indicative of actual growth rates that the
Company may experience and, therefore, they should not be considered
indicative of future operating results. In addition, the Company intends to
continue to invest in acquisitions, its professional services business and
research and development, among other things. As a result, the Company expects
to continue to incur operating losses at least through 1998. There can be no
assurance that the Company will achieve profitability or, if profitability is
achieved, that it will be sustained. See "Risk Factors--Substantial Historical
Operating Losses; Limited Operating History in Target Market; Uncertain
Profitability" and "--New Business Model."
The Company derives its revenue principally from sales of its software
products and fees from professional services, training, support and
maintenance. The Company recognizes revenue from product sales at such time as
the software product has been shipped, collection is probable and there are no
significant obligations of the Company remaining to be performed. Product
license fees are generally determined on a per user basis, except that its
learning management system is licensed on either a per server per user basis
or on a single server unlimited user basis at the option of the customer. In
the case of non-refundable royalties from OEMs, resellers or other
distributors, the Company recognizes revenue when it delivers its product to
the OEM, reseller or other distributor provided no significant obligations of
the Company remain. Additional royalties are paid to the extent that the
advances are exceeded and these additional royalties are recognized upon
delivery of the products to customers by the OEM, reseller or other
distributer. Professional services revenue is derived primarily from
professional fees billed to clients and is recognized as services are
performed, for contracts that are billed on a time and materials basis, and on
the percentage of completion method, based on the ratio of costs incurred to
the total estimated project cost, for fixed-price contracts. Revenue from
training fees is recognized in the month in which the last day of the training
event falls. Maintenance revenue associated with technical support contracts
is recognized ratably over the term of the contract, typically one year.
Services revenue represented approximately 17% and 27% of total revenue for
1996 and 1997, respectively.
24
<PAGE>
As a result of focusing its business on the online enterprise learning
market, the Company has changed its distribution strategy from emphasizing
retail and other indirect distribution channels to emphasizing a direct sales
model. Direct sales accounted for approximately 50% and 48% of the Company's
total revenue for 1996 and 1997. See "Risk Factors--New Business Model." While
international revenue accounted for approximately 32% and 31% of total revenue
for 1996 and 1997, respectively, the Company believes that the online
enterprise learning market has not yet developed significantly outside the
United States and currently does not intend to market actively its online
learning products and professional services internationally other than in the
United Kingdom and in a limited number of other foreign markets. Therefore,
the Company anticipates that international revenue will constitute a lesser
percentage of total revenue in the future.
In accordance with Statement of Financial Accounting Standards No. 86,
Accounting for Costs of Computer Software to be Sold, Leased or Otherwise
Marketed, software development costs are expensed as incurred until
technological feasibility has been established, at which time such costs are
capitalized until the product is available for general release to customers.
To date, establishment of technological feasibility of the Company's products
and general release of such software have substantially coincided. As a
result, software development costs qualifying for capitalization have not been
significant, and therefore the Company has not capitalized any internal
software development costs.
25
<PAGE>
RESULTS OF OPERATIONS
The following table presents the Company's results of operations as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1995 1996 1997
STATEMENT OF OPERATIONS DATA: -------- -------- -------
<S> <C> <C> <C>
Revenue:
Product revenue:
Online learning products..................... --% 18.2% 29.3%
Other products............................... 89.4 64.7 43.3
-------- -------- -------
Total product revenue....................... 89.4 82.9 72.6
Services revenue.............................. 10.6 17.1 27.4
-------- -------- -------
Total revenue............................... 100.0 100.0 100.0
Cost of revenue:
Product revenue:
Online learning products..................... -- 0.8 2.4
Other products............................... 18.4 17.1 8.6
-------- -------- -------
Total cost of product revenue............... 18.4 17.9 11.0
Services revenue.............................. 7.0 12.1 17.2
-------- -------- -------
Total cost of revenue....................... 25.4 30.0 28.2
-------- -------- -------
Gross margin................................... 74.6 70.0 71.8
Operating expenses:
Research and development...................... 73.3 70.2 33.7
Sales and marketing........................... 66.0 86.9 56.5
General and administrative.................... 22.0 24.9 18.4
Loss on impairment of assets.................. -- 16.1 --
Restructuring charge.......................... 18.3 6.4 --
Acquired in-process research and development.. -- -- 16.9
-------- -------- -------
Total operating expenses..................... 179.6 204.5 125.5
-------- -------- -------
Loss from operations........................... (105.0) (134.6) (53.7)
Other income (expense), net:
Other expense................................. -- (6.5) --
Interest income on note receivable from
pricipal stockholder......................... 6.7 6.1 1.8
Interest expense from principle shareholder... (10.2) -- --
Other interest income (expense), net.......... 0.3 0.2 0.2
Equity in losses of Infomodelers, Inc......... -- (0.6) (2.6)
-------- -------- -------
Total other income (expense)................. (3.2) (0.8) (0.6)
-------- -------- -------
Loss before income taxes....................... (108.1) (135.4) (54.3)
Provision for income taxes..................... 0.4 1.1 0.2
-------- -------- -------
Net loss....................................... (108.5)% (136.5)% (54.5)%
======== ======== =======
</TABLE>
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenue. Total revenue increased 39% from $17.3 million in 1996 to $24.1
million in 1997. Product revenue increased 22% from $14.3 million in 1996 to
$17.5 million in 1997. Online learning product revenue increased 129% from
$3.1 million in 1996 to $7.1 million in 1997. This increase was due primarily
to increased demand for the Company's online learning products as a result of
the Company's focus on the online learning market. Other product revenue
decreased 7% from $11.2 million in 1996 to $10.4 million in 1997. Included in
other product revenue in 1997 was approximately $2.0 million from SuperCede.
As a result of the Company's strategy to focus on the online enterprise
learning market, the Company anticipates that future growth in product sales,
if any, will be attributable to its online learning products and that its
other product revenue will decrease
26
<PAGE>
in the future. Services revenue increased 123% from $3.0 million in 1996 to
$6.6 million in 1997 due primarily to the expansion of the Company's custom
development efforts and the acquisition of the Oakes Companies in September
1997. The Company intends to increase its services business with the goal of
increasing the services revenue as a percentage of total revenue. The Company
has experienced an increased number of professional services engagements which
are billed on a fixed price basis and intends to pursue such engagements in
the future. See "Risk Factors--Risks of Fixed-Price Engagements."
Cost of Revenue. Cost of product revenue includes costs of media, manuals
and distribution costs. Gross margin from the Company's online products is
generally higher than that of its other products because these products are
typically sold by direct sales, as compared with other products sold through
indirect channels, such as OEMs and resellers, which have lower gross margins.
Cost of services revenue consists primarily of personnel-related costs in
providing consulting, maintenance and training to customers. Gross margin on
product revenue is higher than gross margin on services revenue, reflecting
the lower materials, packaging and other costs of software compared with the
relatively high personnel costs associated with providing professional
services.
Total cost of revenue increased 31% from $5.2 million in 1996 to $6.8
million in 1997. Cost of product revenue decreased 13% from $3.1 million in
1996 to $2.7 million in 1997. Cost of online learning products revenue
increased 330% from $136,000 in 1996 to $585,000 in 1997, due primarily to
increased sales of the Company's online learning products. Cost of other
products revenue decreased 28% from $2.9 million in 1996 to $2.1 million in
1997. This decrease was due primarily to the shift from retail distribution
and to inventory write-offs and returns associated with the Company's
multimedia products due to the change in distribution method during 1996. Cost
of other products revenue attributable to SuperCede was $273,000 in 1997 and
cost of other product revenue attributable to Infomodelers was $160,000 in
1996. Total product gross margin increased from 78% in 1996 to 85% in 1997.
Online learning products gross margin was 96% and 92% in 1996 and 1997
respectively. Other products gross margin was 74% and 80% in 1996 and 1997,
respectively.
Cost of services revenue increased 95% from $2.1 million in 1996 to $4.1
million in 1997. This increase was due primarily to increased professional
services projects in such period. Services gross margin increased from 29% in
1996 to 37% in 1997. The Company anticipates that cost of services revenue
will increase in absolute dollars as it adds additional professional services
personnel. To the extent services revenue increases relative to product sales
revenue as a percentage of total revenue, overall gross margins would decline.
Operating Expenses
Research and Development. Research and development expenses include expenses
associated with the development of new products and new product versions and
consist primarily of salaries, depreciation of development equipment, supplies
and overhead allocations. Research and development expenses decreased 33% from
$12.1 million in 1996 to $8.1 million in 1997. This decrease was due primarily
to the exclusion of research and development expenses relating to Infomodelers
in 1997. Research and development expenses as a percentage of total revenue
decreased from 70% in 1996 to 34% in 1997 as a result of the spin-offs of
Infomodelers and SuperCede. Research and development expenses related to
SuperCede were $2.5 million and $2.6 million in 1996 and 1997, respectively,
and research and development expenses related to Infomodelers were $3.0
million in 1996. The Company expects research and development expenses to
decrease in absolute dollars due to the spin-off of SuperCede.
Sales and Marketing. Sales and marketing expenses consist primarily of sales
and marketing personnel costs, including sales commissions, travel,
advertising, public relations, seminars, trade shows and other marketing
literature and overhead allocations. Sales and marketing expenses decreased 9%
from $15.0 million in 1996 to $13.6 million in 1997. Sales and marketing
expenses as a percentage of total revenue decreased from 87% in 1996 to 57% in
1997. The decreases were due primarily to sales and marketing expenses
relating to the Company's "Web event" launch of Tool Book II Instructor and
the launch of Infomodelers products during 1996, partially offset by sales and
marketing expenses relating to the launch of the SuperCede products in the
27
<PAGE>
first quarter of 1997, version 6.0 of Tool Book II Assistant in March 1997 and
version 5.5 of Librarian in July 1997. Sales and marketing expenses related to
SuperCede were $172,000 and $2.5 million in 1996 and 1997, respectively, and
sales and marketing expenses related to Infomodelers were $1.3 million in
1996. The Company expects that sales and marketing expenses will increase in
absolute dollars from 1997.
General and Administrative. General and administrative expenses consist
primarily of salaries and other personnel-related expenses for the Company's
administrative, executive and finance personnel as well as outside legal and
audit costs. General and administrative expenses increased 2% from $4.3
million in 1996 to $4.4 million in 1997. This increase was due primarily to a
one-time charge in October 1997 of $670,000 relating to the cashless exercise
of stock options by employees of the Company who transferred to SuperCede.
General and administrative expenses as a percentage of total revenue decreased
from 25% in 1996 to 18% in 1997 as a result of a small increase in expenses
relative to increased revenue. General and administrative expenses related to
SuperCede were $989,000 and $653,000 in 1996 and 1997, respectively and
general and administrative expenses related to Infomodelers were $941,000 in
1996. The Company expects that general and administrative expenses will
increase in absolute dollars from 1997.
Loss on Impairment of Assets. Loss on impairment of assets in 1996 relates
to asset write-offs related to the spin-off of Infomodelers. As a result of
this spin-off, the Company reviewed the technology remaining in the Company
and recorded an impairment charge of $2.8 million in the fourth quarter of
1996.
Restructuring Charge. In the third quarter of 1996, the Company adopted a
plan to restructure its European operations and recorded an expense of
$604,000, which included involuntary termination benefits for employee
compensation and certain exit costs. The Company also recorded a non-cash
restructuring expense of $500,000 in 1996 related to a modification of stock
option plan rights of Asymetrix employees who transferred to Infomodelers. As
of December 31, 1997, the restructuring plans were completed and all costs
associated with the restructuring plans have been incurred.
Acquired In-Process Research and Development. The Company recognized the
cost of acquired in-process research and development totaling $4.1 million in
1997. This amount represented all in-process research and development acquired
by the Company in connection with the acquisitions of Aimtech and Socha during
1997 and consisted of $3.6 million resulting from the Aimtech acquisition and
$484,000 resulting from the Socha acquisition.
Other Income (Expense), Net. The Company recorded no other expense in 1997
and other expense of $1.1 million in 1996 relating to a terminated
acquisition. Interest income from stockholder was $1.1 million and $436,000 in
1996 and 1997, respectively and was related to interest payments to the
Company on a note receivable from the Company's principal stockholder. This
note receivable was repaid in October 1997. Other interest income (expense),
net was $(36,000) and $(48,000) in 1996 and 1997, respectively. Equity in
losses from Infomodelers was $112,000 and $634,000 in 1996 and 1997,
respectively, representing the Company's equity in the net losses of
Infomodelers in such period. Because the Company sold substantially all of its
interest in Infomodelers in March 1998, the Company does not anticipate that
it will record equity in losses from Infomodelers in future periods.
Provision for Income Taxes. The Company accounts for income taxes under the
asset and liability method. Under the asset and liability method, the
provision for income taxes includes income taxes currently payable and
deferred taxes arising from temporary differences between the carrying amounts
of assets and liabilities for financial reporting purposes and amounts used
for income tax purposes. As of December 31, 1997, the Company had $47.4
million total deferred tax assets, primarily reflecting potential future tax
savings attributable to its federal operating loss and tax credit
carryforwards. These assets were reduced by a $47.4 million valuation
allowance, reflecting uncertainty as to their realization. As of December 31,
1997, the Company had federal tax loss carry forwards of approximately $128.2
million and federal tax credit carry forwards of approximately $2.6 million.
The federal tax loss carryforwards expire in 2000 through 2011. The Tax Reform
Act of 1986 imposes substantial restrictions on the utilization of operating
losses and tax credits in the event of an "ownership change" of a corporation.
The Company's ability to utilize net operating loss carry forwards and tax
credits may be limited as a result of an "ownership change" with respect to
the Company.
28
<PAGE>
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenue. Total revenue decreased approximately 5% from $18.2 million in 1995
to $17.3 million in 1996. Product revenue decreased 12% from $16.2 million in
1995 to $14.3 million in 1996. The Company first introduced its online
learning products during the second quarter of 1996 and the Company's online
learning product revenue was $3.1 million in 1996. Other products revenue
decreased approximately 31% from $16.2 million in 1995 to $11.2 million in
1996. This decrease was due primarily to the Company's shift in focus to
online learning products and a decrease in sales of the Company's Infomodeler
products from $1.0 million in 1995 to $200,000 in 1996 as a result of the
spin-off of Infomodelers in October 1996. The Company's SuperCede product was
released during the fourth quarter of 1996 and contributed approximately
$200,000 to other products revenue in 1996. Services revenue increased 53%
from $1.9 million in 1995 to $3.0 million in 1996 as the Company began to
emphasize providing online learning-related professional services.
Cost of Revenue. Total cost of revenue increased 12% from $4.6 million in
1995 to $5.2 million in 1996. Cost of product revenue decreased 8% from $3.3
million in 1995 to $3.1 million in 1996. Cost of online learning product
revenue was $136,000 in 1996. Cost of other product revenue decreased 12% from
$3.3 million in 1995 to $2.9 million in 1996, due primarily to decreased other
product revenue and the spin-off of Infomodelers in October 1996. Total
product gross margin remained relatively constant at 79% and 78% in 1995 and
1996, respectively. Online learning products gross margin was 96% in 1996 and
other products gross margin was 74% in 1996. Cost of services revenue
increased 65% from $1.3 million in 1995 to $2.1 million in 1996. This increase
was due primarily to higher professional services revenue. Services gross
margin decreased from 39% in 1995 to 29% in 1996.
Research and Development. Research and development expenses decreased 9%
from $13.3 million in 1995 to $12.1 million in 1996. This decrease was due
primarily to the spin-off of Infomodelers. Research and development expenses
as a percentage of total revenue decreased slightly from 73% in 1995 to 70% in
1996. Research and development expenses related to SuperCede were $3.3 million
in 1996 and research and development expenses related to Infomodelers were
$4.7 million and $3.0 million in 1995 and 1996, respectively.
Sales and Marketing. Sales and marketing expenses increased 25% from $12.0
million in 1995 to $15.0 million in 1996. This increase was due primarily to
an increase in the number of sales representatives, sales engineers and
marketing personnel as the Company continued to invest in the development of
its online learning business and moved towards a direct sales model. Sales and
marketing expenses as a percentage of total revenue increased from 61% in 1995
to 87% in 1996, as a result of increases in the Company's direct sales force
and the time required for new sales employees to generate revenue. Sales and
marketing expenses related to SuperCede were approximately $373,000 in 1996
and sales and marketing expenses related to Infomodelers were $1.7 million and
$1.3 million in 1995 and 1996, respectively.
General and Administrative. General and administrative expenses increased 7%
from $4.0 million in 1995 to $4.3 million in 1996. General and administrative
expenses as a percentage of total revenue increased slightly from 22% in 1995
to 25% in 1996. These increases were due primarily to accruals for legal
expenses to defend against the Grant patent litigation. See "Business--Legal
Proceedings." General and administrative expenses related to SuperCede were
$1.3 million in 1996 and general and administrative expenses related to
Infomodelers were $1.2 million and $941,000 in 1995 and 1996, respectively.
Restructuring Charge. In 1995, the Company adopted a plan to restructure its
domestic operations. Under this plan, the Company discontinued development of
certain products and reduced its product development, support and sales work
force by a total of 89 full-time employees (approximately 30% of the Company's
then-current total work force). The Company recorded an aggregate expense of
$3.3 million in the third and fourth quarters of 1995 as a result of this
reorganization. As described above, in 1996, the Company recorded aggregate
non-cash restructuring expenses of $1.1 million due to the restructuring of
its European operations and the modification of stock option plan rights
related to employees who transferred to Infomodelers.
29
<PAGE>
Other Income (Expense), Net. The Company recorded other expenses of $1.1
million in 1996 relating to a terminated acquisition. Interest income from
stockholder was $1.2 million and $1.1 million in 1995 and 1996, respectively.
Other interest income was $50,000 and $36,000 in 1995 and 1996 respectively.
Equity interest in losses of Infomodelers, Inc. was $112,000 in 1996,
representing the Company's equity in the net losses of Infomodelers from
October 17 through December 31, 1996.
SELECTED HISTORICAL QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited historical quarterly
results of operations for the eight quarters ended December 31, 1997, as well
as such data expressed as a percentage of total revenue. In management's
opinion, this information has been prepared on the same basis as the audited
historical consolidated financial statements and includes all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the information for the quarters presented, when read in
conjunction with the Company's Historical Consolidated Financial Statements
and the notes thereto. The operating results for any quarter are not
necessarily indicative of results for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
-------- -------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning
products (1).......... $ -- $ 426 $ 1,199 $ 1,510 $ 1,403 $ 1,648 $ 1,907 $ 2,097
Other products......... 4,597 2,922 1,569 2,077 2,811 2,639 2,352 2,624
------- ------- ------- ------- ------- ------- ------- -------
Total product
revenue.............. 4,597 3,348 2,768 3,587 4,214 4,287 4,259 4,721
Services revenue....... 480 872 1,034 569 770 1,105 1,656 3,052
------- ------- ------- ------- ------- ------- ------- -------
Total revenue........ 5,077 4,220 3,802 4,156 4,984 5,392 5,915 7,773
Cost of revenue:
Product revenue:
Online learning
products (1).......... -- 6 46 84 58 108 168 251
Other products......... 940 826 572 608 481 456 452 680
------- ------- ------- ------- ------- ------- ------- -------
Total cost of product
revenue.............. 940 832 618 692 539 564 620 931
Services revenue....... 327 536 918 319 490 648 1,136 1,863
------- ------- ------- ------- ------- ------- ------- -------
Total cost of
revenue............. 1,267 1,368 1,536 1,011 1,029 1,212 1,756 2,794
------- ------- ------- ------- ------- ------- ------- -------
Gross margin............ 3,810 2,852 2,266 3,145 3,955 4,180 4,159 4,979
Operating expenses:
Research and
development........... 3,439 3,115 3,258 2,310 2,246 2,159 2,206 1,504
Sales and marketing.... 3,115 4,243 3,950 3,681 3,443 3,241 3,718 3,187
General and
administrative........ 954 1,311 900 1,127 897 847 817 1,871
Loss on impairment of
assets (2)............ -- -- -- 2,787 -- -- -- --
Restructuring charge
(3)................... -- -- 604 500 -- -- -- --
Acquired in-process
research and
development (4)....... -- -- -- -- -- -- 4,064 --
------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses.............. 7,508 8,669 8,712 10,405 6,586 6,247 10,805 6,562
------- ------- ------- ------- ------- ------- ------- -------
Loss from operations.... (3,698) (5,817) (6,446) (7,260) (2,631) (2,067) (6,646) (1,583)
Other income (expense):
Other expense.......... -- -- -- (1,128) -- -- -- --
Interest income on note
receivable from
stockholder (5)....... 388 289 209 180 182 147 92 15
Other interest income
(expense), net........ (25) 5 8 48 44 2 3 (1)
Equity in losses of
Infomodelers, Inc. ... -- -- -- (112) (150) (188) (148) (148)
------- ------- ------- ------- ------- ------- ------- -------
Total other income
(expense)............. 363 294 217 (1,012) 76 (39) (53) (134)
------- ------- ------- ------- ------- ------- ------- -------
Loss before income
taxes.................. (3,335) (5,523) (6,229) (8,272) (2,555) (2,106) (6,699) (1,717)
Provision for income
taxes.................. 22 130 23 21 -- -- -- 38
------- ------- ------- ------- ------- ------- ------- -------
Net loss................ $(3,357) $(5,653) $(6,252) $(8,293) $(2,555) $(2,106) $(6,699) $(1,755)
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(footnotes appear on next page)
30
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1996 1996 1996 1996 1997 1997 1997 1997
AS A PERCENTAGE OF TOTAL REVENUE: -------- -------- --------- -------- -------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products
(1)........................ --% 10.1% 31.5% 36.3% 28.2% 30.6% 32.2% 27.0%
Other products.............. 90.5 69.2 41.3 50.0 56.4 48.9 39.8 33.8
----- ------ ------ ------ ----- ----- ------ ------
Total product revenue..... 90.5 79.3 72.8 86.3 84.6 79.5 72.0 60.8
Services revenue............ 9.5 20.7 27.2 13.7 15.4 20.5 28.0 39.2
----- ------ ------ ------ ----- ----- ------ ------
Total revenue........... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
Cost of revenue:
Product revenue.............
Online learning products
(1)........................ -- 0.1 1.2 2.0 1.2 2.0 2.8 3.2
Other products.............. 18.5 19.6 15.1 14.7 9.6 8.5 7.6 8.8
----- ------ ------ ------ ----- ----- ------ ------
Total cost of product
revenue.................. 18.5 19.7 16.3 16.7 10.8 10.5 10.4 12.0
Services revenue............ 6.4 12.7 24.1 7.7 9.8 12.0 19.2 24.0
----- ------ ------ ------ ----- ----- ------ ------
Total cost of revenue... 24.9 32.4 40.4 24.4 20.6 22.5 29.6 36.0
----- ------ ------ ------ ----- ----- ------ ------
Gross margin................. 75.1 67.6 59.6 75.6 79.4 77.5 70.4 64.0
Operating expenses:
Research and development.... 67.7 73.8 85.7 55.6 45.1 40.0 37.3 19.4
Sales and marketing......... 61.4 100.5 103.9 88.6 69.1 60.1 62.9 41.0
General and administrative.. 18.8 31.1 23.7 27.1 18.0 15.7 13.8 24.1
Loss on impairment of assets
(2)........................ -- -- -- 67.1 -- -- -- --
Restructuring charge (3).... -- -- 15.9 12.0 -- -- -- --
Acquired in-process research
and development (4)........ -- -- -- -- -- -- 68.7 --
----- ------ ------ ------ ----- ----- ------ ------
Total operating expenses.... 147.9 205.4 229.2 250.4 132.2 115.8 182.7 84.5
----- ------ ------ ------ ----- ----- ------ ------
Loss from operations......... (72.8) (137.8) (169.6) (174.8) (52.8) (38.3) (112.3) (20.5)
Other income (expense):
Other expense............... -- -- -- (27.1) -- -- -- --
Interest income on note
receivable from stockholder
(5)........................ 7.6 6.8 5.5 4.3 3.7 2.7 1.6 0.2
Other interest income
(expense), net............. -- 0.1 0.2 1.2 0.9 -- -- --
Equity in losses of
Infomodelers, Inc. ........ -- -- -- (2.7) (3.0) (3.5) (2.5) (1.9)
----- ------ ------ ------ ----- ----- ------ ------
Total other income
(expense).................. 7.6 6.9 5.7 (24.3) 1.6 (0.8) (0.9) (1.7)
----- ------ ------ ------ ----- ----- ------ ------
Loss before income taxes..... (65.2) (130.9) (163.9) (199.0) (51.2) (39.1) (113.2) (22.2)
Provision for income taxes... 0.4 3.1 0.6 0.5 -- -- -- 0.5
----- ------ ------ ------ ----- ----- ------ ------
Net loss..................... (65.6)% (134.0)% (164.5)% (199.5)% (51.2)% (39.1)% (113.2)% (22.7)%
===== ====== ====== ====== ===== ===== ====== ======
</TABLE>
- --------
(1) The Company's online learning products consist of its Librarian learning
management system, its ToolBookII Instructor and ToolBook II Assistant
authoring products, its ToolBook II Synergy pre-authoring product and
Allen Communications' Designer's Edge product for which the Company is a
reseller. See "Business--Products and Services."
(2) Loss on impairment of assets in 1996 related to products and technologies
written off as a result of the spin-off of Infomodelers. See Note 9 of
Notes to the Company's Consolidated Financial Statements.
(3) Restructuring charge in 1996 relates to the Company's restructuring of its
European operations and a non-cash expense associated with a modification
of stock option plan rights of Asymetrix employees who transferred to
Infomodelers. See Note 9 of Notes to the Company's Consolidated Financial
Statements.
(4) Acquired in process research and development relates to the costs of in-
process research and development acquired by the Company in connection
with the acquisitions of Aimtech and Socha. See Note 8 of Notes to the
Company's Consolidated Financial Statements.
(5) Interest income on note receivable from stockholder relates to interest
earned on a note receivable from the Company's principal stockholder which
was repaid to the Company in October 1997. See "Certain Transactions" and
Note 7 of Notes to the Company's Consolidated Financial Statements.
The Company's quarterly operating results have varied significantly in the
past and are expected to fluctuate significantly in the future as a result of
a variety of factors, many of which are outside the Company's control. Factors
that may adversely affect the Company's quarterly operating results include:
the demand for technology-based training in general and demand for online
enterprise learning solutions in particular; the size and timing of product
orders and the timing and execution of professional services engagements; the
mix of revenue from products and services; the mix of products sold; the
inability of the Company to meet its own or client project milestones or
client expectations; market acceptance of the Company's or competitors'
products and services; the ability of the Company to develop and market new or
enhanced products and services in a timely manner and market acceptance of
such products, including the latest release of Librarian, and services; the
Company's ability to integrate acquisitions successfully and to identify,
acquire and integrate suitable acquisition candidates;
31
<PAGE>
the timing of revenue recognition; charges related to acquisitions;
competitive conditions; technological changes; personnel changes; general
economic conditions; and economic conditions specific to the technology-based
training and online learning markets. With its new emphasis on providing an
online enterprise learning solution, the Company is targeting its selling and
marketing efforts towards customers with the potential need for enterprise-
wide solutions. Because the Company believes that the implementation of its
solutions may require an enterprise-wide decision by prospective customers,
the Company may be required to provide a significant level of education to
prospective customers regarding the Company's solutions. Therefore, the
Company believes that the period between initial contact and the sale of the
Company's solutions could be lengthy, and this implementation cycle could
lengthen because of increases in the size and complexity of customer
implementations. Uncertainty of timing with respect to sales or
implementations could have a material adverse effect on the Company's business
and operations and cause the Company's operating results to vary significantly
from quarter to quarter. Therefore, the Company's operating results for any
particular quarterly period may not be indicative of future operating results.
The Company's limited operating history under its current business model,
its recent acquisitions and dispositions and the emerging nature of its market
make prediction of future revenue and expenses difficult. The Company's
expense levels are based, in part, on its expectations as to future revenue
and to a large extent are fixed in the short term. There can be no assurance
that the Company will be able to predict its future revenue accurately and the
Company may be unable to adjust spending in a timely manner to compensate for
any unexpected revenue shortfall. Accordingly, any significant shortfall of
revenue in relation to the Company's expectations could cause significant
fluctuations in quarterly operating results, which would have an adverse
effect on the Company's business, operating results and financial condition.
Due to all of the foregoing factors, the Company's quarterly revenue and
operating results are difficult to forecast, and the Company believes that
period-to-period comparisons of its operating results will not necessarily be
meaningful and should not be relied upon as an indication of future
performance. It is likely that the Company's operating results will fall below
the expectations of the Company, securities analysts or investors in some
future quarter. In such event, the trading price of the Common Stock would
likely be materially and adversely affected.
Like many companies in the software industry, the Company has experienced
higher revenue in its last fiscal quarter as a result of efforts to meet sales
quotas and as many customers complete annual budgetary cycles, and lower
revenue in its first quarter. Additionally, the Company believes that many of
its customers in the education and government markets tend to have higher
product purchasing activity during the last few weeks of the third quarter as
compared to other periods. Furthermore, revenue recognized by some components
of the Company's services business is dependent in part upon the number of
business days during the particular period and budget cycles of its customers.
Because of these factors, the Company anticipates that its professional
services and training revenue growth could be slower in the first and fourth
quarters than in other quarters because of this seasonality. Although the
Company has not been able to determine the extent to which its current
business is affected by any seasonal trends because of the refocusing and
growth of its business since 1995, there can be no assurance that the
Company's results in any future quarter will not be negatively affected by
such trends. See "Risk Factors--Fluctuations in Quarterly Operating Results;
Unpredictability in Future Revenue; Seasonality."
LIQUIDITY AND CAPITAL RESOURCES
Since 1995, the Company has funded its operations from cash flows from
operations, the private sale of equity securities and the sale of its interest
in Infomodelers in March 1998. At December 31, 1997, the principal source of
liquidity for the Company was $607,000 million in working capital.
In January 1998, the Company entered into a $5.0 million bank line of credit
which expires on July 1, 1998. Borrowings under this line of credit will bear
interest at the bank's reference rate or LIBOR plus 1.0% per annum. The
Company's obligations under this line of credit are secured by the Company's
accounts receivable. As of March 31, 1998, the Company had no outstanding
borrowings under this line of credit.
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The Company has had significant negative cash flows from operating
activities to date. Net cash used by operating activities was $13.6 million,
$15.0 million and $7.4 million in 1995, 1996 and 1997, respectively. Net cash
used by operating activities in each of these periods was primarily the result
of net losses, which include a non cash expense of $4.1 million for acquired
in-process research and development in 1997, partially offset by an increase
in accounts receivable over such periods.
Net cash used for investing activities was $1.8 million, $1.7 million and
$645,000 in 1995, 1996 and 1997, respectively. Net cash used in investing
activities in these periods was primarily the result of capital expenditures
for computer equipment, purchased software, office equipment, furniture and
fixtures and, in 1997, acquisition-related costs. In addition, in November
1996, the Company used $1.0 million of cash for the investment in
Infomodelers, Inc., which was partially offset by $200,000 of proceeds from
the sale of assets in 1996. As of December 31, 1997, the Company had no
material commitments for capital expenditures. The Company's planned capital
expenditures for 1998 are approximately $1.2 million, primarily for computer
equipment and contingent acquisition payments. As of December 31, 1997, the
Company also had commitments under noncancelable operating leases of
$3.5 million through 2001.
Cash provided by financing activities was $17.7 million, $16.9 million and
$6.9 million in 1995, 1996 and 1997, respectively, resulting primarily from
payments received on the note receivable from stockholder of $11.9 million in
1996 and $6.7 million in 1997, net proceeds of $5.3 million and $500,000 from
the sale of Class B Stock in 1996 and 1997, respectively, and proceeds from
the sale of Common Stock, primarily from the exercise of stock options. Cash
used for payments on long-term debt was $523,000 and $398,000 in 1996 and
1997, respectively.
The Company anticipates that the net proceeds from this offering, together
with cash, cash equivalents and short-term investments will be sufficient to
meet its working capital needs and capital expenditures for at least the next
12 months. The Company's long-term liquidity will be affected by numerous
factors, including acquisitions of businesses or technologies, demand for the
Company's online learning products and services, the extent to which such
online learning products and services achieve market acceptance, the timing of
and extent to which the Company invests in new technology, the expenses of
sales and marketing and new product development, the extent to which
competitors are successful in developing their own products and services and
increasing their own market share, the level and timing of revenues, and other
factors. To the extent that resources are insufficient to fund the Company's
activities, the Company may need to raise additional funds. There can be no
assurance that such additional funding, if needed, will be available on terms
attractive to the Company, or at all. If adequate funds are not available on
acceptable terms, the Company may be unable to expand its business, develop or
enhance its products and services, take advantage of future opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
See "Risk Factors--Future Capital Needs; Uncertainty of Additional Funding."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
("Statement 130"). Statement 130 establishes standards for reporting and
disclosure of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
Statement 130, which is effective for fiscal years beginning after December
15, 1997, requires reclassification of financial statements for earlier
periods to have provided for comparative purposes. The Company has not
determined the manner in which it will present the information required by
Statement 130.
In June 1997, the FASB issues SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, ("Statement 131"). Statement 131
establishes standards for the way that public business enterprises report
information about operating segments. It also establishes standards for
related disclosures about products and services, geographic areas and major
customers. Statement 131 is effective for fiscal years beginning after
December 15, 1997. In the initial year of application, comparative information
for earlier years must be restated. The Company has not determined the manner
in which it will present the information required by Statement 131.
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In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition. The
statement provides specific industry guidance and stipulates that revenue
recognized from software arrangements is to be allocated to each element of
the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post contract customer support,
installation, or training. Under SOP 97-2, the determination of fair value is
based on objective evidence which is specific to the vendor. If such evidence
of fair value for each element of the arrangement does not exist, all revenue
from the arrangement is deferred until such time that evidence of fair value
does exist or until all elements of the arrangement are delivered. Revenue
allocated to software products, specified upgrades and enhancements is
generally recognized upon delivery of the related products, upgrades and
enhancements. Revenue allocated to post contract customer support is generally
recognized ratably over the term of the support, and revenue allocated to
service elements is generally recognized as the services are performed.
SOP 97-2 has been adopted by the Company effective January 1, 1998 and is not
expected to have a material effect on revenue recognition.
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BUSINESS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that may cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
Asymetrix is a leading provider of online enterprise learning solutions
designed to enable organizations to capture, deploy and manage knowledge more
effectively for use as a competitive advantage. The Company's comprehensive
learning solution consists of an open, standards-based, Internet-centric
technology platform as well as professional learning services for the online
learning market. The Company's technology platform includes ToolBook II
Instructor and ToolBook II Assistant, products which enable customers to
author online learning applications, and Librarian, a learning management
system designed to enable customers to deploy and manage such applications.
The Company's professional services include a wide range of consulting and
custom development services focused on the online learning market as well as
training and customer support.
Asymetrix believes that by providing a single source solution, it is well-
positioned to be the leading provider of online enterprise learning products
and services. Beginning in 1996, the Company redirected its focus to its
online learning products, divested several product lines and discontinued
development efforts not directly related to its online enterprise learning
solution. A key component of the Company's strategy is to provide an online
learning solution at the enterprise level. In February 1998, the Company
introduced an enhanced version of Librarian which the Company believes
significantly extends the existing features and functionality of Librarian by
enabling enterprise-wide deployment of online learning applications. In
addition, the Company has significantly expanded its professional services
capabilities and, since July 1, 1997, has acquired six professional services
companies, and the Company may seek to acquire additional professional
services companies in the future.
INDUSTRY BACKGROUND
Need for an Enterprise Learning Solution
Information technology has been successfully used to automate mission
critical business processes, such as manufacturing, human resources, finance,
sales, distribution and customer support. However, a critical function which
technology-based solutions have not adequately addressed is training and
education. In today's knowledge-based economy, an organization's ability to
learn and to apply knowledge is increasingly becoming a key competitive
advantage. With escalating job complexity, rapidly changing business
processes, shorter product life cycles, continuous investments in new
technologies that require skilled workforces, greater geographic dispersion
and increased employee mobility, organizations must be able to capture and
distribute knowledge rapidly throughout the organization. Organizations must
also frequently share this knowledge with suppliers, customers and
distributors. Training magazine estimates that U.S. organizations with 100 or
more employees budgeted an aggregate of approximately $58 billion in 1997 on
disparate training and education solutions, including instructor-led training,
conferences, seminars, written reference materials, computer-based training,
distance learning and, more recently, Internet and intranet-based training. In
addition, many organizations outsource the design, development and
implementation of training and learning management applications to third
parties. The Company believes there is a need for a learning solution that
enables organizations to improve employee productivity, coordinate their
training efforts, measure the effectiveness of training and deliver knowledge
to employees and business partners more rapidly, broadly and uniformly.
Enabling Trends and Technologies
The Company believes the market for enterprise learning solutions will be
fueled by the convergence of trends and technologies that enable technology-
based training solutions, including computer-based training, video-based
training and Internet-based training solutions, to be deployed increasingly as
substitutes for or complements to, instructor-led and other traditional forms
of training. These trends and enabling technologies include the proliferation
of multimedia-capable computers and networking solutions throughout all levels
of
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organizations, advances in PC processing power and in audio and video
streaming technologies that allow for the delivery of multimedia content in
digital format, high speed communications capabilities, object-oriented
programming technologies and, most importantly, the emergence of the Internet
and corporate intranets (collectively, the "Internet") as platforms for a wide
variety of business applications. The primary advantages of technology-based
training over traditional forms of training include performance improvements
and potential cost savings in the form of performance improvements and reduced
instructor salaries, compressed training times and reduced travel costs.
Derived from improved retention, consistent content quality, customization to
individual training needs and the ability to deliver training on CD-ROM or
through a network connection. According to International Data Corporation
("IDC"), revenues from all technology-based training applications in the
United States are expected to grow from $1.7 billion in 1997 to $4.1 billion
in 2001.
Internet-based training applications offer additional advantages over other
forms of technology-based training. Course content and application
enhancements can be deployed and updated without the need to create and
redistribute CD-ROMs or make substantial modifications to client software. The
ability to deploy and update centrally is particularly important for
organizations with dispersed or rapidly changing operations or with
significant training requirements. The ease and speed of deployment associated
with Internet-based training allows for "just-in-time" delivery for a
particular task, broadens the potential use of training within the enterprise
and offers a cost- and time-effective way to accumulate and retain company
knowledge. Internet-based training also provides the opportunity to track and
optimize individual or group performance and to collect feedback to
individualize and monitor the effectiveness of training applications. Finally,
training applications delivered over the Internet are platform independent and
require only a Web browser, eliminating the need for specialized hardware or
client software. This allows for greater accessibility at a lower cost and the
opportunity for on-demand training. Because of these benefits, the Company
believes that many organizations will target training and education as an
important corporate intranet application. IDC estimates that 75% of U.S.
corporations will have deployed an intranet by the end of 1998.
Limitations of Existing Solutions
Notwithstanding the many advantages of Internet-based training, to date, few
corporations have deployed Internet-based training applications throughout the
enterprise. Due to the lack of an established technology platform for the
development of these applications, organizations that have attempted to deploy
Internet-based training systems or applications typically have been forced to
rely on internal development efforts. Such solutions usually are costly, time-
consuming and characterized by the use of a variety of authoring products
purchased from different vendors that are not supported by a comprehensive,
standards-based development or management platform and are not optimized for
an Internet-based solution. As a result, the authoring and management products
employed are difficult to maintain, do not interoperate easily and do not
enable organizations to schedule, deploy, track and measure the effectiveness
of the training application or leverage the scalability inherent in Internet
deployment. In addition, the authoring products employed are often designed
for expert developers, which forces organizations to rely on their limited and
often over-burdened software development staffs to develop and deploy
Internet-based training applications.
Given the complexity of developing and deploying Internet-based training
applications and the scarcity of in-house technology-based training expertise
and resources, many organizations have sought assistance from third-party
experts for their technology-based training needs. However, the professional
services providers that offer technology-based training solutions typically
are small consulting and custom development firms with limited financial and
personnel resources and a narrow geographic focus. Even those professional
services firms with the resources to serve the needs of a large organization
cannot offer or deploy a single source solution and must rely on third parties
for technology, upgrades and technical support.
The Company believes that many organizations have a need for both a
technology platform and professional services that support the development and
deployment of Internet-based training applications. The Company also believes
that the integration of products and professional services by a single-source
vendor will be a key customer requirement in the emerging market for Internet-
based training solutions. Vendors that provide the most
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effective solutions as measured by increased employee productivity and return
on investment should enjoy a significant competitive advantage.
THE ASYMETRIX SOLUTION
Asymetrix is a leading provider of online enterprise learning solutions
designed to enable organizations to capture, deploy and manage knowledge more
effectively for use as a competitive advantage. The Company's online learning
solution is characterized by the following elements:
Tightly Integrated Product Offerings. The Company provides authoring
products for users with a broad range of skills and a learning management
system that collectively provide a technology platform for the development,
deployment and management of online learning applications. The Company's
online learning authoring products and learning management system are
tightly integrated ensuring that online learning applications created with
the Company's ToolBook II Instructor or ToolBook II Assistant authoring
products can be modified, reused and managed throughout an organization.
Open, Internet-Centric Approach. The Company's solution supports relevant
open standards and Internet protocols, including TCP/IP, HTML, Java and
ActiveX, enabling organizations to capitalize on the advantages of the
Internet, such as "anywhere, anytime" accessibility, cost effective
deployment, ease of updating and enhanced tracking and measurement
capabilities. The Company's learning management system uses the Open
Library Exchange ("OLX"), a published, specified interface that enables
organizations to integrate learning applications authored from a variety of
sources and that facilitates the Company's ability to incorporate emerging
technologies rapidly.
Flexibility. Customers can purchase the Company's online learning
products and professional services as a comprehensive solution or
individual products on a stand-alone basis for internal application
development with assurance that initial implementations can be integrated
into an online enterprise learning solution at a later date.
Manageability. The Company's Librarian learning management system
provides centralized, flexible control and easy administration of online
learning applications. Utilizing the interactive capabilities of the
Internet, this management system is designed to allow organizations to
track and optimize individual or group performance, collect feedback and
monitor the effectiveness of learning applications.
Comprehensive Professional Services. The Company's professional services
address a wide range of corporate education and training needs, including
needs assessment, creation of online learning applications, assimilation of
legacy and third-party content and performance evaluation services. The
Company's custom development services can also supplement customers' own
internal development efforts to enable more rapid development and
deployment of learning applications, the creation of larger and more
complex learning applications and access to instructional design or
technical, production or project management expertise not available
internally.
ASYMETRIX STRATEGY
The Company's objective is to be the leading provider of online enterprise
learning solutions. Key elements of the Company's strategy to achieve this
objective are:
Provide a Single Source Online Enterprise Learning Solution. The Company
seeks to distinguish its solution by providing a single source for online
enterprise learning. The Company's single source solution provides
organizations with both an open, standards-based, Internet-centric
technology platform for authoring, deploying and managing learning
applications and a wide range of professional services to assist
organizations in developing and implementing learning applications rapidly.
The Company believes its latest release of Librarian offers an enhanced
solution that will enable organizations to deploy and manage online
learning solutions throughout an enterprise.
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Extend Technology Leadership. Since its inception in 1984, the Company
has invested heavily in the development of advanced technologies, many of
which are incorporated in the Company's open, Internet-centric, tightly-
integrated, object-oriented technology platform for online learning. The
Company intends to continue to capitalize on advanced technologies and
rapidly incorporate new technologies into its online learning products.
Provide Superior Professional Services. The Company believes that
superior professional services can enhance and accelerate the successful
implementation of online enterprise learning solutions. The Company offers
a broad range of custom development, consulting, training and technical
support services to accelerate customer adoption and the successful
implementation of its online enterprise learning solution. The Company
intends to continue to expand its professional services capabilities both
internally and through acquisitions. The Company has recently acquired the
Oakes Companies, CSI, as well as two other smaller professional services
companies and it may seek to acquire additional professional services
companies in the future.
Expand Sales and Marketing Capabilities and Leverage Relationships. To
facilitate the shift in the Company's focus to online enterprise learning
solutions, the Company has substantially expanded its North American direct
sales organization. The Company intends to continue to expand its sales and
marketing activities in this market. In addition, the Company has entered
into relationships with providers of learning applications such as CBT
Systems, and intends to pursue such relationships in the future to
accelerate the adoption of the Company's solution.
Broaden Market for Online Learning Authoring Products. The Company seeks
to broaden the market for online learning with a multi-tiered approach to
its authoring product line. The Company's ToolBook II Instructor addresses
the market for professional developers of online learning applications.
ToolBook II Assistant is designed for professional trainers and educators.
ToolBook II Instructor can be used to create customized template for use by
subject matter experts using ToolBook II Assistant who do not have
programming or authoring expertise. The Company believes that this largely
untapped market segment provides an opportunity for additional growth.
Promote Successful Enterprise Implementations at Key Accounts. The
Company's online enterprise learning solution is designed to meet the
requirements of large organizations with geographically-dispersed
operations and continually changing training needs. The Company intends to
market its solution to leading organizations in a broad range of industries
and to promote successful enterprise implementations of its online learning
solution to create awareness and to drive further adoption of its solution.
PRODUCTS AND SERVICES
The Company's online enterprise learning solution includes software products
that collectively provide a technology platform and a wide variety of
professional services including consulting and custom development services
focused on the online learning market as well as training and customer
support.
PRODUCTS
The Company's software products offer customers a platform for online
enterprise learning applications. The Company's technology platform is
comprised of Librarian, a learning management system, and ToolBook II
Instructor and ToolBook II Assistant, online learning authoring products. The
Company also offers a variety of multimedia products.
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The following table depicts the Company's key products:
<TABLE>
<CAPTION>
END USER
PRODUCT DESCRIPTION LIST PRICE*
<S> <C> <C>
ONLINE LEARNING PRODUCTS
Learning Management System:
Librarian Online learning management system $4,000 to
designed to provide centralized, $50,000
flexible control and easy and above
administration of online learning
applications.
Authoring Products:
ToolBook II Instructor Object-oriented authoring product $2,495
designed for professional software
developers to create multimedia-
rich, interactive learning
applications. ToolBook II Instructor
can be used to create customized
templates for use by subject matter
experts using ToolBook II Assistant.
ToolBook II Assistant Object-oriented authoring product $1,195
designed for professional trainers
and educators to create online
learning applications.
MULTIMEDIA PRODUCTS
Digital Video Producer Video capture, editing and assembly $495
product for creating video content.
Web 3D Three-dimensional modeling program $129
designed to help create and edit 3D
graphics.
Learning Titles Selection of over 100 third-party $125 to
CD-ROM learning applications. $1,795
</TABLE>
* The terms and conditions, including sales prices and discounts from list
prices, may be negotiated based on product volumes and related services and
therefore may vary from customer to customer. The list price for Librarian
varies based on the number of registered users and server site
configuration. The Company typically receives a percentage of the end user
list price for products that are sold through the Company's distribution
channels.
Online Learning Products
Learning Management System. The Company's Librarian product is an object-
oriented, client-server learning management system designed to provide
centralized and flexible control and administration of online learning
applications. Librarian 5.0 was first shipped in July 1996. Librarian includes
an Internet- and intranet-based server implementation and utilizes standard,
Java-enabled Web browsers as the client for both learners and administrators.
Based on Internet standards, including HTML, Java and TCP/IP, Librarian is
available on Windows NT and Solaris UNIX and can connect to Microsoft
SQLServer, Oracle and other databases that comply with the open database
connectivity ("ODBC") standard.
The Company released version 6.0 of Librarian, the most recent version of
Librarian, in February 1998. The Company believes that this new version of
Librarian significantly extends the features and functionality of Librarian.
This new version is targeted for the enterprise market and is designed to
manage a wide range of tasks, diverse content and a large number of concurrent
users. This new version of Librarian is designed to provide the following key
features not available in previous versions of Librarian:
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Scalability. Librarian is designed to scale from one server to multiple
servers while maintaining a single database view whether on a centrally-
located database or multiple distributed databases and, with proper
authorization, can be administered from any geographic location within an
organization. Librarian also supports a large and variable number of
concurrent users and can be configured to avoid the performance limitations
typically associated with such systems.
Organizational flexibility. In order to manage large numbers of learners
and courses at an enterprise level, Librarian permits users to define
centrally an organizational tree which mirrors their departmental or
enterprise structure as well as numerous alternative groups. With this
flexible structure, administrators can efficiently establish and update
groupings such as new employees or employees assigned to a particular
project, and can assign, track and manage various subsets of courses and
learners.
Collaborative learning. In addition to online discussion capabilities
integrated with Librarian, the product is designed to support third-party
Internet-based synchronous applications such as threaded discussion, chat
and online whiteboard programs.
Management of online and offline content. In addition to the management
of online content, Librarian can catalog and track learner activity in
offline learning content such as books and videos through the creation of
HTML pages.
Enhanced features. Librarian offers a variety of enhanced features
including: an enhanced visual interface; sophisticated search and online
help features; broadcast email notification; controlled access to courses
and to a variety of administrative functions; enhanced reporting
capabilities; security features, including encryption and authentication
features; and enhanced course management capabilities, such as automatic
course assignments based on pre-assessment and conditional movement in
courses.
To date, the Company has not realized a substantial amount of its online
learning product revenue from its learning management system. There can be no
assurance that Librarian 6.0 will achieve market acceptance or that it will
produce substantial revenue in the future. See "Risk Factors--Rapid
Technological Change; Product Development," "--Dependence on Online Learning
Products" and "--Demanding Customer Requirements; Product Functionality and
Defects."
Authoring Products. The Company has a multi-tiered approach to its authoring
product line. The Company's ToolBook II Instructor addresses the market for
professional developers of online learning applications. ToolBook II Assistant
is designed for professional trainers and educators. ToolBook II Instructor
can be used to create customized templates for use by subject matter experts
using ToolBook II Assistant who do not have programming or authoring
experience. The Company's authoring products are designed to ensure that
learning applications created with the Company's authoring products are
optimized for deployment and management by its Librarian learning management
system. The Company's authoring products also provide a range of distribution
options, including an "export to Web" feature, which outputs applications in
HTML or Java, an Internet-ready format. The Company's authoring products also
enable hybrid distribution, combining Internet or LAN distribution with a CD-
ROM, permitting an online learning application running within a browser to
call multimedia-rich files from a client-based CD-ROM, thereby optimizing
delivery of the application notwithstanding network bandwidth constraints.
ToolBook II Instructor. ToolBook II Instructor is a Windows-based, object-
oriented authoring product designed for professional software developers to
create multimedia-rich, online learning applications. ToolBook II Instructor
contains a number of features that are designed to simplify the authoring and
deployment process, such as a book and page metaphor, a drag and drop
interface, book specialists that function like wizards, templates, question
objects, online help, a catalog of more than 1,000 objects to facilitate
creation of online learning applications and a "publish to Librarian" button.
Although scripting is not required, ToolBook II Instructor incorporates an
object-oriented scripting language known as OpenScript, which is designed to
extend the functionality of ToolBook II Instructor to support the creation of
custom templates and objects that can be used for authoring in ToolBook II
Instructor and ToolBook II Assistant. To augment ToolBook II Instructor, the
Company resells Allen Communications' Designer's Edge pre-authoring product
and sells its ToolBook II Synergy product which functions as the link between
Designer's Edge and ToolBook II Instructor.
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ToolBook II Assistant. ToolBook II Assistant is a Windows-based, object-
oriented authoring product designed for use by professional trainers and
educators. This product incorporates many of ToolBook II Instructor's ease of
use features, including pre-defined templates and book specialists, and
streamlines user options to facilitate the creation of high-quality learning
applications without the need for any programming or scripting. Objects and
templates can be created in ToolBook II Instructor and exported to ToolBook II
Assistant, and applications authored in ToolBook II Assistant can be modified
or enhanced in ToolBook II Instructor, enabling professional trainers and
applications developers to collaborate on content creation.
Multimedia Products
The Company offers several digital media products which can be used to
create high quality multimedia content, such as digital video, 3D models and
animations. These products can be used on a stand-alone basis or in
conjunction with the Company's authoring products. Through its TopShelf
Multimedia subsidiary, the Company also resells a variety of CD-ROM-based
online learning applications.
Digital Video Producer. Digital Video Producer is a Windows-based video
capture, editing and assembling product designed to make sophisticated desktop
video editing capabilities intuitive and easy to use. Users can drag and drop
captured video and audio files on timeline tracks and add transitions, text
and graphics and can preview and optimize the images.
Web 3D. Web 3D is an easy-to-use Windows-based 3D modeling product. Users
can drag and drop a 3D graphic from a large catalog of 3D models, add color,
and choose from a large number of surface effects and lighting settings with
multiple camera views, shadows, animation paths and backdrop scenes.
Learning Titles. The Company offers over 100 third-party CD-ROM based online
learning applications. These titles include Development Dimensions
International's award-winning Targeted Selection and a variety of other
management and professional skills, PC skills and IT training, OSHA compliance
and health and safety titles. The Company has a staff of online learning
professionals who can consult with and advise customers so that they can
select the courses most appropriate for their online learning needs.
As a result of the Company's strategy to focus on the online enterprise
learning market, the Company anticipates that growth in product sales, if any,
will be attributable primarily to its online learning products and that its
other product revenue will decrease in the future. See "Risk Factors--
Dependence on Online Learning Products."
PROFESSIONAL SERVICES
In order to provide a complete solution for the online learning needs of its
customers, the Company offers a variety of learning services, including a wide
range of consulting and development services, training programs and customer
and technical support. The Company's professional services organization has
employees located in Georgia, Illinois, Massachusetts, New Hampshire, North
Carolina, Texas, Washington and the United Kingdom.
Consulting Services. Through the Asymetrix Consulting Organization, known as
ACORN, the Company provides customers with needs identification and
assessment, learner analysis and training performance evaluation services.
Customers may use consulting services as a supplement to internal development
efforts or in conjunction with other learning services provided by the
Company.
Custom Development. The Company's project teams provide a wide range of
development services, including the planning, design, development,
administration and evaluation of online learning applications. The Company's
custom development services supplement customers' own internal development
efforts by enabling more rapid development and deployment of online learning
applications, the creation of larger and more complex applications and access
to instructional design, technical, production or project management expertise
not available internally. The Company employs many skilled personnel in its
development services organization, including instructional designers who
participate in project analysis, writing and design development, graphic
artists who create graphics and multimedia content, and programmers.
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Training. The Company offers a variety of training classes for its products.
These classes provide instruction on the use of the Company's authoring and
management products and are offered for novice developers as well as
sophisticated programmers. The Company also offers customized classes to meet
a customer's unique requirements. Training classes are offered at the
Company's facilities, at client locations or at other locations across the
country. The Company also has a network of approximately 60 authorized
training centers which provide training for the Company's authoring products.
Customer Support. The Company generally requires Librarian customers to
purchase installation services at the time of the initial licensing of the
product. For additional fees, the Company also integrates Librarian with the
customer's online learning environment. The Company provides technical support
without charge for a limited period of time for its authoring and multimedia
products. Thereafter, the Company offers fee-based telephone support and
various levels of support contracts which can include email support, telephone
support, upgrades and monthly bulletins. For its Librarian product,
maintenance is sold at the time of product purchase. The Company also offers
Web-based support which includes an online knowledge base.
CUSTOMERS
The Company has licensed its online learning products or provided
professional services to customers in a wide variety of markets. No single
customer accounted for more than 10% of total revenues in 1996 or 1997. The
following table sets forth a representative list of the Company's customers
who have purchased at least $50,000 of the Company's online learning products
or professional services from the Company since January 1, 1996:
Financial/Accounting Health Care/Insurance
Deloitte & Touche LLP CUNA Mutual Group
Fidelity Investments Harvard Pilgrim Health Care
First Union Corp. The Hartford Financial Services
Ford Motor Credit Company Group, Inc.
Merrill Lynch & Co., Inc. Metropolitan Life Insurance
New York Stock Exchange, Inc. Company
Price Waterhouse LLP Oxford Health Plans, Inc.
Prudential Securities Incorporated
Government
Networking/Communications
Los Alamos National Laboratory
Lucent Technologies Inc. United States Air Force
MCI Communications Corporation United States Army
United States Department of
Defense
Manufacturing/Other
The Boeing Company Hardware/Software
Development Dimensions International
Duracell Inc. Cheyenne Software
The Laurasian Institute Hewlett-Packard Company
Lockheed Martin Corporation IBM Corporation
Pfizer Inc. Intel Corporation
The Proctor & Gamble Company Microsoft Corporation
Raytheon Company Pinnacle Systems, Inc.
Union Camp Corporation Symbol Technologies, Inc.
Systems & Computer Technology
Corp.
Tandy Corporation
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TECHNOLOGY, RESEARCH AND DEVELOPMENT
Asymetrix was founded in 1984 by Paul Allen, a co-founder of Microsoft
Corporation, and during the Company's first ten years it operated in large
part as a technology development organization, with less emphasis on the
commercialization of technologies. Mr. Allen continues to contribute to the
Company's technological direction as a member of the Company's Board of
Directors and as a technology advisor. This technical heritage continues to
provide the foundation for the Company's current products, has benefited the
Company's development efforts and has resulted in a number of award-winning
products.
Starting in 1995, Asymetrix redirected its focus to the development and
marketing of authoring products and learning management systems designed to
capitalize on the advantages of the Internet. Research and development and
product lines not directly related to this focus were decreased, eliminated or
subsequently spun off. The Company invests aggressively in its core
technologies and believes that its future success and competitiveness will
depend on continued product innovation.
Key features of the Company's technology include:
Open Learning Management Platform. The Company's Librarian product is
based on an open architecture. A key element of this open architecture is a
Company-developed communications protocol, OLX, which is designed to
facilitate communications between Librarian and learning applications. The
OLX protocol is a published, specified interface that enables organizations
to integrate learning applications authored from a variety of sources and
that accelerates the Company's ability to incorporate emerging
technologies.
Support of Open Internet Standards. The Company's development efforts
support open and de facto standards including HTML, DHTML, Java, ActiveX,
AICC, Netscape and Microsoft browsers and streaming technologies. This
focus, together with the Company's experience with rapidly changing
technologies such as multimedia management, facilitates the incorporation
of internally or externally developed advanced technologies.
Scalable Authoring. The Company's ToolBook II authoring products
incorporate an object-oriented core code base and user interface technology
that provide the power and flexibility required by professional developers,
as well as the ease of use needed to support training professionals who
have little or no computer programming or authoring experience. Using the
Company's objected-oriented scripting language known as OpenScript, custom
templates and objects can be created in ToolBook II Instructor and exported
to ToolBook II Assistant. Learning applications created in ToolBook II
Assistant can be modified or enhanced in ToolBook II Instructor.
Enterprise-Class Architecture. The Company's technologies incorporated in
the latest version of Librarian support integrated management solutions
that are designed to scale from one server to multiple servers while
maintaining centralized administration, and support a large number of
concurrent users. This version of Librarian also provides for an adaptable
hierarchical organizational structure that can mirror the many
organizational structures within an enterprise, controlled access to
administrative functions and other advanced security features such as
encryption and authentication features, and supports emerging Internet
collaborative learning applications.
The Company believes that its focus on research has attracted qualified
engineering and other research and development personnel and has contributed
to the Company's core technology capabilities, which it believes include
expertise in object-oriented programming languages and tools; multimedia
design, including video and audio; multimedia authoring and interactive user
interface design; instructional design; and client/server and Internet
technologies. The Company's research and development group is located in
Bellevue, Washington, with an additional team in Nashua, New Hampshire.
Research and development expenses were $13.3 million, $12.1 million and
$8.1 million in 1995, 1996 and 1997, respectively and represented 73%, 70% and
34% of total revenue for those respective periods. The Company expects that it
will continue to commit significant resources to research and development in
the future, although it anticipates that research and development expenses in
the near term will not be at the same levels as 1996 and prior periods.
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<PAGE>
The Company's future success will depend on its ability to continue to
enhance its current product line and to continue to develop and introduce new
products or offer new services that keep pace with competitive product
introductions, technological developments and emerging industry standards,
satisfy diverse and evolving customer requirements and otherwise achieve
market acceptance. There can be no assurance that the Company will be
successful in developing and marketing on a timely and cost-effective basis
future products or product enhancements, or offer new services that respond to
technological advances. In addition, the Company has in the past experienced
delays in the development, introduction and marketing of new or enhanced
products, and there can be no assurance that the Company will not experience
similar delays with respect to other new products or product enhancements. Any
failure by the Company to anticipate or respond adequately to changes in
technology and customer preferences, or any significant delays in product
development or introduction, could have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Rapid Technological Change; Product Development."
SALES AND MARKETING
The Company markets its online learning products and professional services
principally in the U.S. and through its direct sales force. The Company
targets its direct sales and marketing activities to Fortune 1000 companies,
educational organizations and government agencies. As of December 31, 1997,
the Company's sales and marketing organization consisted of 66 employees based
at the Company's corporate headquarters in Bellevue, Washington and at its
field offices in California, Georgia, Kansas, Maryland, Massachusetts, New
Hampshire, New Jersey, New York, Ohio and Virginia. The direct sales
organization includes a small telesales force that handles smaller orders and
assists with lead generation. The Company's direct sales organization also
includes engineers who answer technical questions and assist customers with
product installation implementation. The Company's direct sales force
accounted for 50% and 48% of total revenue in 1996 and 1997, respectively. The
Company expects this level to increase as a result of the acquisitions of
Aimtech, the Oakes Companies and CSI and as a result of the Company's focus on
the online learning market.
The Company offers its learning services in a small number of foreign
markets. While international revenue accounted for 32% and 31% of the
Company's total revenue for 1996 and 1997, respectively, the Company believes
that the online enterprise learning market has not yet developed significantly
outside the United States and currently does not intend to market actively its
online learning products and professional services internationally other than
in the United Kingdom and in a limited number of other foreign markets.
Therefore, the Company anticipates that international revenue will constitute
a lesser percentage of total revenue in the future.
The Company conducts a variety of marketing programs to promote its products
and services, including direct mail, advertising, seminars, trade shows,
public relations and distribution of product literature. The Company sponsors
an online learning conference, the most recent of which was named "Asymetrix
Online Learning '97," which had over 800 attendees, that featured a variety of
speakers representing key participants in the online learning industry. For
1998, the Company and Lakewood Publications, the publisher of Training
magazine, will jointly present the "Online Learning '98" conference in
September 1998. The Company also participates as an exhibitor and speaker at
many technology-based training trade shows. In addition, the Company offers
jointly-sponsored seminars and other marketing events with other companies in
the training market, such as Systems & Computing Technology Corporation and
CBT Systems, to help promote awareness of online learning and the Company's
solutions. The Company also maintains a Web site where potential customers can
obtain information about the Company and its products, services and
distributors.
COMPETITION
The online learning market is highly fragmented and competitive, rapidly
evolving and subject to rapid technological change, with no single competitor
accounting for a dominant market share. Because of the lack of significant
barriers to entry in its market, the Company expects that a number of new
competitors will enter this market in the future.
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<PAGE>
The Company's competitors vary in size and scope and the breadth of products
and services offered. The Company's online learning authoring products face
competition from developers of multimedia authoring tools, Librarian faces
competition from vendors of other management systems, including those offered
with off-the-shelf technology-based training courses, and its professional
services business faces competition from many small, regional online learning
and technology-based training services businesses as well as large
professional consulting firms and in-house training departments. Because of
the emerging nature of the market for online learning, the Company believes
that being first to achieve market or brand awareness should provide a
competitive advantage. A number of large companies have announced an intention
to enter the market for online learning and technology-based training. There
can be no assurance that additional companies will not enter the online
learning market and offer products and services that are competitive with
those of the Company. Increased competition could result in pricing pressures,
reduced margins or the failure of the Company's products and services to
achieve or maintain market acceptance, any of which could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company believes that the principal competitive factors affecting its
market include: product features such as adaptability, scalability, ability to
integrate with other technology-based training products; quality of
professional services; expertise and technical knowledge; functionality and
ease of use of products or developed
learning applications; quality and performance of online learning solutions;
pricing; customer service and support; the effectiveness of sales and
marketing efforts; and company reputation. Although the Company believes that
its solution currently competes favorably with respect to such factors, there
can be no assurance that the Company can maintain its competitive position
against current and potential competitors, especially those with significantly
greater financing, marketing, service, support, technical and other resources.
Several of the Company's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources than the Company and therefore may be able to respond more
quickly than the Company to new or changing opportunities, technologies,
standards and customer requirements. Many of these competitors also have
broader and more established distribution channels that may be used to deliver
competing products or services directly to customers. If such competitors were
to bundle competing products or services for their customers and offer a
complete online learning solution, the demand for the Company's products and
services might be substantially reduced and the ability of the Company to
market and sell its products and services successfully might be substantially
diminished. In addition, the existence or announcement of collaborative
relationships involving competitors of the Company could adversely affect the
Company's ability to attract and retain customers. As a result of the
foregoing and other factors, there can be no assurance that the Company will
compete effectively with current or future competitors or that competitive
pressures faced by the Company will not have a material adverse effect on the
Company's business, operating results and financial condition. See "Risk
Factors--Competition."
PROPRIETARY RIGHTS
The Company relies primarily on a combination of copyrights, trademarks,
trade secret laws, restrictions on disclosure and other methods to protect its
intellectual property and trade secrets. While the Company also has two
patents, there can be no assurance that these patents will not be invalidated,
circumvented or challenged, or that the rights granted under such patents will
provide competitive advantages to the Company. The Company also enters into
confidentiality agreements with its employees and consultants, and generally
controls access to and distribution of its documentation and other proprietary
information. Despite these precautions, it may be possible for a third party
to copy or otherwise obtain and use the Company's intellectual property or
trade secrets without authorization. In addition, there can be no assurance
that others will not independently develop substantially equivalent
intellectual property. There can be no assurance that the precautions taken by
the Company will prevent misappropriation or infringement of its technology. A
failure by the Company to protect its intellectual property in a meaningful
manner could have a material adverse effect on the Company's business,
operating results and financial condition. In addition, litigation may be
necessary in the future to enforce the Company's intellectual property rights,
to protect the Company's trade secrets or to determine the validity and
45
<PAGE>
scope of the proprietary rights of others. Such litigation could result in
substantial costs and diversion of management and technical resources, either
of which could have a material adverse effect on the Company's business,
operating results and financial condition.
The Company also uses certain licensed third-party technology in some of its
products. In these license agreements, the licensors have generally agreed to
defend, indemnify and hold the Company harmless with respect to any claim by a
third party that the licensed software infringes any patent or other
proprietary right. There can be no assurance that the outcome of any
litigation between such licensors and a third party or between the Company and
a third party will not lead to royalty obligations of the Company for which
the Company is not indemnified or for which such indemnification is
insufficient, or that the Company will be able to obtain any additional
license on commercially reasonable terms or at all. In the future, the Company
may seek to license additional technology to incorporate in its products.
There can be no assurance that any third-party technology licenses that the
Company may be required to obtain in the future will be available to the
Company on commercially reasonable terms or at all. The loss of or inability
to obtain or maintain any of these technology licenses could result in delays
in introduction of the Company's products until equivalent technology, if
available, is identified, licensed and integrated, which could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Risk Factors--Intellectual Property; Litigation" and
"Business--Legal Proceedings."
EMPLOYEES
As of December 31, 1997, Asymetrix had 304 full-time employees, including 51
in research and development, 66 in sales and marketing, 144 in professional
services and customer support and 42 in administration. The Company has never
had a work stoppage and no employees are represented under collective
bargaining agreements. The Company considers its relations with its employees
to be good. The Company believes that its future success will depend in part
on its continued ability to attract, integrate, retain and motivate highly
qualified sales, technical, professional services and managerial personnel,
and upon the continued service of its senior management and key sales,
professional services and technical personnel, none of whom is bound by an
employment agreement. Competition for qualified personnel is intense, and
there can be no assurance that the Company will be successful in attracting,
integrating, retaining and motivating a sufficient numbers of qualified
personnel to conduct its business in the future. See "Risk Factors--Management
of Growth and Expansion" and "--Dependence on Key Personnel."
FACILITIES
The Company's principal administrative, sales, marketing and research
development facilities are located in approximately 63,815 square feet of
leased office space in Bellevue, Washington, which lease expires in October
1999. The Company subleases approximately 23,000 square feet of its premises
to certain related entities including Vulcan Northwest and SuperCede, Inc. for
monthly rental equivalent to that paid by Asymetrix. See "Certain
Transactions." The Company also has facilities in Atlanta, Georgia; Nashua,
New Hampshire; Needham, Massachusetts; and Fort Worth, Texas for certain of
its research and development teams and for its professional services group.
The Company believes that its current facilities will be adequate to meet its
needs, or that alternate leased space will be available to meet its needs, for
the foreseeable future. The Company also maintains sales offices in
California, Georgia, Kansas, Maryland, New Jersey, New York, Ohio, Virginia
and London, England.
LEGAL PROCEEDINGS
From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. As of the date of this
Prospectus, except as described below, the Company is not a party to any
litigation or other legal proceeding that, in the opinion of management, could
have a material adverse effect on the Company's business, operating results
and financial condition.
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<PAGE>
Richard B. Grant v. Asymetrix Corporation, No. CV-96-3635 HLH, Central
District of California. On May 21, 1996, Richard B. Grant filed a complaint
alleging that the Company's ToolBook and Multimedia ToolBook products infringe
a patent owned by him and seeking unspecified damages. The Company has
received an opinion that the products do not infringe this patent and that the
patent is invalid. This action is still in the discovery stage, and it is not
yet possible to assess the likelihood of its outcome. An adverse outcome in
this litigation could have a material adverse effect on the Company's
business, operating results and financial condition. Although the Company
believes that it does not infringe this patent and that the patent is invalid,
the results of litigation can never be predicted with certainty, and the costs
of defense, regardless of outcome, could have a material adverse effect on the
business, operating results and financial condition of the Company.
In addition, litigating this claim could be time-consuming and distract
management personnel, or require the Company to develop non-infringing
technology or enter into royalty licensing agreements. Such royalty or
licensing agreements, if required, might not be available on commercially
reasonable terms, or at all. In the event of a successful claim of
intellectual property infringement against the Company and the failure or
inability of the Company to develop noninfringing technology or license the
infringed or similar technology on a timely basis, the Company's business,
operating results and financial condition could be materially and adversely
affected.
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<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information regarding the executive
officers and directors of the Company as of March 31, 1998:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
James A. Billmaier.................. 42 Chief Executive Officer and Director
Kevin M. Oakes...................... 34 President, General Manager, Learning
Services and Director
E. Charles Ellison.................. 44 Vice President, Business Development
John M. Kellum...................... 47 Vice President and General Manager,
Online Learning Products
Steven Martino...................... 39 Vice President, Sales
John D. Atherly..................... 39 Vice President, Finance and
Administration and Chief Financial
Officer
Steven Esau......................... 35 Vice President, General Counsel and
Corporate Secretary
Bert Kolde (1)(2)................... 43 Chairman of the Board
Paul G. Allen....................... 45 Director
Shelley Harrison, Ph.D. (1)(2)...... 55 Director
Gary Rieschel (1)(2)................ 41 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Billmaier has served as Chief Executive Officer and a director of the
Company since July 1995 and served as President of the Company from July 1995
until September 1997. From January 1994 until July 1995, he was the Vice
President and General Manager of the Network Software Products Business of Sun
Microsystems, Inc.. From February 1992 until January 1994 he was Vice
President of Marketing and Business Development for SunSoft, Sun Microsystems'
software business division. Prior to joining Sun Microsystems, Mr. Billmaier
served as the Vice President of Software Marketing and Business Development at
MIPS Technologies, Inc., and before that he was responsible for UNIX
workstation products and strategies at Digital Equipment Corporation.
Mr. Oakes has served as President and General Manager, Learning Services,
since he joined the Company in September 1997. Prior to that time, Mr. Oakes
was the President of each of Oakes Interactive Incorporated, TopShelf
Multimedia, Inc. and Acorn Associates Incorporated (together, the "Oakes
Companies"), which he founded in March 1993, January 1996 and March 1997,
respectively, and each of which the Company acquired in September 1997. See
"Certain Transactions." Prior to forming the Oakes Companies, Mr. Oakes was a
Senior Account Representative for The Minnesota Mutual Life Insurance Company.
Mr. Ellison has served as Vice President, Business Development of the
Company since October 1997, was the Company's Senior Vice President, Worldwide
Sales from September 1995 to October 1997, and was the Company's Vice
President, Sales and Marketing from July 1993, when he joined the Company,
until September 1995. From December 1991 until July 1993 he was the Senior
Vice President, Client Services at Upgrade Corporation of America (now
SOFTBANK Services Group), a telemarketing and fulfillment company. Prior to
that time, he served as a Vice President for each of Gupta Technologies,
Government Technology Services, Inc., and Ashton-Tate, and as National Manager
for government, education and corporate accounts for Microsoft.
Mr. Kellum has served as Vice President and General Manager, Online Learning
Products since November 1995, and prior to that was the Company's Senior
Director of Business Development since he joined the
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Company in September 1995. From May 1993 to September 1995 he served as
Director of Technology and Business Development at SunSoft. From 1987 to May
1993 he served as Director of Engineering at Intergraph Corporation, a
graphics workstation company. Prior to that time, he served as Director of
Operating Systems at Fairchild Research Center and as a Senior Research
Scientist at Honeywell Research Center.
Mr. Martino has served as Vice President, Sales of the Company since October
1997, and prior to that was the Company's Vice President and General Manager,
Professional Services from February 1997 to October 1997 and the Company's
Vice President, Marketing from September 1995, when he joined the Company, to
February 1997. From 1990 to September 1995 Mr. Martino was with Sun
Microsystems, most recently as the Senior Director of Marketing for SunSoft.
Prior to that time, he was a Senior Manager at Price Waterhouse, and held
various sales and marketing positions at Xerox Corporation.
Mr. Atherly has served as Vice President, Finance and Administration and
Chief Financial Officer of the Company since February 1995, and prior to that
was the Company's Director of Finance and Operations, Treasurer and Secretary
from February 1993 until February 1995. Mr. Atherly held various other
positions since he joined the Company in June 1990, including the Company's
Controller from February 1991 until February 1993. Prior to joining the
Company, Mr. Atherly was a Finance and Operations Manager at MicroDisk
Services, a software manufacturing services company.
Mr. Esau has served as General Counsel of the Company since October 1995 and
also as a Vice President and the Secretary of the Company since January 1997.
Prior to that time, Mr. Esau was the Company's Director of Legal Affairs from
February 1995 until October 1995, and before that he was counsel to the
Company since he joined the Company in February 1994. From 1988 until February
1994, he was in private law practice, first with Stoel Rives LLP in Seattle
and then with his own law firm, where he focused on serving software and
technology startup companies.
Mr. Kolde was appointed Chairman of the Board of the Company in July 1997,
and has been a director of the Company since it was founded in December 1984.
Mr. Kolde served as Executive Vice President of the Company from December 1984
until April 1993, and thereafter as President of the Company until November
1994. Mr. Kolde is Vice Chairman of Trail Blazers Inc., Football Northwest
LLC, First & Goal Inc. and Oregon Arena Corporation. Mr. Kolde serves as a
director of those organizations, MetaCreations Corporation and Precision
Systems, Inc. Prior to joining the Company, Mr. Kolde was the Vice President
of Management Reporting of Seafirst Corporation.
Mr. Allen founded the Company in 1984 and has served as a director of the
Company since that time. Mr. Allen also served as the President of the Company
from its founding until April 1993, and as the Chief Executive Officer of the
Company from its founding until July 1995. Mr. Allen was a co-founder of
Microsoft Corporation and is a member of Microsoft's board of directors. Mr.
Allen owns and invests in a suite of companies exploring the potential of
multimedia digital communications. Mr. Allen is the owner of Interval Research
Corp., Vulcan Ventures, Inc., Trail Blazers Inc. and Football Northwest LLC,
is a partner in the entertainment studio Dreamworks SKG, and holds investments
in more than 35 technology companies. Mr. Allen is also a director of USA
Networks, Inc.
Dr. Harrison has served as a director of the Company since September 1997,
when the Company acquired Aimtech. See "Certain Transactions." Dr. Harrison
serves as Chairman and Chief Executive Officer of Spacehab, Incorporated, a
developer of habitable modules for the United States space shuttle fleet.
Since 1987, Dr. Harrison has been a Managing General Partner of Poly Ventures,
Limited Partnership, a venture capital fund. Prior to that time, Dr. Harrison
co-founded and served as Chairman and Chief Executive Officer of Symbol
Technologies, Inc., a provider of bar code laser scanners and portable
terminals. Dr. Harrison is also a Director of Netmanage, Inc., Globecomm
Systems Inc. and JetFax, Inc.
Mr. Rieschel has served as a director of the Company since October 1996. Mr.
Rieschel has been a Senior Vice President of SOFTBANK Holdings, Inc., a
venture capital fund, since January 1996. Prior to that time, Mr.
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Rieschel served as Vice President of Marketing for nCUBE from August 1994 to
December 1995, as Director of Channel Sales for Cisco Systems from September
1993 to August 1994, and as General Manager, Asia for Sequent Computer from
January 1989 to July 1993. Mr. Rieschel is a director of OnLive! Technologies,
Inc., Concentric Network Corporation, USWeb Corporation and several private
companies.
Directors are elected by the stockholders at each annual meeting of
stockholders to serve until the next annual meeting of stockholders or until
their successors are duly elected and qualified. Three of the existing
directors were elected pursuant to certain provisions of the Series A
Preferred Stock Purchase Agreement and voting agreements entered into in
connection with each of the Company's acquisitions of Aimtech and the Oakes
Companies, each of which is described in "Certain Transactions." These
provisions will terminate upon the completion of this offering. Executive
officers are elected by, and serve at the discretion of, the Company's Board
of Directors (the "Board"). The Company's Amended and Restated Bylaws, which
will become effective upon the completion of this offering, will provide that
the Board will be divided into three classes, Class I, Class II and Class III,
with each class serving staggered three-year terms. The Class I directors,
initially Messrs. Allen and Rieschel, will stand for reelection or election at
the 1999 annual meeting of stockholders. The Class II directors, initially Dr.
Harrison and Mr. Oakes, will stand for reelection or election at the 2000
annual meeting of stockholders. The Class III directors, initially Messrs.
Billmaier and Kolde, will stand for reelection or election at the 2001 annual
meeting of stockholders.
BOARD COMMITTEES
The Board has established an Audit Committee to meet with and consider
suggestions from members of management and the Company's internal audit staff,
as well as the Company's independent accountants, concerning the financial
operations of the Company. The Audit Committee also has the responsibility to
review audited financial statements of the Company and consider and recommend
the employment of, and approve the fee arrangements with, independent
accountants for both audit functions and for advisory and other consulting
services. The Audit Committee is currently comprised of Dr. Harrison and
Messrs. Kolde and Rieschel. The Board has also established a Compensation
Committee to review and approve the compensation and benefits for the
Company's key executive officers, administer the Company's stock purchase,
equity incentive and stock option plans and make recommendations to the Board
regarding such matters. The Compensation Committee is currently comprised of
Dr. Harrison and Messrs. Kolde and Rieschel.
DIRECTOR COMPENSATION
Directors do not receive any cash fees for their service on the Board or any
Board committee, but they are entitled to reimbursement of all reasonable out-
of-pocket expenses incurred in connection with their attendance at Board and
Board committee meetings. All Board members are eligible to receive stock
options under the Company's 1995 Plan. In July 1995, the Company granted to
each of Mr. Allen and Mr. Kolde options to purchase 75,000 shares and 90,000
shares, respectively, of its Common Stock under its 1995 Plan, each with an
exercise price per share of $1.55.
In December 1997, the Board adopted, subject to stockholder approval, the
1998 Directors Stock Option Plan (the "Directors Plan") and reserved a total
of 187,500 shares of the Company's Common Stock for issuance thereunder.
Members of the Board who are not employees of the Company or any parent,
subsidiary or affiliate of the Company are eligible to participate in the
Directors Plan. Option grants under the Directors Plan are automatic and
nondiscretionary, and the exercise price of such options is 100% of the fair
market value of the Common Stock on the date of grant. Each eligible director
who is a member of the Board on or after the effective date of the
Registration Statement of which this Prospectus forms a part (the "Effective
Date") will be granted an option to purchase 7,500 shares (an "Initial Grant")
on the later of the Effective Date or the date such director first becomes a
director. On each anniversary of a director's Initial Grant, each eligible
director will automatically be granted an additional option to purchase 7,500
shares if such director has served continuously as a member of the Board since
the date of such director's Initial Grant. The term of such options is ten
years, provided that they will terminate seven months following the date the
director ceases to be a director of the Company or a consultant of the Company
(twelve months if the termination is due to death or disability).
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All options granted under the Directors Plan will vest as to 2.77% of the
shares each month after the date of grant, provided the optionee continues as
a director of the Company or a consultant of the Company. Additionally,
immediately prior to the dissolution or liquidation of the Company or a
"change in control" transaction, all options granted pursuant to the Directors
Plan will accelerate and will be exercisable for a period of up to six months
following the transaction, after which period any unexercised options will
expire.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to this offering, the Company's Board did not have a compensation
committee and all compensation decisions, other than grants of stock options,
were made by the full Board or the Chief Executive Officer. Since October
1997, grants of stock options have been made by the Company's Stock Option
Plan Administration Committee, which is comprised of Messrs. Billmaier and
Kolde. Neither Mr. Billmaier nor Mr. Oakes has participated in Board
deliberations regarding his respective compensation, and the Stock Option Plan
Administration Committee has not granted any options to its members. Upon
completion of this offering, the Compensation Committee will make all
compensation decisions. No interlocking relationship exists between the Board
or Compensation Committee and the board of directors or compensation committee
of any other company, nor has any such interlocking relationship existed in
the past.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation awarded to, earned by, or paid for services rendered to the
Company in all capacities during the year ended December 31, 1997 by the
Company's Chief Executive Officer and the four most highly compensated
executive officers, other than the Chief Executive Officer, who were serving
as executive officers at the end of 1997 (collectively, the "Named Executive
Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
---------------------
ANNUAL COMPENSATION AWARDS
--------------------------------- ---------------------
NAME AND PRINCIPAL POSITION OTHER ANNUAL SECURITIES UNDERLYING
(1) SALARY BONUS COMPENSATION OPTIONS (#)
- --------------------------- -------- ------- ------------ ---------------------
<S> <C> <C> <C> <C>
James A. Billmaier....... $250,000 $74,875 (2) -- 187,500
Chief Executive Officer
E. Charles Ellison....... 175,000 93,911 (3) -- --
Vice President, Business
Development
Steven Martino........... 133,404 36,075 (2) -- 37,500
Vice President, Sales
John D. Atherly.......... 119,327 28,260 (2) -- 15,000
Vice President, Finance
and Administration and
Chief Financial Officer
John M. Kellum........... 121,827 26,643 (2) -- 37,500
Vice President and
General Manager,
Online Learning
Products
</TABLE>
- --------
(1) Kevin M. Oakes, the Company's President and General Manager, Learning
Services, joined the Company in September 1997. Based on his annual
salary, Mr. Oakes would have been a Named Executive Officer if he had been
with the Company during all of 1997.
(2) Includes certain bonus compensation earned in 1996 but not paid until
1997, and does not include bonus compensation earned in 1997 but not paid
in 1997.
(3) All bonus compensation for this individual consists of sales commissions.
Includes commissions earned with respect to certain sales made in 1996 but
not paid until 1997, and excludes commissions earned with respect to
certain sales made in 1997 but not paid in 1997.
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OPTION GRANTS IN FISCAL 1997
The following table sets forth certain information regarding stock options
granted to each of the Named Executive Officers during the year ended December
31, 1997.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF
STOCK PRICE
APPRECIATION
INDIVIDUAL GRANTS(1) FOR OPTION TERMS (2)
------------------------------------------------------ ---------------------
NUMBER OF PERCENT OF TOTAL
SECURITIES OPTIONS GRANTED TO
UNDERLYING EMPLOYEES IN EXERCISE
OPTIONS FISCAL YEAR (%) PRICE EXPIRATION
NAME GRANTED (3) PER SHARE (4) DATE 5% 10%
- ---- ---------- ------------------ ------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
James A. Billmaier...... 187,499 13.6 $7.67 12/4/07 $ 904,036 $ 2,291,005
E. Charles Ellison...... -- -- -- -- -- --
Steven Martino.......... 29,999 2.2 6.00 10/20/07 113,201 286,874
7,500 0.5 6.00 4/22/07 28,300 71,718
John D. Atherly......... 7,500 0.5 6.00 10/20/07 28,300 71,718
7,500 0.5 6.00 4/22/07 28,300 71,718
John M. Kellum.......... 29,999 2.2 6.00 10/20/07 113,201 286,874
7,500 0.5 6.00 4/22/07 28,300 71,718
</TABLE>
- --------
(1) Options granted in 1997 were granted under the Company's 1995 Plan. These
options become exercisable with respect to 25% of the shares covered by
the option on the first anniversary of the date of grant and with respect
to an additional 2.08% of these shares each month thereafter, subject to
acceleration upon certain changes in control of the Company. These options
have a term of ten years. See "--Employee Benefit Plans" for a description
of the material terms of these options.
(2) Potential realizable value is based on the assumption that the Common
Stock of the Company appreciates at the annual rate shown (compounded
annually) from the date of grant until the expiration of the ten-year
term. These numbers are calculated based on Securities and Exchange
Commission requirements and do not reflect the Company's projection or
estimate of future stock price growth.
(3) The Company granted options to purchase an aggregate of 1,380,823 shares
of Common Stock to all employees during 1997.
(4) Options were granted at an exercise price equal to the fair market value
of the Company's Common Stock, as determined by the Board.
FISCAL YEAR-END OPTION VALUES
The following table sets forth for each of the Named Executive Officers the
number and year-end value of exercisable and unexercisable options for the
year ended December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 12/31/97 (1) AT 12/31/97 (2)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
James A. Billmaier.......... 271,875 365,624
E. Charles Ellison.......... 123,750 56,250
Steven Martino.............. 44,999 75,000
John D. Atherly............. 62,229 43,320
John M. Kellum.............. 43,748 76,251
</TABLE>
- --------
(1) Options shown were granted under the 1995 Plan and are subject to vesting
as described in footnote (1) to the option grant table above. See "--
Employee Benefit Plans" for a description of the material terms of these
options.
(2) Based on an assumed initial public offering price of $ per share and net
of exercise price.
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<PAGE>
No options were exercised during 1997 by the Named Executive Officers. No
compensation intended to serve as incentive for performance to occur over a
period longer than one year was paid pursuant to a long-term incentive plan
during 1997 to any Named Executive Officer. The Company does not have any
defined benefit or actuarial plan under which benefits are determined
primarily by final compensation and years of service with any of the Named
Executive Officers.
EMPLOYEE BENEFIT PLANS
1995 Combined Incentive and Nonqualified Stock Option Plan. In July 1995,
the Board adopted and the stockholders approved the 1995 Plan. At that time,
3,150,000 shares of Common Stock were reserved for issuance under the 1995
Plan, which number was increased to 3,525,000 shares in April 1996 and to
4,275,000 shares in December 1996. As of March 31, 1998, options to purchase
494,813 shares had been exercised, options to purchase an additional 3,582,035
shares of Common Stock were outstanding with a weighted average exercise price
of $3.90 and 198,152 shares remained available for future grants. Following
the closing of this offering, no additional options will be granted under the
1995 Plan. Options granted under the 1995 Plan are subject to terms
substantially similar to those described below with respect to options to be
granted under the Equity Incentive Plan. The 1995 Plan does not provide for
issuance of restricted stock or stock bonus awards.
1998 Equity Incentive Plan. In December 1997, the Board adopted, subject to
stockholder approval, the 1998 Equity Incentive Plan (the "Equity Incentive
Plan"). The total number of shares of Common Stock reserved for issuance
thereunder is 1,500,000. The Equity Incentive Plan will become effective on
the closing of the initial public offering and will serve as the successor to
the 1995 Plan. Options granted under the 1995 Plan before their termination
will remain outstanding according to their terms, but no further options will
be granted under the 1995 Plan after the closing of the initial public
offering. Shares that: (a) are subject to issuance upon exercise of an option
granted under the 1995 Plan or the Equity Incentive Plan that cease to be
subject to such option for any reason other than exercise of such option; (b)
have been issued pursuant to the exercise of an option granted under the 1995
Plan or the Equity Incentive Plan with respect to which the Company's right of
repurchase has not lapsed and are subsequently repurchased by the Company; (c)
are subject to an award granted pursuant to restricted stock purchase
agreements under the Equity Incentive Plan that are forfeited or are
repurchased by the Company at the original issue price; or (d) are subject to
stock bonuses granted under the Equity Incentive Plan that otherwise terminate
without shares being issued, will again be available for grant and issuance
under the Equity Incentive Plan. Any authorized shares not issued or subject
to outstanding grants under the 1995 Plan on the Effective Date will no longer
be available for grant and issuance under the 1995 Plan but will be available
for grant and issuance under the Equity Incentive Plan. The Equity Incentive
Plan will terminate in December 2007, unless sooner terminated in accordance
with the terms of the Equity Incentive Plan. The Equity Incentive Plan
authorizes the award of options, restricted stock awards and stock bonuses
(each an "Award"). No person will be eligible to receive more than 375,000
shares in any calendar year pursuant to Awards under the Equity Incentive Plan
other than a new employee of the Company who will be eligible to receive no
more than 750,000 shares in the calendar year in which such employee commences
employment. The Equity Incentive Plan will be administered by the Compensation
Committee. The Compensation Committee has the authority to construe and
interpret the Equity Incentive Plan and any agreement made thereunder, grant
Awards and make all other determinations necessary or advisable for the
administration of the Equity Incentive Plan.
The Equity Incentive Plan provides for the grant of both incentive stock
options ("ISOs") that qualify under Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and nonqualified stock options ("NQSOs").
ISOs may be granted only to employees of the Company or of a parent or
subsidiary of the Company. NQSOs (and all other Awards other than ISOs) may be
granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any parent or subsidiary of the
Company, provided such consultants, independent contractors and advisors
render bona fide services not in connection with the offer and sale of
securities in a capital-raising transaction ("Eligible Service Providers").
The exercise price of ISOs must be at least equal to the fair market value of
the Company's Common Stock on the date of grant. The exercise price of NQSOs
must be at least equal to 85% of the fair market value of the Company's Common
Stock on the date of grant. The maximum term of options granted under the
Equity Incentive Plan is ten years.
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<PAGE>
Awards granted under the Equity Incentive Plan may not be transferred in any
manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of the optionee only by the optionee (unless
otherwise determined by the Compensation Committee and set forth in the Award
agreement with respect to Awards that are not ISOs). Options granted under the
Equity Incentive Plan generally expire three months after the termination of
the optionee's service to the Company or a parent or subsidiary of the
Company, except in the case of death or disability, in which case the options
generally may be exercised up to 12 months following the date of death or
termination of service. Options will generally terminate immediately upon
termination for cause. In the event of the Company's dissolution or
liquidation or a "change in control" transaction, outstanding Awards may be
assumed or substituted by the successor corporation (if any). If a successor
corporation (if any) does not assume or substitute the Awards, they will
accelerate prior to the effectiveness of the transaction.
401(k) Plans. The Company maintains the PGA Companies 401(k) Plan (the
"401(k) Plan"), a defined contribution plan intended to qualify under Section
401 of the Code. All eligible employees who are at least 18 years old are
eligible to participate in the 401(k) Plan. An eligible employee of the
Company may begin to participate in the 401(k) Plan on the first day of
January, April, July or October of the Plan year following the date on which
such employee meets the eligibility requirements. A participating employee may
make pre-tax contributions of a percentage of his or her eligible
compensation, subject to limitations under the federal tax laws. Employee
contributions and the investment earnings thereon are fully vested at all
times. The Company does not make matching or profit-sharing contributions.
The Company also maintains the Oakes Interactive Incorporated 401(k) Plan
and Trust (the "Oakes 401(k) Plan"), a defined contribution plan intended to
qualify under Section 401 of the Code. All eligible employees who are at least
21 years old and have completed six months' service are eligible to
participate in the Oakes 401(k) Plan. An eligible employee may begin to
participate in the Oakes 401(k) Plan on the first day of January or July of
the Plan year coinciding with or next following the date on which such
employee meets the eligibility requirements. A participating employee may make
pre-tax contributions of a percentage (up to 10 percent) of his or her
eligible compensation, subject to limitations under the federal tax laws.
Employee contributions and the investment earnings thereon are fully vested at
all times. The Company does not make matching or profit-sharing contributions.
The Company also maintains the CSI 401(k) Plan and Trust (the "CSI 401(k)
Plan"), a defined contribution plan intended to qualify under Section 401 of
the Code. All eligible employees who are at least 21 years old and have
completed six months' service are eligible to participate in the CSI 401(k)
Plan. An eligible employee may begin to participate in the CSI 401(k) Plan on
the first day of January, April, July or October coincident with or
immediately following the date on which such employee meets the eligibility
requirements. A participating employee may make pre-tax contributions of a
percentage of his or her eligible compensation, subject to limitations under
the federal tax laws. Employee contributions and the investment earnings
thereon are fully vested at all times. The Company, at its discretion, may
make discretionary contributions on behalf of participants.
EMPLOYMENT AGREEMENT
In September 1997, in connection with the Company's acquisitions of the
Oakes Companies, the Company entered into an Employment Agreement with Kevin
Oakes, the Company's President and General Manager, Learning Services.
Pursuant to the terms of this agreement, Mr. Oakes receives an annual salary
of $150,000, has a target bonus of 35% of his annual salary, and is eligible
to receive a maximum bonus of 100% of his annual salary. In addition, Mr.
Oakes was granted an option to purchase 17,250 shares of the Company's Common
Stock at a price per share of $6.00, in accordance with the terms of the
Company's 1995 Plan. Upon the involuntary termination of Mr. Oakes' employment
during the one-year term of the employment agreement for other than "Cause"
(as defined in the agreement), Mr. Oakes shall be entitled, for a period
ending on the later of one year after the effective date of the agreement or
six months following the date of such termination, to receive his then-current
salary in addition to his then-accrued compensation and benefits (including
his accrued pro-rata bonus compensation).
54
<PAGE>
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION OF
LIABILITY
As permitted by the Delaware General Corporation Law (the "DGCL"), the
Company's Amended and Restated Certificate of Incorporation, which will become
effective upon the closing of this offering, includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law, (iii) under section 174 of the DGCL
(regarding unlawful dividends and stock purchases) or (iv) for any transaction
from which the director derived an improper personal benefit.
As permitted by the DGCL, the Company's Amended and Restated Bylaws which
will become effective upon the completion of this offering provide that (i)
the Company is required to indemnify its directors and officers to the fullest
extent permitted by the DGCL, subject to certain very limited exceptions, (ii)
the Company may indemnify its other employees and agents to the extent that it
indemnifies its officers and directors, unless otherwise required by law, its
Certificate of Incorporation, its Amended and Restated Bylaws or agreements,
(iii) the Company is required to advance expenses, as incurred, to its
directors and executive officers in connection with a legal proceeding to the
fullest extent permitted by the DGCL, subject to certain very limited
exceptions and (iv) the rights conferred in the Amended and Restated Bylaws
are not exclusive.
Prior to the completion of this offering, the Company intends to enter into
Indemnification Agreements with each of its current directors and executive
officers to give such directors and officers additional contractual assurances
regarding the scope of the indemnification set forth in the Company's
Certificate of Incorporation and Amended and Restated Bylaws and to provide
additional procedural protections. At present, there is no pending litigation
or proceeding involving a director, officer or employee of the Company
regarding which indemnification is sought, nor is the Company aware of any
threatened litigation that may result in claims for indemnification.
55
<PAGE>
CERTAIN TRANSACTIONS
Since January 1, 1995 there has not been, nor is there currently proposed,
any transaction or series of similar transactions to which the Company or any
of its subsidiaries was or is to be a party in which the amount involved
exceeded or will exceed $60,000 and in which any director, executive officer,
holder of more than 5% of the Common Stock of the Company or any member of the
immediate family of any of the foregoing persons had or will have a direct or
indirect material interest other than (i) compensation agreements and other
arrangements, which are described where required in "Management," and (ii) the
transactions described below.
1995 Restructuring and Recapitalization. In January 1995, the Company sold
Mr. Allen 225,000 shares of Common Stock for an aggregate purchase price of
$150,000. In February 1995, the Company underwent a restructuring of its
operations. In connection with this restructuring, in March 1995, the Company
merged with ASX R&D Corporation, which was formed for the sole purpose of
consummating the restructuring, and all of the outstanding capital stock of
which was owned by Paul Allen, the founder and a director of the Company. In
connection with this merger, Mr. Allen received 11,250 shares of the Company's
Common Stock in exchange for the shares of ASX R&D Corporation Common Stock
owned by Mr. Allen. All outstanding shares of Common Stock of the Company
(other than 288,750 shares of Common Stock then held by Mr. Allen) were
repurchased by the Company at a price per share of $0.67 and were canceled in
the merger. In July 1995 the Company issued to Mr. Allen an additional
5,550,000 shares of Common Stock in consideration of (i) Mr. Allen's
assumption of the Company's outstanding indebtedness under a credit agreement
in the amount of approximately $114.6 million and (ii) the issuance by Mr.
Allen of a demand promissory note in the aggregate principal amount of
approximately $18.6 million, which bore interest at a rate of 8% per annum.
Interest accrued under this note to the Company was approximately $1.2
million, $1.1 million and $436,000 in 1995, 1996 and 1997, respectively, and
principal payments received under this note were approximately $11.9 million
and $9.0 million in 1996 and 1997, respectively. This note was repaid in full
in October 1997.
SOFTBANK Investment. In October 1996, the Company sold an aggregate of
388,395 shares of its Class B Stock called "Series A Preferred Stock" at a
cash purchase price of $12.88 per share to SOFTBANK Holdings, Inc.
("SOFTBANK"). Gary Rieschel, Senior Vice President of SOFTBANK, serves on the
Company's Board of Directors. The Company also entered into an Investor's
Rights Agreement with SOFTBANK pursuant to which SOFTBANK has certain demand
and piggyback registration rights with respect to the 291,296 shares of Common
Stock issuable upon conversion of the Series A Preferred Stock following this
offering. Upon the closing of this offering, each share of Series A Preferred
Stock will be converted into approximately .75 shares of Common Stock of the
Company. See "Description of Capital Stock--Registration Rights."
Aimtech Acquisition. In September 1997, the Company acquired Aimtech (the
"Aimtech Acquisition"). In connection with the Aimtech Acquisition, the
Company issued an aggregate of 2,111,795 shares of Series 4 Class B Stock in
exchange for all of Aimtech's outstanding common stock. Dr. Shelley Harrison,
a director of the Company, is a managing general partner of Poly Ventures,
Limited Partnership ("Poly Ventures"), which was a stockholder of Aimtech.
Poly Ventures received 409,392 shares of Series 4 Class B Stock in the Aimtech
Acquisition. Upon the closing of this offering, each share of Series 4 Class B
Stock will be converted into approximately .75 shares of Common Stock of the
Company. In addition, in connection with the Aimtech Acquisition, the Company,
Dr. Harrison (as representative of the former stockholders of Aimtech) and Mr.
Allen entered into a Voting Agreement, pursuant to which the former Aimtech
stockholders were given the right to designate one director of the Company.
Dr. Harrison was named as the initial director of the Company designated in
this Voting Agreement. This Voting Agreement will terminate upon the
completion of this offering.
Oakes Acquisitions. In September 1997, the Company acquired the Oakes
Companies, which consisted of Oakes Interactive Incorporated, Acorn Associates
Incorporated and TopShelf Multimedia, Inc. (the "Oakes Acquisitions"). In
connection with the Oakes Acquisitions, the Company issued an aggregate of
1,512,500
56
<PAGE>
shares of Series 5 Class B Stock in exchange for all of the outstanding shares
of common stock of each of the Oakes Companies. Kevin Oakes, the Company's
President and General Manager, Learning Services, who at the time of the Oakes
Acquisitions was the President and a principal shareholder of each of the
Oakes Companies, received an aggregate of 680,625 shares of Series 5 Class B
Stock in connection with the Oakes Acquisitions. Furthermore, Mr. Oakes'
father, Gordon Oakes, who was at the time of the Oakes Acquisitions a
principal shareholder of each of the Oakes Companies, also received an
aggregate of 680,625 shares of Series 5 Class B Stock in connection with the
Oakes Acquisitions. Upon the closing of this offering, each share of Series 5
Class B Stock will be converted into approximately .75 shares of Common Stock
of the Company. In addition, in connection with the Oakes Acquisitions, the
Company, the shareholders of the Oakes Companies and Mr. Allen entered into a
Voting Agreement pursuant to which the former shareholders of the Oakes
Companies were given the right to designate one director of the Company. Mr.
Oakes was named as the initial director of the Company designated in this
Voting Agreement. This Voting Agreement will terminate upon the completion of
this offering.
Vulcan Transactions. The Company subleases approximately 8,200 square feet
of office space to Vulcan Northwest Inc. ("Vulcan Northwest"), a company
controlled by Mr. Allen. Pursuant to the terms of this sublease, Vulcan
Northwest pays rent of $18.25 per square foot per year in monthly installments
plus its pro rata portion of any additional rent the Company is required to
pay under the prime lease. The term of this sublease commenced in November
1995 and expires upon the expiration of the prime lease. Payments by Vulcan
Northwest under this sublease were approximately $27,000, $200,000 and
$150,000 for 1995, 1996 and 1997, respectively.
In March 1998, the Company entered into a Directed Engineering Agreement
(the "Engineering Agreement") with Vulcan Northwest, d/b/a Advanced Placement
Excellence ("Apex"), pursuant to which the Company has agreed to develop
customized extensions of its Librarian product. Pursuant to the terms of the
Engineering Agreement, the Company will retain all intellectual property
rights to these extensions. Apex is obligated to pay the Company an aggregate
of $250,000 in non-refundable installments upon the achievement by the Company
of certain milestones.
SuperCede Transactions. In June 1997, the Company contributed certain
technology assets related to its SuperCede development project to a wholly-
owned subsidiary in exchange for 3,500,000 shares of common stock of that
subsidiary and a license back to the Company of such technology assets for use
in the Company's online learning products (the "SuperCede License"). In August
1997, Vulcan Ventures Inc. ("Vulcan Ventures"), a venture capital company
controlled by Mr. Allen, loaned to SuperCede an aggregate of $1.75 million
which was evidenced by a convertible promissory note (the "SuperCede Note").
In September 1997, the Company's SuperCede common stock was converted into
3,500,000 shares of SuperCede Series B Preferred Stock in consideration for
the cancellation of the SuperCede License, pursuant to the terms of a Series B
Preferred Stock Exchange Agreement between the Company and SuperCede. In
September 1997, SuperCede sold an aggregate of 3,500,000 shares of its Series
A Preferred Stock to Vulcan Ventures for a purchase price of $2.00 per share,
including cancellation of the indebtedness represented by the SuperCede Note.
The Company subleases approximately 8,500 square feet of office space in the
Company's headquarters to SuperCede pursuant to a sublease which was entered
into in June 1997. Pursuant to the terms of this sublease, SuperCede pays rent
of $20.00 per square foot per year in monthly installments plus SuperCede's
pro rata portion of any additional rent the Company is required to pay under
the prime lease. The term of this sublease commenced in June 1997 and expires
upon the expiration of the prime lease for the Company's headquarters in
October 1999. In 1997, SuperCede made payments to the Company under this
sublease of $40,000.
Infomodelers Spin-off, Investment and Sublease. In October 1996, the Company
spun off certain assets, employees and liabilities relating to its
Client/Server Tools Division into a newly-created wholly-owned subsidiary, ASX
Corporation, which was subsequently renamed ConQuer Data, Inc. and later
renamed Infomodelers, Inc. ("Infomodelers"). In connection with this spin-off
(the "Infomodelers Spin-off"), the Company and Infomodelers entered into a
Technology Transfer and License Agreement (the "Technology Transfer and
License Agreement") under which the Company transferred to Infomodelers
certain technologies
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<PAGE>
relating to its Client/Server Tools Division (the "Infomodelers Technology")
in exchange for (i) 3,500,000 shares of Infomodelers Common Stock, (ii) a
royalty of 8% of sales of products and services based on the Infomodelers
Technology for a five year period and (iii) a license for the Company to use
the then-current Infomodelers Technology in non-competing products. The
Technology Transfer and License Agreement was amended to provide that (i) the
Company would be licensed to use the then-most recent versions of the
Infomodelers Technology and of Infomodelers' "Active Query" technology in its
online enterprise learning products, (ii) the Company would forego the 8%
royalty on sales of products and services based on the Infomodelers Technology
and (iii) the Company would license Infomodelers to use the Company's
InfoAssistant technology, a technology unrelated to the Company's online
enterprise learning products.
The Company and Infomodelers also entered into an Asset Purchase and Loan
Agreement, whereby (i) the Company sold to Infomodelers the assets (including
patents and trademarks covering the Infomodelers Technology) of the Company's
Client/Server Tools Division in exchange for $500,000 and Infomodelers'
agreement to assume certain liabilities, and (ii) the Company loaned
Infomodelers $1.0 million. Both the purchase price of the assets and the loan
were reflected in a $1.5 million promissory note from Infomodelers to the
Company. In November 1996, this promissory note was canceled in exchange for
the issuance to the Company of 700,000 shares of Infomodelers Series A
Preferred Stock.
In October 1996, the Company distributed an aggregate of 2,802,774 shares of
Infomodelers Common Stock to its existing stockholders (in the form of a
dividend) and holders of vested options (in the form of a stock bonus). In
connection with this distribution, Mr. Allen, a director and principal
stockholder of the Company, received 2,422,243 shares of Infomodelers Common
Stock.
In October 1996, the Company entered into a sublease agreement with
Infomodelers, under which the Company subleases to Infomodelers approximately
6,350 square feet of office space in the Company's headquarters. Rent is
payable directly from Infomodelers to the prime landlord in accordance with
the terms of the Company's prime lease on the property. Infomodelers has
notified the Company that it intends to terminate this sublease in May 1998.
Infomodelers made payments to the Company under this sublease of $36,000 and
$145,000 in 1996 and 1997, respectively.
In March 1998, the Company sold all 700,000 shares of its Infomodelers
Series A Preferred Stock for an aggregate purchase price of approximately $2.0
million in cash, and sold 16 of its 19 shares (on a post 1-for-35,647 reverse
stock split basis) of Infomodelers Common Stock for an aggregate purchase
price of approximately $390,000 in cash, to Vulcan Ventures, Inc., an entity
controlled by Mr. Allen.
Transactions with Multimedia Asia Pacific. In December 1996, the Company
issued, pursuant to a Series B Stock Purchase Agreement (the "Series B
Agreement"), 388,395 shares of its Class B Stock called "Series B Preferred
Stock" to Multimedia Asia Pacific Pty Ltd ("Multimedia Asia Pacific") for an
aggregate purchase price of approximately $5.0 million. Of this amount,
$502,528 was paid in cash (representing 39,015 shares of Series B Preferred
Stock which were fully paid) and $4.5 million was paid with a promissory note
(the "Series B Note"), which bore interest at a rate of 6% per annum. Of these
shares, 349,380 shares were pledged to secure the Series B Note. Mr. Allen
owns 10% of the outstanding capital stock of Multimedia Asia Pacific. Under
the terms of the Series B Note, one installment of $500,000 (plus accrued
interest) was paid to the Company in January 1997, resulting in the release of
an additional 38,820 shares of Series B Preferred Stock from the pledge. The
remaining indebtedness was to be repaid in four consecutive monthly
installments of $1.0 million (plus accrued interest).
In January 1997, the Company and Asymetrix Asia Pacific Pty. Ltd., which is
a wholly-owned subsidiary of Multimedia Asia Pacific and which is licensed by
the Company to use the name Asymetrix Asia Pacific ("Asymetrix Asia Pacific"),
entered into an Exclusive Master Distributor Agreement (the "Distributor
Agreement") under which Asymetrix Asia Pacific acted as the exclusive
distributor of certain of the Company's products within the Asia Pacific
region (excluding Japan). The Distributor Agreement replaced a previous
distributor agreement entered into between the Company and Asymetrix Asia
Pacific in January 1994. As of
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October 31, 1997, Asymetrix Asia Pacific owed the Company $870,686 pursuant to
the terms of the Distributor Agreement, a substantial portion of which was
overdue and, therefore, caused a breach of the Distributor Agreement, which
breach caused the entire amount owed thereunder to become immediately due and
payable. In addition, as of October 31, 1997, Multimedia Asia Pacific owed the
Company $4.0 million (plus accrued interest) under the Series B Note.
In settlement of these outstanding amounts, on October 31, 1997 the Company,
Asymetrix Asia Pacific and Multimedia Asia Pacific entered into an agreement
(the "Resolution Agreement") which resolved the outstanding debts of Asymetrix
Asia Pacific and Multimedia Asia Pacific to the Company and which set forth
revised terms and conditions pursuant to which Asymetrix Asia Pacific may
continue to function as the Company's exclusive distributor in the Asia
Pacific region. Pursuant to the Resolution Agreement, (i) all shares of Series
B Preferred Stock that were pledged to secure the Series B Note were retained
and canceled by the Company in full satisfaction of the amounts due under the
Series B Note, (ii) all 77,835 shares of Series B Preferred Stock that were
then fully paid were redeemed by the Company in exchange for $750,000, which
amount was applied to the unpaid balance of $870,686 owed by Asymetrix Asia
Pacific to the Company under the Distributor Agreement, and (iii) the Series B
Agreement and the Series B Note were canceled. Asymetrix Asia Pacific repaid
all remaining amounts owned under the Distributor Agreement in January 1998.
In addition, the Company and Asymetrix Asia Pacific entered into an Amended
and Restated Exclusive Master Distributor Agreement (the "Amended Distributor
Agreement"), which took effect as of January 1, 1998 and which replaced the
Distributor Agreement. Pursuant to the Amended Distributor Agreement,
Asymetrix Asia Pacific was to be the exclusive distributor of certain of the
Company's products so long as Asymetrix Asia Pacific met certain quarterly
minimum commitment levels and meets certain other obligations. The exclusivity
under the Amended Distributor Agreement was terminated in March 1998 when
Asymetrix Asia Pacific failed to meet its performance obligations. The Amended
Distributor Agreement terminates on December 31, 1998. In connection with the
termination of this exclusivity, the Company revoked the license to use the
name Asymetrix Asia Pacific, subject to a transition period ending July 1,
1998.
The Company believes that the terms of each of the transactions described
above, taken as a whole, were no less favorable than the Company could have
obtained from unaffiliated third parties. All future transactions between the
Company and its officers, directors and principal stockholders and their
affiliates will be approved by a majority of the Board of Directors, including
a majority of the independent and disinterested outside directors.
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PRINCIPAL STOCKHOLDERS
The following table sets forth certain information known to the Company with
respect to the beneficial ownership of the Company's Common Stock as of
December 31, 1997 and as adjusted to reflect the sale by the Company of the
shares of Common Stock offered hereby by: (i) each person who is known by
the Company to own beneficially more than 5% of the Company's Common Stock,
(ii) each director of the Company, (iii) each of the Named Executive Officers
and (iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK
NUMBER OF BENEFICIALLY OWNED(1)
SHARES ---------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED OFFERING OFFERING(2)
- ------------------------ ------------ ----------- ------------
<S> <C> <C> <C>
Paul G. Allen(3).................. 5,906,250 58.4% %
Cynthia Boyd(4)................... 550,193 5.5
James Boyd(5)..................... 550,193 5.5
Kevin M. Oakes(6)................. 510,467 5.1
Gordon Oakes...................... 510,467 5.1
Shelley Harrison, Ph.D.(7)........ 307,043 3.1
James A. Billmaier(8)............. 299,999 2.9
Gary Rieschel(9).................. 291,294 2.8
E. Charles Ellison(10)............ 135,000 1.3
John D. Atherly(11)............... 67,968 *
Bert Kolde(12).................... 67,500 *
Steven Martino(13)................ 49,999 *
John M. Kellum(14)................ 47,186 *
All officers and directors as a
group (11 persons)(15)........... 7,711,518 71.4
</TABLE>
- -------
* Less than 1% of the Company's outstanding Common Stock
(1) Percentage ownership is based on 10,058,138 shares outstanding as of
December 31, 1997, including shares issuable upon conversion of all
outstanding Class B Stock into Common Stock in connection with this
offering (of which 331,246 shares are held in escrow to secure certain
indemnification obligations of former stockholders of Aimtech under the
Agreement and Plan of Reorganization relating to the acquisition of
Aimtech), and shares outstanding after the offering. Shares of Common
Stock subject to options currently exercisable or exercisable within 60
days of December 31, 1997 are deemed outstanding for the purpose of
computing the percentage ownership of the person holding such options but
are not deemed outstanding for computing the percentage ownership of any
other person. The address for each holder of more than 5% of the
Company's Common Stock is c/o the Company, 110-110th Avenue NE, Bellevue,
Washington 98004. Unless otherwise indicated below, the persons and
entities named in the table have sole voting and sole investment power
with respect to all shares beneficially owned, subject to community
property laws where applicable.
(2) Assumes the Underwriters' over-allotment option is not exercised.
(3) Includes 56,250 shares subject to stock options exercisable within 60
days of December 31, 1997. Mr. Allen is the founder and a director of the
Company.
(4) Includes 137,548 shares held of record by James Boyd, Ms. Boyd's spouse.
(5) Includes 412,645 shares held of record by Cynthia Boyd, Mr. Boyd's
spouse.
(6) Mr. Oakes is President and General Manager, Learning Services and a
director of the Company.
(7) Represents shares held of record by Poly Ventures, Limited Partnership
("Poly Ventures"). Dr. Harrison is a managing general partner of Poly
Ventures. Dr. Harrison disclaims beneficial ownership of shares held by
Poly Ventures except to the extent of his pecuniary interest therein.
(8) Represents shares subject to stock options exercisable within 60 days of
December 31, 1997. Mr. Billmaier is Chief Executive Officer and a
director of the Company.
(9) Represents shares held of record by SoftVen No. 2 Investment Enterprise
Partnership. Mr. Rieschel, a Senior Vice President of SOFTBANK, an
affiliate of SoftVen No. 2 Investment Enterprise Partnership, is a
director of the Company. Mr. Rieschel disclaims beneficial ownership of
such shares.
(10) Represents shares subject to stock options exercisable within 60 days of
December 31, 1997. Mr. Ellison is Vice President, Business Development of
the Company.
(11) Includes 67,893 shares subject to stock options exercisable within 60
days of December 31, 1997. Mr. Atherly is Vice President, Finance and
Administration and Chief Financial Officer of the Company.
(12) Represents shares subject to stock options exercisable within 60 days of
December 31, 1997. Mr. Kolde is Chairman of the Board of the Company.
(13) Represents shares subject to stock options exercisable within 60 days of
December 31, 1997. Mr. Martino is Vice President, Sales of the Company.
(14) Represents shares subject to stock options exercisable within 60 days of
December 31, 1997. Mr. Kellum is Vice President and General Manager,
Online Learning Products of the Company.
(15) Represents the shares described in footnotes (3) and (6)-(14), plus an
additional 28,812 shares held by one other executive officer of the
Company, of which 26,562 shares were subject to stock options exercisable
within 60 days of December 31, 1997.
60
<PAGE>
DESCRIPTION OF CAPITAL STOCK
As of March 31, 1998, assuming the conversion of all outstanding shares of
Class B Stock into shares of Common Stock, there were outstanding 10,120,866
shares of Common Stock, each with a par value of $0.01, held of record by
approximately 225 stockholders, and outstanding options to purchase 3,582,035
shares of Common Stock.
Immediately prior to the closing of this offering, the Company intends to
reincorporate in the State of Delaware and, upon the closing of this offering,
the Company intends to amend and restate its Certificate of Incorporation. The
following summary of certain provisions of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the forms of the Company's Amended and Restated
Certificate of Incorporation and Bylaws to be effective upon the closing of
this offering, which are included as exhibits to the Registration Statement of
which this Prospectus forms a part, and by the provisions of applicable law.
COMMON STOCK
Upon the closing of this offering, the Company will be authorized to issue
40,000,000 shares of Common Stock. Subject to preferences that may be
applicable to any Preferred Stock outstanding at the time, the holders of
outstanding shares of Common Stock are entitled to receive dividends out of
assets legally available therefor at such times and in such amounts as the
Board from time to time may determine. Holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of
shareholders. Cumulative voting for the election of directors will not be
authorized by the Company's Amended and Restated Certificate of Incorporation,
which means that the holders of a majority of the shares voted can elect all
of the directors then standing for election. The Common Stock is not entitled
to preemptive rights and is not subject to conversion or redemption. Upon
liquidation, dissolution or winding-up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock and any participating Preferred Stock outstanding
at that time after payment of liquidation preferences, if any, on any
outstanding Preferred Stock and payment of other claims of creditors. Each
outstanding share of Common Stock is, and all shares of Common Stock to be
outstanding upon completion of this offering will be, fully paid and
nonassessable.
PREFERRED STOCK
Upon the closing of this offering, all outstanding shares of Class B Stock
(the "Convertible Preferred") will be converted into shares of Common Stock.
See Note 10 of Notes to Consolidated Financial Statements for a description of
the Convertible Preferred. Following the offering, the Company will be
authorized to issue 2,000,000 shares of Preferred Stock. The Board is
authorized, subject to any limitations prescribed by Delaware law, to provide
for the issuance of Preferred Stock in one or more series, to establish from
time to time the number of shares to be included in each such series, to fix
the rights, preferences and privileges of the shares of each wholly unissued
series and any qualifications, limitations or restrictions thereon, and to
increase or decrease the number of shares of any such series (but not below
the number of shares of such series then outstanding), without any further
vote or action by the stockholders. The Board may authorize the issuance of
Preferred Stock with voting or conversion rights that could adversely affect
the voting power or other rights of the holders of Common Stock. The issuance
of Preferred Stock, while providing flexibility in connection with possible
acquisitions and other corporate purposes, could, among other things,
adversely affect the voting power of holders of Common Stock and, under
certain circumstances, have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no current plan to issue any
shares of Preferred Stock.
REGISTRATION RIGHTS
Following this offering, the holder of 291,294 shares of Common Stock
(representing the Common Stock issuable upon conversion of the series of the
Company's Class B Stock called "Series A Preferred Stock") will have certain
rights to cause the Company to register those shares (the "Registrable
Securities") under the Securities Act pursuant to the Investors' Rights
Agreement. The Company is required to effect one such demand registration.
These registration rights are subject to certain conditions and limitations,
including (i) the right, under certain circumstances, of the underwriters of
an offering to limit the number of shares included in such registration and
(ii) the right of the Company to delay the filing of a registration statement
for not more than 90
61
<PAGE>
days after receiving the registration demand. The Company is obligated to pay
all registration expenses incurred in connection with such registration (other
than underwriters' discounts and commissions) and the reasonable fees and
expenses of a single counsel to the selling stockholder.
The holder of the Series A Preferred Stock may also require the Company, on
no more than two occasions, to register all or a portion of the Registrable
Securities on Form S-3 under the Securities Act when such form becomes
available for use by the Company, if the securities to be so registered
represent an aggregate selling price to the public of not less than $250,000.
These registration rights are subject to certain conditions and limitations,
including the right of the Company to delay the filing of such a registration
statement for a period of not more than 90 days after receiving the
registration demand. The Company is obligated to pay all registration expenses
incurred in connection with such registration (other than underwriters'
discounts and commissions) and the reasonable fees and expenses of a single
counsel to the selling holder.
If the Company proposes to register any of its securities under the
Securities Act, whether or not for sale for its own account, other than in
connection with a Company employee benefit plan or a corporate reorganization,
the holder of the Series A Preferred Stock, together with the holders of an
aggregate of 3,479,597 shares of Common Stock, will be entitled to notice of
such registration and are entitled to include such securities therein. These
rights are subject to certain conditions and limitations, including the right,
under certain circumstances, of the underwriters of an offering to limit the
number of shares included in such registration. The Company is obligated to
pay all registration expenses incurred in connection with such registration
(other than underwriters' discounts and commissions). If the Company were to
initiate a registration and include shares pursuant to this "piggyback" right,
such sales might have an adverse effect on the Company's ability to raise
capital.
Each stockholder's registration rights expire upon the earlier of the fifth
anniversary of the closing of this offering or such time that such stockholder
can sell all of his, her or its stock under Rule 144(k).
DELAWARE ANTI-TAKEOVER LAW AND CERTAIN CHARTER AND BYLAW PROVISIONS
Upon the closing of this offering, the Company will be subject to the
provisions of Section 203 of the Delaware General Corporation Law (the "Anti-
Takeover Law") regulating corporate takeovers. The Anti-Takeover Law prevents
certain Delaware corporations, including those whose securities are listed on
the Nasdaq National Market, from engaging, under certain circumstances, in a
"business combination" (which includes a merger or sale of more than 10% of
the corporation's assets) with any "interested stockholder" (a stockholder who
owns 15% or more of the corporation's outstanding voting stock, as well as
affiliates and associates of any such persons) for three years following the
date that such stockholder became an "interested stockholder" unless (i) the
transaction is approved by the Board of Directors prior to the date the
"interested stockholder" attained such status, (ii) upon consummation of the
transaction that resulted in the stockholder's becoming an "interested
stockholder," the "interested stockholder" owned at least 85% of the voting
stock of the corporation outstanding at the time the transaction commenced
(excluding those shares owned by (a) persons who are directors and also
officers and (b) employee stock plans in which employee participants do not
have the right to determine confidentially whether shares held subject to the
plan will be tendered in a tender or exchange offer), or (iii) on or
subsequent to such date the "business combination" is approved by the Board of
Directors and authorized at an annual or special meeting of stockholders by
the affirmative vote of at least two-thirds of the outstanding voting stock
that is not owned by the "interested stockholder." A Delaware corporation may
"opt out" of the Anti-Takeover Law with an express provision in its original
certificate of incorporation or an express provision in its certificate of
incorporation or bylaws resulting from a stockholders' amendment approved by
at least a majority of the outstanding voting shares. The Company has not
"opted out" of the provisions of the Anti-Takeover Law. The statute could
prohibit or delay mergers or other takeover or change-in-control attempts with
respect to the Company and, accordingly, may discourage attempts to acquire
the Company.
The Company's Amended and Restated Certificate of Incorporation and Bylaws,
which will be in effect upon the completion of this offering, will provide for
the division of the Board into three classes as nearly equal in size as
possible with staggered three-year terms. The classification of the Board
could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of
62
<PAGE>
the Company. In addition, the Amended and Restated Bylaws will provide that
any action required or permitted to be taken by the stockholders of the
Company at an annual meeting or special meeting of stockholders may only be
taken if it is properly brought before such meeting and may not be taken by
written action in lieu of a meeting. The Amended and Restated Bylaws will
provide that special meetings of the stockholders may only be called by the
Chairman of the Board, the Chief Executive Officer of the Company or the
Board.
The Company's Amended and Restated Certificate of Incorporation and Amended
and Restated Bylaws will provide that the Company will indemnify officers and
directors against losses that they may incur in investigations and legal
proceedings resulting from their services to the Company, which may include
services in connection with takeover defense measures. Such provisions may
have the effect of preventing changes in the management of the Company.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
ChaseMellon Shareholder Services, L.L.C.
LISTING
The Company has applied to list its Common Stock on the Nasdaq National
Market under the trading symbol ASYM.
63
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect prevailing market prices from time to
time. Furthermore, since the substantial majority of the Company's outstanding
Common Stock (other than the shares offered hereby) will not be available for
sale immediately after this offering because of certain contractual and legal
restrictions on resale (as described below), sales of substantial amounts of
Common Stock of the Company in the public market after these restrictions
lapse could adversely affect the prevailing market price of the Common Stock
and the ability of the Company to raise equity capital in the future.
Upon completion of this offering, the Company will have outstanding an
aggregate of shares of Common Stock, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options. Of
these shares, all of the shares sold in this offering will be freely tradeable
without restriction or further registration under the Securities Act, unless
such shares are purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act (the "Affiliates"). The remaining
10,120,866 shares of Common Stock held by existing stockholders are
"restricted securities" as that term is defined in Rule 144 under the
Securities Act ("Restricted Shares"). Restricted Shares may be sold in the
public market only if they are registered or if they qualify for an exemption
from registration under Rule 144 or 701 promulgated under the Securities Act,
which rules are summarized below. All officers and directors and certain
stockholders and option holders of the Company have agreed not to offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly (or
enter into any swap or other arrangement that transfers to another, in whole
or in part, any of the economic consequences of ownership of), any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Common Stock, for a period of 180 days after the date of this
Prospectus, without the prior written consent of NationsBanc Montgomery
Securities LLC. As a result of the contractual restrictions described below
and the provisions of Rule 144 and 701, the Restricted Shares will be
available for sale in the public market as follows: (i) 7,912 shares will be
eligible for immediate sale on the date of this Prospectus; (ii) 337,391
shares will be eligible for sale 90 days after the date of this Prospectus;
(iii) an additional 3,652,783 shares will be eligible for sale upon expiration
of the lock-up agreements 180 days after the date of this Prospectus, subject
in the case of 3,512,843 of such shares to the volume limitations of Rule 144,
and (iv) the remaining shares will become eligible for sale on October 29,
1998 with respect to 5,550,000 shares, on December 19, 1998 with respect to
9,372 shares, on December 22, 1998 with respect to 550,193 shares and on March
16, 1999 with respect to 13,215 shares, in each case subject to the volume
limitations of Rule 144.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this Prospectus, a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year (including
the holding period of any prior owner except an Affiliate) would be entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) 1% of the number of shares of Common Stock then
outstanding (which will equal approximately shares immediately after this
offering); or (ii) the average weekly trading volume of the Common Stock on
the Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to such sale. Sales under Rule 144 are
also subject to certain manner of sale provisions and notice requirements and
to the availability of current public information about the Company. Under
Rule 144(k), a person who is not deemed to have been an Affiliate of the
Company at any time during the 90 days preceding a sale, and who has
beneficially owned the shares proposed to be sold for at least two years
(including the holding period of any prior owner except an Affiliate), is
entitled to sell such shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144; therefore,
unless otherwise restricted, "144(k) shares" may be sold immediately upon the
completion of this offering. In general, under Rule 701 of the Securities Act
as currently in effect, any employee, consultant or advisor of the Company who
purchases shares from the Company in connection with a compensatory stock or
option plan or other written agreement is eligible to resell such shares 90
days after the effective date of this offering in reliance on Rule 144, but
without compliance with certain restrictions, including the holding period,
contained in Rule 144.
64
<PAGE>
Upon completion of this offering, the holder of 291,294 shares of Common
Stock issuable upon conversion of Class B Stock, or its transferees, will be
entitled to certain demand registration rights with respect to such shares.
See "Description of Capital Stock--Registration Rights." Registration of such
shares under the Securities Act would result in such shares becoming freely
tradable without restriction under the Securities Act (except for share
purchases by affiliates) immediately upon the effectiveness of such
registration.
The Company intends to file a registration statement under the Securities
Act covering (i) 1,687,500 shares of Common Stock reserved for issuance under
the Equity Incentive Plan and the Directors Plan and (ii) the shares subject
to outstanding options under the 1995 Plan. As of December 31, 1997, options
to purchase 3,389,835 shares of Common Stock were issued and outstanding under
the 1995 Plan. See "Management--Employee Benefit Plans." Such registration
statement is expected to be filed and become effective as soon as practicable
after the effective date of this offering. Accordingly, shares registered
under such registration statement will, subject to Rule 144 volume limitations
applicable to Affiliates, be available for sale in the open market, unless
such shares are subject to vesting restrictions with the Company or the lock-
up agreements described above.
65
<PAGE>
UNDERWRITING
The Underwriters named below (the "Underwriters"), represented by
NationsBanc Montgomery Securities LLC, BancAmerica Robertson Stephens and
Hambrecht & Quist LLC (the "Representatives"), have severally agreed, subject
to the terms and conditions set forth in the Underwriting Agreement, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all of the shares if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
NationsBanc Montgomery Securities LLC..............................
BancAmerica Robertson Stephens.....................................
Hambrecht & Quist LLC..............................................
---
Total............................................................
===
</TABLE>
The Representatives have advised the Company that the Underwriters initially
propose to offer the shares of Common Stock to the public on the terms set
forth on the cover page of this Prospectus. The Underwriters may allow to
selected dealers a concession of not more than $ per share, and the
Underwriters may allow, and such dealers may reallow, a concession of not more
than $ per share to certain other dealers. After the offering, the offering
price and concessions and other selling terms may be changed by the
Representatives. No change in such terms shall change the amount of proceeds
to be received by the Company as set forth on the cover page of this
Prospectus. The Common Stock is offered subject to receipt and acceptance by
the Underwriters and to certain other conditions, including the right to
reject orders in whole or in part.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of additional shares of Common Stock to cover over-allotments, if
any, at the same price per share as the initial shares to be purchased by
the Underwriters. To the extent the Underwriters exercise this option, each of
the Underwriters will be committed to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this offering.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including civil liabilities under
the Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
All of the Company's officers and directors and certain stockholders have
agreed that, subject to certain exceptions, for a period of 180 days after the
date of this Prospectus, they will not, without the prior written consent of
NationsBanc Montgomery Securities LLC, directly or indirectly sell, offer to
sell or otherwise dispose of any such shares of Common Stock or any right to
acquire such shares. In addition, the Company has agreed that, for a period of
180 days after the date of this Prospectus, it will not, without the prior
written consent of NationsBanc Montgomery Securities LLC, issue, offer, sell,
grant options to purchase or otherwise dispose of any of the Company's equity
securities or any other securities convertible into or exchangeable for the
Common Stock or other equity security, other than the grant of options to
purchase Common Stock, or the issuance of shares of Common Stock under the
Company's stock option and stock purchase plans, the issuance of shares of
Common Stock in connection with certain acquisitions and the issuance of
shares of Common Stock pursuant to the exercise of outstanding options.
66
<PAGE>
Prior to this offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price will be determined by
negotiations between the Company and the Representatives. Among the factors to
be considered in such negotiations will be the history of, and the prospects
for, the Company and the industry in which it competes, an assessment of the
Company's management, the prospects for future earnings of the Company, the
present state of the Company's development, the general condition of the
securities markets at the time of the offering, the market prices of and
demand for publicly traded common stock of comparable companies in recent
periods and other factors deemed relevant.
The Representatives, on behalf of the Underwriters, may engage in over-
allotment, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Securities and Exchange
Act of 1934. Over-allotment involves syndicate sales in excess of the offering
size, which creates a syndicate short position. Stabilizing transactions
permit bids to purchase the underlying security so long as the stabilizing
bids do not exceed a specified maximum. Syndicate covering transactions
involve purchases of shares of Common Stock in the open market after the
distribution has been completed in order to cover syndicate short positions.
Penalty bids permit the Representatives to reclaim a selling concession from a
syndicate member when the shares of Common Stock originally sold by such
syndicate member are purchased in a syndicate covering transaction to cover
syndicate short positions. Such stabilizing transactions, syndicate covering
transactions and penalty bids may cause the price of the Common Stock to be
higher than it would otherwise be in the absence of such transactions. These
transactions may be effected on the Nasdaq National Market or otherwise and,
if commenced, may be discontinued at any time.
The Representatives have informed the Company that the Underwriters do not
expect to make sales in excess of five percent of the number of shares of
Common Stock offered hereby to accounts over which they exercise discretionary
authority.
Certain affiliates of the Representatives have, from time to time, performed
certain banking services for the Company, for which they have received
customary fees and expenses.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Fenwick & West LLP, Palo Alto, California. Certain
legal matters in connection with this offering will be passed upon for the
Underwriters by Brobeck, Phleger & Harrison LLP, Palo Alto, California.
CHANGES IN ACCOUNTANTS
In December 1997, the Board of Directors authorized the Company to retain
KPMG Peat Marwick LLP as its independent public accountants and to dismiss its
former accountants, Ernst & Young LLP. The report of Ernst & Young LLP for the
year ended December 31, 1996 contained no adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
applications or accounting principles. During the year ended December 31, 1996
and through the date of replacement, there were no disagreements with Ernst &
Young LLP on any matter of accounting principles or practices, financial
statement disclosure or auditing scope or procedure.
EXPERTS
The consolidated financial statements of the Company as of and for the year
ended December 31, 1997 have been included herein and in the Registration
Statement in reliance upon the report of KPMG Peat Marwick LLP, independent
auditors, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
67
<PAGE>
The consolidated financial statements of the Company at December 31, 1996,
and for each of the two years in the period ended December 31, 1996; appearing
in this Prospectus and Registration Statement have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements of Aimtech Corporation as of December 31, 1996 and
for the year ended December 31, 1996 included in this Prospectus and elsewhere
in the Registration Statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included herein in reliance upon the authority of said firm
as experts in giving said report. Reference is made to said report which
includes an explanatory paragraph that describes the uncertainty regarding the
substantial doubt about Aimtech Corporation's ability to continue as a going
concern discussed in note 1 to the financial statements.
The financial statements of Communications Strategies, Incorporated at
December 31, 1996 and September 30, 1997 and for the year ended December 31,
1996 and the nine months ended September 30, 1997 have been included herein
and in the Registration Statement in reliance upon the report of KPMG Peat
Marwick LLP, independent auditors, appearing elsewhere herein and upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act
with respect to the shares of Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration
Statement and the exhibits and schedule filed therewith. For further
information with respect to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement and the exhibits and schedule
filed therewith. Statements contained in this Prospectus regarding the
contents of any contract or any other document to which reference is made are
not necessarily complete, and, in each instance, reference is made to the copy
of such contract or other document filed as an exhibit to the Registration
Statement, each such statement being qualified in all respects by such
reference. A copy of the Registration Statement and the exhibits and schedule
filed therewith may be inspected without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
the Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661 and Seven World Trade Center, 13th Floor, New York, New York
10048, and copies of all or any part of the Registration Statement may be
obtained from such offices upon the payment of the fees prescribed by the
Commission. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
68
<PAGE>
INDEX TO FINANCIAL STATEMENTS
ASYMETRIX LEARNING SYSTEMS, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ASYMETRIX LEARNING SYSTEMS, INC.
Independent Auditors' Reports.............................................. F-2
Consolidated Balance Sheets................................................ F-4
Consolidated Statements of Operations...................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit).................. F-6
Consolidated Statements of Cash Flows...................................... F-7
Notes to Consolidated Financial Statements................................. F-9
CONSOLIDATED CONDENSED PRO FORMA FINANCIAL STATEMENTS
Overview................................................................... F-23
Pro Forma Consolidated Statement of Operations............................. F-25
Notes to Consolidated Pro Forma Financial Statements....................... F-26
AIMTECH CORPORATION
Report of Independent Public Accountants .................................. F-27
Consolidated Balance Sheets................................................ F-28
Consolidated Statements of Operations...................................... F-29
Consolidated Statements of Stockholders' Equity (Deficit).................. F-30
Consolidated Statements of Cash Flows...................................... F-31
Notes to Consolidated Financial Statements................................. F-32
COMMUNICATIONS STRATEGIES, INCORPORATED
Independent Auditors' Report .............................................. F-39
Balance Sheets............................................................. F-40
Statements of Income and Retained Earnings................................. F-41
Statements of Cash Flows................................................... F-42
Notes to Financial Statements.............................................. F-43
</TABLE>
F-1
<PAGE>
WHEN THE TRANSACTION REFERRED TO IN NOTE 12 OF THE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER
THE FOLLOWING REPORT.
/s/ KPMG PEAT MARWICK LLP
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Asymetrix Learning Systems, Inc.:
We have audited the accompanying consolidated balance sheet of Asymetrix
Learning Systems, Inc. and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Asymetrix
Learning Systems, Inc. and subsidiaries at December 31, 1997, and the
consolidated results of its operations and its cash flows for year then ended,
in conformity with generally accepted accounting principles.
Seattle, Washington
March 27, 1998
F-2
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Asymetrix Learning Systems, Inc.:
We have audited the accompanying consolidated balance sheet of Asymetrix
Learning Systems, Inc. as of December 31, 1996, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Companys' management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Asymetrix
Learning Systems, Inc. at December 31, 1996, and the consolidated results of
its operations and its cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
Seattle, Washington
April 23, 1997
- -------------------------------------------------------------------------------
The foregoing report is in the form that will be signed upon completion of
the reverse stock split described in note 12 to the consolidated financial
statements.
Seattle, Washington
March 31, 1998
Ernst & Young LLP
F-3
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1997
ASSETS --------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents.............................. $ 3,763 $ 2,454
Note receivable from principal stockholder............. 9,035 --
Accounts receivable, net of credit and sales allowances
of $3,346 in 1996 and $1,148 in 1997.................. 1,793 7,105
Inventories............................................ 720 480
Prepaid royalties and licenses......................... 278 79
Receivables from related companies..................... 128 299
Other current assets................................... 547 343
--------- ---------
Total current assets............................... 16,264 10,760
Property and equipment, net.............................. 1,182 1,834
Purchased technology..................................... 316 451
Goodwill, net ........................................... -- 8,190
Investment in Infomodelers, Inc. ........................ 838 204
Other assets............................................. 127 125
--------- ---------
Total assets....................................... $ 18,727 $ 21,564
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable....................................... $ 2,354 $ 1,956
Accrued compensation and benefits...................... 1,696 2,164
Deferred revenue....................................... 1,103 2,981
Payables to related companies.......................... 26 --
Notes payable.......................................... -- 762
Reserve for restructuring costs ....................... 653 375
Other current liabilities.............................. 585 1,915
--------- ---------
Total current liabilities.......................... 6,417 10,153
Other noncurrent liabilities............................. -- 181
--------- ---------
Total liabilities........................................ 6,417 10,334
--------- ---------
Redeemable common stock, $0.01 par value; issued and
outstanding no shares in 1996 and 191,489 shares in
1997; (aggregate redemption value of $3,000 in 1997).... -- 1,468
Stockholders' equity:
Class B Stock, $0.01 par value:
Authorized 5,000,000 shares; issued and outstanding,
814,290 shares in 1996 and 4,322,289 shares in 1997
Liquidation preference of $5,805 in 1996 and $5,303
in 1997............................................. 8 43
Common stock, $0.01 par value:
Authorized 40,000,000 shares; issued and outstanding
5,915,201 shares in 1996 and 6,625,036 shares in
1997................................................ 59 66
Additional paid-in capital............................. 162,862 169,075
Accumulated deficit.................................... (146,146) (159,261)
Class B stock subscription receivable ................. (4,500) --
Translation adjustments................................ 27 (161)
--------- ---------
Total stockholders' equity......................... 12,310 9,762
Commitments..............................................
--------- ---------
Total liabilities and stockholders' equity......... $ 18,727 $ 21,564
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Product revenue:
Online learning products...................... $ -- $ 3,135 $ 7,056
Other products................................ 16,238 11,165 10,425
-------- -------- --------
Total product revenue........................ 16,238 14,300 17,481
Services revenue............................... 1,926 2,955 6,583
-------- -------- --------
Total revenue............................... 18,164 17,255 24,064
-------- -------- --------
Cost of revenue:
Product revenue:
Online learning products...................... -- 136 585
Other products................................ 3,343 2,946 2,069
-------- -------- --------
Total cost of product revenue................ 3,343 3,082 2,654
Services revenue............................... 1,270 2,100 4,137
-------- -------- --------
Total cost of revenue....................... 4,613 5,182 6,791
-------- -------- --------
Gross margin..................................... 13,551 12,073 17,273
-------- -------- --------
Operating expenses:
Research and development....................... 13,315 12,122 8,115
Sales and marketing............................ 11,984 14,989 13,589
General and administrative..................... 3,997 4,292 4,432
Loss on impairment of assets................... -- 2,787 --
Restructuring charge........................... 3,318 1,104 --
Acquired in-process research and development... -- -- 4,064
-------- -------- --------
Total operating expenses..................... 32,614 35,294 30,200
-------- -------- --------
Loss from operations............................. (19,063) (23,221) (12,927)
-------- -------- --------
Other income (expense):
Other expense.................................. -- (1,128) --
Interest income from principal stockholder..... 1,222 1,066 436
Interest expense paid by principal stockholder. (1,846) -- --
Other interest income, net..................... 50 36 48
Equity in losses from Infomodelers, Inc........ -- (112) (634)
-------- -------- --------
Total other income (expense)................. (574) (138) (150)
-------- -------- --------
Loss before income taxes......................... (19,637) (23,359) (13,077)
Provision for income taxes....................... 78 196 38
-------- -------- --------
Net loss......................................... $(19,715) $(23,555) $(13,115)
======== ======== ========
Basic and diluted net loss per share............. $ (4.14) $ (4.01) $ (2.17)
======== ======== ========
Shares used to compute basic and diluted net loss
per share....................................... 4,766 5,879 6,038
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS B
CLASS B STOCK COMMON STOCK ADDITIONAL ACCUMU- STOCK
----------------- ----------------- PAID-IN LATED SUBSCRIPTION TRANSLATION
SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT RECEIVABLE ADJUSTMENTS TOTAL
--------- ------ --------- ------ ---------- --------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1995................... -- $-- 347,500 $ 3 $ 17,592 $(102,876) $ -- $ (87) $(85,368)
Common stock
repurchased............ -- -- (58,750) (1) (38) -- -- -- (39)
Exchange of common stock
for debt and note
receivable............. -- -- 5,561,250 56 132,956 -- -- -- 133,012
Stock options exercised. -- -- 4,583 -- 7 -- -- -- 7
Interest expense paid by
stockholder............ -- -- -- -- 1,846 -- -- -- 1,846
Net loss................ -- -- -- -- -- (19,715) -- -- (19,715)
Translation adjustments. -- -- -- -- -- -- -- (7) (7)
--------- --- --------- --- -------- --------- ------ ----- --------
Balance at December 31,
1995................... -- -- 5,854,583 58 152,363 (122,591) -- (94) 29,736
Common stock issued for
services............... -- -- 6,076 -- 7 -- -- -- 7
Series 1 Class B stock
issued for services.... 37,500 -- -- -- 300 -- -- -- 300
Series A preferred Class
B stock issued for
cash................... 388,395 4 -- -- 4,826 -- -- -- 4,830
Series B preferred Class
B stock issued for
cash................... 388,395 4 -- -- 4,999 -- (4,500) -- 503
Stock options exercised. -- -- 54,542 1 86 -- -- -- 87
Dividend of Infomodelers
stock.................. -- -- -- -- (219) -- -- -- (219)
Stock compensation...... -- -- -- -- 500 -- -- -- 500
Net loss................ -- -- -- -- -- (23,555) -- -- (23,555)
Translation adjustments. -- -- -- -- -- -- -- 121 121
--------- --- --------- --- -------- --------- ------ ----- --------
Balance at December 31,
1996................... 814,290 8 5,915,201 59 162,862 (146,146) (4,500) 27 12,310
Stock options exercised. -- -- 341,757 3 362 -- -- -- 365
Series 4 Class B stock
issued in acquisitions. 2,383,894 24 -- -- 3,361 -- -- -- 3,385
Series 5 Class B stock
issued in acquisitions. 1,512,500 15 -- -- 2,133 -- -- -- 2,148
Common stock issued in
acquisitions........... -- -- 368,078 4 2,818 -- -- -- 2,822
Stock options issued in
acquisitions........... -- -- -- -- 89 -- -- -- 89
Net liability spun off
in SuperCede
transaction............ -- -- -- -- 1,402 -- -- -- 1,402
Stock compensation...... -- -- -- -- 822 -- -- -- 822
Payment of Class B stock
subscription
receivable............. -- -- -- -- -- -- 500 -- 500
Interest on Class B
stock subscription
receivable............. -- -- -- -- -- -- (28) -- (28)
Cancellation of Series B
preferred Class B
stock.................. (388,395) (4) -- -- (4,774) -- 4,028 -- (750)
Net loss................ -- -- -- -- -- (13,115) -- -- (13,115)
Translation adjustments. -- -- -- -- -- -- -- (188) (188)
--------- --- --------- --- -------- --------- ------ ----- --------
Balance at December 31,
1997................... 4,322,289 $43 6,625,036 $66 $169,075 $(159,261) $ -- $(161) $ 9,762
========= === ========= === ======== ========= ====== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss........................................ $(19,715) $(23,555) $(13,115)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization.................. 2,086 1,696 1,118
Interest expense paid by principal stockholder. 1,846 -- --
Write-off of property and equipment............ 1,333 -- --
Write-off of capitalized software and license
agreements.................................... 509 -- --
Acquired in-process research and development... -- -- 4,064
Impairment of intangibles...................... -- 2,787 --
Accrued interest on note receivable from
principal stockholder......................... (1,222) (1,066) 2,288
Accrued interest on Class B stock subscription
receivable.................................... -- -- (28)
Equity in losses from Infomodelers, Inc........ -- 112 634
Stock compensation expense..................... -- 500 822
Class B stock issued in exchange for services.. -- 300 --
Common stock issued in exchange for services... -- 7 --
Changes in assets and liabilities:
Accounts receivable.......................... 289 3,190 (4,130)
Inventories.................................. 609 73 207
Prepaid royalties and licenses............... (561) (298) (212)
Receivables from related companies........... 566 (13) (171)
Other current assets......................... (159) (156) 231
Accounts payable............................. (275) 367 (1,779)
Accrued compensation and benefits............ 491 89 398
Payable to related companies................. 332 (306) (27)
Reserve for restructuring costs.............. 316 337 (278)
Deferred revenue............................. (195) 1,095 573
Other current liabilities.................... 129 (165) 2,030
-------- -------- --------
Net cash used in operating activities...... (13,621) (15,006) (7,375)
-------- -------- --------
Cash flows from investing activities:
Purchase of property and equipment............. (591) (805) (316)
Purchase of technology......................... (1,290) -- --
Payments related to acquisitions, net of cash
acquired...................................... -- -- (321)
Investment in Infomodelers, Inc................ -- (1,000) --
Disposal (purchase) of other assets............ 57 155 (8)
-------- -------- --------
Net cash used in investing activities...... (1,824) (1,650) (645)
-------- -------- --------
Subtotal, carried forward.................. $(15,445) $(16,656) $ (8,020)
======== ======== ========
</TABLE>
F-7
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1996 1997
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Subtotal, brought forward................... $(15,445) $(16,656) $(8,020)
Cash flows from financing activities:
Repayment of capital lease obligations........... -- -- (16)
Repayment of notes payable....................... -- -- (299)
Borrowings on note payable to stockholder........ 18,285 -- --
Payments received on note receivable from
principal stockholder........................... -- 11,850 6,747
Payments on long-term debt....................... (546) (523) (398)
Payments received on Class B stock subscription
receivable ..................................... -- -- 500
Proceeds from sale of Class B stock, net......... -- 5,333 --
Proceeds from exercise of stock options.......... 7 87 365
Repurchase of common stock....................... (39) -- --
-------- -------- -------
Net cash provided by financing activities... 17,707 16,747 6,899
-------- -------- -------
Effect of exchange rate changes on cash.......... (7) 121 (188)
-------- -------- -------
Net increase (decrease) in cash and cash
equivalents................................ 2,255 212 (1,309)
Cash and cash equivalents at beginning of period.. 1,296 3,551 3,763
-------- -------- -------
Cash and cash equivalents at end of period........ $ 3,551 $ 3,763 $ 2,454
======== ======== =======
</TABLE>
F-8
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995, 1996 AND 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Business
Asymetrix Learning Systems, Inc. (Asymetrix or the Company) is a provider of
online enterprise learning solutions designed to enable organizations to
capture, deploy and manage knowledge more effectively. The Company's products
can be used by clients on a variety of computer platforms. The Company's
online learning products include its learning management system known as
Librarian, its online learning authoring products, consisting of ToolBook II
Instructor and ToolBook II Assistant, its multimedia products, consisting of
media creation products and third-party learning titles. The Company's other
products include multimedia authoring tools and other products not related to
online learning. The Company also offers a variety of professional services,
including consulting and development services, training programs and customer
and technical support targeted for the online learning market.
(b) Working Capital
At December 31, 1997, the Company had working capital of $607,000. In 1998,
the Company obtained a line of credit for $5.0 million which provides funds
available to the Company through July 1, 1998. Additionally in 1998, the
Company received $2.4 million in cash from the sale of its Infomodelers stock.
The Company continues to seek additional working capital in the form of
additional lines of credit, extensions of existing lines of credit or
investments of equity in the Company which will be adequate to sustain
operations through at least December 31, 1998. The Company will manage its
operations commensurate with its level of available working capital.
(c) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. Investments
in 20% to 50% owned companies are accounted for using the equity method of
accounting.
(d) Use of Estimates
The preparation of financial statements requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Accordingly, actual results may differ from
these estimates.
(e) Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is the local
currency in the country in which the subsidiary is located. Assets and
liabilities denominated in foreign currencies are translated to U.S. dollars
at the exchange rate in effect on the balance sheet date. Revenues and
expenses are translated at the average rates of exchange prevailing during the
year. The translation adjustment resulting from this process is shown
separately as a component of stockholders equity. Gains and losses on foreign
currency transactions are included in the consolidated statement of operations
as incurred. To date, gains and losses on foreign currency transactions have
not been significant.
(f) Cash and Cash Equivalents
All highly liquid financial instruments purchased with a remaining maturity
of three months or less at the date of purchase are reported as cash
equivalents. The carrying amounts reported in the consolidated balance sheets
for cash and cash equivalents approximate their fair values.
(g) Concentration of Credit and Sales Risk
The Company distributes its products through direct sales to end-users and
on an indirect basis through resellers, distributors, and original equipment
manufacturers (OEMs). The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires no collateral.
F-9
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(h) Inventories
Inventories are stated at the lower of cost or market and include
adjustments for estimated obsolescence. Cost is determined principally using
periodically adjusted standards, which approximate actual cost on a first-in,
first-out basis.
(i) Other Financial Instruments
At December 31, 1997, the carrying values of financial instruments, such as
trade receivables and current payables, approximated their fair values based
on the short-term maturities of these instruments.
(j) Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is computed using the straight-line method over the estimated
useful lives of three to seven years. Leasehold improvements are amortized
over the lesser of the lease term or estimated useful life. Repairs and
maintenance that do not improve or extend the lives of the respective assets
are expensed in the period incurred.
(k) Intangible Assets
Purchased technology consists of software products acquired by the Company
from third parties. At the time of their acquisition, the products had either
reached technological feasibility or were complete. Purchased technology is
amortized on a product-by-product basis using the greater of the amount
computed using the ratio that current sales bear to the total of current and
anticipated future gross revenues for that product or the straight line method
over the remaining estimated economic life of the product.
Goodwill represents excess purchase price over the fair value of tangible
and identifiable intangible assets acquired and is amortized over estimated
useful lives of 5 to 15 years.
(l) Accounting for Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows
expected to be generated by the asset. If such assets are considered to be
impaired, the impairment to be recognized is measured by the amount by which
the carrying amount of the assets exceeds the fair value of the assets. Assets
to be disposed of are reported at the lower of their carrying amount or fair
value less cost to sell.
(m) Revenue Recognition
Revenue from sales of software products to end-users, resellers, and
distributors is recognized when the products are shipped provided that no
significant obligations of the Company remain and collection of the resulting
receivable is deemed probable. The Company's agreements with certain
distributors and resellers permit them to exchange products under certain
circumstances and permit returns from certain resellers subject to specific
limitations. When appropriate, accruals are established for estimated returns
and exchanges. In the case of nonrefundable minimum royalties from an OEM,
reseller or other distributor, provided that no significant obligations of the
Company remain, the Company recognizes revenue when it delivers its product to
the OEM reseller or other distributor, provided that no significant
obligations of the Company remain. Additional royalties are paid to the extent
that the advances are exceeded and these additional royalties are recognized
upon delivery of the products by the OEM reseller or other distributor. The
Company recognizes revenue associated with technical support agreements over
the life of the contract.
The Company recognizes revenue under custom development contracts as
services are provided for time and materials contracts or by using the
percentage-of-completion method of accounting, based on the ratio of costs
incurred to the total estimated project cost, for individual fixed-price
contracts. Provisions for any estimated losses on uncompleted contracts are
made in the period in which such losses become evident.
F-10
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(n) Research and Development
Research and development costs, which consist primarily of software
development costs, are expensed as incurred. Financial accounting standards
provide for the capitalization of certain software development costs after
technological feasibility of the software is established. Under the Company's
current practice of developing new products and enhancements, the
technological feasibility of the underlying software is not established until
substantially all product development is complete, including the development
of a working model. No such costs have been capitalized because the impact of
capitalizing such costs would not be material.
(o) Income Taxes
Income taxes are computed using the asset and liability method. Under this
method, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to the differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in results of operations in the period that
includes the enactment date.
(p) Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 123, "Accounting for Stock-Based Compensation" (Statement 123). The
Company has adopted the disclosure-only provisions of Statement 123 and
applies Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" (APB 25) and related interpretations in accounting for
its stock option plans. Accordingly, the Company's stock-based compensation
expense is recognized based on the intrinsic value of the option on the date
of grant. Recognition of stock-based compensation expense under Statement 123
requires the use of a fair value method to value stock options using option
valuation models. Pro forma disclosure of net loss under Statement 123 is
provided in Note 9 to the financial statements.
(q) Advertising
Advertising costs are expensed as incurred and are included in sales and
marketing expense. Advertising expense was $667,000, $1,257,000 and $1,241,000
in 1995, 1996 and 1997, respectively.
(r) Net Loss Per Share
The Financial Accounting Standards Board (FASB) recently issued SFAS No.
128, Earnings Per Share. SFAS No. 128 requires the presentation of basic
earnings per share, and for companies with complex capital structures, diluted
earnings per share. Basic earnings per share is computed using the weighted
average number of common shares outstanding during the period. Diluted
earnings per share is computed using the weighted average number of common and
dilutive common equivalent shares outstanding during the period. The Company
has presented historical basic and diluted net loss per share in accordance
with SFAS No. 128. As the Company had a net loss in each of the periods
presented, basic and diluted net loss per share is the same.
Excluded from the computation of diluted earnings per share for 1997 are
options to acquire 3,389,835 shares of Common Stock with a weighted-average
exercise price of $3.46 because their effects would be anti-dilutive. Also
excluded from the computation of diluted earnings per share for 1997 are
3,241,645 common equivalent shares resulting from the assumed conversion of
the Class B stock because their effects would be antidilutive.
F-11
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(s) New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
(Statement 130). Statement 130 establishes standards for reporting and
disclosure of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements.
Statement 130, which is effective for fiscal years beginning after December
15, 1997, requires reclassification of financial statements for earlier
periods to be provided for comparative purposes. The Company has not
determined the manner in which it will present the information required by
Statement 130.
In June 1997, the FASB issued SFAS No. 131, Disclosure About Segments of an
Enterprise and Related Information, (Statement 131). Statement 131 establishes
standards for the way that public business enterprises report information
about operating segments. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
Statement 131 is effective for fiscal years beginning after December 15, 1997.
In the initial year of application, comparative information for earlier years
must be restated. The Company has not determined the manner in which it will
present the information required by Statement 131.
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 97-2, Software Revenue Recognition. The
statement provides specific industry guidance and stipulates that revenue
recognized from software arrangements is to be allocated to each element of
the arrangement based on the relative fair values of the elements, such as
software products, upgrades, enhancements, post contract customer support,
installation, or training. Under SOP 97-2, the determination of fair value is
based on objective evidence which is specific to the vendor. If such evidence
of fair value for each element of the arrangement does not exist, all revenue
from the arrangement is deferred until such time that evidence of fair value
does exist or until all elements of the arrangement are delivered. Revenue
allocated to software products, specified upgrades and enhancements is
generally recognized upon delivery of the related products, upgrades and
enhancements. Revenue allocated to post contract customer support is generally
recognized ratably over the term of the support, and revenue allocated to
service elements is generally recognized as the services are performed.
SOP 97-2 will be adopted by the Company effective January 1, 1998 and is not
expected to have a material effect on revenue recognition.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Raw materials.............................................. $ 686 $ 351
Finished goods............................................. 419 180
Less obsolescence reserve.................................. (385) (51)
------- -------
$ 720 $ 480
======= =======
</TABLE>
F-12
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Leasehold improvements...................................... $ 181 $ 247
Equipment................................................... 4,004 5,753
Furniture and fixtures...................................... 402 494
------- -------
4,587 6,494
Less accumulated depreciation............................... 3,405 4,660
------- -------
$ 1,182 $ 1,834
======= =======
</TABLE>
(4) NOTES PAYABLE
The Company maintains a $500,000 revolving line of credit facility with a
bank. Interest is payable at the bank's stated rate plus 1.0% (10% at December
31, 1997). The facility expires April 1, 1998 and is unsecured. The Company
had outstanding borrowings under the facility of $274,000 at December 31,
1997.
At December 31, 1997, the Company is also obligated under a note payable to
a former stockholder of the Oakes Companies in the amount of $488,000. This
note bears interest at the prime rate (8.5% at December 31, 1997) and matures
in 1998.
(5) LEASES
The Company leases office space under noncancelable operating leases. Future
minimum lease payments under noncancelable operating leases with terms in
excess of one year are as follows (in thousands):
<TABLE>
<S> <C>
Years ending December 31:
1998............................................................ $1,828
1999............................................................ 1,107
2000............................................................ 454
2001............................................................ 258
2002............................................................ 26
------
Total minimum lease payments.................................. $3,673
======
</TABLE>
The Company sublets a portion of its office space to related parties and
offsets rent expense through sublease billings. Total sublease billings
through 1999 are expected to approximate $717,000. No sublease billings are
expected beyond 1999. Rent expense under operating leases approximated
$1,080,000, $1,343,000 and $1,189,000 in 1995, 1996 and 1997, respectively.
(6) INCOME TAXES
Income (loss) before income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. ............................................ $(19,786) $(23,498) $(13,107)
Foreign.......................................... 149 139 30
-------- -------- --------
Total loss before income taxes................. $(19,637) $(23,359) $(13,077)
======== ======== ========
</TABLE>
F-13
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current tax expense:
U.S. Federal....................................... $ -- $ -- $ --
State.............................................. 3 6 --
Foreign............................................ 75 190 38
------- -------- -------
Total provision for income taxes................. $ 78 $ 196 $ 38
======= ======== =======
</TABLE>
The effective rate differs from the U.S. federal statutory rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1996 1997
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Income tax benefit at statutory rate of 34%......... $(6,677) $(7,942) $(4,446)
Losses producing no current tax benefit............. 6,621 7,869 2,954
Acquired in-process research and development........ -- -- 1,382
Foreign taxes....................................... 75 190 38
Other, net.......................................... 59 79 110
------- ------- -------
Total provision for income taxes.................. $ 78 $ 196 $ 38
======= ======= =======
</TABLE>
As of December 31, 1997, Asymetrix had federal net operating loss (NOL)
carryforwards and research and development (R&D) tax credit carryforwards whose
expiration approximated the following:
<TABLE>
<CAPTION>
NOL R&D
-------- ------
(IN THOUSANDS)
<S> <C> <C>
From 2000 through 2001...................................... $ 2,392 $ --
From 2002 through 2006...................................... 27,080 928
From 2007 through 2012...................................... 98,710 1,630
-------- ------
$128,182 $2,558
======== ======
</TABLE>
The Company's ability to utilize NOL carryforwards may be limited in the
event that a change in ownership, as defined in the Internal Revenue Code,
occurs in the future.
Deferred income tax assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1996 1997
------- -------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards............................ $40,660 $43,582
Research and development tax credit carryforwards........... 2,463 2,558
Provisions for credit and sales allowances.................. 1,138 390
Provision for inventory obsolescence........................ 131 17
Stock compensation.......................................... 170 398
Other provisions and expenses not currently deductible...... 271 427
------- -------
44,833 47,372
Valuation allowance for deferred tax assets................. (44,833) (47,372)
------- -------
Net deferred tax assets................................... $ -- $ --
======= =======
</TABLE>
F-14
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
For financial reporting purposes, the deferred tax assets valuation
allowance has been established due to the uncertainty of realization of the
deferred tax assets. The valuation allowance increased $5,581,000, $7,637,000
and $2,539,000 in 1995, 1996 and 1997, respectively.
(7) RELATED-PARTY TRANSACTIONS
Prior to March 1995, the Company financed its operations through a bank-
provided line of credit up to $120,000,000 guaranteed by its principal
stockholder, who was also coborrower under the line of credit. The credit
facility was secured by collateral pledged by the Company's principal
stockholder. As interest on the debt was paid directly by the Company's
principal stockholder, in accordance with SEC Staff Accounting Bulletin No.
79, interest expense of $1,846,000 in 1995 was recognized by the Company and
treated as a contribution to capital from the stockholder.
In March 1995, the Company effected a recapitalization under which all of
the outstanding shares of common stock, except for 385,000 shares held by the
principal stockholder, were repurchased for $.50 per share, the estimated fair
value of the Company's Common Stock. Subsequent to this repurchase, the
Company issued 7,415,000 shares of stock to its then sole stockholder,
bringing the total outstanding shares to 7,800,000. In exchange for this
stock, the sole stockholder contributed $18,404,000 in the form of a note
receivable and canceled the note payable which, at that date, had an
outstanding balance of $114,608,000. The note receivable is due on demand,
bears interest at 8%, and had a balance of $9,035,000 at December 31, 1996.
The note receivable was repaid in full in October 1997.
(8) ACQUISITIONS
(a) Socha Computing, Inc. (Socha)
In July 1997, the Company acquired all the outstanding shares of common
stock of Socha. The acquisition was recorded under the purchase method of
accounting. The purchase price included $200,000 in cash and 200,000 shares of
Series 4 Class B Stock (which are convertible into an aggregate of 150,000
shares of Common Stock) valued at $284,000. At the time of the acquisition,
the operations of Socha consisted primarily of development of technology. The
in-process research and development was evaluated as to its state of
completion and it was determined that technological feasibility had not yet
been reached. As a result, the aggregate purchase price of $484,000 has been
allocated to acquired in-process research and development. An additional
$400,000 will be paid contingent upon the satisfaction of certain performance
milestones related to technology purchased in the acquisition. In addition,
the Company is obligated to pay 10% of net revenues generated from the
purchased technology, as well as 2% of net revenues from products developed
utilizing the purchased technology, not to exceed maximum aggregate royalties
of $5,400,000.
(b) Aimtech Corporation (Aimtech)
In September 1997, the Company acquired all the outstanding shares of common
stock of Aimtech, a provider of computer based training (CBT) development
products based in Nashua, New Hampshire. The Aimtech acquisition was recorded
under the purchase method of accounting. Accordingly, the results of Aimtech's
operations from September 12, 1997 are included in the Company's consolidated
financial statements. The purchase price consisted of 2,183,894 shares of
Series 4 Class B Stock (which are convertible into an aggregate of 1,637,178
shares of Common Stock) and options to purchase 19,431 shares of Series 4
Class B Stock (which are convertible into an aggregate of 14, 573 shares of
Common Stock) valued at $3,101,000, and $154,000 of other acquisition costs.
The purchase price has been allocated to assets acquired and liabilities
assumed based on their fair value at the date of acquisition as follows (in
thousands):
F-15
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<S> <C>
Acquired in-process research and development...................... $3,580
Purchased technology.............................................. 350
Goodwill.......................................................... 1,467
Net current liabilities........................................... (2,243)
Property and equipment and other assets........................... 101
------
$3,255
======
</TABLE>
In connection with the acquisition of Aimtech, 441,705 shares of the Series
4 Class B stock issued in connection with the acquisition of Aimtech (which
are convertible into an aggregate of 331,246 shares of Common Stock) were
placed in escrow to secure certain indemnification obligations of former
stockholders of Aimtech. Subsequent to the acquisition of Aimtech, the Company
entered into an agreement to license to a third party certain technology
acquired from Aimtech. Pursuant to the agreement, the licensee is required to
pay royalties to the Company over a three-year period based on percentages of
net revenue. Total royalties paid are not to exceed $5,000,000, with minimum
guaranteed royalties of $500,000, payable through 1998.
(c) The Oakes Companies
In September 1997, the Company acquired all of the outstanding shares of
common stock of the Oakes Companies. The Oakes Companies consist of Oakes
Interactive Incorporated, a multimedia training developer based in Needham,
Massachusetts, Acorn Associates Incorporated, a consulting services
organization, and Top Shelf Multimedia, Inc., a reseller of third-party
multimedia titles. The acquisition of the Oakes Companies was recorded under
the purchase method of accounting. The purchase price consisted of 1,512,500
shares of Series 5 Class B Stock (which are convertible into an aggregate of
1,134,371 shares of Common Stock) valued at $2,148,000, and $72,000 of other
acquisition costs, and has been allocated to assets acquired and liabilities
assumed based on their fair value at the date of acquisition as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment and other assets........................... $ 686
Goodwill.......................................................... 2,809
Net current liabilities........................................... (197)
Long-term obligations............................................. (1,078)
------
$2,220
======
</TABLE>
(d) Communications Strategies, Incorporated (CSI)
In December 1997, the Company acquired all the outstanding shares of common
stock of CSI. The purchase price consisted of 550,193 shares of Common Stock
valued at $4,218,000, options to purchase 22,500 shares of the Company's
Common Stock at $5.75 per share to stockholders of CSI and acquisition costs
of $10,000. The fair value of the options issued is $89,000. The acquisition
of CSI has been recorded under the purchase method of accounting. Accordingly,
the purchase price has been allocated to assets acquired and liabilities
assumed based on their fair value at the date of acquisition as follows (in
thousands):
<TABLE>
<S> <C>
Property and equipment and other assets........................... $1,233
Goodwill.......................................................... 3,901
Current liabilities............................................... (817)
------
$4,317
======
</TABLE>
In the event the Company does not complete an initial public offering of its
Common Stock with aggregate proceeds not less than $10,000,000 on or prior to
June 30, 1998, the former shareholders of CSI have the right to require the
Company to repurchase up to 191,490 shares of the Common Stock issued in the
acquisition at a price of $11.75 per share. This right expires upon the
earlier of the closing of an initial public offering as described above, the
date such stockholder no longer holds any shares of the Company's Common
Stock, or July 31, 1998. The shares subject to this right have been classified
as redeemable common stock outside of stockholders' equity pursuant to the
rules and regulations of the Securities and Exchange Commission.
F-16
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Graham-Wright Interactive, Inc. (GWI)
In December 1997, the Company acquired all the outstanding shares of common
stock of GWI. The acquisition of GWI was accounted for under the purchase
method of accounting. The purchase price consisted of 12,500 shares of common
stock valued at $72,000, and has been allocated to assets acquired and
liabilities assumed based on their fair value at the date of acquisition as
follows (in thousands):
<TABLE>
<S> <C>
Property and equipment................................................... $ 52
Goodwill................................................................. 132
Net current liabilities.................................................. (112)
-----
$ 72
=====
</TABLE>
A summary of the purchase price paid for all of the 1997 acquisitions is as
follows:
<TABLE>
<S> <C>
Consideration:
Cash, including acquisition costs................................. $ 436
Current liabilities assumed....................................... 4,944
Non-current liabilities assumed................................... 1,078
Stock and stock options........................................... 9,912
-------
$16,370
=======
</TABLE>
A summary of the allocation of the purchase price for all of the 1997
acquisitions is as follows:
<TABLE>
<S> <C>
Cash acquired..................................................... $ 115
Current assets acquired........................................... 2,437
Property and equipment and other non-current assets............... 1,095
Software technology--completed.................................... 350
Software technology in progress--charged to in-process research
and development.................................................. 4,064
Goodwill.......................................................... 8,309
-------
$16,370
=======
</TABLE>
(f) Unaudited Pro Forma Financial Information
The following table presents unaudited pro forma results of operations as if
the acquisitions of Socha, Aimtech, Oakes, CSI and GWI had occurred on January
1, 1996:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------------
1996 1997
---------- ----------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Revenue.............................................. $ 30,772 $ 35,951
Net loss............................................. (29,030) (17,505)
Net loss per share................................... (4.65) (2.74)
</TABLE>
(9) IMPAIRMENT OF ASSETS AND RESTRUCTURINGS
(a) Restructuring of Domestic Operations
In January 1995, the Company adopted a plan to restructure its domestic
operations. Pursuant to this plan, the Company discontinued development of
certain products and reduced its development, sales, and support work force by
89 full-time employees (approximately 30% of the work force). The Company
recognized a charge to income of $3,318,000 as a result of this
reorganization. This charge related to involuntary termination benefits for
employee compensation and certain exit costs, including guaranteed royalties,
product returns, cost for abandoned office space, computer equipment,
furniture and office equipment and other nonrecurring expenses.
F-17
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) Restructuring of European Operations
In September 1996, the Company adopted a plan to restructure its European
operations. The Company recognized a charge to income of $604,000, which
included involuntary termination benefits for employee compensation and
certain exit costs.
(c) Spin-Off of Client/Server Tools Division
On October 7, 1996, the Company transferred employees previously employed in
the Company's Client/Server Tools Division to a new wholly-owned subsidiary
(ASX Corporation, formed in August 1996). The Company entered into two
agreements with ASX Corporation: (1) a Technology Transfer and License
Agreement, whereby the Infomodelers and Conceptual Query technologies were
transferred to ASX Corporation in exchange for 3,500,000 shares of ASX
Corporation's common stock (all of the outstanding stock of ASX Corporation),
a royalty of 8% on sales of ASX Corporation's products and services based on
this technology over the next five years; and a license for the Company to use
the technology in noncompeting products; and (2) an Asset Purchase and Loan
Agreement, whereby the Company sold ASX Corporation all net assets (including
patents and trademarks covering the technology) of the Client/Server Tools
Division for $500,000. Additionally, the Company loaned ASX Corporation
$1,000,000. Both the purchase price of the assets and the loan were reflected
in a $1,500,000 promissory note from ASX Corporation to the Company. The
Company recorded a noncash restructuring expense of $500,000 related to a
modification of Asymetrix stock option plan rights related to employees who
transferred to ASX. ASX Corporation was renamed Conquer Data, Inc. and
subsequently Infomodelers, Inc. (Infomodelers). The Company canceled the
$1,500,000 promissory note in exchange for 700,000 shares of Infomodelers
preferred stock.
On October 17, 1996, the Company distributed, in the form of a dividend,
2,434,262 shares of Infomodelers common stock to its existing stockholders,
and distributed 368,512 shares of Infomodelers common stock (in the form of
compensation) to employees who held vested options of the Company's common
stock.
Subsequent to these transactions, the Company owned approximately 28% of the
outstanding voting stock of Infomodelers at December 31, 1996 and accounts for
its investment in Infomodelers using the equity method of accounting.
As a result of this spin-off, the Company reviewed the technology remaining
in the Client/Server Tools Division and development activities using the
technology were abandoned. Therefore, the Company recorded an impairment
charge of $2,787,000 in 1996, to write-off previously capitalized amounts
related to licenses for the technology.
(d) Spin-Off of Internet Tools Division
In June 1997, the Company established a wholly-owned subsidiary, SuperCede,
Inc. (SuperCede), and transferred the assets and liabilities of its Internet
Tools Division to SuperCede. In connection with the transfer, the Company
entered into an Asset Transfer, License and Stock Issuance Agreement under
which these assets and liabilities, including technologies, were transferred
to SuperCede in exchange for 3,500,000 shares of SuperCede common stock and a
license for the Company to use the technology in noncompeting products
specifically including the Company's online enterprise learning products. In
September 1997, the Company exchanged its SuperCede common stock for an
equivalent number of shares of SuperCede Series B preferred stock, and the
license of SuperCede technology to the Company was terminated. Also in
September 1997, an additional investor controlled by the Company's principal
stockholder purchased 3,500,000 shares of SuperCede Series A preferred stock
for $2.00 per share, reducing the Company's investment in SuperCede to 50%.
Each of the Series A and Series B preferred stock are convertible into one
share of SuperCede common stock at the option of the holder and carry
liquidation preferences of $2.00 per share plus any declared but unpaid
dividends. The liquidation preference on SuperCede Series A preferred stock is
senior to that of the SuperCede Series B preferred stock.
F-18
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
On the date the Company exchanged its SuperCede common stock for SuperCede
Series B preferred stock and SuperCede sold Series A preferred stock to the
Company's principal stockholder, SuperCede had net liabilities of $1,357,000.
The Company treated the transaction as a sale of stock by its subsidiary.
Because SuperCede's Series A preferred stockholder has rights and preferences
superior to those of the Company's Series B preferred stock, the Company's
share of SuperCede's net assets is $0 and, therefore, the Company increased
the carrying amount of its investment in SuperCede to $0. The increase in the
carrying amount of the Company's investment in SuperCede was reflected as an
increase of $1,402,000 to additional paid-in capital. The Company accounts for
its investment in SuperCede using the equity method of accounting.
Additionally, the Company will record no equity in earnings in SuperCede until
the net assets of SuperCede exceed the then liquidation preference on the
Series A preferred stock.
(10) STOCKHOLDERS' EQUITY
(a) Class B Stock
SERIES 1 CLASS B STOCK
On September 5, 1996, the Company designated a total of 50,000 shares of
$.01 par value Series 1 Class B Stock (Series 1 Stock). These shares have a
preference on liquidation of $8.00 per share. On September 5, 1996, the
Company issued 37,500 shares of Series 1 Stock valued at $300,000 to EnCompass
Group, Inc. in consideration for certain localization services.
SERIES A PREFERRED CLASS B STOCK
On October 11, 1996, the Company designated 388,395 shares of $.01 par value
Series A Preferred Class B Stock (Series A Stock). These shares have a
preference on liquidation equal to the original issue price of the shares plus
all declared but unpaid dividends thereon. On October 25, 1996, the Company
issued 388,395 shares of Series A Stock to SOFTBANK Holdings, Inc. in exchange
for cash of $5,002,528, reduced by offering costs of $173,000.
SERIES B PREFERRED CLASS B STOCK
On December 13, 1996, the Company designated 388,395 shares of $.01 par
value Series B Preferred Class B Stock (Series B Stock). These shares have a
preference on liquidation equal to the original issue price of the shares plus
all declared but unpaid dividends thereon. On December 20, 1996, Multimedia
Asia Pacific Pty. Ltd. (MAP) purchased 388,395 shares of Series B Stock in
exchange for $502,528 in cash and a promissory note for $4,500,000, bearing
interest at an annual rate of 6%. The note calls for a series of scheduled
payments through May of 1997, and payment for $500,000 was received in January
1997.
As of December 31, 1996, 349,380 shares of Series B Stock were pledged as
security on the note. In February of 1997, MAP defaulted on the note, with
310,560 shares remaining pledged against the note. Subsequent to the default,
the Company granted MAP an extension to pay off all, or a portion of, the
unpaid principal on the note of $4,000,000, plus accrued interest, by December
31, 1997.
In October 1997, the Company and MAP effected a settlement of the note
through the following transactions:
. All shares of Series B Stock that were pledged to secure the note were
cancelled in full satisfaction of the balance of the note, and
. All shares of Series B Stock that were then fully paid were redeemed by the
Company in exchange for $750,000 of accounts receivable owed to the Company
by Asymetrix Asia Pacific Pty. Ltd., a wholly-owned subsidiary of MAP.
F-19
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
SERIES 4 AND 5 CLASS B STOCK
On June 24, 1997 and July 10, 1997, the Company designated a total of
2,500,000 shares of $0.01 par value Series 4 Class B Stock (Series 4 Stock).
These shares have no preference on liquidation. In July 1997, the Company
issued 200,000 shares of Series 4 Stock valued at $284,000 to effect the
acquisition of Socha. In September 1997, the Company issued 2,183,894 shares
of Series 4 Stock valued at $3,101,000 to effect the acquisition of Aimtech.
On September 26, 1997, the Company designed a total of 1,512,500 shares of
$0.01 par value Series 5 Class B Stock (Series 5 Stock). These shares have no
preference on liquidation. In September 1997, the Company issued 1,512,500
shares of Series 5 Stock valued at $2,148,000 to effect the acquisition of the
Oakes Companies.
STOCK RIGHTS AND PREFERENCES
The Series 1 Stock, the Series A Stock, Series B Stock, Series 4 Stock and
Series 5 Stock (collectively known as Class B Stock) are convertible into
common stock at a conversion ratio of 0.75 to 1.0 (subject to subsequent
adjustments for stock dividends or other events). Such conversion may occur at
the option of the holder of the shares, upon an initial public offering, or
certain other events. Each holder of paid-up Class B Stock is entitled to vote
upon all matters which the holders of common stock have the right to vote, in
accordance with the conversion ratio described above. Dividends for Class B
Stock are not mandatory or cumulative and are at the discretion of the Board
of Directors. However, any dividends which are declared must be paid to the
holders of the Series A Stock and Series B Stock before dividends are paid to
the holders of the Series 1 Stock, Series 4 Stock, Series 5 Stock or common
stock. Additionally, the holders of Series 4 and 5 Stock are not entitled to
receive any dividends which may be paid upon the Company's disposition of its
investment in SuperCede. All dividends are paid on an as-converted to common
stock basis.
The Series 1 Stock liquidation preference rights are subordinate to the
Series A Stock and Series B Stock, whose liquidation preference rights are
equal.
A summary of Class B Stock follows:
<TABLE>
<CAPTION>
ISSUED AND OUTSTANDING
----------------------------
DESIGNATED
SHARES 1996 1997
---------- ------- ---------
<S> <C> <C> <C>
Series 1 Stock..................................... 50,000 37,500 37,500
Series A Stock..................................... 388,395 388,395 388,395
Series B Stock..................................... 388,395 388,395 --
Series 4 Stock..................................... 2,500,000 -- 2,383,894
Series 5 Stock..................................... 1,512,500 -- 1,512,500
Undesignated....................................... 160,710 -- --
--------- ------- ---------
5,000,000 814,290 4,322,289
========= ======= =========
</TABLE>
(b) Stock Option Plan
In 1995, the Company's Board of Directors adopted and approved the Asymetrix
Corporation 1995 Combined Incentive and Nonqualified Stock Option Plan (the
Plan) that provides for the issuance of nonqualified and incentive stock
options to officers, employees, and consultants to acquire 4,275,000 shares of
common stock. The Board of Directors determines the terms and conditions of
options granted under the Plans, including the exercise price. The exercise
price for incentive stock options shall not be less than the fair market value
at the date of grant, and the options expire ten years from the date of grant.
Options granted on the Plan inception date vest ratably each month over four
years. Options granted subsequent to Plan inception generally vest at 25%
after the first year and ratably each month for the next three years. When
options are issued at less than fair market value, compensation expense is
recorded. All canceled options revert back to the option pool.
F-20
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company has elected to follow APB 25 and related interpretations in
accounting for its employee stock options rather than the alternative fair
value accounting allowed by Statement 123. APB 25 provides that compensation
expense relative to the Company's employee stock options is measured based on
the intrinsic value of the stock option. Statement 123 requires companies that
continue to follow APB 25 to provide a pro forma disclosure of the impact of
applying the fair value method of Statement 123.
Under APB 25, because the exercise price of the Company's employee stock
options equals the fair value of the underlying stock on the date of grant, no
compensation expense is recognized. Had stock compensation expense for the
Company's stock option plan been determined based on the fair value
methodology under Statement 123, the Company's net loss would have increased
to these pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
----------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Net loss:
As reported.................................... $(19,715) $(23,555) $(13,115)
Pro forma...................................... (19,859) (23,926) (13,616)
Basic and diluted net loss per share:
As reported.................................... $ (4.14) $ (4.01) $ (2.17)
Pro forma...................................... (4.17) (4.07) (2.26)
</TABLE>
The fair value for these options was estimated at the date of grant using
the minimum value option pricing model that takes into account (1) the stock
price at the grant date, (2) the exercise price, (3) a five-year expected life
of the options, (4) no dividends, and (5) a risk-free interest rate of 6.5%
during 1995 and 1996, and 6.0% during 1997 over the expected life of the
options. Compensation expense recognized in providing pro forma disclosures
may not be representative of the effects on pro forma net income or loss for
future years because the amounts above include only the amortization for the
fair value of the 1995, 1996 and 1997 grants.
The weighted-average fair value of stock options granted in 1995, 1996 and
1997 was $0.41, $0.64 and $1.57, respectively.
A summary of the Company's stock option activity is as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
-----------------------
WEIGHTED
SHARES AVERAGE
AVAILABLE NUMBER EXERCISE
FOR GRANT OF SHARES PRICE
----------- ------------ ---------
<S> <C> <C> <C>
Outstanding at January 1, 1995......... -- -- $ --
Plan introduction.................... 4,275,000 -- --
Options granted...................... (3,164,473) 3,164,473 1.55
Options exercised.................... -- (4,583) 1.55
Options canceled..................... 266,322 (266,322) 1.55
----------- ------------
Balances at December 31, 1995.......... 1,376,849 2,893,568 1.55
Options granted...................... (750,434) 750,434 2.37
Options exercised.................... -- (54,542) 1.55
Options canceled..................... 482,603 (482,603) 1.55
----------- ------------
Balances at December 31, 1996.......... 1,109,018 3,106,857 1.75
Options granted...................... (1,380,823) 1,380,823 6.23
Options exercised.................... -- (341,757) 1.55
Options canceled in cashless
exercises........................... -- (40,089) 1.55
Options canceled..................... 715,999 (715,999) 2.33
----------- ------------
Balances at December 31, 1997.......... 444,194 3,389,835 3.46
=========== ============
</TABLE>
F-21
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes information concerning currently outstanding
and exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
EXERCISE JNUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING LIFE PRICE EXERCISABLE PRICES
-------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$ 1.55 2,004,428 7.6 years $ 1.55 1,297,158 $ 1.55
6.00 1,197,908 9.6 years 6.00 99,900 6.00
7.67 187,499 9.9 years 7.67 -- --
--------- ---------
3,389,835 8.4 years 3.46 1,397,058 1.87
========= =========
</TABLE>
(c) Common Shares Reserved for Future Issuance
At December 31, 1997, the Company has reserved shares of Common Stock as
follows:
<TABLE>
<S> <C>
Employee stock options............................................. 3,389,835
Stock options issued in acquisitions............................... 37,073
Conversion of Class B Stock:
Series 1 Class B................................................. 28,125
Series A Class B................................................. 291,296
Series 4 Class B................................................. 1,787,853
Series 5 Class B................................................. 1,134,371
---------
6,668,553
=========
</TABLE>
(d) 1998 Equity Incentive Plan
In December 1997, the Board adopted, subject to stockholder approval, the
1998 Equity Incentive Plan (the "Equity Incentive Plan"). The total number of
shares of Common Stock reserved for issuance thereunder is 1,500,000. The
Equity Incentive Plan will become effective on the closing of the initial
public offering and will serve as the successor to the 1995 Plan. Options
granted under the 1995 Plan before their termination will remain outstanding
according to their terms, but no further options will be granted under the
1995 Plan after the closing of the initial public offering.
(e) 1998 Directors Stock Option Plan
In December 1997, the Board adopted, subject to stockholder approval, the
1998 Directors Stock Option Plan (the "Directors Plan") and reserved a total
of 187,500 shares of the Company's Common Stock for issuance thereunder.
Members of the Board who are not employees of the Company or any parent,
subsidiary or affiliate of the Company are eligible to participate in the
Directors Plan. Option grants under the Directors Plan are automatic and
nondiscretionary, and the exercise price of such options is 100% of the fair
market value of the Common Stock on the date of grant.
(11) BENEFIT PLANS
The Company has a Retirement Savings Plan to provide for voluntary salary
deferral contributions on a pretax basis in accordance with Section 401(k) of
the Internal Revenue Code of 1986, as amended. To date, the Company has made
no contributions.
(12) REVERSE STOCK SPLIT
On December 29, 1997, the Board approved, subject to stockholder approval, a
3-for-4 reverse split of its Common Stock. The consolidated financial
statements, including all share and per share amounts, have been restated to
reflect the reverse stock split.
F-22
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) SUBSEQUENT EVENTS
(a) Line of Credit
In January 1998, the Company entered into a $5.0 million line of credit with
a bank which expires on July 1, 1998. Borrowings under this line of credit
bear interest at the bank's reference rate or LIBOR plus 1.0% per annum and
are secured by the Company's accounts receivable.
(b) Sale of Infomodelers Stock
In February 1998, Infomodelers sold substantially all of its assets to Visio
Corporation, a publicly traded company, in exchange for Visio Corporation
common stock. In connection with this transaction the Company estimates that
its share of the gain which Infomodelers realized on this transaction and
which will be included in the Company's equity in earnings of Infomodelers
will be approximately $2.2 million.
In March 1998, the Company sold to its principal stockholder Infomodelers
shares with an aggregate book value of $2.4 million to the Company's principal
stockholder for cash of $2.4 million.
(c) Adams Consulting Group, Inc. Acquisition
In March 1997, the Company acquired Adams Consulting Group, Inc. (Adams) by
issuing 13,215 shares of the Company's Common Stock. The acquisition of Adams
will be accounted for under the purchase method of accounting.
F-23
<PAGE>
CONSOLIDATED CONDENSED PRO FORMA FINANCIAL STATEMENTS
ASYMETRIX AND SUBSIDIARIES
During the period from January 1, 1997 to March 17, 1998, Asymetrix Learning
Systems, Inc. ("the Company") recognized the effect of the acquisition of
eight entities in separate transactions whereby the Company acquired all of
the outstanding stock of eight entities in exchange for either Class B Stock
or Common Stock of the Company. In addition, in a separate transaction in
September 1997, the Company spun off certain of its assets and liabilities,
and employees in exchange for stock of a newly created entity.
ACQUISITIONS
The acquisitions of Communications Strategies, Incorporated ("CSI"), Aimtech
Corporation ("Aimtech"), and Oakes Interactive Incorporated, TopShelf
Multimedia, Inc. and Acorn Associates Incorporated (collectively, the "Oakes
Companies"), have been accounted for using the purchase method of accounting,
and accordingly, each purchase price has been allocated to the tangible and
identifiable intangible assets acquired and liabilities assumed on the basis
of their fair values on the acquisition dates. The fair value of the Company's
stock issued in the acquisitions was estimated to be $1.42 per share for the
acquisitions of Aimtech and the Oakes Companies, and $5.75 per share for the
acquisition of CSI.
In September 1997, the Company acquired Aimtech by issuing an aggregate of
2,183,894 shares of Series 4 Class B Stock in exchange for all of Aimtech's
outstanding common stock. Upon the closing of this offering, each share of
Series 4 Class B Stock will be converted into 0.75 share of Common Stock of
the Company.
In September 1997, the Company acquired the Oakes Companies by issuing an
aggregate of 1,512,500 shares of Series 5 Class B Stock in exchange for all of
the outstanding shares of common stock of each of the Oakes Companies. Upon
the closing of this offering, each share of Series 5 Class B Stock will be
converted into 0.75 share of Common Stock in the Company.
In December 1997, the Company acquired CSI by issuing an aggregate of
550,193 shares of Common Stock and options to purchase 30,000 shares of Common
Stock at an exercise price of $7.67 per share in exchange for all of the
outstanding shares of CSI's common stock.
In addition to the acquisitions discussed above, in 1997 the Company
completed an acquisition of Socha Computing, Inc. (Socha) and an acquisition
of Graham-Wright Interactive, Inc. (Graham-Wright), and in 1998 the Company
completed an acquisition of Adams Consulting Group, Inc. (Adams). The purchase
price for Socha consisted of $200,000 cash and 200,000 shares of Series 4
Class B Stock. The purchase price for Graham-Wright consisted of 9,375 shares
of Common Stock. The purchase price for Adams consisted of 13,215 shares of
Common Stock. The impact of the acquisitions of Socha, Graham-Wright and Adams
have not been included in the pro forma financial statements as the impact
would not be significant to the pro forma financial statements taken as a
whole.
DISPOSITION
In September 1997, the Company contributed certain technology assets related
to its SuperCede development project to a wholly-owned subsidiary in exchange
for 3,500,000 shares of Common Stock in that subsidiary. In August 1997,
Vulcan Ventures Inc. ("Vulcan Ventures"), a venture capital company controlled
by the principal stockholder of the Company, loaned to SuperCede an aggregate
of $7,000,000 which was evidenced by a convertible promissory note (the
"SuperCede Note"). In September 1997, SuperCede sold an aggregate of 3,500,000
shares of its Series A Preferred Stock to Vulcan Ventures for a purchase price
of $2.00 per share, including cancellation of the indebtedness represented by
the SuperCede Note. Also in September 1997, the Company exchanged its
SuperCede Common Stock for an equivalent number of shares of SuperCede Series
B Preferred Stock.
F-24
<PAGE>
The following unaudited pro forma consolidated statement of operations
consolidates the operating results of the Company with those of CSI for the
period from January 1, 1997 to December 23, 1997, Aimtech for the period from
January 1, 1997 to September 12, 1997 and the Oakes Companies for the period
from January 1, 1997 to September 30, 1997 , and removes the operating results
of SuperCede for the period from January 1, 1997 to September 30, 1997 as if
each such transaction had occurred on January 1, 1997.
The pro forma financial information is presented for informational purposes
only and is not necessarily indicative of the results of operations had the
acquisitions occurred on such date, nor do they purport to be indicative of
the Company's future results of operations.
F-25
<PAGE>
ASYMETRIX AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
ACQUISITIONS DISPOSITION
-------------------------- ----------- PRO FORMA
OAKES ADJUSTMENTS
ASYMETRIX CSI AIMTECH COMPANIES SUPERCEDE DR. (CR.) PRO FORMA
--------- ------ ------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Product Revenue:
Online learning
products............. $ 7,056 $ -- $ -- $ -- $ -- $ -- $ 7,056
Other products........ 10,425 -- 2,545 1,267 (2,031) 126 (a) 12,080
-------- ------ ------- ------- ------- ------- --------
Total product
revenue............ 17,481 -- 2,545 1,267 (2,031) 126 19,136
Services.............. 6,583 4,489 825 2,887 -- -- 14,784
-------- ------ ------- ------- ------- ------- --------
Total revenue....... 24,064 4,489 3,370 4,154 (2,031) 126 33,920
Cost of revenue:
Product Revenue:
Online learning
products............. 585 -- -- -- -- -- 585
Other products........ 2,069 -- 447 644 (273) (73)(b) 2,708
-------- ------ ------- ------- ------- ------- --------
Total cost of
product revenue.... 2,654 -- 447 644 (273) (73) 3,293
Services.............. 4,137 2,690 800 2,230 -- -- 9,857
-------- ------ ------- ------- ------- ------- --------
Total cost of
revenue............ 6,791 2,690 1,247 2,874 (273) (73) 13,256
-------- ------ ------- ------- ------- ------- --------
Gross margin............ 17,273 1,799 2,123 1,280 (1,758) 53 20,664
Operating expenses:
Research and
development.......... 8,115 -- 1,368 -- (2,619) -- 6,864
Sales and marketing... 13,589 227 2,812 707 (2,459) -- 14,876
General
administrative....... 4,432 1,520 1,340 1,124 (653) 343 (c) 8,106
Acquired in-process
research and
development.......... 4,064 -- -- -- -- (4,064)(d) --
-------- ------ ------- ------- ------- ------- --------
Total operating
expenses........... 30,200 1,747 5,520 1,831 (5,731) (3,721) 29,846
-------- ------ ------- ------- ------- ------- --------
Loss from operations.... (12,927) 52 (3,397) (551) 3,973 (3,668) (9,182)
Other income (expense):
Interest income from
principal
shareholder.......... 436 -- -- -- -- -- 436
Other interest income
(expense), net....... 48 (41) 31 (88) -- -- (50)
Equity in losses from
Infomodelers......... (634) -- -- -- -- -- (634)
-------- ------ ------- ------- ------- ------- --------
Income (loss) before
income taxes........... (13,077) 11 (3,366) (639) 3,973 (3,668) (9,430)
Provision for income
taxes.................. 38 4 -- -- -- (4)(e) 38
-------- ------ ------- ------- ------- ------- --------
Net income (loss)....... $(13,115) $ 7 $(3,366) $ (639) $ 3,973 $(3,672) $ (9,468)
======== ====== ======= ======= ======= ======= ========
Basic and diluted net
loss per share......... (f) $ (1.48)
</TABLE>
(See accompanying notes to pro forma financial statements)
F-26
<PAGE>
ASYMETRIX AND SUBSIDIARIES
NOTES TO CONSOLIDATED PRO FORMA FINANCIAL STATEMENTS (UNAUDITED)
The following adjustments were applied to the historical consolidated
financial statements of the Company, CSI, Aimtech, and the Oakes Companies to
arrive at the pro forma consolidated financial information:
(a) Represents the elimination of intercompany revenues of $126,000
associated with CSI, Aimtech and the Oakes Companies.
(b) Represents the elimination of intercompany expenses of $126,000
associated with CSI, Aimtech and the Oakes Companies and recognition of
$53,000 of amortization expense related to purchased technology
associated with Aimtech.
(c) Represents amortization expense related to goodwill associated with the
acquisitions of CSI, Aimtech and the Oakes Companies, which is
amortized on an entity by entity basis over its estimated useful life
of fifteen, five and fifteen years, respectively, and the elimination
of discretionary bonus compensation received by shareholders of CSI as
these shareholders entered into employment contracts in conjunction
with the acquisition of CSI. These adjustments are summarized as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
DR. (CR.)
--------------
(IN THOUSANDS)
<S> <C>
Amortization of goodwill:
CSI........................... $ 260
Aimtech....................... 220
Oakes Companies............... 140
-----
620
Discretionary bonus
compensation................. (277)
-----
$ 343
=====
</TABLE>
(d) Represents the in-process research and development acquired in
conjunction with the acquisitions of Aimtech and Socha of $3,580,000
and $484,000, respectively.
(e) Represents the reduction of provision for income taxes of $4,000 as a
result of operating losses incurred on a consolidated basis.
(f) Pro forma basic and diluted net loss per share is computed using the
weighted average number of common shares outstanding during the period,
including shares of Common Stock issued to effect acquisitions as if
they were issued on January 1, 1997. Excluded from pro forma basic and
diluted net loss per share is 191,489 shares of redeemable common stock
issued in the acquisition of CSI as they are classified outside of
stockholders' equity pursuant to the rules and regulations of the
Securities and Exchange Commission. The following is a reconciliation
of shares used to compute historical basic and diluted net loss per
share to shares used to compute pro forma basic and diluted net loss
per share (in thousands):
<TABLE>
<S> <C>
Weighted average common shares
outstanding........................... 6,038
Shares issued in CSI acquisition....... 359
-----
6,397
=====
</TABLE>
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders
Aimtech Corporation:
We have audited the accompanying consolidated balance sheet of Aimtech
Corporation (a Delaware corporation) and subsidiaries as of December 31, 1996,
and the related consolidated statements of operations, stockholders' equity
(deficit) and cash flows for the year then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Aimtech
Corporation and subsidiaries as of December 31, 1996, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from its
operations and requires additional financing to fund its 1997 operations that
raises substantial doubt about its ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 1.
The financial statements do not include any adjustments that might result from
the outcome of this uncertainty.
Arthur Andersen LLP
Boston, Massachusetts
May 9, 1997
F-28
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 2,536,571 $ 319,856
Accounts receivable, net of allowance for returns
and doubtful accounts of approximately $243,000
in 1996 and $131,341 in 1997..................... 1,121,814 349,399
Inventory......................................... 145,474 137,213
Prepaid and other current assets.................. 127,060 86,041
------------ -----------
Total current assets............................ 3,930,919 892,509
------------ -----------
Property and equipment, at cost:
Computer equipment................................ 1,194,711 1,335,490
Furniture and fixtures............................ 353,534 356,708
Equipment under capital leases.................... 265,311 265,311
Leasehold improvements............................ 67,302 60,042
------------ -----------
1,880,858 2,017,551
Less-accumulated depreciation and amortization.... 1,308,656 1,582,474
------------ -----------
Net property and equipment...................... 572,202 435,077
------------ -----------
Other assets........................................ 13,496 13,496
------------ -----------
Total assets.................................... $ 4,516,617 $ 1,341,082
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of capital lease obligations...... $ 30,917 $ 28,491
Accounts payable.................................. 687,586 653,538
Deferred revenue.................................. 1,067,480 724,412
Other accrued expenses............................ 576,754 382,941
Customer advances................................. 681,000 686,500
------------ -----------
Total current liabilities....................... 3,043,737 2,475,882
------------ -----------
Capital lease obligations, net of current portion... 32,446 16,556
------------ -----------
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.0.01 par value. Authorized
5,000,000 shares; issued and outstanding--none... -- --
Common stock, $0.01 par value. Authorized
20,000,000 shares; issued and outstanding
7,311,911 shares in 1996 and 7,576,700 shares in
1997............................................. 73,119 75,767
Additional paid-in capital........................ 14,776,286 14,809,917
Accumulated deficit............................... (13,450,635) (16,080,624)
Cumulative translation adjustment................. 41,664 43,584
------------ -----------
Total stockholders' equity (deficit)............ 1,440,434 (1,151,356)
------------ -----------
Total liabilities and stockholders' equity
(deficit)...................................... $ 4,516,617 $ 1,341,082
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, -------------------------
1996 1996 1997
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Net revenues:
Product............................... $ 5,697,000 $ 3,099,558 $ 2,168,091
Service............................... 1,707,524 1,035,876 616,691
----------- ------------ -----------
Total revenues ..................... 7,404,524 4,135,434 2,784,782
----------- ------------ -----------
Cost of revenues:
Product............................... 439,646 123,907 280,011
Service............................... 896,148 528,380 649,652
----------- ------------ -----------
Total cost of revenues.............. 1,335,794 652,287 929,663
----------- ------------ -----------
Gross profit........................ 6,068,730 3,483,147 1,855,119
----------- ------------ -----------
Selling and marketing expenses.......... 6,780,251 3,570,811 2,436,915
Product development expenses............ 2,745,183 1,500,033 1,075,295
General and administrative expenses..... 1,549,689 666,369 1,002,881
----------- ------------ -----------
Loss from operations................ (5,006,393) (2,254,066) (2,659,972)
Interest expense........................ (11,896) (5,663) (3,984)
Interest income......................... 157,473 79,123 33,967
----------- ------------ -----------
Net loss............................ $(4,860,816) $ (2,180,606) $(2,629,989)
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL CUMULATIVE TOTAL
NUMBER OF $0.01 PAID-IN ACCUMULATED TRANSLATION STOCKHOLDERS'
SHARES PAR VALUE CAPITAL DEFICIT ADJUSTMENT EQUITY (DEFICIT)
--------- --------- ---------- ----------- ----------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 5,155,957 $51,560 9,428,212 (8,589,819) 52,866 942,819
Sale of common stock,
net of issuance costs
of $18,304............. 1,703,910 17,039 5,076,387 -- -- 5,093,426
Sale of common stock
under employee stock
purchase plan.......... 40,544 405 109,464 -- -- 109,869
Exercise of options..... 111,000 1,110 142,490 -- -- 143,600
Exercise of warrants and
stock rights........... 300,500 3,005 11,920 -- -- 14,925
Compensation expense
associated with stock
options................ -- -- 7,813 -- -- 7,813
Cumulative translation
adjustment............. -- -- -- -- (11,202) (11,202)
Net loss................ -- -- -- (4,860,816) -- (4,860,816)
--------- ------- ---------- ----------- ------- ----------
Balance at December 31,
1996................... 7,311,911 73,119 14,776,286 (13,450,635) 41,664 1,440,434
Exercise of warrants
(unaudited)............ 218,673 2,187 -- -- -- 2,187
Exercise of options
(unaudited)............ 46,116 461 33,631 -- -- 34,092
Net loss (unaudited).... -- -- -- (2,629,989) -- (2,629,989)
Cumulative translation
adjustment (unaudited). -- -- -- -- 1,920 1,920
--------- ------- ---------- ----------- ------- ----------
Balance at June 30, 1997
(unaudited)............ 7,576,700 $75,767 14,809,917 (16,080,624) 43,584 (1,151,356)
========= ======= ========== =========== ======= ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-31
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------------
1996 1996 1997
------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss............................... $(4,860,816) $(2,180,606) $(2,629,989)
Adjustments to reconcile net loss to
net cash provided by (used in)
operating activities:
Depreciation and amortization......... 433,217 205,609 273,818
Compensation expense associated with
stock options........................ 7,813 5,860 --
Provision for sales returns and
doubtful accounts.................... 164,939 -- --
Loss on sale of fixed assets.......... 10,413 -- --
Changes in assets and liabilities:
Accounts receivable.................. 292,699 605,245 772,415
Inventory............................ (42,989) (94,502) 8,261
Prepaid and other current assets..... (15,694) (41,340) 41,019
Other assets......................... 2,642 (6,628) --
Accounts payable..................... 112,395 38,200 (34,049)
Deferred revenue..................... 103,505 326,923 (343,068)
Customer advances.................... (137,068) 5,978 5,500
Other accrued expenses............... (202,937) 16,920 (193,813)
----------- ----------- -----------
Net cash used in operating
activities........................ (4,131,881) (1,118,341) (2,099,906)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property and equipment.... (206,710) (164,178) (136,692)
Proceeds from sale of property and
equipment............................. 12,231 -- --
----------- ----------- -----------
Net cash used in investing
activities........................ (194,479) (164,178) (136,692)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of common stock,
net of issuance costs................. 5,203,295 5,203,295 --
Repayment of long-term debt and
capitalized lease obligations......... (36,527) (18,250) (18,316)
Proceeds from exercise of warrants and
options............................... 158,525 117,768 36,279
----------- ----------- -----------
Net cash provided by financing
activities........................ 5,325,293 5,302,813 17,963
----------- ----------- -----------
Effect of exchange rate changes......... (11,202) (10,516) 1,920
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents.................. 987,731 4,009,778 (2,216,715)
Cash and cash equivalents at beginning
of period.............................. 1,548,840 1,548,840 2,536,571
----------- ----------- -----------
Cash and cash equivalents at end of
period................................. $ 2,536,571 $ 5,558,618 $ 319,856
----------- ----------- -----------
Supplemental disclosures of cash flow
information--cash paid during the year
for:
Interest.............................. $ 11,069 $ 8,000 $ 4,000
Taxes................................. 800 -- --
Supplemental disclosure of noncash
financing activities--acquisition of
equipment under capital lease
obligations............................ $ 82,785 $ 63,722 $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-32
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(INFORMATION WITH REGARD TO JUNE 30, 1996 AND 1997 IS UNAUDITED)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Aimtech Corporation and subsidiaries (the Company) are engaged in developing
and marketing interactive multimedia and Internet software applications. The
Company's products are visual authoring tools used to create Internet and
computer-based training courses, sales and manufacturing product
demonstrations, informational and transactional kiosks and CD-ROM titles. In
1996, the Company released a new product for web designers and creative
professionals that creates Java Applets and applications for use on web sites.
The Company sells its products both directly and through a network of domestic
and international resellers into corporate, governmental and educational
markets.
The Company is subject to the same risks that other technology-based
companies in similar stages of development face, including the need for
adequate financing to fund future operations, dependence on key individuals
and the continued successful development and marketing of its products.
The Company has incurred significant operating losses since inception.
Management believes that additional financing will be required during fiscal
year 1997 to continue to fund its current level of operations and to achieve
the Company's strategic plan. The Company is actively pursuing arrangements to
secure additional equity financing and other sources of liquidity, including
the possible sale of the Company. However, there can be no assurance such
efforts will be successful. In the event these or other steps are not
accomplished, there exists substantial doubt concerning the Company's ability
to continue as a going concern. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty. See note
7.
The accompanying consolidated financial statements reflect the application
of certain significant accounting policies as described below and elsewhere in
the notes to consolidated financial statements.
(a) Management Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(b) Consolidation
The Company's consolidated financial statements include the accounts of its
wholly owned subsidiaries, Aimtech Europe Limited and Aimtech Deutschland,
GmbH. All material intercompany transactions and balances have been eliminated
in consolidation.
(c) Cash and Cash Equivalents
The Company classifies all highly liquid, short-term investments with
initial maturities of less than three months as cash and cash equivalents. All
amounts are recorded at cost.
(d) Revenue Recognition
Revenue from the sale of software licenses is recognized upon shipment,
provided that no significant vendor obligations remain outstanding and
collection of the resulting receivable is deemed probable. The Company
provides reserves for any returns and warranty expenses upon shipment of the
product. Postcontract customer
F-33
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
support bundled in the sale of initial license fees is deferred and amortized
over the maintenance period. The Company recognizes revenue associated with
separately billed maintenance and customer support ratably over the life of
the contract. These contracts generally have terms of one year or less.
The Company recognizes revenue under courseware development contracts as
services are provided for per diem contracts or by using the percentage-of-
completion method of accounting based on the ratio of hours incurred to the
total estimated hours of a contract for individual fixed-price contracts. The
Company recognizes revenue under development contracts requiring completed
software products upon delivery of the products and acceptance by the
customer. Provisions for any estimated losses on uncompleted contracts are
made in the period in which such losses become evident. If a transaction
includes both license and service elements, license fee revenue is recognized
upon shipment of the product, provided services do not include significant
customization or modification of the base products and payment terms for
licenses are not subject to acceptance criteria. In cases in which license fee
payments are contingent upon the acceptance of services, revenues for both the
license and service elements are deferred until the acceptance criteria are
met.
(e) Foreign Operations
The Company's United Kingdom and German subsidiaries use the local currency
as the functional currency and translate all assets and liabilities at year-
end exchange rates and all income and expense accounts at average rates.
Resulting translation adjustments are included in the accompanying
consolidated balance sheets as the cumulative translation adjustment within
stockholders' equity.
In June of 1996, the Company closed their German subsidiary, Aimtech
Deutschland, GmbH. The costs incurred to close the facility were not
significant and were fully incurred and paid by December 31, 1996.
(f) Depreciation and Amortization
The Company provides for depreciation and amortization using accelerated
methods by charges to operations in amounts that allocate the cost of assets
over their estimated useful lives, as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION ESTIMATED USEFUL LIFE
-------------------- ---------------------
<S> <C>
Computer equipment................................. 2-3 years
Furniture and fixtures............................. 5 years
Equipment under capital leases..................... Term of lease
Leasehold improvements............................. Term of lease
</TABLE>
(g) Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets To Be Disposed Of. This
statement addresses the accounting for the impairment of long-lived assets,
certain identifiable intangibles and goodwill related to assets to be held and
used, and for long-lived assets and certain identifiable intangibles to be
disposed of.
This statement requires that long-lived assets, including intangibles, be
reviewed for impairment whenever events or changes in circumstances, such as a
change in market value, indicate that asset carrying amounts may not be
recoverable. In performing the review for recoverability, if estimated future
undiscounted cash flows (without interest charges) from the use and ultimate
dispositions of the assets are less than their carrying value, an impairment
loss is recognized. Impairment losses are to be measured based on the fair
value of the asset.
F-34
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's adoption of the statement did not have a material impact on
the Company's financial statements.
(h) Software Research and Development Costs
The Company capitalizes product development costs subsequent to the
establishment of technological and commercial feasibility until the product is
available for general release. Costs incurred prior to the establishment of
technological feasibility are charged to product development expense.
Development costs associated with product enhancements that extend the life of
the original product or significantly improve the marketability of the
original product are also capitalized upon technological feasibility.
Amortization of product development costs begins the month after the products
are released over the shorter of the estimated useful life of the product or
three years, which results in amortization expense no less than that which
would result from using the ratio of current gross revenues to total expected
gross revenues. The Company records the amortization as a component of cost of
revenues.
For the year ended December 31, 1996 and the six months ended June 30, 1996
and 1997, the Company did not capitalize any significant amount of product
development costs because the costs incurred after technological feasibility
was established were not material.
(i) Inventory
Inventory is stated at the lower of cost (first-in, first-out) or market and
consists of software diskettes, CD-ROMs and related documentation.
(j) Income Taxes
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is determined based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates assumed to be in effect when these
differences reverse.
The sources of deferred income tax and the related tax effect at December
31, 1996 are approximately as follows:
<TABLE>
<S> <C>
Net operating loss carryforwards............................ $ 3,800,000
Temporary differences....................................... 127,000
Less-valuation allowance.................................... (3,927,000)
-----------
Deferred income taxes....................................... $ --
===========
</TABLE>
The Company has recorded a valuation allowance equal to the full value of
the deferred tax assets, including net operating loss carryforwards, because
of the uncertainty of their future utilization.
At December 31, 1996, the Company has federal net operating loss
carryforwards of approximately $11,200,000 to be offset against future taxable
income and tax credit carryforwards to be offset against future federal tax,
if any. These carryforwards expire in varying amounts through 2011 and are
subject to review and possible adjustment by the Internal Revenue Service (the
IRS). The Tax Reform Act of 1986 contains provisions that may severely limit
the net operating loss carryforwards available to be used in any given year in
the event a significant change in ownership occurs, as defined in the tax
regulations.
F-35
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(k) Postretirement and Postemployment Benefits
The Company has no obligations for postretirement or postemployment
benefits.
(l) Derivative Financial Instruments
SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair
Value of Financial Instruments, requires certain disclosures about derivative
financial instruments, including futures, forward swap and option contracts
and other financial instruments with similar characteristics. As of December
31, 1996, the Company had no instruments requiring disclosure under SFAS No.
119.
(m) Interim Financial Statements
The accompanying balance sheet as of June 30, 1997, and the statements of
operations and cash flows for the six months ended June 30, 1996 and June 30,
1997, and the statement of stockholders' equity (deficit) for the six months
ended June 30, 1997 are unaudited, but in the opinion of management, include
all adjustments (consisting of normal, recurring adjustments) necessary for a
fair presentation of results for these interim periods. The results of
operations for the six months ended June 30, 1997 are not necessarily
indicative of the results to be expected for the entire fiscal year.
(2) COMMITMENTS AND CONTINGENCIES--LEASES
The Company leases various office space and equipment expiring in varying
amounts through 2000.
The future minimum annual lease payments at December 31, 1996 are as
follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
--------- -------
<S> <C> <C>
Year ending December 31:
1997.................................................... $365,694 $39,408
1998.................................................... 67,086 30,682
1999.................................................... 45,234 --
2000.................................................... 3,292 --
2001.................................................... -- --
-------- -------
Total minimum lease payments.......................... $481,306 $70,090
========
Less amount representing interest....................... 6,727
-------
Present value of minimum lease payments............... 63,363
Less current portion of capital lease obligations....... 30,917
-------
Long-term portion of capital lease obligations........ $32,446
=======
</TABLE>
Rental expense charged to operations was approximately $387,000 for the year
ended December 31, 1996. One of the facility operating leases is considered
excess. The Company has accrued approximately $14,000 to cover its expected
loss, net of subrental income.
(3) STOCKHOLDERS' EQUITY
(a) Preferred Stock
The Company has authorized the issuance of 5,000,000 shares of preferred
stock, none of which have been issued. The Board of Directors shall determine
the number, designation, preferences, voting power, qualifications and other
rights and privileges of each series of preferred stock.
F-36
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(b) Common Stock
Certain stockholders have entered into an agreement that allows these
stockholders to participate in a purchase offer should one be received by a
significant stockholder. These stockholders also have a right of first refusal
on any purchase offer received by a stockholder on the same terms and
conditions. If the other stockholders refuse to acquire the shares, the
Company also has a right of refusal to acquire the shares on the same terms
and conditions. These stockholders also have a right of refusal to purchase
all or any part of new securities issued by the Company sufficient for the
stockholders to maintain their pro rata interest. These stockholders'
agreements terminate upon the closing of an initial public offering.
On May 2, 1996, the Company sold 1,703,910 shares of common stock with
warrants to purchase an additional 511,173 shares of common stock at an
exercise price of $.01 per share in exchange for total consideration of
$5,111,730. The warrants are fully exercisable and expire upon the earlier of
the closing of a public offering, the closing of the sale or merger of the
Company, or on January 31, 1997. As of December 31, 1996, 292,500 of these
warrants have been exercised. The balance of the warrants were exercised in
1997.
(c) Employee Stock Purchase Plan
Effective July 1, 1993, the Company adopted the Aimtech Corporation Employee
Stock Purchase Plan (the Purchase Plan). The Company has reserved and may
issue up to 200,000 shares of common stock in semiannual offerings over a 10-
year period. The offering price shall never be less than 85% of the fair
market value per share on the offering date. Employee contributions to each
individual stock purchase account shall not exceed 10% of the employee's
compensation, as defined. The Purchase Plan prohibits any employee from owning
5% or more of the total combined voting power or value of all classes of stock
of the Company, or from purchasing shares valued in excess of $25,000 (at the
offering date) in any calendar year.
(d) Stock Options
In 1989, the Company adopted the 1989 Stock Incentive Plan (the Plan),
pursuant to which options to purchase up to 2,000,000 shares of the Company's
common stock are available for issuance. The Plan provides for the granting of
stock options, restricted stock or performance share awards to eligible
employees of the Company. Incentive stock options are granted at an exercise
price of not less than the fair market value of the common stock at the date
of grant. Nonqualified stock options are granted at an exercise price that is
determined by the Board of Directors and which may be less than the fair
market value of the common stock at the date of grant. All outstanding options
have exercise prices equal to the estimated fair value of the common stock at
the date of grant. Generally, the options vest over four years and expire not
more than 10 years from the date of grant. Stock awarded pursuant to the Plan
may be subject to certain restrictions and conditions as decided by the Board
of Directors. No restricted stock or performance share awards had been granted
as of December 31, 1996. At December 31, 1996, 1,838,449 shares have been
reserved for issuance under the Plan. Stock option activity for the year ended
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
WEIGHTED
NUMBER AVERAGE PRICE
OF SHARES PER SHARE
--------- -------------
<S> <C> <C>
Outstanding, December 31, 1995.................... 1,470,251 $2.60
Granted........................................... 376,123 2.37
Exercised......................................... (111,000) 1.29
Canceled.......................................... (627,458) 2.33
---------
Outstanding, December 31, 1996.................... 1,107,916 2.67
=========
Exercisable, December 31, 1996.................... 320,959 2.37
=========
</TABLE>
The weighted average fair value of options granted in 1996 was $0.48.
F-37
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
In addition to the above Plan, in 1991, the Company issued to an officer an
option to purchase 8,000 shares of common stock with an exercise price of
$1.50 per share. The officer exercised this option in 1996. In 1993, the
Company issued to an individual an option to purchase 10,000 shares of common
stock with an exercise price of $3.00 per share. The exercise prices
represented the fair value at the date of grant.
On January 1, 1994, the Company adopted the Stock Option Plan for
Nonemployee Directors, pursuant to which 200,000 shares were reserved for
issuance. The Company granted a total of 30,000 options to two Directors with
an exercise price of $3.00 per share. Each Nonemployee Director initially
elected to the Board of Directors in the future will also receive an option to
purchase 15,000 shares of common stock. These options vest in three equal
annual installments beginning on the date of grant.
In August 1994, the Company extended the exercise period of certain options
granted under the terms of the Plan. This resulted in compensation expense to
the Company equal to the difference between the grant price and the fair
market value at the new measurement date, which was recognized over the
remaining terms of the options. For the year ended December 31, 1996, the
Company recorded compensation expense related to this transaction of $7,813.
During 1995, the Financial Accounting Standards Board issued SFAS No. 123,
Accounting for Stock-Based Compensation, which defines a fair value based
method of accounting for an employee stock option or similar equity instrument
and encourages all entities to adopt that method of accounting for all of
their employee stock compensation plans. However, it also allows an entity to
continue to measure compensation costs for those plans using the intrinsic
method of accounting prescribed by APB Opinion No. 25. Entities electing to
remain with the accounting in APB Opinion No. 25 must make pro forma
disclosures of net income and earnings per share, if presented, as if the fair
value based method of accounting defined in SFAS No. 123 had been applied.
The Company has elected to account for its stock-based compensation plan
under APB Opinion No. 25. However, the Company has computed, for pro forma
disclosure purposes, the value of all options granted during 1996 using the
Black-Scholes option pricing model as prescribed by SFAS No. 123, using the
following weighted average assumptions for grants in 1996:
<TABLE>
<S> <C>
Risk-free interest................................................ 5.98%
Expected dividend yield........................................... 0%
Expected life..................................................... 1 year
Expected volatility............................................... 0%
</TABLE>
The total value of options granted during 1996 would be amortized on a pro
forma basis over the vesting period of the options. Options generally vest
equally over four years. Because the SFAS No. 123 method of accounting has not
been applied to options granted prior to January 1, 1995, the resulting pro
forma compensation costs may not be representative of that to be expected in
future years. If the Company had accounted for these plans, including the
Employee Stock Purchase Plan, in accordance with SFAS No. 123, the Company's
net loss for the year ended December 31, 1996 would have increased as
reflected in the following pro forma amounts:
<TABLE>
<S> <C>
Net loss:
As reported............................................... $(4,860,816)
Pro forma................................................. (5,036,770)
</TABLE>
F-38
<PAGE>
AIMTECH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Set forth is a summary of options outstanding and exercisable as of December
31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------------- -----------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF NUMBER OF REMAINING AVERAGE NUMBER OF AVERAGE
EXERCISE OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
PRICE SHARES LIFE (YEARS) PRICE OPTIONS PRICE
---------- ----------- ------------ -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$1.30-2.00 147,500 5.13 $1.57 137,250 $1.54
2.31-3.00 960,416 9.07 2.84 183,709 3.00
---------- --------- ---- ----- ------- -----
$1.30-3.00 1,107,916 8.55 $2.67 320,959 $2.37
========== ========= ==== ===== ======= =====
</TABLE>
(4) AIMTECH CORPORATION 401(k) PROFIT SHARING PLAN
Effective January 1, 1994, the Company established the Aimtech Corporation
401(k) Profit Sharing Plan (the 401(k) Plan) under Section 401(k) of the
Internal Revenue Code. The 401(k) Plan allows eligible employees to make
contributions up to a specified percentage, not to exceed 15% of their
compensation, subject to certain IRS limitations.
The Company may elect to make contributions to the 401(k) Plan, at the
discretion of the Board of Directors, not to exceed 5% of an employee's
compensation, as defined. The Company did not make a 401(k) Plan contribution
in 1996.
(5) SIGNIFICANT CUSTOMERS AND CONCENTRATION OF CREDIT RISK
In 1996, two customers accounted for 26% of the Company's net sales.
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet
concentrations of credit risk such as foreign exchange contracts, option
contracts or other foreign hedging arrangements. The Company's accounts
receivable credit risk is not concentrated within any geographic area, and no
single customer represents a significant credit risk to the Company.
(6) GEOGRAPHIC DATA
United States and international sales as a percentage of total revenues are
as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
GEOGRAPHIC AREA 1996
--------------- ------------
<S> <C>
United States............................................... 71%
Canada...................................................... 2
Europe...................................................... 21
Far East.................................................... 4
Other....................................................... 2
---
100%
===
</TABLE>
(7) SUBSEQUENT EVENT (UNAUDITED)
On September 12, 1997, Asymetrix Learning Systems, Inc. acquired the Company
in exchange for 2,183,894 shares of Asymetrix Learning Systems, Inc. Series 4
Class B Stock.
F-39
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Communication Strategies, Inc.:
We have audited the accompanying balance sheets of Communication Strategies,
Inc. (the "Company") as of December 31, 1996 and September 30, 1997, and the
related statements of income and retained earnings and cash flows for the year
ended December 31, 1996 and the nine-month period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Communication Strategies,
Inc. as of December 31, 1996 and September 30, 1997, and the results of its
operations and its cash flows for the year ended December 31, 1996 and the
nine-month period ended September 30, 1997 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
December 19, 1997
Dallas, Texas
F-40
<PAGE>
COMMUNICATION STRATEGIES, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
ASSETS ------------ -------------
<S> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 38,957 $ 96,753
Accounts receivable................................ 703,007 776,479
Unbilled receivables............................... 4,006 54,976
Prepaid expenses and other current assets.......... 7,393 21,999
---------- ----------
Total current assets............................. 753,363 950,207
Property, plant and equipment, net................. 380,210 415,915
---------- ----------
Total assets..................................... $1,133,573 $1,366,122
========== ==========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C> <C>
Current liabilities:
Accounts payable........................................ $ 25,860 $ 81,958
Accrued payroll-related expenses........................ 71,460 135,845
Bank line of credit..................................... 394,942 319,538
Deferred revenue........................................ 164,912 166,804
Income tax payable...................................... 11,925 69,220
Deferred tax liability.................................. 158,261 158,558
---------- ----------
Total liabilities..................................... 827,360 931,923
Stockholders' equity:
Common stock, $1 par value; 1,000 shares authorized;
1,000 shares issued and outstanding.................... 1,000 1,000
Retained earnings....................................... 305,213 433,199
---------- ----------
Total stockholders' equity............................ 306,213 434,199
---------- ----------
Commitments
Total liabilities and stockholders' equity............ $1,133,573 $1,366,122
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-41
<PAGE>
COMMUNICATION STRATEGIES, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Consulting and placement service revenue............. $3,966,151 $3,394,924
---------- ----------
Cost and expenses:
Consulting and placement service cost of revenue.... 2,346,563 2,016,579
Selling, general and administrative expenses........ 1,465,732 1,150,686
---------- ----------
Total costs and expenses......................... 3,812,295 3,167,265
---------- ----------
Operating income................................. 153,856 227,659
Interest expense, net................................ 22,289 28,607
---------- ----------
Income before income taxes....................... 131,567 199,052
Income taxes......................................... 47,912 71,066
---------- ----------
Net income....................................... 83,655 127,986
Retained earnings at beginning of year............... 221,558 305,213
---------- ----------
Retained earnings at end of year..................... $ 305,213 $ 433,199
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-42
<PAGE>
COMMUNICATION STRATEGIES, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net income....................................... $ 83,655 $127,986
Adjustments to reconcile net income to net cash
used in
operating activities:
Depreciation and amortization................... 123,818 75,500
Deferred income taxes........................... 30,385 297
Loss on disposition of property, plant and
equipment...................................... 5,604 8,228
Changes in operating assets and liabilities:
Accounts receivable............................ (205,361) (73,472)
Unbilled receivables........................... (4,006) (50,970)
Prepaid expenses and other current assets...... 1,410 (14,606)
Income taxes................................... 1,840 57,295
Accounts payable............................... (25,403) 56,098
Accrued expenses............................... (33,465) 64,385
Deferred revenue............................... 116,516 1,892
-------- --------
Net cash used in operating activities........ 94,993 252,633
-------- --------
Cash flows used in investing activities--purchases
of property, plant
and equipment..................................... (334,324) (119,433)
-------- --------
Cash flows from financing activities:
Proceeds from line of credit..................... 909,749 859,000
Repayment of line of credit...................... (654,807) (934,404)
-------- --------
Net cash provided by financing activities...... 254,942 (75,404)
-------- --------
Net increase in cash and cash equivalents.......... 15,611 57,796
Cash and cash equivalents, beginning of
year/period........................................ 23,346 38,957
-------- --------
Cash and cash equivalents, end of year/period...... $ 38,957 $ 96,753
======== ========
Cash paid during the year:
Interest......................................... $ 20,799 $ 22,986
======== ========
Income taxes..................................... $ 15,687 $ 13,474
======== ========
</TABLE>
See accompanying notes to financial statements.
F-43
<PAGE>
COMMUNICATION STRATEGIES, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and September 30, 1997
(1) THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) The Company
Communication Strategies, Inc. ("CSI" or the "Company") was incorporated
under the laws of the State of Texas on September 19, 1983. The Company
provides consulting and paper-based documentation services related to
instructional design. The Company also provides multi-media based deliverables
and placement services, on a temporary or permanent basis. Its principal
operations are located in Fort Worth, Texas.
(b) Revenue Recognition
The Company provides services under time and materials and fixed-price
contracts. Fixed price contracts for consulting services typically span a
period of three to five months. Revenue related to fixed price contracts is
recognized on the percentage-of-completion method measured by the percentage
of labor hours incurred to date to estimated total labor hours for each
contract. Changes in estimates, if any, are made in the period they are
determined. Provisions for estimated losses on uncompleted contracts, if any,
are made on a contract by contract basis and are recognized in the period in
which the losses are determined. Unbilled receivables represent revenue
recognized based on services performed in excess of billings in accordance
with the terms of the contracts. Billings in excess of recognized revenue are
classified as deferred revenues. Revenue is recognized on time and material
contracts based upon agreed upon billing amounts as services are rendered.
Revenues related to placement services are recognized on a time and materials
basis for temporary placements and after completion of a contractually
determined probation period for permanent placements.
(c) Cash and Cash Equivalents
Cash equivalents consist of investments in money market accounts with
original maturities of 90 days or less.
(d) Fair Value of Financial Instruments
Most of the Company's financial instruments, including cash, trade
receivables and payables and accruals, are short-term in nature. Accordingly,
the carrying amount of the Company's financial instruments approximates its
fair value.
(e) Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation of
property, plant and equipment, other than leasehold improvements, is provided
over the estimated useful lives of the respective assets (ranging from 5 to 7
years) using the double-declining method. Leasehold improvements are amortized
on a straight-line basis over the shorter of the respective lease term or
estimated useful life of the asset.
(f) Income Taxes
The Company accounts for income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized with respect to tax
consequences attributable to the differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
Deferred tax assets and liabilities are measured using enacted tax rates
expected to be in effect when such amounts are realized or settled. The
resulting deferred tax assets and liabilities are adjusted to reflect changes
in tax laws or rates in the period of enactment.
F-44
<PAGE>
COMMUNICATION STRATEGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(g) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.
(2) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Furniture and fixtures............................... $288,140 $170,064
Computer equipment and accessories................... 484,698 588,929
Autos................................................ 45,509 45,509
Leasehold improvements............................... 12,453 14,342
-------- --------
830,800 818,844
Less accumulated depreciation and amortization....... (450,590) (402,929)
-------- --------
Property, plant and equipment, net................. $380,210 $415,915
======== ========
</TABLE>
(3) CREDIT AGREEMENT WITH BANK
The Company entered into a letter agreement with Camp Bowie National Bank
("Bank") on April 1, 1997. Under this letter agreement, the Bank has agreed to
loan the Company $500,000 in the form of a revolving line of credit note and
due in full on April 1, 1998. Interest on the principal amount accrues from
the date of each advance at the Bank's stated base rate plus one percent
(9.75% and 10% on December 31, 1996 and September 30, 1997, respectively) and
is payable on the first day of every month. The note is guaranteed in full by
officers of the Company. The Company has certain financial and non-financial
covenants related to the credit agreement. The Company was in compliance with
those covenants as of December 31, 1996 and September 30, 1997.
(4) INCOME TAXES
Income tax expense for the year ended December 31, 1996 and the nine month
period ended September 30, 1997 includes deferred tax expense of $30,385 and
$297, respectively.
Total income tax expense differs from the amount computed by applying the
federal corporate income tax rate of 35% to income before taxes as follows:
<TABLE>
<CAPTION>
NINE-MONTH
YEAR ENDED PERIOD ENDED
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
<S> <C> <C>
Computed ("expected") income tax expense............. $ 46,048 $69,668
Meals and entertainment.............................. 1,864 1,398
-------- -------
$ 47,912 $71,066
======== =======
</TABLE>
F-45
<PAGE>
COMMUNICATION STRATEGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
The tax effected temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
September 30, 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred tax assets:
Accrued liabilities (cash to accrual adjustment)............ $ 34,062 $ 63,920
Deferred revenue............................................ 57,719 76,231
-------- --------
Total deferred tax assets.................................. 91,781 140,151
Deferred tax liabilities:
Accrued receivables (cash to accrual adjustment)............ 247,454 291,009
Prepaid expenses(cash to accrual adjustment)................ 2,588 7,700
-------- --------
Total deferred tax liabilities............................. 250,042 298,709
-------- --------
Net deferred tax liabilities............................... $158,261 $158,558
======== ========
</TABLE>
The temporary differences between the book and tax bases of assets and
liabilities principally result from the use of the cash method for tax
purposes and the accrual method for financial reporting purposes.
(5) EMPLOYEE RETIREMENT PLAN
Employees of the Company may participate in a salary deferral 401(k) plan.
The 401(k) plan allows eligible employees to defer part of their income on a
tax-favored basis. All employees are eligible and may participate in the plan
after six months of service during the twelve month period that begins with
the employee's hiring date. The Company may make matching contributions to the
Plan, non-elective or discretionary contributions and required minimum
contributions, pursuant to legal and statutory requirements. For the year
ended December 31, 1996 and the nine month period ended September 30, 1997,
the Company matched 25% of up to the first 6% of the participant's
contribution. Contributions by the Company totaled $18,000 and $13,615 for the
year ended December 31, 1996 and the nine month period ended September 30,
1997, respectively. Matching and discretionary employer contributions vest 20%
per year after four years of service.
(6) CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade accounts receivable. Concentration
of credit risk is reduced due to the large number of customers comprising the
customer base. One customer accounted for approximately twenty percent of the
Company's sales for the year ended December 31, 1996 and the nine month period
ended September 30, 1997 and $80,238 and $96,501 of accounts receivable as of
December 31, 1996 and September 30, 1997, respectively. No other single
customer accounted for more than ten percent of the Company's sales for the
year ended December 31, 1996 or the nine month period ended September 30, 1997
or the Company's accounts receivable as of December 31, 1996 or September 30,
1997.
F-46
<PAGE>
COMMUNICATION STRATEGIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(7) COMMITMENTS
As of September 30, 1997, the Company was obligated under several
noncancelable operating lease agreements for office space. A summary of future
minimum lease payments follows:
<TABLE>
<S> <C>
1998.......................................... $105,567
1999.......................................... 64,419
2000.......................................... 23,271
2001.......................................... 11,635
--------
Total....................................... $204,892
========
</TABLE>
Rental expense under noncancelable operating leases for facilities and
equipment approximated $ 93,931 and $ 79,175 for the year ended December 31,
1996 and for the nine-month period ended September 30, 1997, respectively.
(8) SUBSEQUENT EVENTS
On December 23, 1997, Asymetrix Learning Systems, Inc. ("Asymetrix")
acquired all of the outstanding shares of CSI in exchange for Asymetrix
preferred stock and options valued at approximately $4.8 million.
F-47
<PAGE>
================================================================================
No dealer, salesperson or other person has been authorized to give
information or make any representations other than those contained in this
Prospectus in connection with this offering and, if given or made, such
information or representations must not be relied upon as having been
authorized by the Company or any Underwriter. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any
securities offered hereby in any jurisdiction to any person to whom it is
unlawful to make such offer in such jurisdiction. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information contained herein is correct as of any
time subsequent to the date hereof or that there has been no change in the
affairs of the Company since the date hereof.
---------------------------
TABLE OF CONTENTS
---------------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Historical Consolidated Financial Data........................... 21
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 23
Business.................................................................. 35
Management................................................................ 48
Certain Transactions...................................................... 56
Principal Stockholders.................................................... 60
Description of Capital Stock.............................................. 61
Shares Eligible for Future Sale........................................... 64
Underwriting.............................................................. 66
Legal Matters............................................................. 67
Changes in Accountants.................................................... 67
Experts................................................................... 67
Additional Information.................................................... 68
Financial Statements...................................................... F-1
</TABLE>
-------------------
Until , 1998 (25 days after the date of this Prospectus), all dealers
effecting transaction in the Common Stock offered hereby, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a Prospectus when
acting as Underwriters and with respect to their unsold allotments or
subscriptions.
================================================================================
================================================================================
SHARES
[LOGO]
COMMON STOCK
----------------
PROSPECTUS
----------------
NationsBanc Montgomery
Securities LLC
BancAmerica
Robertson Stephens
Hambrecht & Quist
, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses to be paid by the Registrant in connection with this offering
are as follows. All amounts other than the SEC registration fee, NASD filing
fee and Nasdaq National Market application fee are estimates.
<TABLE>
<S> <C>
SEC Registration Fee................................................ $11,800
NASD Filing Fee..................................................... 4,500
Nasdaq National Market Application Fee.............................. 50,000
Printing............................................................ *
Legal Fees and Expenses............................................. *
Accounting Fees and Expenses........................................ *
Road Show Expenses.................................................. *
Blue Sky Fees and Expenses.......................................... 5,000
Transfer Agent and Registrar Fees................................... *
Miscellaneous....................................................... *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
* To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's board of directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended (the
"Securities Act").
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation includes a provision that eliminates the personal
liability of its directors for monetary damages for breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's duty
of loyalty to the Registrant or its stockholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) under section 174 of the Delaware General Corporation
Law (regarding unlawful dividends and stock purchases) or (iv) for any
transaction from which the director derived an improper personal benefit.
As permitted by the Delaware General Corporation Law, the Amended and
Restated Bylaws of the Registrant provide that (i) the Registrant is required
to indemnify its directors and officers to the fullest extent permitted by the
Delaware General Corporation Law, subject to certain very limited exceptions,
(ii) the Registrant may indemnify its other employees and agents as set forth
in the Delaware General Corporation Law, (iii) the Registrant is required to
advance expenses, as incurred, to its directors and executive officers in
connection with a legal proceeding to the fullest extent permitted by the
Delaware General Corporation Law, subject to certain very limited exceptions
and (iv) the rights conferred in the Amended and Restated Bylaws are not
exclusive.
The Registrant intends to enter into Indemnification Agreements with each of
its current directors and executive officers to give such directors and
officers additional contractual assurances regarding the scope of the
indemnification set forth in the Registrant's Certificate of Incorporation and
to provide additional procedural protections. At present, there is no pending
litigation or proceeding involving a director, officer or employee of the
Registrant regarding which indemnification is sought, nor is the Registrant
aware of any threatened litigation that may result in claims for
indemnification.
II-1
<PAGE>
Reference is also made to Section 8 of the Underwriting Agreement, which
provides for the indemnification of officers, directors and controlling
persons of the Registrant against certain liabilities. The indemnification
provision in the Registrant's Certificate of Incorporation, Amended and
Restated Bylaws and the Indemnification Agreements entered into between the
Registrant and each of its directors and executive officers may be
sufficiently broad to permit indemnification of the Registrant's directors and
executive officers for liabilities arising under the Securities Act.
The Registrant, with approval by the Registrant's Board of Directors,
expects to obtain directors' and officers' liability insurance.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
-------- --------------
<S> <C>
Underwriting Agreement (draft dated January 8, 1998).......... 1.01
Form of Certificate of Incorporation of Registrant............ 3.04
Form of Amended and Restated Bylaws of Registrant............. 3.06
Form of Indemnification Agreement............................. 10.02
</TABLE>
II-2
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth information regarding all securities sold by
the Registrant since January 1, 1995.
<TABLE>
<CAPTION>
AGGREGATE
NUMBER OF PURCHASE FORM OF
CLASS OF PURCHASER DATE OF SALE TITLE OF SECURITIES SHARES(1) PRICE CONSIDERATION
------------------ ------------ ------------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
1 individual 1/2/95 Common Stock 225,000 $ 150,000 Cash
1 individual 2/14/95 Common Stock 11,250 7,500 All of the issued
and out-standing
shares of ASX R&D
Corporation
1 individual 7/14/95 Common Stock 5,550,000 133,200,000 Assumption of
indebtedness and
issuance of
promissory note
1 entity 9/27/96 Series 1 Class B Stock(2) 37,500 300,000 Services
1 entity 10/21/96 Series A Preferred Stock(2) 388,395 5,002,528 Cash
1 entity 12/20/96 Series B Preferred Stock 388,395(3) 5,002,528 Cash/Notes
1 shareholder of Socha 07/17/97 Series 4 Class B Stock(2) 200,000 All of the issued
Computing, Inc. and out-standing
("Socha") capital stock of
Socha
91 stockholders of 09/11/97 Series 4 Class B Stock(2) 2,111,795(4) 2,998,749 All of the issued
Aimtech Corporation and out-standing
("Aimtech") capital stock of
Aimtech
1 entity 09/11/97 Series 4 Class B Stock(2) 44,171 62,723 Financial advisory
fee
20 employees of Aimtech 09/11/97 Series 4 Class B Stock(2) 27,928 (5) (5)
3 shareholders of Oakes 09/30/97 Series 5 Class B Stock(2) 1,512,500 2,147,750 All of the issued
Interactive and outstanding
Incorporated, Top capital stock of
Shelf Multimedia, Inc. the Oakes
and Acorn Associates Companies
Incorporated
(collectively, the
"Oakes Companies")
2 shareholders of 12/22/97 Common Stock 550,193 4,768,342 All of the issued
Communications and out-standing
Strategies, capital stock of
Incorporated ("CSI") CSI
4 shareholders of 12/22/97 Common Stock 9,372 81,250 All of the issued
Graham-Wright and out-standing
Interactive, Inc. capital stock of
("Graham Wright") Graham Wright
3 consultants 6/26/96-9/5/96 Common Stock 6,075 38,250 Services
114 employees 8/13/95-3/31/98 Common Stock 494,813(6) 688,635 Cash and redemption
(option exercises) of shares
1 individual 3/17/98 Common Stock 13,215 130,000 All of the issued
and outstanding
capital stock of
Adams Consulting
Group, Inc.
</TABLE>
- -------
(1) The Company intends to effect a 3-for-4 reverse stock split of its Common
Stock immediately prior to the consummation of this offering. Therefore,
all share numbers for Common Stock have been restated to give effect to
such reverse stock split. Outstanding shares of the Company's Series B
Stock (which includes the Series of Class B Stock known as Series A
Preferred Stock and Series B Preferred Stock) will not be affected by the
reverse stock split. Rather, pursuant to the terms of the Company's
Certificate of Incorporation the conversion rate for such shares of Class
B Stock will be adjusted to take into account such stock split.
(2) Each outstanding share of Class B Stock (which includes the Series A
Preferred Stock) will convert automatically into approximately .75 shares
of Common Stock upon the consummation of the offering.
(3) All of these shares were redeemed or canceled in connection with the
cancellation of a promissory note and other indebtedness to the
Registrant.
(4) Of these shares, 441,705 are held in escrow to secure certain
indemnification obligations.
(5) These securities were distributed to employees of Aimtech pursuant to
Aimtech's "change of control," severance and retention policy. No
consideration was paid for such shares.
(6) Of these shares, 53,495 shares were redeemed by the Company in payment for
certain of the shares issued upon exercise of such options.
II-3
<PAGE>
All sales of Common Stock to employees made pursuant to the exercise of
stock options granted under the Registrant's stock option plans or pursuant to
restricted stock purchase agreements, and all sales to consultants for
services, were made pursuant to the exemption from the registration
requirements of the Securities Act afforded by Rule 701, Section 4(2) of the
Securities Act and/or Regulation D promulgated under the Securities Act.
All other sales were made in reliance on Section 4(2) of the Securities Act
and/or Regulation D promulgated under the Securities Act. These sales were
made without general solicitation or advertising. Each purchaser was an
"accredited investor" or a sophisticated investor with access to all relevant
information necessary to evaluate the investment who represented to the
Registrant that the shares were being acquired for investment.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.
(a) The following exhibits are filed herewith:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
1.01 Underwriting Agreement (draft dated March 31, 1998).
2.01 Amended and Restated Agreement and Plan of Reorganization, dated as of
June 24, 1997, by and among the Registrant, ASX Merger Corporation
and Aimtech Corporation.
2.02 Agreement and Plan of Reorganization, dated as of September 30, 1997,
by and among the Registrant, Oakes Acquisition Corp., TopShelf
Acquisition Corp., Acorn Acquisition corp., Oakes Interactive
Incorporated, TopShelf Multimedia, Inc., Acorn Associates,
Incorporated, and Gordon Oakes and Kevin Oakes.
2.03 Agreement and Plan of Reorganization, dated as of December 22, 1997,
by and among the Registrant, Asymetrix Acquisition Corp.,
Communication Strategies, Incorporated, and Cynthia Boyd and James
Boyd.
2.04 Plan of Merger, dated as of February 14, 1995, by and between ASX R&D
Corporation and the Registrant.
3.01 Amended and Restated Articles of Incorporation of the Registrant, as
amended.
3.02 Form of Certificate of Incorporation of the Registrant to be effective
upon the Reincorporation of the Registrant in Delaware.
3.03 Form of Certificate of Amendment of Certificate of Incorporation of
the Registrant to become effective upon the effectiveness of this
Registration Statement.
3.04 Form of Amended and Restated Certificate of Incorporation of the
Registrant to be effective upon the closing of this offering.
3.05 Amended and Restated Bylaws of the Registrant, as amended to date.
3.06 Form of Amended and Restated Bylaws of the Registrant, to be adopted
prior to the closing of this offering.
4.01 Restated and Amended Investors' Rights Agreement, dated as of December
20, 1996, between the Registrant and the persons and entities listed
therein.
4.02 Form of Specimen Stock Certificate for the Registrant's Common Stock.*
4.03 Registration Rights Agreement dated, as of September 11, 1997, between
the Registrant and the persons and entities listed therein.
4.04 Registration Rights Agreement, dated as of September 30, 1997, among
the Registrant, Gordon Oakes, Kevin Oakes and Doug Foster.
4.05 Registration Rights Agreement, dated as of December 22, 1997, among
the Registrant, Cynthia Boyd and James Boyd.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
------- -------------
<C> <S>
5.01 Opinion of Fenwick & West LLP regarding legality of the securities
being registered.*
10.01 Series A Preferred Stock Purchase Agreement, dated October 21, 1996,
between the Registrant and SOFTBANK Holdings, Inc.
10.02 Form of Indemnification Agreement entered into by the Registrant with
each of its directors and executive officers.
10.03 Registrant's 1995 Combined Incentive and Nonqualified Stock Option
Plan and related documents.
10.04 Credit Agreement, dated as of November 4, 1992, between Paul Allen and
Asymetrix Corporation, as Borrowers, Seattle-First National Bank,
Bank of America National Trust and Savings Association, First
Interstate Bank of Washington, N.A. and First Interstate Bank of
Oregon, N.A. as Lenders, and Seattle-First National Bank as Agent for
the Lenders.
10.05 Registrant's 1998 Directors Stock Option Plan and related documents.
10.06 Registrant's 1998 Equity Incentive Plan and related documents.
10.07 Sublease, dated as of October 30, 1995, between Registrant and Vulcan
Northwest Inc.
10.08 Series B Preferred Stock Exchange Agreement, dated as of September 30,
1997, between the Registrant and SuperCede, Inc.
10.09 Asset Transfer, License and Stock Issuance Agreement, dated as of June
24, 1997, between the Registrant and SuperCede, Inc.
10.10 Sublease, dated as of June 24, 1997, between the Registrant and
SuperCede, Inc.
10.11 Promissory Note, dated as of March 14, 1995, between the Registrant
and Paul Allen.
10.12 Infomodeler Technology Transfer and License Agreement, dated as of
October 7, 1996, between the Registrant and ASX Corporation, as
amended January 14, 1998.
10.13 Sublease, dated as of October 7, 1995, between the Registrant and ASX
Corporation.
10.14 Asset Purchase and Loan Agreement, dated as of October 7, 1996,
between the Registrant and ASX Corporation.
10.15 Lease Agreement, dated as of May 24, 1991, by and between the
Registrant and Dean Witter Realty Income Partnership II, L.P., and
amendments thereto.
10.16 Employment Agreement, dated as of September 30, 1997, between the
Registrant and Kevin Oakes.
10.17 Stock Purchase and Sale Agreement, dated as of March 27, 1998 between
the Registrant and Vulcan Ventures Inc.
10.18 Directed Engineering Agreement, dated as of March 27, 1998, between
the registrant and Vulcan Northwest, Inc.
21.01 Subsidiaries of the Registrant.
23.01 Consent of Fenwick & West LLP (included in Exhibit 5.01).*
23.02 Consent of Ernst & Young LLP.
23.03 Consent of Arthur Andersen LLP.
23.04 Consent of KPMG Peat Marwick LLP.
23.05 Consent of KPMG Peat Marwick LLP.
24.01 Power of Attorney (see Page II-7 of the Registration Statement).
27.01 Financial Data Schedule
</TABLE>
- --------
* To be supplied by amendment.
(b) The following financial statement schedule is filed herewith:
[SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS]
II-5
<PAGE>
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or
the notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT, THE REGISTRANT HAS DULY
CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BELLEVUE, STATE OF
WASHINGTON, ON THE 31ST DAY OF MARCH, 1998.
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ James A. Billmaier
_________________________________
James A. Billmaier
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS THAT EACH INDIVIDUAL WHOSE SIGNATURE
APPEARS BELOW CONSTITUTES AND APPOINTS JAMES A. BILLMAIER, JOHN D. ATHERLY AND
STEVEN ESAU, AND EACH OF THEM, HIS TRUE AND LAWFUL ATTORNEYS-IN-FACT AND
AGENTS, WITH FULL POWER OF SUBSTITUTION, FOR HIM AND IN HIS NAME, PLACE AND
STEAD, IN ANY AND ALL CAPACITIES, TO SIGN ANY AND ALL AMENDMENTS (INCLUDING
POST-EFFECTIVE AMENDMENTS) TO THIS REGISTRATION STATEMENT, AND TO SIGN ANY
REGISTRATION STATEMENT FOR THE SAME OFFERING COVERED BY THIS REGISTRATION
STATEMENT THAT IS TO BE EFFECTIVE UPON FILING PURSUANT TO RULE 462 PROMULGATED
UNDER THE SECURITIES ACT, AND ALL POST-EFFECTIVE AMENDMENTS THERETO, AND TO
FILE THE SAME, WITH ALL EXHIBITS THERETO AND ALL DOCUMENTS IN CONNECTION
THEREWITH, WITH THE SECURITIES AND EXCHANGE COMMISSION, GRANTING UNTO SAID
ATTORNEYS-IN-FACT AND AGENTS, AND EACH OF THEM, FULL POWER AND AUTHORITY TO DO
AND PERFORM EACH AND EVERY ACT AND THING REQUISITE AND NECESSARY TO BE DONE IN
AND ABOUT THE PREMISES, AS FULLY TO ALL INTENTS AND PURPOSES AS HE MIGHT OR
COULD DO IN PERSON, HEREBY RATIFYING AND CONFIRMING ALL THAT SAID ATTORNEYS-
IN-FACT AND AGENTS OR ANY OF THEM, OR HIS OR THEIR SUBSTITUTE OR SUBSTITUTES,
MAY LAWFULLY DO OR CAUSE TO BE DONE BY VIRTUE HEREOF.
IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT, THIS REGISTRATION
STATEMENT WAS SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATES INDICATED.
NAME TITLE DATE
PRINCIPAL EXECUTIVE OFFICER:
Chief Executive Officer March 31, 1998
/s/ James A. Billmaier and Director
- ---------------------------------
James A. Billmaier
PRINCIPAL FINANCIAL AND PRINCIPAL ACCOUNTING OFFICER:
/s/ John D. Atherly Vice President, Finance March 31, 1998
- --------------------------------- and Administration and
John D. Atherly Chief Financial Officer
DIRECTORS:
/s/ Bert Kolde Chairman of the Board March 31, 1998
- ---------------------------------
Bert Kolde
/s/ Paul G. Allen Director March 31, 1998
- ---------------------------------
Paul G. Allen
/s/ Shelley Harrison, Ph.D. Director March 31, 1998
- ---------------------------------
Shelley Harrison, Ph.D.
/s/ Kevin Oakes President and Director March 31, 1998
- ---------------------------------
Kevin Oakes
/s/ Gary Rieschel Director March 31, 1998
- ---------------------------------
Gary Rieschel
II-7
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Asymetrix Learning Systems, Inc.:
Under date of March 27, 1997, we reported on the consolidated balance sheets
of Asymetrix Learning Systems, Inc. and subsidiaries as of December 31, 1997,
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended, which are included in the registration
statement on Form S-1. In connection with our audit of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedule in the registration statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement schedule
based on our audit.
In our opinion, such consolidated financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects. the information set forth
therein.
/s/ KPMG PEAT MARWICK LLP
Seattle, Washington
March 27, 1998
S-1
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
The Board of Directors and Shareholders
Asymetrix Learning Systems, Inc.
We have audited the consolidated financial statements of Asymetrix Learning
Systems, Inc. as of December 31, 1996, and for each of the two years in the
period ended December 31, 1996, and have issued our report thereon dated April
23, 1997 (included elsewhere in this Registration Statement). Our audits also
included the financial statement schedule listed in Item 16(b) of this
Registration Statement. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Seattle, Washington
April 23, 1997
S-2
<PAGE>
Asymetrix Learning Systems, Inc.
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
BALANCE
AT CHARGED TO BALANCE
BEGINNING OTHER COSTS (1) AT END
OF YEAR AND EXPENSES DEDUCTIONS OF YEAR
--------- ------------ ---------- --------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Valuation accounts deducted from assets:
Allowance for doubtful receivables
and sales returns..................... $3,346 $1,121 $3,319 $1,148
Reserve for inventory obsolescence...... 385 357 691 51
Year ended December 31, 1996:
Valuation accounts deducted from assets:
Allowance for doubtful receivables
and sales returns..................... $2,951 $2,890 $2,495 $3,346
Reserve for inventory obsolescence...... 541 556 712 385
Year ended December 31, 1995:
Valuation accounts deducted from assets:
Allowance for doubtful receivables
and sales returns..................... $3,406 $1,089 $1,544 $2,951
Reserve for inventory obsolescence...... 425 581 465 541
</TABLE>
S-3
<PAGE>
EXHIBIT 1.01
NATIONSBANC MONTGOMERY SECURITIES
FORM UNDERWRITING AGREEMENT
DRAFT OF MARCH 31, 1998
___________ SHARES
ASYMETRIX LEARNING SYSTEMS, INC.
COMMON STOCK
UNDERWRITING AGREEMENT
, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
Section 1. Representations and Warranties of the Company................ 2
(a) Compliance with Registration Requirements.................... 2
(b) Offering Materials Furnished to Underwriters................. 3
(c) Distribution of Offering Material by the Company............. 3
(d) The Underwriting Agreement................................... 3
(e) Authorization of the Common Shares........................... 3
(f) No Applicable Registration or Other Similar Right............ 3
(g) No Material Adverse Change................................... 3
(h) Independent Accountants...................................... 4
(i) Preparation of the Financial Statements...................... 4
(j) Incorporation and Good Standing of the Company and Its
Subsidiaries.................................................. 5
(k) Capitalization and Other Capital Stock Matters............... 5
(l) Stock Exchange Listing....................................... 6
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required......................... 6
(n) No Material Actions or Proceedings........................... 6
(o) Intellectual Property Rights................................. 7
(p) All Necessary Permits, Etc................................... 7
(q) Title to Properties.......................................... 7
(r) Tax Law Compliance........................................... 7
(s) Company Not an ``Investment Company''........................ 7
(t) Insurance.................................................... 8
(u) No Price Stabilization or Manipulation....................... 8
(v) Related-Party Transactions................................... 8
(w) No Unlawful Contributions or Other Payments.................. 8
(x) Company's Accounting System.................................. 8
(y) Compliance with Environmental Laws........................... 9
(z) ERISA Compliance............................................. 9
Section 2. Purchase, Sale and Delivery of the Common Shares............. 10
The Firm Common Shares........................................ 10
The First Closing Date........................................ 10
The Optional Common Shares; the Second Closing Date........... 10
Public Offering of the Common Shares.......................... 11
Payment for the Common Shares................................. 11
</TABLE>
i.
<PAGE>
<TABLE>
PAGE
<S> <C> <C>
Delivery of the Common Shares..................................... 11
Delivery of Prospectus to the Underwriters........................ 12
Section 3. Additional Covenants of the Company............................... 12
(a) Representatives' Review of Proposed Amendments and
Supplements................................................... 12
(b) Securities Act Compliance..................................... 12
(c) Amendments and Supplements to the Prospectus and Other
Securities Act Matters........................................ 13
(d) Copies of any Amendments and Supplements to the Prospectus.... 13
(f) Use of Proceeds............................................... 13
(g) Transfer Agent................................................ 13
(h) Earnings Statement............................................ 13
(i) Periodic Reporting Obligations................................ 14
(j) Company to Provide Copy of the Prospectus in Form That May be
Downloaded from the Internet.................................. 14
(k) Agreement Not To Offer or Sell Additional Securities.......... 14
(l) Future Reports to the Representatives......................... 15
Section 4. Payment of Expenses............................................... 15
Section 5. Conditions of the Obligations of the Underwriters................. 16
(a) Accountants' Comfort Letter................................... 16
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD........................................... 16
(c) No Material Adverse Change.................................... 17
(d) Opinion of Counsel for the Company............................ 17
(e) Opinion of Counsel for the Underwriters....................... 17
(f) Officers' Certificate......................................... 17
(g) Bring-down Comfort Letter..................................... 18
(h) Lock-Up Agreement from Certain Stockholders of the Company.... 18
(i) Additional Documents.......................................... 30
Section 6. Reimbursement of Underwriters' Expenses........................... 18
Section 7. Effectiveness of this Agreement................................... 19
Section 8. Indemnification................................................... 19
</TABLE>
ii.
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
(a) Indemnification of the Underwriters........................... 19
(b) Indemnification of the Company, its Directors and Officers.... 20
(c) Notifications and Other Indemnification Procedures............ 21
(d) Settlements................................................... 22
Section 9. Contribution..................................................... 22
Section 10. Default of One or More of the Several Underwriters............... 23
Section 11. Termination of this Agreement.................................... 24
Section 12. Representations and Indemnities to Survive Delivery.............. 25
Section 13. Notices.......................................................... 25
Section 14. Successors....................................................... 26
Section 15. Partial Unenforceability......................................... 26
Section 16. Governing Law Provisions ........................................ 26
(a) Consent to Jurisdiction....................................... 26
(b) Waiver of Immunity............................................ 26
Section 18. General Provisions............................................... 27
</TABLE>
iii.
<PAGE>
UNDERWRITING AGREEMENT
, 1998
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST LLC
As Representatives of the several Underwriters
c/o NATIONSBANC MONTGOMERY SECURITIES LLC
600 Montgomery Street
San Francisco, California 94111
Ladies and Gentlemen:
INTRODUCTORY. Asymetrix Learning Systems, Inc., a Delaware
corporation (the ``Company''), proposes to issue and sell to the several
underwriters named in Schedule A (the ``Underwriters'') an aggregate of [___]
----------
shares (the ``Firm Common Shares'') of its Common Stock, par value $0.01 per
share (the ``Common Stock''). In addition, the Company has granted to the
Underwriters an option to purchase up to an additional [___] shares (the
``Optional Common Shares'') of Common Stock, as provided in Section 2. The Firm
Common Shares and, if and to the extent such option is exercised, the Optional
Common Shares are collectively called the ``Common Shares.'' NationsBanc
Montgomery Securities LLC, BancAmerica Robertson Stephens and Hambrecht & Quist
LLC have agreed to act as representatives of the several Underwriters (in such
capacity, the ``Representatives'') in connection with the offering and sale of
the Common Shares.
The Company has prepared and filed with the Securities and Exchange
Commission (the ``Commission'') a registration statement on Form S-1 (File No.
333-[___]), which contains a form of prospectus to be used in connection with
the public offering and sale of the Common Shares. Such registration statement,
as amended, including the financial statements, exhibits and schedules thereto,
in the form in which it was declared effective by the Commission under the
Securities Act of 1933 and the rules and regulations promulgated thereunder
(collectively, the ``Securities Act''), including any information deemed to be a
part thereof at the time of effectiveness pursuant to Rule 430A or Rule 434
under the Securities Act, is called the ``Registration Statement.'' Any
registration statement filed by the Company pursuant to Rule 462(b) under the
Securities Act is called the ``Rule 462(b) Registration Statement,'' and from
and after the date and time of filing of the Rule 462(b) Registration
1.
<PAGE>
Statement the term ``Registration Statement'' shall include the Rule 462(b)
Registration Statement. Such prospectus, in the form first used by the
Underwriters to confirm sales of the Common Shares, is called the
``Prospectus''; provided, however, if the Company has, with the consent of
NationsBanc Montgomery Securities LLC, elected to rely upon Rule 434 under the
Securities Act, the term ``Prospectus'' shall mean the Company's prospectus
subject to completion (each, a ``preliminary prospectus'') dated [___] (such
preliminary prospectus is called the ``Rule 434 preliminary prospectus''),
together with the applicable term sheet (the ``Term Sheet'') prepared and filed
by the Company with the Commission under Rules 434 and 424(b) under the
Securities Act and all references in this Agreement to the date of the
Prospectus shall mean the date of the Term Sheet. All references in this
Agreement to (i) the Registration Statement, the Rule 462(b) Registration
Statement, a preliminary prospectus, the Prospectus or the Term Sheet, or any
amendments or supplements to any of the foregoing, shall include any copy
thereof filed with the Commission pursuant to its Electronic Data Gathering,
Analysis and Retrieval System (``EDGAR'') and (ii) the Prospectus shall be
deemed to include the ``electronic Prospectus'' provided for use in connection
with the offering of the Common Shares as contemplated by Section 3(k) of this
Agreement.
The Company hereby confirms its agreements with the Underwriters as
follows:
SECTION 1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents, warrants and covenants to each Underwriter as follows:
(a) Compliance with Registration Requirements. The Registration
Statement and any Rule 462(b) Registration Statement have been declared
effective by the Commission under the Securities Act. The Company has complied
to the Commission's satisfaction with all requests of the Commission for
additional or supplemental information. No stop order suspending the
effectiveness of the Registration Statement or any Rule 462(b) Registration
Statement is in effect and no proceedings for such purpose have been instituted
or are pending or, to the best knowledge of the Company, are contemplated or
threatened by the Commission.
Each preliminary prospectus and the Prospectus when filed complied in
all material respects with the Securities Act and, if filed by electronic
transmission pursuant to EDGAR (except as may be permitted by Regulation S-T
under the Securities Act), was identical to the copy thereof delivered to the
Underwriters for use in connection with the offer and sale of the Common Shares.
Each of the Registration Statement, any Rule 462(b) Registration Statement and
any post-effective amendment thereto, at the time it became effective and at all
subsequent times, complied and will comply in all material respects with the
Securities Act and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading. The Prospectus, as
amended or supplemented, as of its date and at all subsequent times, did not and
will not contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. The
representations and warranties set forth in the two immediately preceding
2.
<PAGE>
sentences do not apply to statements in or omissions from the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment thereto, or the Prospectus, or any amendments or supplements thereto,
made in reliance upon and in conformity with information relating to any
Underwriter furnished to the Company in writing by the Representatives expressly
for use therein. There are no contracts or other documents required to be
described in the Prospectus or to be filed as exhibits to the Registration
Statement which have not been described or filed as required.
(b) Offering Materials Furnished to Underwriters. The Company has
delivered to the Representatives three (3) complete manually signed copy of the
Registration Statement and of each consent and certificate of experts filed as a
part thereof, and conformed copies of the Registration Statement (without
exhibits) and preliminary prospectuses and the Prospectus, as amended or
supplemented, in such quantities and at such places as the Representatives has
reasonably requested for each of the Underwriters.
(c) Distribution of Offering Material by the Company. The Company has
not distributed and will not distribute, prior to the later of the Second
Closing Date (as defined below) and the completion of the Underwriters'
distribution of the Common Shares, any offering material in connection with the
offering and sale of the Common Shares other than a preliminary prospectus, the
Prospectus or the Registration Statement.
(d) The Underwriting Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding agreement of,
the Company, enforceable in accordance with its terms, except as rights to
indemnification hereunder may be limited by applicable law and except as the
enforcement hereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting the rights and
remedies of creditors or by general equitable principles.
(e) Authorization of the Common Shares. The Common Shares to be
purchased by the Underwriters from the Company have been duly authorized for
issuance and sale pursuant to this Agreement and, when issued and delivered by
the Company pursuant to this Agreement, will be validly issued, fully paid and
nonassessable.
(f) No Applicable Registration or Other Similar Rights. There are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by this Agreement, except for such rights as have been
duly waived.
(g) No Material Adverse Change. Except as otherwise disclosed in the
Prospectus, subsequent to the respective dates as of which information is given
in the Prospectus: (i) there has been no material adverse change, or any
development that could reasonably be expected to result in a material adverse
change, in the condition, financial or otherwise, or in the earnings, business,
operations or prospects, whether or not arising from transactions in the
3.
<PAGE>
ordinary course of business, of the Company and its subsidiaries, considered as
one entity (any such change is called a ``Material Adverse Change''); (ii) the
Company and its subsidiaries, considered as one entity, have not incurred any
material liability or obligation, indirect, direct or contingent, not in the
ordinary course of business nor entered into any material transaction or
agreement not in the ordinary course of business; and (iii) there has been no
dividend or distribution of any kind declared, paid or made by the Company or,
except for dividends paid to the Company or other subsidiaries, any of its
subsidiaries on any class of capital stock or repurchase or redemption by the
Company or any of its subsidiaries of any class of capital stock.
(h) Independent Accountants. KPMG Peat Marwick LLP, which has
expressed its opinion with respect to certain of the financial statements of the
Company and Communications Strategies, Inc. (``CSI'') (which term as used in
this Agreement includes the related notes thereto) and supporting schedules
filed with the Commission as a part of the Registration Statement and included
in the Prospectus, are independent public or certified public accountants as
required by the Securities Act. Ernst & Young LLP, which has expressed its
opinion with respect to certain of the financial statements of the Company
(which term as used in this Agreement includes the related notes thereto) filed
with the Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act. Arthur Andersen LLP, which has expressed its opinion
with respect to the financial statements of Aimtech Corporation (``Aimtech'')
(which term as used in this Agreement includes the related notes thereto) filed
with the Commission as a part of the Registration Statement and included in the
Prospectus, are independent public or certified public accountants as required
by the Securities Act.
(i) Preparation of the Financial Statements. The financial statements
filed with the Commission as a part of the Registration Statement and included
in the Prospectus present fairly the consolidated financial position of the
Company and its subsidiaries as of and at the dates indicated and the results of
their operations and cash flows for the periods specified. The supporting
schedules included in the Registration Statement present fairly the information
required to be stated therein. Such financial statements and supporting
schedules have been prepared in conformity with generally accepted accounting
principles as applied in the United States applied on a consistent basis
throughout the periods involved, except as may be expressly stated in the
related notes thereto. The financial statements filed with the Commission as a
part of the Registration Statement and included in the Prospectus present fairly
the consolidated financial position of Aimtech and CSI and their respective
subsidiaries as of and at the dates indicated and the results of their
operations and cash flows for the periods specified. Such financial statements
have been prepared in conformity with generally accepted accounting principles
as applied in the United States applied on a consistent basis throughout the
periods involved, except as may be expressly stated in the related notes
thereto. The financial data set forth in the Prospectus under the captions
``Prospectus Summary-Summary Consolidated Financial Data,'' ``Selected
Historical Consolidated Financial Data'' and ``Capitalization'' fairly present
the information set forth therein on a basis consistent with that of the audited
financial statements contained in the Registration Statement. The pro forma
consolidated financial
4.
<PAGE>
information of the Company and its subsidiaries and the related notes thereto
included under the captions ``Prospectus Summary-Summary Consolidated Financial
Data'' and ``Selected Pro Forma Consolidated Financial Data'' and elsewhere in
the Prospectus and in the Registration Statement present fairly the information
contained therein, have been prepared in accordance with the Commission's rules
and guidelines with respect to pro forma financial statements and have been
properly presented on the bases described therein, and the assumptions used in
the preparation thereof are reasonable and the adjustments used therein are
appropriate to give effect to the transactions and circumstances referred to
therein. No other financial statements or schedules of the Company or any other
entity are required to be included in the Registration Statement pursuant to any
requirement of the Act or any rules and regulations thereunder, including Rule
3-05 of Regulation S-X.
(j) Incorporation and Good Standing of the Company and Its
Subsidiaries. Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation and has corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus and, in the case of the Company, to enter into
and perform its obligations under this Agreement. Each of the Company and each
subsidiary is duly qualified as a foreign corporation to transact business and
is in good standing in the State of Washington and each other jurisdiction in
which such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except for such jurisdictions
(other than the State of Washington) where the failure to so qualify or to be in
good standing would not, individually or in the aggregate, result in a Material
Adverse Change. All of the issued and outstanding capital stock of each
subsidiary has been duly authorized and validly issued, is fully paid and
nonassessable and is owned by the Company, directly or through subsidiaries,
free and clear of any security interest, mortgage, pledge, lien, encumbrance or
claim. The Company does not own or control, directly or indirectly, any
corporation, association or other entity other than the subsidiaries listed in
Exhibit 21.01 to the Registration Statement.
(k) Capitalization and Other Capital Stock Matters. The authorized,
issued and outstanding capital stock of the Company is as set forth in the
Prospectus under the caption ``Capitalization'' (other than for subsequent
issuances, if any, pursuant to employee benefit plans described in the
Prospectus or upon exercise of outstanding options or warrants described in the
Prospectus). The Common Stock (including the Common Shares) conforms in all
material respects to the description thereof contained in the Prospectus. All
of the issued and outstanding shares of Common Stock have been duly authorized
and validly issued, are fully paid and nonassessable and have been issued in
compliance with federal and state securities laws. None of the outstanding
shares of Common Stock were issued in violation of any preemptive rights, rights
of first refusal or other similar rights to subscribe for or purchase securities
of the Company. There are no authorized or outstanding options, warrants,
preemptive rights, rights of first refusal or other rights to purchase, or
equity or debt securities convertible into or exchangeable or exercisable for,
any capital stock of the Company or any of its subsidiaries other
5.
<PAGE>
than those accurately described in the Prospectus. The description of the
Company's stock option, stock bonus and other stock plans or arrangements, and
the options or other rights granted thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(l) Stock Exchange Listing. The Common Shares have been approved for
inclusion on the Nasdaq National Market, subject only to official notice of
issuance.
(m) Non-Contravention of Existing Instruments; No Further
Authorizations or Approvals Required. Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws or is in default (or,
with the giving of notice or lapse of time, would be in default) (``Default'')
under any indenture, mortgage, loan or credit agreement, note, contract,
franchise, lease or other instrument to which the Company or any of its
subsidiaries is a party or by which it or any of them may be bound, or to which
any of the property or assets of the Company or any of its subsidiaries is
subject (each, an ``Existing Instrument''), except for such Defaults as would
not, individually or in the aggregate, result in a Material Adverse Change. The
Company's execution, delivery and performance of this Agreement and consummation
of the transactions contemplated hereby and by the Prospectus (i) have been duly
authorized by all necessary corporate action and will not result in any
violation of the provisions of the charter or by-laws of the Company or any
subsidiary, (ii) will not conflict with or constitute a breach of, or Default
under, or result in the creation or imposition of any lien, charge or
encumbrance upon any property or assets of the Company or any of its
subsidiaries pursuant to, or require the consent of any other party to, any
Existing Instrument, except for such conflicts, breaches, Defaults, liens,
charges or encumbrances as would not, individually or in the aggregate, result
in a Material Adverse Change and (iii) will not result in any violation of any
law, administrative regulation or administrative or court decree applicable to
the Company or any subsidiary. No consent, approval, authorization or other
order of, or registration or filing with, any court or other governmental or
regulatory authority or agency, is required for the Company's execution,
delivery and performance of this Agreement and consummation of the transactions
contemplated hereby and by the Prospectus, except such as have been obtained or
made by the Company and are in full force and effect under the Securities Act,
applicable state securities or blue sky laws and from the National Association
of Securities Dealers, Inc. (the ``NASD'').
(n) No Material Actions or Proceedings. Except as otherwise disclosed
in the Prospectus, there are no legal or governmental actions, suits or
proceedings pending or, to the best of the Company's knowledge, threatened (i)
against or affecting the Company or any of its subsidiaries, (ii) which has as
the subject thereof any officer or director of, or property owned or leased by,
the Company or any of its subsidiaries or (iii) relating to environmental or
discrimination matters, where in any such case (A) there is a reasonable
possibility that such action, suit or proceeding might be determined adversely
to the Company or such subsidiary and (B) any such action, suit or proceeding,
if so determined adversely, would reasonably be expected to result in a Material
Adverse Change or adversely affect the consummation of the transactions
contemplated by this Agreement. No material labor dispute with the employees of
the Company
6.
<PAGE>
or any of its subsidiaries exists or, to the best of the Company's knowledge, is
threatened or imminent.
(o) Intellectual Property Rights. Except as otherwise disclosed in
the Prospectus, the Company and its subsidiaries own or possess sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals, trade
secrets and other similar rights (collectively, ``Intellectual Property
Rights'') reasonably necessary to conduct their businesses as now conducted; and
the expected expiration of any of such Intellectual Property Rights would not
result in a Material Adverse Change. Neither the Company nor any of its
subsidiaries has received any notice of infringement or conflict with asserted
Intellectual Property Rights of others, which infringement or conflict, if the
subject of an unfavorable decision, would result in a Material Adverse Change.
(p) All Necessary Permits, Etc. The Company and each subsidiary
possess such valid and current certificates, authorizations or permits issued by
the appropriate state, federal or foreign regulatory agencies or bodies
necessary to conduct their respective businesses, and neither the Company nor
any subsidiary has received any notice of proceedings relating to the revocation
or modification of, or non-compliance with, any such certificate, authorization
or permit which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, could result in a Material Adverse Change.
(q) Title to Properties. The Company and each of its subsidiaries has
good and marketable title to all the properties and assets reflected as owned in
the financial statements referred to in the Prospectus, in each case free and
clear of any security interests, mortgages, liens, encumbrances, equities,
claims and other defects, except such as do not materially and adversely affect
the value of such property and do not materially interfere with the use made or
proposed to be made of such property by the Company or such subsidiary. The
real property, improvements, equipment and personal property held under lease by
the Company or any subsidiary are held under valid and enforceable leases, with
such exceptions as are not material and do not materially interfere with the use
made or proposed to be made of such real property, improvements, equipment or
personal property by the Company or such subsidiary.
(r) Tax Law Compliance. The Company and its consolidated subsidiaries
have filed all necessary federal, state and foreign income and franchise tax
returns or have properly requested extensions thereof and have paid all taxes
required to be paid by any of them and, if due and payable, any related or
similar assessment, fine or penalty levied against any of them. The Company has
made adequate charges, accruals and reserves in the applicable financial
statements referred to in Section 1 above in respect of all federal, state and
foreign income and franchise taxes for all periods as to which the tax liability
of the Company or any of its consolidated subsidiaries has not been finally
determined.
(s) Company Not an ``Investment Company.'' The Company has been
advised of the rules and requirements under the Investment Company Act of 1940,
as amended (the
7.
<PAGE>
``Investment Company Act''). The Company is not, and after receipt of payment
for the Common Shares will not be, an ``investment company'' within the meaning
of Investment Company Act and will conduct its business in a manner so that it
will not become subject to the Investment Company Act.
(t) Insurance. Each of the Company and its subsidiaries are insured
by recognized, financially sound and reputable institutions with policies in
such amounts and with such deductibles and covering such risks as are generally
deemed adequate and customary for their businesses including, but not limited
to, policies covering real and personal property owned or leased by the Company
and its subsidiaries against theft, damage, destruction, acts of vandalism and
earthquakes. The Company has no reason to believe that it or any subsidiary
will not be able (i) to renew its existing insurance coverage as and when such
policies expire or (ii) to obtain comparable coverage from similar institutions
as may be necessary or appropriate to conduct its business as now conducted and
at a cost that would not result in a Material Adverse Change. Neither of the
Company nor any subsidiary has been denied any insurance coverage which it has
sought or for which it has applied.
(u) No Price Stabilization or Manipulation. The Company has not taken
and will not take, directly or indirectly, any action designed to or that might
be reasonably expected to cause or result in stabilization or manipulation of
the price of the Common Stock to facilitate the sale or resale of the Common
Shares.
(v) Related-Party Transactions. There are no business relationships
or related-party transactions involving the Company or any subsidiary or any
other person required to be described in the Prospectus which have not been
described as required.
Any certificate signed by an officer of the Company and delivered to
the Representatives or to counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to each Underwriter as to the matters
set forth therein.
(w) No Unlawful Contributions or Other Payments. Neither the Company
nor any of its subsidiaries nor, to the best of the Company's knowledge, any
employee or agent of the Company or any subsidiary, has made any contribution or
other payment to any official of, or candidate for, any federal, state or
foreign office in violation of any law or of the character required to be
disclosed in the Prospectus.
(x) Company's Accounting System. The Company maintains a system of
accounting controls sufficient to provide reasonable assurances that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles as applied in the United States and to maintain
accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific
8.
<PAGE>
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(y) Compliance with Environmental Laws. Except as would not,
individually or in the aggregate, result in a Material Adverse Change (i)
neither the Company nor any of its subsidiaries is in violation of any federal,
state, local or foreign law or regulation relating to pollution or protection of
human health or the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or wildlife,
including without limitation, laws and regulations relating to emissions,
discharges, releases or threatened releases of chemicals, pollutants,
contaminants, wastes, toxic substances, hazardous substances, petroleum and
petroleum products (collectively, ``Materials of Environmental Concern''), or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of Materials of Environment Concern
(collectively, ``Environmental Laws''), which violation includes, but is not
limited to, noncompliance with any permits or other governmental authorizations
required for the operation of the business of the Company or its subsidiaries
under applicable Environmental Laws, or noncompliance with the terms and
conditions thereof, nor has the Company or any of its subsidiaries received any
written communication, whether from a governmental authority, citizens group,
employee or otherwise, that alleges that the Company or any of its subsidiaries
is in violation of any Environmental Law; (ii) there is no claim, action or
cause of action filed with a court or governmental authority, no investigation
with respect to which the Company has received written notice, and no written
notice by any person or entity alleging potential liability for investigatory
costs, cleanup costs, governmental responses costs, natural resources damages,
property damages, personal injuries, attorneys' fees or penalties arising out
of, based on or resulting from the presence, or release into the environment, of
any Material of Environmental Concern at any location owned, leased or operated
by the Company or any of its subsidiaries, now or in the past (collectively,
``Environmental Claims''), pending or, to the best of the Company's knowledge,
threatened against the Company or any of its subsidiaries or any person or
entity whose liability for any Environmental Claim the Company or any of its
subsidiaries has retained or assumed either contractually or by operation of
law; and (iii) to the best of the Company's knowledge, there are no past or
present actions, activities, circumstances, conditions, events or incidents,
including, without limitation, the release, emission, discharge, presence or
disposal of any Material of Environmental Concern, that reasonably could result
in a violation of any Environmental Law or form the basis of a potential
Environmental Claim against the Company or any of its subsidiaries or against
any person or entity whose liability for any Environmental Claim the Company or
any of its subsidiaries has retained or assumed either contractually or by
operation of law.
(z) ERISA Compliance. The Company and its subsidiaries and any
``employee benefit plan'' (as defined under the Employee Retirement Income
Security Act of 1974, as amended, and the regulations and published
interpretations thereunder (collectively, ``ERISA'')) established or maintained
by the Company, its subsidiaries or their ``ERISA Affiliates'' (as defined
below) are in compliance in all material respects with ERISA. ``ERISA
Affiliate'' means, with respect to the Company or a subsidiary, any member of
any group of organizations
9.
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described in Sections 414(b),(c),(m) or (o) of the Internal Revenue Code of
1986, as amended, and the regulations and published interpretations thereunder
(the ``Code'') of which the Company or such subsidiary is a member. No
``reportable event'' (as defined under ERISA) has occurred or is reasonably
expected to occur with respect to any ``employee benefit plan'' established or
maintained by the Company, its subsidiaries or any of their ERISA Affiliates.
No ``employee benefit plan'' established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates, if such ``employee benefit plan''
were terminated, would have any ``amount of unfunded benefit liabilities'' (as
defined under ERISA). Neither the Company, its subsidiaries nor any of their
ERISA Affiliates has incurred or reasonably expects to incur any liability under
(i) Title IV of ERISA with respect to termination of, or withdrawal from, any
``employee benefit plan'' or (ii) Sections 412, 4971, 4975 or 4980B of the Code.
Each ``employee benefit plan'' established or maintained by the Company, its
subsidiaries or any of their ERISA Affiliates that is intended to be qualified
under Section 401(a) of the Code is so qualified and nothing has occurred,
whether by action or failure to act, which would cause the loss of such
qualification.
SECTION 2. PURCHASE, SALE AND DELIVERY OF THE COMMON SHARES.
The Firm Common Shares. The Company agrees to issue and sell to the
several Underwriters the Firm Common Shares upon the terms herein set forth. On
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the
Underwriters agree, severally and not jointly, to purchase from the Company the
respective number of Firm Common Shares set forth opposite their names on
Schedule A. The purchase price per Firm Common Share to be paid by the several
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Underwriters to the Company shall be $[___] per share.
The First Closing Date. Delivery of certificates for the Firm Common
Shares to be purchased by the Underwriters and payment therefor shall be made at
the offices of NationsBanc Montgomery Securities LLC, 600 Montgomery Street, San
Francisco, California (or such other place as may be agreed to by the Company
and the Representatives) at 6:00 a.m. San Francisco time, on [___________,
1998], or such other time and date not later than 10:30 a.m. San Francisco time,
on [__________, 1998] as the Representatives shall designate by notice to the
Company (the time and date of such closing are called the ``First Closing
Date''). The Company hereby acknowledges that circumstances under which the
Representatives may provide notice to postpone the First Closing Date as
originally scheduled include, but are in no way limited to, any determination by
the Company or the Representatives to recirculate to the public copies of an
amended or supplemented Prospectus or a delay as contemplated by the provisions
of Section 10.
The Optional Common Shares; the Second Closing Date. In addition, on
the basis of the representations, warranties and agreements herein contained,
and upon the terms but subject to the conditions herein set forth, the Company
hereby grants an option to the several Underwriters to purchase, severally and
not jointly, up to an aggregate of [___] Optional Common Shares from the Company
at the purchase price per share to be paid by the Underwriters for the Firm
Common Shares. The option granted hereunder is for use by the
10.
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Underwriters solely in covering any over-allotments in connection with the sale
and distribution of the Firm Common Shares. The option granted hereunder may be
exercised at any time (but not more than once) upon notice by the
Representatives to the Company, which notice may be given at any time within 30
days from the date of this Agreement. Such notice shall set forth (i) the
aggregate number of Optional Common Shares as to which the Underwriters are
exercising the option, (ii) the names and denominations in which the
certificates for the Optional Common Shares are to be registered and (iii) the
time, date and place at which such certificates will be delivered (which time
and date may be simultaneous with, but not earlier than, the First Closing Date;
and in such case the term ``First Closing Date'' shall refer to the time and
date of delivery of certificates for the Firm Common Shares and the Optional
Common Shares). Such time and date of delivery, if subsequent to the First
Closing Date, is called the ``Second Closing Date'' and shall be determined by
the Representatives and shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. If any Optional Common
Shares are to be purchased, each Underwriter agrees, severally and not jointly,
to purchase the number of Optional Common Shares (subject to such adjustments to
eliminate fractional shares as the Representatives may determine) that bears the
same proportion to the total number of Optional Common Shares to be purchased as
the number of Firm Common Shares set forth on Schedule A opposite the name of
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such Underwriter bears to the total number of Firm Common Shares. The
Representatives may cancel the option at any time prior to its expiration by
giving written notice of such cancellation to the Company.
Public Offering of the Common Shares. The Representatives hereby
advises the Company that the Underwriters intend to offer for sale to the
public, as described in the Prospectus, their respective portions of the Common
Shares as soon after this Agreement has been executed and the Registration
Statement has been declared effective as the Representatives, in its sole
judgment, has determined is advisable and practicable.
Payment for the Common Shares. Payment for the Common Shares shall be
made at the First Closing Date (and, if applicable, at the Second Closing Date)
by wire transfer of immediately available funds to the order of the Company.
It is understood that the Representatives have been authorized, for
its own account and the accounts of the several Underwriters, to accept delivery
of and receipt for, and make payment of the purchase price for, the Firm Common
Shares and any Optional Common Shares the Underwriters have agreed to purchase.
NationsBanc Montgomery Securities LLC, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by the Representatives by the First Closing Date or
the Second Closing Date, as the case may be, for the account of such
Underwriter, but any such payment shall not relieve such Underwriter from any of
its obligations under this Agreement.
Delivery of the Common Shares. The Company shall deliver, or cause to
be delivered, to the Representatives for the accounts of the several
Underwriters certificates for the
11.
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Firm Common Shares at the First Closing Date, against the irrevocable release of
a wire transfer of immediately available funds for the amount of the purchase
price therefor. The Company shall also deliver, or cause to be delivered, to
the Representatives for the accounts of the several Underwriters, certificates
for the Optional Common Shares the Underwriters have agreed to purchase at the
First Closing Date or the Second Closing Date, as the case may be, against the
irrevocable release of a wire transfer of immediately available funds for the
amount of the purchase price therefor. The certificates for the Common Shares
shall be in definitive form and registered in such names and denominations as
the Representatives shall have requested at least two full business days prior
to the First Closing Date (or the Second Closing Date, as the case may be) and
shall be made available for inspection on the business day preceding the First
Closing Date (or the Second Closing Date, as the case may be) at a location in
New York City as the Representatives may designate. Time shall be of the
essence, and delivery at the time and place specified in this Agreement is a
further condition to the obligations of the Underwriters.
Delivery of Prospectus to the Underwriters. Not later than 12:00 p.m.
on the second business day following the date the Common Shares of released by
the Underwriters for sale to the public, the Company shall delivery or cause to
be delivered copies of the Prospectus in such quantities and at such places as
the Representatives shall request.
SECTION 3. ADDITIONAL COVENANTS OF THE COMPANY. The Company further
covenants and agrees with each Underwriter as follows:
(a) Representatives' Review of Proposed Amendments and Supplements.
During such period beginning on the date hereof and ending on the later of the
First Closing Date or such date, as in the opinion of counsel for the
Underwriters, the Prospectus is no longer required by law to be delivered in
connection with sales by an Underwriter or dealer (the ``Prospectus Delivery
Period''), prior to amending or supplementing the Registration Statement
(including any registration statement filed under Rule 462(b) under the
Securities Act) or the Prospectus, the Company shall furnish to the
Representatives for review a copy of each such proposed amendment or supplement,
and the Company shall not file any such proposed amendment or supplement to
which the Representatives reasonably objects.
(b) Securities Act Compliance. After the date of this Agreement, the
Company shall promptly advise the Representatives in writing (i) of the receipt
of any comments of, or requests for additional or supplemental information from,
the Commission, (ii) of the time and date of any filing of any post-effective
amendment to the Registration Statement or any amendment or supplement to any
preliminary prospectus or the Prospectus, (iii) of the time and date that any
post-effective amendment to the Registration Statement becomes effective and
(iv) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or of any order preventing or suspending the use of any preliminary
prospectus or the Prospectus, or of any proceedings to remove, suspend or
terminate from listing or quotation the Common Stock from any securities
exchange upon which it is listed for trading or included or designated for
quotation, or of the
12.
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threatening or initiation of any proceedings for any of such purposes. If the
Commission shall enter any such stop order at any time, the Company will use its
best efforts to obtain the lifting of such order at the earliest possible
moment. Additionally, the Company agrees that it shall comply with the
provisions of Rules 424(b), 430A and 434, as applicable, under the Securities
Act and will use its reasonable efforts to confirm that any filings made by the
Company under such Rule 424(b) were received in a timely manner by the
Commission.
(c) Amendments and Supplements to the Prospectus and Other Securities
Act Matters. If, during the Prospectus Delivery Period, any event shall occur
or condition exist as a result of which it is necessary to amend or supplement
the Prospectus in order to make the statements therein, in the light of the
circumstances when the Prospectus is delivered to a purchaser, not misleading,
or if in the opinion of the Representatives or counsel for the Underwriters it
is otherwise necessary to amend or supplement the Prospectus to comply with law,
the Company agrees to promptly prepare (subject to Section 3(A)(a) hereof), file
with the Commission and furnish at its own expense to the Underwriters and to
dealers, amendments or supplements to the Prospectus so that the statements in
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be misleading or
so that the Prospectus, as amended or supplemented, will comply with law.
(d) Copies of any Amendments and Supplements to the Prospectus. The
Company agrees to furnish the Representatives, without charge, during the
Prospectus Delivery Period, as many copies of the Prospectus and any amendments
and supplements thereto as the Representatives may request.
(e) Use of Proceeds. The Company shall apply the net proceeds from
the sale of the Common Shares sold by it in the manner described under the
caption ``Use of Proceeds'' in the Prospectus.
(f) Transfer Agent. The Company shall engage and maintain, at its
expense, a registrar and transfer agent for the Common Stock.
(g) Earnings Statement. As soon as practicable, the Company will make
generally available to its security holders and to the Representatives an
earnings statement (which need not be audited) covering the twelve-month period
ending [___]/1/ that satisfies the provisions of Section 11(a) of the Securities
Act.
/1/ Will be the date of the end of the Company's first quarter ending after one
year following the ``effective date of the Registration Statement'' (as defined
in Rule 158(c) under the Securities Act).
13.
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(h) Periodic Reporting Obligations. During the Prospectus Delivery
Period the Company shall file, on a timely basis, with the Commission and the
Nasdaq National Market all reports and documents required to be filed under the
Exchange Act.
(i) Company to Provide Copy of the Prospectus in Form That May Be
Downloaded from the Internet. The Company shall cause to be prepared and
delivered, at its expense, within one business day from the effective date of
this Agreement, to NationsBanc Montgomery Securities LLC an ``electronic
Prospectus'' to be used by the Underwriters in connection with the offering and
sale of the Common Shares. As used herein, the term ``electronic Prospectus''
means a form of Prospectus, and any amendment or supplement thereto, that meets
each of the following conditions: (i) it shall be encoded in an electronic
format, satisfactory to NationsBanc Montgomery Securities LLC, that may be
transmitted electronically by NationsBanc Montgomery Securities LLC and the
other Underwriters to offerees and purchasers of the Common Shares for at least
the Prospectus Delivery Period; (ii) it shall disclose the same information as
the paper Prospectus and Prospectus filed pursuant to EDGAR, except to the
extent that graphic and image material cannot be disseminated electronically, in
which case such graphic and image material shall be replaced in the electronic
Prospectus with a fair and accurate narrative description or tabular
representation of such material, as appropriate; and (iii) it shall be in or
convertible into a paper format or an electronic format, satisfactory to
NationsBanc Montgomery Securities LLC, that will allow investors to store and
have continuously ready access to the Prospectus at any future time, without
charge to investors (other than any fee charged for subscription to the system
as a whole and for on-line time). Such electronic Prospectus may consist of a
Rule 434 preliminary prospectus, together with the applicable Term Sheet,
provided that it otherwise satisfies the format and conditions described in the
immediately preceding sentence. The Company hereby confirms that it has
included or will include in the Prospectus filed pursuant to EDGAR or otherwise
with the Commission and in the Registration Statement at the time it was
declared effective an undertaking that, upon receipt of a request by an investor
or his or her representative within the Prospectus Delivery Period, the Company
shall transmit or cause to be transmitted promptly, without charge, a paper copy
of the Prospectus.
(j) Agreement Not To Offer or Sell Additional Securities. During the
period of 180 days following the date of the Prospectus, the Company will not,
without the prior written consent of NationsBanc Montgomery Securities LLC
(which consent may be withheld at the sole discretion of NationsBanc Montgomery
Securities LLC), directly or indirectly, sell, offer, contract or grant any
option to sell, pledge, transfer or establish an open ``put equivalent
position'' within the meaning of Rule 16a-1(h) under the Exchange Act, or
otherwise dispose of or transfer, or announce the offering of, or file any
registration statement under the Securities Act in respect of, any shares of
Common Stock, options or warrants to acquire shares of the Common Stock or
securities exchangeable or exercisable for or convertible into shares of Common
Stock (other than as contemplated by this Agreement with respect to the Common
Shares); provided, however, that the Company may issue shares of its Common
Stock or options to purchase its Common Stock, or Common Stock upon exercise of
options, pursuant to any stock option, stock bonus or other stock plan or
arrangement described in the Prospectus, but only if the holders of such shares,
14.
<PAGE>
options, or shares issued upon exercise of such options, agree in writing not to
sell, offer, dispose of or otherwise transfer any such shares or options during
such 180 day period without the prior written consent of NationsBanc Montgomery
Securities LLC (which consent may be withheld at the sole discretion of
NationsBanc Montgomery Securities LLC). In addition, during the period of 180
days following the date of the Prospectus, the Company will not, without the
prior written consent of NationsBanc Montgomery Securities LLC (which consent
may be withheld at the sole discretion of NationsBanc Montgomery Securities
LLC), agree to an early release of stockholders from lock-up agreements
previously executed between the Company and stockholders of the Company.
(k) Future Reports to the Representatives. During the period of five
years hereafter the Company will furnish to the Representatives at 600
Montgomery Street, San Francisco, CA 94111, attention: David Crowder: (i) as
soon as practicable after the end of each fiscal year, copies of the Annual
Report of the Company containing the balance sheet of the Company as of the
close of such fiscal year and statements of income, stockholders' equity and
cash flows for the year then ended and the opinion thereon of the Company's
independent public or certified public accountants; (ii) as soon as practicable
after the filing thereof, copies of each proxy statement, Annual Report on Form
10-K, Quarterly Report on Form 10-Q, Current Report on Form 8-K or other report
filed by the Company with the Commission, the NASD or any securities exchange;
and (iii) as soon as available, copies of any report or communication of the
Company mailed generally to holders of its capital stock.
NationsBanc Montgomery Securities LLC, on behalf of the several
Underwriters, may, in its sole discretion, waive in writing the performance by
the Company of any one or more of the foregoing covenants or extend the time for
their performance.
SECTION 4. PAYMENT OF EXPENSES. The Company agrees to pay all costs, fees
and expenses incurred in connection with the performance of its obligations
hereunder and in connection with the transactions contemplated hereby, including
without limitation (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, independent public or certified pubic accountants and
other advisors, (v) all costs and expenses incurred in connection with the
preparation, printing, filing, shipping and distribution of the Registration
Statement (including financial statements, exhibits, schedules, consents and
certificates of experts), each preliminary prospectus and the Prospectus, and
all amendments and supplements thereto, and this Agreement, (vi) all filing
fees, attorneys' fees and expenses incurred by the Company or the Underwriters
in connection with qualifying or registering (or obtaining exemptions from the
qualification or registration of) all or any part of the Common Shares for offer
and sale under the state securities or blue sky laws or the provincial
securities laws of Canada, and, if requested by the Representatives, preparing
and printing a ``Blue Sky Survey'' or memorandum, and any supplements thereto,
advising the Underwriters of such qualifications,
15.
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registrations and exemptions, (vii) the filing fees incident to, and the
reasonable fees and expenses of counsel for the Underwriters in connection with,
the NASD's review and approval of the Underwriters' participation in the
offering and distribution of the Common Stock, (viii) the fees and expenses
associated with including the Common Stock on the Nasdaq National Market, and
(ix) all other fees, costs and expenses referred to in Item 13 of Part II of the
Registration Statement. Except as provided in this Section 4, Section 6,
Section 8 and Section 9 hereof, the Underwriters shall pay their own expenses,
including the fees and disbursements of their counsel.
SECTION 5. CONDITIONS OF THE OBLIGATIONS OF THE UNDERWRITERS. The
obligations of the several Underwriters to purchase and pay for the Common
Shares as provided herein on the First Closing Date and, with respect to the
Optional Common Shares, the Second Closing Date, shall be subject to the
accuracy of the representations and warranties on the part of the Company set
forth in Section 1 hereof as of the date hereof and as of the First Closing Date
as though then made and, with respect to the Optional Common Shares, as of the
Second Closing Date as though then made, to the timely performance by the
Company of its covenants and other obligations hereunder, and to each of the
following additional conditions:
(a) Accountants' Comfort Letter. On the date hereof, the
Representatives shall have received from KPMG Peat Marwick LLP, independent
public or certified public accountants for the Company and CSI, a letter dated
the date hereof addressed to the Underwriters, in form and substance
satisfactory to the Representatives, containing statements and information of
the type ordinarily included in accountant's ``comfort letters'' to
underwriters, delivered according to Statement of Auditing Standards No. 72 (or
any successor bulletin), with respect to the audited and unaudited financial
statements and certain financial information contained in the Registration
Statement and the Prospectus (and the Representatives shall have received an
additional six (6) conformed copies of such accountants' letter for each of the
several Underwriters). In addition, on the date hereof, the Representatives
shall have received from Ernst & Young LLP, independent public or certified
public accountants for the Company and Arthur Andersen LLP, independent public
or certified public accountants for Aimtech, a letter dated the date hereof
addressed to the Underwriters, in form and substance satisfactory to the
Representatives, containing statements and information of the type ordinarily
included in accountant's ``comfort letters'' to underwriters, delivered
according to Statement of Auditing Standards No. 72 (or any successor bulletin),
with respect to the audited financial statements contained in the Registration
Statement and the Prospectus (and the Representatives shall have received an
additional six (6) conformed copies of such accountants' letter for each of the
several Underwriters).
(b) Compliance with Registration Requirements; No Stop Order; No
Objection from NASD. For the period from and after effectiveness of this
Agreement and prior to the First Closing Date and, with respect to the Optional
Common Shares, the Second Closing Date:
(i) the Company shall have filed the Prospectus with the Commission
(including the information required by Rule 430A under the Securities Act) in
the manner and within the time period required by Rule 424(b) under the
Securities Act; or the Company shall
16.
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have filed a post-effective amendment to the Registration Statement containing
the information required by such Rule 430A, and such post-effective amendment
shall have become effective; or, if the Company elected to rely upon Rule 434
under the Securities Act and obtained the Representatives' consent thereto, the
Company shall have filed a Term Sheet with the Commission in the manner and
within the time period required by such Rule 424(b);
(ii) no stop order suspending the effectiveness of the Registration
Statement, any Rule 462(b) Registration Statement, or any post-effective
amendment to the Registration Statement, shall be in effect and no proceedings
for such purpose shall have been instituted or threatened by the Commission; and
(iii) the NASD shall have raised no objection to the fairness and
reasonableness of the underwriting terms and arrangements.
(c) No Material Adverse Change. For the period from and after the
date of this Agreement and prior to the First Closing Date and, with respect to
the Optional Common Shares, the Second Closing Date in the judgment of the
Representatives there shall not have occurred any Material Adverse Change.
(d) Opinion of Counsel for the Company. On each of the First Closing
Date and the Second Closing Date the Representatives shall have received the
favorable opinion of Fenwick & West LLP, counsel for the Company, dated as of
such Closing Date, the form of which is attached as Exhibit A (and the
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Representatives shall have received an additional six (6) conformed copies of
such counsel's legal opinion for each of the several Underwriters).
(e) Opinion of Counsel for the Underwriters. On each of the First
Closing Date and the Second Closing Date the Representatives shall have received
the favorable opinion of Brobeck, Phleger & Harrison LLP, counsel for the
Underwriters, dated as of such Closing Date, in a form deemed acceptable to the
Representatives (and the Representatives shall have received an additional six
(6) conformed copies of such counsel's legal opinion for each of the several
Underwriters).
(f) Officers' Certificate. On each of the First Closing Date and the
Second Closing Date the Representatives shall have received a written
certificate executed by the Chairman of the Board, Chief Executive Officer or
President of the Company and the Chief Financial Officer or Chief Accounting
Officer of the Company, dated as of such Closing Date, to the effect set forth
in subsections (b)(ii) and (c)(ii) of this Section 5, and further to the effect
that:
(i) for the period from and after the date of this Agreement and prior
to such Closing Date, there has not occurred any Material Adverse Change;
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(ii) the representations, warranties and covenants of the Company set
forth in Section 1 of this Agreement are true and correct with the same force
and effect as though expressly made on and as of such Closing Date; and
(iii) the Company has complied with all the agreements and
satisfied all the conditions on its part to be performed or satisfied at or
prior to such Closing Date.
(g) Bring-down Comfort Letter. On each of the First Closing Date and
the Second Closing Date the Representatives shall have received from KPMG Peat
Marwick LLP, independent public or certified public accountants for the Company,
a letter dated such date, in form and substance satisfactory to the
Representatives, to the effect that they reaffirm the statements made in the
letter furnished by them pursuant to subsection (a) of this Section 5, except
that the specified date referred to therein for the carrying out of procedures
shall be no more than three business days prior to the First Closing Date or
Second Closing Date, as the case may be (and the Representatives shall have
received an additional six (6) conformed copies of such accountants' letter for
each of the several Underwriters).
(h) Lock-Up Agreement from Certain Stockholders of the Company. On
the date hereof, the Company shall have furnished to the Representatives an
agreement in the form of Exhibit B hereto from those stockholders listed on
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Schedule B hereto and such agreement shall be in full force and effect on each
of the First Closing Date and the Second Closing Date.
(i) Additional Documents. On or before each of the First Closing Date
and the Second Closing Date, the Representatives and counsel for the
Underwriters shall have received such information, documents and opinions as
they may reasonably require for the purposes of enabling them to pass upon the
issuance and sale of the Common Shares as contemplated herein, or in order to
evidence the accuracy of any of the representations and warranties, or the
satisfaction of any of the conditions or agreements, herein contained.
If any condition specified in this Section 5 is not satisfied when and
as required to be satisfied, this Agreement may be terminated by the
Representatives by notice to the Company at any time on or prior to the First
Closing Date and, with respect to the Optional Common Shares, at any time prior
to the Second Closing Date, which termination shall be without liability on the
part of any party to any other party, except that Section 4, Section 6, Section
8 and Section 9 shall at all times be effective and shall survive such
termination.
SECTION 6. REIMBURSEMENT OF UNDERWRITERS' EXPENSES. If this Agreement is
termi nated by the Representatives pursuant to Section 5, Section 7, Section 10
or Section 11, or if the sale to the Underwriters of the Common Shares on the
First Closing Date is not consummated because of any refusal, inability or
failure on the part of the Company to perform any agreement herein or to comply
with any provision hereof, the Company agrees to reimburse the Representatives
and the other Underwriters (or such Underwriters as have terminated this
Agreement with respect to themselves), severally, upon demand for all out-of-
pocket expenses
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that shall have been reasonably incurred by the Representatives and the
Underwriters in connection with the proposed purchase and the offering and sale
of the Common Shares, including but not limited to fees and disbursements of
counsel, printing expenses, travel expenses, postage, facsimile and telephone
charges.
SECTION 7. EFFECTIVENESS OF THIS AGREEMENT. This Agreement shall not
become effective until the later of (i) the execution of this Agreement by the
parties hereto and (ii) notification by the Commission to the Company and the
Representatives of the effectiveness of the Registration Statement under the
Securities Act.
Prior to such effectiveness, this Agreement may be terminated by any party
by notice to each of the other parties hereto, and any such termination shall be
without liability on the part of (a) the Company to any Underwriter, except that
the Company shall be obligated to reimburse the expenses of the Representatives
and the Underwriters pursuant to Sections 4 and 6 hereof, (b) of any Underwriter
to the Company, or (c) of any party hereto to any other party except that the
provisions of Section 8 and Section 9 shall at all times be effective and shall
survive such termination.
SECTION 8. INDEMNIFICATION.
(a) Indemnification of the Underwriters. The Company agrees to
indemnify and hold harmless each Underwriter, its officers and employees, and
each person, if any, who controls any Underwriter within the meaning of the
Securities Act and the Exchange Act against any loss, claim, damage, liability
or expense, as incurred, to which such Underwriter or such controlling person
may become subject, under the Securities Act, the Exchange Act or other federal
or state statutory law or regulation, or at common law or otherwise (including
in settlement of any litigation, if such settlement is effected with the written
consent of the Company), insofar as such loss, claim, damage, liability or
expense (or actions in respect thereof as contemplated below) arises out of or
is based (i) upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement, or any amendment thereto,
including any information deemed to be a part thereof pursuant to Rule 430A or
Rule 434 under the Securities Act, or the omission or alleged omission therefrom
of a material fact required to be stated therein or necessary to make the
statements therein not misleading; or (ii) upon any untrue statement or alleged
untrue statement of a material fact contained in any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto), or the omission or
alleged omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) in whole or in part upon any inaccuracy in the
representations and warranties of the Company contained herein; or (iv) in whole
or in part upon any failure of the Company to perform its obligations hereunder
or under law; or (v) any act or failure to act or any alleged act or failure to
act by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as part
of or referred to in any loss, claim, damage, liability or action arising out of
or based upon any matter covered by clause (i) or (ii) above,
19.
<PAGE>
provided that the Company shall not be liable under this clause (v) to the
extent that a court of competent jurisdiction shall have determined by a final
judgment that such loss, claim, damage, liability or action resulted directly
from any such acts or failures to act undertaken or omitted to be taken by such
Underwriter through its bad faith or willful misconduct; and to reimburse each
Underwriter and each such controlling person for any and all expenses (including
the fees and disbursements of counsel chosen by NationsBanc Montgomery
Securities LLC) as such expenses are reasonably incurred by such Underwriter or
such controlling person in connection with investigating, defending, settling,
compromising or paying any such loss, claim, damage, liability, expense or
action; provided, however, that the foregoing indemnity agreement shall not
apply to any loss, claim, damage, liability or expense to the extent, but only
to the extent, arising out of or based upon any untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and in
conformity with written information furnished to the Company by the
Representatives expressly for use in the Registration Statement, any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto); and
provided, further, that with respect to any preliminary prospectus, the
foregoing indemnity agreement shall not inure to the benefit of any Underwriter
from whom the person asserting any loss, claim, damage, liability or expense
purchased Common Shares, or any person controlling such Underwriter, if copies
of the Prospectus were timely delivered to the Underwriter pursuant to Section 2
and a copy of the Prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required by law so
to have been delivered, at or prior to the written confirmation of the sale of
the Common Shares to such person, and if the Prospectus (as so amended or
supplemented) would have cured the defect giving rise to such loss, claim,
damage, liability or expense. The indemnity agreement set forth in this Section
8(a) shall be in addition to any liabilities that the Company may otherwise
have.
(b) Indemnification of the Company, its Directors and Officers. Each
Underwriter agrees, severally and not jointly, to indemnify and hold harmless
the Company, each of its directors, each of its officers who signed the
Registration Statement and each person, if any, who controls the Company within
the meaning of the Securities Act or the Exchange Act, against any loss, claim,
damage, liability or expense, as incurred, to which the Company, or any such
director, officer or controlling person may become subject, under the Securities
Act, the Exchange Act, or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of such Underwriter), insofar as
such loss, claim, damage, liability or expense (or actions in respect thereof as
contemplated below) arises out of or is based upon any untrue or alleged untrue
statement of a material fact contained in the Registration Statement, any
preliminary prospectus or the Prospectus (or any amendment or supplement
thereto), or arises out of or is based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, any preliminary
prospectus, the Prospectus (or any amendment or supplement thereto), in reliance
upon and in conformity with written information
20.
<PAGE>
furnished to the Company by the Representatives expressly for use therein; and
to reimburse the Company, or any such director, officer or controlling person
for any legal and other expense reasonably incurred by the Company, or any such
director, officer or controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. The Company hereby acknowledges that the only
information that the Underwriters have furnished to the Company expressly for
use in the Registration Statement, any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto) are the statements set forth (A) as the
last two paragraphs on the inside front cover page of the Prospectus concerning
stabilization by the Underwriters and (B) in the table in the first paragraph
and as the second paragraph and seventh and eighth paragraphs under the caption
``Underwriting'' in the Prospectus; and the Underwriters confirm that such
statements are correct. The indemnity agreement set forth in this Section 8(b)
shall be in addition to any liabilities that each Underwriter may otherwise
have.
(c) Notifications and Other Indemnification Procedures. Promptly
after receipt by an indemnified party under this Section 8 of notice of the
commencement of any action, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party under this Section 8, notify
the indemnifying party in writing of the commencement thereof, but the omission
so to notify the indemnifying party will not relieve it from any liability which
it may have to any indemnified party for contribution or otherwise than under
the indemnity agreement contained in this Section 8 or to the extent it is not
prejudiced as a proximate result of such failure. In case any such action is
brought against any indemnified party and such indemnified party seeks or
intends to seek indemnity from an indemnifying party, the indemnifying party
will be entitled to participate in, and, to the extent that it shall elect,
jointly with all other indemnifying parties similarly notified, by written
notice delivered to the indemnified party promptly after receiving the aforesaid
notice from such indemnified party, to assume the defense thereof with counsel
reasonably satisfactory to such indemnified party; provided, however, if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that a conflict may arise between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or that there
may be legal defenses available to it and/or other indemnified parties which are
different from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel to
assume such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties. Upon receipt of notice
from the indemnifying party to such indemnified party of such indemnifying
party's election so to assume the defense of such action and approval by the
indemnified party of counsel, the indemnifying party will not be liable to such
indemnified party under this Section 8 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being understood,
however, that the indemnifying party shall not be liable for the expenses of
more than one separate counsel (together with local counsel), approved by the
indemnifying party (NationsBanc Montgomery Securities LLC in the case of Section
8(b) and
21.
<PAGE>
Section 9), representing the indemnified parties who are parties to such action)
or (ii) the indemnifying party shall not have employed counsel satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of commencement of the action, in each of which cases the fees
and expenses of counsel shall be at the expense of the indemnifying party.
(d) Settlements. The indemnifying party under this Section 8 shall
not be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
against any loss, claim, damage, liability or expense by reason of such
settlement or judgment. Notwithstanding the foregoing sentence, if at any time
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by Section
8(c) hereof, the indemnifying party agrees that it shall be liable for any
settlement of any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such indemnifying
party of the aforesaid request and (ii) such indemnifying party shall not have
reimbursed the indemnified party in accordance with such request prior to the
date of such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement, compromise or consent
to the entry of judgment in any pending or threatened action, suit or proceeding
in respect of which any indemnified party is or could have been a party and
indemnity was or could have been sought hereunder by such indemnified party,
unless such settlement, compromise or consent includes an unconditional release
of such indemnified party from all liability on claims that are the subject
matter of such action, suit or proceeding.
SECTION 9. CONTRIBUTION. If the indemnification provided for in Section 8
is for any reason held to be unavailable to or otherwise insufficient to hold
harmless an indemnified party in respect of any losses, claims, damages,
liabilities or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount paid or payable by such indemnified party, as
incurred, as a result of any losses, claims, damages, liabilities or expenses
referred to therein (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company, on the one hand, and the
Underwriters, on the other hand, from the offering of the Common Shares pursuant
to this Agreement or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, on the one hand, and the Underwriters, on the other hand,
in connection with the statements or omissions or inaccuracies in the
representations and warranties herein which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the one hand,
and the Underwriters, on the other hand, in connection with the offering of the
Common Shares pursuant to this Agreement shall be deemed to be in the same
respective proportions as the total net proceeds from the offering of the Common
Shares pursuant to this Agreement (before deducting expenses) received by the
Company, and the total underwriting discount received by the Underwriters, in
each case as set forth on the front cover page of the Prospectus (or, if Rule
434
22.
<PAGE>
under the Securities Act is used, the corresponding location on the Term Sheet)
bear to the aggregate initial public offering price of the Common Shares as set
forth on such cover. The relative fault of the Company, on the one hand, and
the Underwriters, on the other hand, shall be determined by reference to, among
other things, whether any such untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact or any such
inaccurate or alleged inaccurate representation or warranty relates to
information supplied by the Company, on the one hand, or the Underwriters, on
the other hand, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in Section 8(c), any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The provisions set forth in Section 8(c) with
respect to notice of commencement of any action shall apply if a claim for
contribution is to be made under this Section 9; provided, however, that no
additional notice shall be required with respect to any action for which notice
has been given under Section 8(c) for purposes of indemnification.
The Company and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 9 were determined by pro rata
allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 9.
Notwithstanding the provisions of this Section 9, no Underwriter shall be
required to contribute any amount in excess of the underwriting commissions
received by such Underwriter in connection with the Common Shares underwritten
by it and distributed to the public. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 9 are several, and not joint, in proportion to their
respective underwriting commitments as set forth opposite their names in
Schedule A. For purposes of this Section 9, each officer and employee of an
- ----------
Underwriter and each person, if any, who controls an Underwriter within the
meaning of the Securities Act and the Exchange Act shall have the same rights to
contribution as such Underwriter, and each director of the Company, each officer
of the Company who signed the Registration Statement, and each person, if any,
who controls the Company within the meaning of the Securities Act and the
Exchange Act shall have the same rights to contribution as the Company.
SECTION 10. DEFAULT OF ONE OR MORE OF THE SEVERAL UNDERWRITERS. If, on
the First Closing Date or the Second Closing Date, as the case may be, any one
or more of the several Underwriters shall fail or refuse to purchase Common
Shares that it or they have agreed to purchase hereunder on such date, and the
aggregate number of Common Shares which such
23.
<PAGE>
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
does not exceed 10% of the aggregate number of the Common Shares to be purchased
on such date, the other Underwriters shall be obligated, severally, in the
proportions that the number of Firm Common Shares set forth opposite their
respective names on Schedule A bears to the aggregate number of Firm Common
----------
Shares set forth opposite the names of all such non-defaulting Underwriters, or
in such other proportions as may be specified by the Representatives with the
consent of the non-defaulting Underwriters, to purchase the Common Shares which
such defaulting Underwriter or Underwriters agreed but failed or refused to
purchase on such date. If, on the First Closing Date or the Second Closing
Date, as the case may be, any one or more of the Underwriters shall fail or
refuse to purchase Common Shares and the aggregate number of Common Shares with
respect to which such default occurs exceeds 10% of the aggregate number of
Common Shares to be purchased on such date, and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares are not
made within 48 hours after such default, this Agreement shall terminate without
liability of any party to any other party except that the provisions of Section
4, Section 6, Section 8 and Section 9 shall at all times be effective and shall
survive such termination. In any such case either the Representatives or the
Company shall have the right to postpone the First Closing Date or the Second
Closing Date, as the case may be, but in no event for longer than seven days in
order that the required changes, if any, to the Registration Statement and the
Prospectus or any other documents or arrangements may be effected.
As used in this Agreement, the term ``Underwriter'' shall be deemed to
include any person substituted for a defaulting Underwriter under this Section
10. Any action taken under this Section 10 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
SECTION 11. TERMINATION OF THIS AGREEMENT. Prior to the First Closing
Date this Agreement may be terminated by the Representatives by notice given to
the Company if at any time (i) trading or quotation in any of the Company's
securities shall have been suspended or limited by the Commission or by the
Nasdaq Stock Market, or trading in securities generally on either the Nasdaq
Stock Market or the New York Stock Exchange shall have been suspended or
limited, or minimum or maximum prices shall have been generally established on
any of such stock exchanges by the Commission or the NASD; (ii) a general
banking moratorium shall have been declared by any of federal, New York,
Delaware or California authorities; (iii) there shall have occurred any outbreak
or escalation of national or international hostilities or any crisis or
calamity, or any change in the United States or international financial markets,
or any substantial change or development involving a prospective substantial
change in United States or international political, financial or economic
conditions, as in the judgment of the Representatives is material and adverse
and makes it impracticable to market the Common Shares in the manner and on the
terms described in the Prospectus or to enforce contracts for the sale of
securities; (iv) in the judgment of the Representatives there shall have
occurred any Material Adverse Change; or (v) the Company shall have sustained a
loss by strike, fire, flood, earthquake, accident or other calamity of such
character as in the judgment of the Representatives may interfere
24.
<PAGE>
materially with the conduct of the business and operations of the Company
regardless of whether or not such loss shall have been insured. Any termination
pursuant to this Section 11 shall be without liability on the part of (a) the
Company to any Underwriter, except that the Company shall be obligated to
reimburse the expenses of the Representatives and the Underwriters pursuant to
Sections 4 and 6 hereof, (b) any Underwriter to the Company, or (c) of any party
hereto to any other party except that the provisions of Section 8 and Section 9
shall at all times be effective and shall survive such termination.
SECTION 12. REPRESENTATIONS AND INDEMNITIES TO SURVIVE DELIVERY. The
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers and of the several Underwriters set
forth in or made pursuant to this Agreement will remain in full force and
effect, regardless of any investigation made by or on behalf of any Underwriter
or the Company or any of its or their partners, officers or directors or any
controlling person, as the case may be, and will survive delivery of and payment
for the Common Shares sold hereunder and any termination of this Agreement.
SECTION 13. NOTICES. All communications hereunder shall be in writing
and shall be mailed, hand delivered or telecopied and confirmed to the parties
hereto as follows:
If to the Representatives:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5558
Attention: Richard A. Smith
with a copy to:
NationsBanc Montgomery Securities LLC
600 Montgomery Street
San Francisco, California 94111
Facsimile: (415) 249-5553
Attention: David A. Baylor, Esq.
If to the Company:
Asymetrix Learning Systems, Inc.
110-110th Avenue, N.E.
Bellvue, Washington 98004
Facsimile: (425) 637-1682
Attention: James Billmaier
25.
<PAGE>
Any party hereto may change the address for receipt of communications by giving
written notice to the others.
SECTION 14. SUCCESSORS. This Agreement will inure to the benefit of and
be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 10 hereof, and to the benefit of the employees, officers and
directors and controlling persons referred to in Section 8 and Section 9, and in
each case their respective successors, and personal representatives, and no
other person will have any right or obligation hereunder. The term
``successors'' shall not include any purchaser of the Common Shares as such from
any of the Underwriters merely by reason of such purchase.
SECTION 15. PARTIAL UNENFORCEABILITY. The invalidity or
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 16. GOVERNING LAW PROVISIONS. THIS AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK
APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED IN SUCH STATE.
(a) Consent to Jurisdiction. Any legal suit, action or proceeding
arising out of or based upon this Agreement or the transactions contemplated
hereby (``Related Proceedings'') may be instituted in the federal courts of the
United States of America located in the City and County of San Francisco or the
courts of the State of California in each case located in the City and County of
San Francisco (collectively, the ``Specified Courts''), and each party
irrevocably submits to the exclusive jurisdiction (except for proceedings
instituted in regard to the enforcement of a judgment of any such court (a
``Related Judgment''), as to which such jurisdiction is non-exclusive) of such
courts in any such suit, action or proceeding. Service of any process, summons,
notice or document by mail to such party's address set forth above shall be
effective service of process for any suit, action or other proceeding brought in
any such court. The parties irrevocably and unconditionally waive any objection
to the laying of venue of any suit, action or other proceeding in the Specified
Courts and irrevocably and unconditionally waive and agree not to plead or claim
in any such court that any such suit, action or other proceeding brought in any
such court has been brought in an inconvenient forum.
(b) Waiver of Immunity. With respect to any Related Proceeding, each
party irrevocably waives, to the fullest extent permitted by applicable law, all
immunity (whether on the basis of sovereignty or otherwise) from jurisdiction,
service of process, attachment (both before and after judgment) and execution to
which it might otherwise be entitled in the Specified Courts, and with respect
to any Related Judgment, each party waives any such immunity in the
26.
<PAGE>
Specified Courts or any other court of competent jurisdiction, and will not
raise or claim or cause to be pleaded any such immunity at or in respect of any
such Related Proceeding or Related Judgment, including, without limitation, any
immunity pursuant to the United States Foreign Sovereign Immunities Act of 1976,
as amended.
SECTION 17. GENERAL PROVISIONS. This Agreement constitutes the entire
agreement of the parties to this Agreement and supersedes all prior written or
oral and all contemporaneous oral agreements, understandings and negotiations
with respect to the subject matter hereof. This Agreement may be executed in
two or more counterparts, each one of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same instrument.
This Agreement may not be amended or modified unless in writing by all of the
parties hereto, and no condition herein (express or implied) may be waived
unless waived in writing by each party whom the condition is meant to benefit.
The Table of Contents and the Section headings herein are for the convenience of
the parties only and shall not affect the construction or interpretation of this
Agreement.
Each of the parties hereto acknowledges that it is a sophisticated business
person who was adequately represented by counsel during negotiations regarding
the provisions hereof, including, without limitation, the indemnification
provisions of Section 8 and the contribution provisions of Section 9, and is
fully informed regarding said provisions. Each of the parties hereto further
acknowledges that the provisions of Sections 8 and 9 hereto fairly allocate the
risks in light of the ability of the parties to investigate the Company, its
affairs and its business in order to assure that adequate disclosure has been
made in the Registration Statement, any preliminary prospectus and the
Prospectus (and any amendments and supplements thereto), as required by the
Securities Act and the Exchange Act.
* * * * *
27.
<PAGE>
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to the Company the enclosed copies hereof, whereupon this
instrument, along with all counterparts hereof, shall become a binding agreement
in accordance with its terms.
Very truly yours,
ASYMETRIX LEARNING SYSTEMS, INC.
By:___________________________________
James Billmaier
Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted by
the Representatives in San Francisco, California as of the date first above
written.
NATIONSBANC MONTGOMERY SECURITIES LLC
BANCAMERICA ROBERTSON STEPHENS
HAMBRECHT & QUIST LLC
Acting as Representatives of the
several Underwriters named in the
attached Schedule A.
By NATIONSBANC MONTGOMERY SECURITIES LLC
By:__________________________________________
28.
<PAGE>
SCHEDULE A
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF FIRM
COMMON SHARES
TO BE PURCHASED
<S> <C>
NationsBanc Montgomery Securities LLC.. [___]
BancAmerica Robertson Stephens......... [___]
Hambrecht & Quist LLC.................. [___]
Total............................. [___]
</TABLE>
1.
<PAGE>
EXHIBIT A
The final opinion in draft form should be attached as Exhibit A at the time this
Agreement is executed.
Opinion of counsel for the Company to be delivered pursuant to Section
5(e) of the Underwriting Agreement.
References to the Prospectus in this Exhibit A include any supplements
---------
thereto at the Closing Date.
(i) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Prospectus and to enter into and perform its obligations under the Underwriting
Agreement.
(iii) The Company is duly qualified as a foreign corporation to
transact business and is in good standing in the State of Washington and in each
other jurisdiction in which such qualification is required, whether by reason of
the ownership or leasing of property or the conduct of business, except for such
jurisdictions (other than the State of Washington) where the failure to so
qualify or to be in good standing would not, individually or in the aggregate,
result in a Material Adverse Change.
(iv) Each significant subsidiary (as defined in Rule 405 under the
Securities Act) has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the Prospectus and, to
the best knowledge of such counsel, is duly qualified as a foreign corporation
to transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except for such jurisdictions where the
failure to so qualify or to be in good standing would not, individually or in
the aggregate, result in a Material Adverse Change.
(v) All of the issued and outstanding capital stock of each such
significant subsidiary has been duly authorized and validly issued, is fully
paid and non-assessable and is owned by the Company, directly or through
subsidiaries, free and clear of any security interest, mortgage, pledge, lien,
encumbrance or, to the best knowledge of such counsel, any pending or threatened
claim.
2.
<PAGE>
(vi) The authorized, issued and outstanding capital stock of the
Company (including the Common Stock) conform to the descriptions thereof set
forth in the Prospectus. All of the outstanding shares of Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable and,
to the best of such counsel's knowledge, have been issued in compliance with the
registration and qualification requirements of federal and state securities
laws. The form of certificate used to evidence the Common Stock is in due and
proper form and complies with all applicable requirements of the charter and by-
laws of the Company and the General Corporation Law of the State of Delaware.
The description of the Company's stock option, stock bonus and other stock plans
or arrangements, and the options or other rights granted and exercised
thereunder, set forth in the Prospectus accurately and fairly presents the
information required to be shown with respect to such plans, arrangements,
options and rights.
(vii) No stockholder of the Company or any other person has any
preemptive right, right of first refusal or other similar right to subscribe for
or purchase securities of the Company arising (i) by operation of the charter or
by-laws of the Company or the General Corporation Law of the State of Delaware
or (ii) to the best knowledge of such counsel, otherwise.
(viii) The Underwriting Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of, the Company,
enforceable in accordance with its terms, except as rights to indemnification
thereunder may be limited by applicable law and except as the enforcement
thereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
The Common Shares to be purchased by the Underwriters from the Company
have been duly authorized for issuance and sale pursuant to the Underwriting
Agreement and, when issued and delivered by the Company pursuant to the
Underwriting Agreement against payment of the consideration set forth therein,
will be validly issued, fully paid and nonassessable.
The Registration Statement and the Rule 462(b) Registration Statement,
if any, have each been declared effective by the Commission under the Securities
Act. To the best knowledge of such counsel, no stop order suspending the
effectiveness of either of the Registration Statement or the Rule 462(b)
Registration Statement, if any, has been issued under the Securities Act and no
proceedings for such purpose have been instituted or are pending or are
contemplated or threatened by the Commission. Any required filing of the
Prospectus and any supplement thereto pursuant to Rule 424(b) under the
Securities Act has been made in the manner and within the time period required
by such Rule 424(b).
The Registration Statement, including any Rule 462(b) Registration
Statement, the Prospectus, and each amendment or supplement to the Registration
Statement and the Prospectus as of their respective effective or issue dates
(other than the financial statements and supporting schedules included therein
or in exhibits to or excluded from the Registration Statement, as to
3.
<PAGE>
which no opinion need be rendered) comply as to form in all material respects
with the applicable requirements of the Securities Act.
The Common Shares have been approved for listing on the Nasdaq
National Market.
The statements (i) in the Prospectus under the captions ``Risk
Factors-Intellectual Property; Litigation,''``Risk Factors-Certain Anti-Takeover
Provisions,''``Risk Factors-Shares Eligible For Future Sale,'' ``Description of
Capital Stock,'' ``Management's Discussion and Analysis and Results of
Operations-Liquidity and Capital Resources,'' ``Business-Proprietary Rights,''
``Business-Legal Proceedings,'' ``Certain Transactions,'' ``Description of
Capital Stock,'' ``Shares Eligible For Future Sale,'' and (ii) in Item 14 and
Item 15 of the Registration Statement, insofar as such statements constitute
matters of law, summaries of legal matters, the Company's charter or by-law
provisions, documents or legal proceedings, or legal conclusions, have been
reviewed by such counsel and fairly present and summarize, in all material
respects, the matters referred to therein.
To the best knowledge of such counsel, there are no legal or
governmental actions, suits or proceedings pending or threatened which are
required to be disclosed in the Registration Statement, other than those
disclosed therein.
To the best knowledge of such counsel, there are no Existing
Instruments required to be described or referred to in the Registration
Statement or to be filed as exhibits thereto other than those described or
referred to therein or filed or incorporated by reference as exhibits thereto;
and the descriptions thereof and references thereto are correct in all material
respects.
No consent, approval, authorization or other order of, or registration
or filing with, any court or other governmental authority or agency, is required
for the Company's execution, delivery and performance of the Underwriting
Agreement and consummation of the transactions contemplated thereby and by the
Prospectus, except as required under the Securities Act, applicable state
securities or blue sky laws and from the NASD.
The execution and delivery of the Underwriting Agreement by the
Company and the performance by the Company of its obligations thereunder (other
than performance by the Company of its obligations under the indemnification
section of the Underwriting Agreement, as to which no opinion need be rendered)
(i) have been duly authorized by all necessary corporate action on the part of
the Company; (ii) will not result in any violation of the provisions of the
charter or by-laws of the Company or any subsidiary; (iii) to the best knowledge
of such counsel, any other material Existing Instrument; or (iv) to the best
knowledge of such counsel, will not result in any violation of any law,
administrative regulation or administrative or court decree applicable to the
Company or any subsidiary.
4.
<PAGE>
The Company is not, and after receipt of payment for the Common Shares
will not be, an ``investment company'' within the meaning of Investment Company
Act.
Except as disclosed in the Prospectus under the caption ``Shares
Eligible for Future Sale'', to the best knowledge of such counsel, there are no
persons with registration or other similar rights to have any equity or debt
securities registered for sale under the Registration Statement or included in
the offering contemplated by the Underwriting Agreement, except for such rights
as have been duly waived.
To the best knowledge of such counsel, neither the Company nor any
subsidiary is in violation of its charter or by-laws or any law, administrative
regulation or administrative or court decree applicable to the Company or any
subsidiary or is in Default in the performance or observance of any obligation,
agreement, covenant or condition contained in any material Existing Instrument,
except in each such case for such violations or Defaults as would not,
individually or in the aggregate, result in a Material Adverse Change.
In addition, such counsel shall state that they have participated in
conferences with officers and other representatives of the Company,
representatives of the independent public or certified public accountants for
the Company and with representatives of the Underwriters at which the contents
of the Registration Statement and the Prospectus, and any supplements or
amendments thereto, and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Registration Statement or the Prospectus (other than as specified above), and
any supplements or amendments thereto, on the basis of the foregoing, nothing
has come to their attention which would lead them to believe that either the
Registration Statement or any amendments thereto, at the time the Registration
Statement or such amendments became effective, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading or that the
Prospectus, as of its date or at the First Closing Date or the Second Closing
Date, as the case may be, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need express no belief as to
the financial statements or schedules or other financial or statistical data
derived therefrom, included in the Registration Statement or the Prospectus or
any amendments or supplements thereto).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the General
Corporation Law of the State of Delaware or the federal law of the United
States, to the extent they deem proper and specified in such opinion, upon the
opinion (which shall be dated the First Closing Date or the Second Closing Date,
as the case may be, shall be satisfactory in form and substance to the
Underwriters, shall expressly state that the Underwriters may rely on such
opinion as if it were addressed to them and shall be furnished to the
Representatives) of other counsel of good standing whom they
5.
<PAGE>
believe to be reliable and who are satisfactory to counsel for the Underwriters;
provided, however, that such counsel shall further state that they believe that
they and the Underwriters are justified in relying upon such opinion of other
counsel, and (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and public officials.
6.
<PAGE>
EXHIBIT B
(Attach copy of Lock-Up Agreement)
<PAGE>
SCHEDULE B
LIST OF STOCKHOLDERS WITH EXECUTED LOCK-UP AGREEMENTS
<PAGE>
EXHIBIT 2.01
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made effective as of June 24, 1997, by and among Asymetrix
---------
Corporation, a Washington corporation ("Asymetrix"), ASX Merger Corporation, a
---------
Delaware corporation and wholly-owned subsidiary of Asymetrix ("Sub") and
---
Aimtech Corporation, a Delaware corporation ("Aimtech"), and supersedes in its
-------
entirety the Agreement and Plan of Reorganization previously executed by the
parties.
RECITALS
A. The parties intend that, subject to the terms and conditions of this
Agreement, Sub will merge with and into Aimtech in a reverse triangular merger,
with Aimtech to be the surviving corporation of the Merger, all pursuant to the
terms and conditions of this Agreement and a Certificate of Merger in the form
of Exhibit A attached hereto (the "Certificate of Merger") and the applicable
--------- ---------------------
provisions of the law of the State of Delaware. Upon the effectiveness of the
Merger, all of the outstanding capital stock of Aimtech will be converted into
shares of Asymetrix Series 4 Class B Stock, as provided in this Agreement and
the Certificate of Merger.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms have
the meanings set forth below:
1.1 The "Merger" means the statutory merger of Sub with and into Aimtech
------
in a reverse triangular merger to be effected pursuant to this Agreement and the
Certificate of Merger.
1.2 "Effective Time" means the time and date on which the Certificate of
--------------
Merger is filed with the Delaware Secretary of State pursuant to Section 252 of
the Delaware General Corporation Law and the Merger becomes effective under
Delaware law.
1.3 "Aimtech Common Stock" means the Common Stock of Aimtech, $0.01 par
--------------------
value per share.
1.4 "Aimtech Options" means options to purchase shares of Aimtech Common
---------------
Stock issued under Aimtech's Amended and Restated 1989 Stock Incentive Plan and
outstanding immediately prior to the Effective Time.
1.5 "Former Aimtech Stockholders" means any holder of shares of Aimtech
---------------------------
Common Stock that are issued and outstanding immediately prior to the Effective
Time (other than Dissenting Shares).
1.6 "Asymetrix Merger Stock" means the Series 4 Class B Stock of
----------------------
Asymetrix, $0.01 par value per share having the rights, preferences and
limitations set forth in the Statement of
<PAGE>
Designation (as defined below), and any Asymetrix Common Stock into which such
Series 4 Class B Stock may be converted pursuant to the terms in the Statement
of Designation.
1.7 "Asymetrix Options" means options exercisable for Asymetrix Merger
-----------------
Stock issued in the Merger.
1.8 "Stated Value Per Share" means $3.47 per share.
----------------------
1.9 "Statement of Designation" means the Statement of Designation of
------------------------
Rights, Preferences and Limitations of Series 4 Class B Stock in the form
attached hereto as Exhibit 1.9.
-----------
Other capitalized terms defined elsewhere in this Agreement and not defined
in this Section 1 have the meanings assigned to such terms in this Agreement.
2. PLAN OF REORGANIZATION
2.1 The Merger. Asymetrix shall cause the Certificate of Merger to be
----------
filed with the Secretary of State of the State of Delaware as soon as
practicable after the Stockholders Meeting (as defined in Section 5.4 hereto).
At the Effective Time, Sub will be merged with and into Aimtech pursuant to this
Agreement and the Certificate of Merger and in accordance with applicable
provisions of the laws of the State of Delaware as follows:
2.1.1 Conversion of Shares. Each share of Aimtech Common Stock
--------------------
issued and outstanding immediately prior to the Effective Time, other than
shares, if any, for which dissenters rights have been or will be perfected in
compliance with applicable law, will by virtue of the Merger and at the
Effective Time, and without further action on the part of any holder thereof, be
converted into the right to receive such number of shares (the "Applicable
----------
Fraction") of Asymetrix Merger Stock as is equal to 2,111,795 shares divided by
- --------
the total number of shares of Aimtech Common Stock issued and outstanding
immediately prior to the Effective Time (including shares of Common Stock issued
upon exercise of Aimtech Options immediately prior to the Effective Time). If
the Aimtech product line known as "Jamba" is sold at any time from the date of
this Agreement to and including August 31, 1997 Asymetrix shall pay to the
Former Aimtech Stockholders an aggregate amount equal to 50% of the excess of
(i) the total net proceeds from the sale of the Jamba product line (after
deduction of transaction costs, including, without limitation, brokers' or
finders' fees, legal or accounting fees and expenses), with stock or other non-
cash assets valued at their then fair market value, over (ii) $2,000,000.
2.1.2 Adjustments for Capital Changes. If, prior to the Effective
-------------------------------
Time, Asymetrix or Aimtech recapitalizes through a split-up of its outstanding
shares into a greater number, or a combination of its outstanding shares into a
lesser number, reorganizes, reclassifies or otherwise changes its outstanding
shares into the same or a different number of shares of other classes (other
than through a split-up or combination of shares provided for in the previous
clause), or declares a dividend on its outstanding shares payable in shares,
securities convertible into shares or other property, the consideration into
which the shares of Aimtech Common Stock are to be converted will be adjusted
appropriately.
-2-
<PAGE>
2.1.3 Dissenting Shares. Holders of shares of Aimtech Common Stock
-----------------
who have complied with all requirements for perfecting stockholders' rights of
appraisal, as set forth in Section 262 of the Delaware Business Corporation Law
("Delaware Law"), shall be entitled to their rights under Delaware Law with
------------
respect to such shares ("Dissenting Shares").
-----------------
2.2 Fractional Shares. No fractional shares of Asymetrix Merger Stock
-----------------
will be issued in connection with the Merger, but in lieu thereof, the holder of
Aimtech Common Stock who would otherwise be entitled to receive a fraction of a
share of Asymetrix Merger Stock will receive from Asymetrix, promptly after the
Effective Time, an amount of cash equal to the Stated Value Per Share,
multiplied by the fraction of a share to which such holder would otherwise be
entitled. Such cash payment in lieu of fractional share interests is merely
intended to provide a mechanism to avoid fractional shares.
2.3 Aimtech Options; Other Securities. No shares of Asymetrix Merger
---------------------------------
Stock (or any other securities of Asymetrix) shall be issued or issable with
respect to options to purchase Aimtech Common Stock or with respect to any other
equity securities of Aimtech (including warrants), other than Aimtech Common
Stock.
2.4 Escrow Agreement. Upon the issuance of shares of Asymetrix Merger
----------------
Stock to the Former Aimtech Stockholders by virtue of the Merger, Asymetrix will
withhold an aggregate total number of shares of Asymetrix Merger Stock from the
shares of such stock otherwise issuable to the Former Aimtech Stockholders in
accordance with Section 2.1 that is equal to 441,705 shares of Asymetrix Merger
Stock, and deliver such withheld shares (the "Escrow Shares") to Commerce Bank,
-------------
as escrow agent (the "Escrow Agent"), to be held by Escrow Agent as collateral
------------
for the Former Aimtech Stockholders' indemnification obligations under Section
11.2 and pursuant to the provisions of an escrow agreement (the "Escrow
------
Agreement") in substantially the form of Exhibit 2.4. The Escrow Shares will be
- --------- -----------
represented by duly authorized stock certificates issued in the name of the
respective Former Aimtech Stockholders. Subject to the terms and conditions of
the Escrow Agreement, the Escrow Shares will be held by the Escrow Agent until
the second anniversary of the Closing Date. In the event that the Merger is
approved by the holders of Aimtech Common Stock (the "Aimtech Stockholders") as
--------------------
provided herein, the Former Aimtech Stockholders shall, without any further act
of any Former Aimtech Stockholders, be deemed to have consented to and approved
(i) the use of the Escrow Shares as collateral for the Former Aimtech
Stockholders' indemnification obligations under Section 11.2 in the manner set
forth in the Escrow Agreement, (ii) the authorization of a majority in interest
of Former Aimtech Stockholders to act for and on behalf of each Former Aimtech
Stockholder, and the taking by such majority in interest of Former Aimtech
Stockholders of any and all actions and the making of any decisions required or
permitted to be taken under the Escrow Agreement (including, without limitation,
the exercise of the power to: (1) authorize delivery to Asymetrix of the Escrow
Shares in satisfaction of claims by Asymetrix; (2) agree to, negotiate, enter
into settlements and compromises of and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to such claims; (3)
resolve any claim made pursuant to Section 11.2; and (4) and take all actions
necessary in the judgment of such majority in interest of Former Aimtech
Stockholders for the accomplishment of the foregoing), and (iii) all of the
other terms, conditions and limitations in the Escrow Agreement.
-3-
<PAGE>
2.5 Effects of the Merger. At the Effective Time: (a) the separate
---------------------
existence of Sub will cease and Sub will be merged with and into Aimtech, and
Aimtech will be the surviving corporation, pursuant to the terms of the
Certificate of Merger; (b) the Certificate of Incorporation and Bylaws of
Aimtech, will become the Certificate of Incorporation and Bylaws of the
surviving corporation; (c) each share of Sub capital stock outstanding
immediately prior to the Effective Time will continue to be an identical
outstanding share of the surviving corporation; (d) the directors and officers
of Asymetrix immediately prior to the Effective Time (together with the Board
Designee (as defined in the Voting Agreement)) will become the directors and
officers of the surviving corporation; (e) each share of Aimtech Common Stock
outstanding immediately prior to the Effective Time will be converted into the
right to receive that number of shares of Asymetrix Merger Stock as provided in
Section 2.1; (f) each Aimtech Option will be canceled; and (g) the Merger will,
from and after the Effective Time, have all of the effects provided by
applicable law.
2.6 Further Assurances. Aimtech agrees that if, at any time after the
------------------
Effective Time, Asymetrix considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest, perfect
or confirm in Asymetrix title to any property or rights of Aimtech, Asymetrix
and its officers and directors may execute and deliver all such proper deeds,
assignments and assurances and do all other things necessary or desirable to
vest, perfect or confirm title to such property or rights in Asymetrix and
otherwise carry out the purpose of this Agreement, in the name of Aimtech or
otherwise.
2.7 Securities Law Compliance. Aimtech will deliver the Notice Materials
-------------------------
(as defined in Section 3.19) to its stockholders and Asymetrix will issue the
shares of Asymetrix Merger Stock in the Merger pursuant to the "private
placement" exemption from registration under Section 4(2) of, and Rule 506 of
Regulation D promulgated under, the Securities Act of 1933, as amended (the
"Securities Act"), and the shares received by the Former Aimtech Stockholders in
--------------
the Merger will therefore be restricted securities within the meaning of Rule
144 of the Securities Act, and certificates evidencing such shares will bear a
restrictive legend evidencing that fact. Asymetrix shall also take any action
that is required to be taken under any applicable state securities or Blue Sky
laws in connection with the issuance of Asymetrix Merger Stock in the Merger.
Aimtech shall furnish to Asymetrix all information known to Aimtech (or
reasonably ascertainable by Aimtech) concerning Aimtech and the Former Aimtech
Stockholders, as may be reasonably requested in connection with any action
contemplated by this Section.
2.8 Purchase Accounting. The parties intend that the Merger be treated
-------------------
as a purchase for accounting purposes.
2.9 Market Stand-Off. In the event that the Merger is approved by the
----------------
Aimtech Stockholders as provided herein, any Former Aimtech Stockholder shall,
without any further act of such Former Aimtech Stockholder, be deemed to have
agreed that they will not, to the extent requested by Asymetrix or an
underwriter of securities of Asymetrix, sell or otherwise transfer or dispose of
any shares of capital stock of Asymetrix then owned by such Former Aimtech
Stockholder (other than to donees or partners of the Former Aimtech Stockholder
who agree to
-4-
<PAGE>
be similarly bound) for up to one hundred eighty (180) days following the
effective date of any registration statement (other than a registration
statement relating to any employee benefit plan or to any acquisition, merger,
consolidation or other corporate reorganization) of Asymetrix filed under the
Securities Act (whether filed pursuant to the provisions of this Agreement or
otherwise); provided, however, that:
-------- -------
(a) such agreement shall not apply to shares of capital stock of
Asymetrix sold pursuant to such registration statement;
(b) all executive officers and directors of Asymetrix then holding
Asymetrix Common Stock enter into a similar agreement, and any other Asymetrix
stockholder owning at least as many shares of Asymetrix Common Stock as such
Former Aimtech Stockholder is also requested by Asymetrix or the underwriter to
enter into a similar agreement; and
(c) in an offering other than Asymetrix's initial public offering,
such agreement shall apply only for a period of 90 days from the effective date
of the registration statement filed under the Securities Act with respect
thereto.
In order to enforce the foregoing covenant, Asymetrix shall have the right
to place restrictive legends on the certificates representing the shares subject
to this Section and to impose stop transfer instructions with respect to the
shares of stock of each Former Aimtech Stockholder (and the shares or securities
of every other person subject to the foregoing restriction) until the end of
such period.
3. REPRESENTATIONS AND WARRANTIES OF AIMTECH
Aimtech hereby represents and warrants as follows, except as set forth in
the Aimtech Schedule of Exceptions (in numbered paragraphs that correspond to
the Section numbers below) simultaneously delivered to Asymetrix as Exhibit 3.0
-----------
with the execution of this Agreement:
3.1 Organization, Good Standing and Qualification. Aimtech is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware, has the corporate power and authority to own, operate
and lease its properties and to carry on its business as now conducted and as
proposed to be conducted, and is qualified as a foreign corporation in the
jurisdictions listed in Schedule 3.1 of the Aimtech Schedule of Exceptions.
------------
Aimtech is qualified as a foreign corporation in each jurisdiction in which a
failure to be so qualified could reasonably be expected to have a material
adverse effect on the business, operations, financial condition or prospects of
Aimtech (for purposes of this Section 3, a "Material Adverse Effect").
-----------------------
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 Aimtech has the corporate right, power, legal capacity and
authority to enter into and perform its obligations under this Agreement, and
all agreements to which Aimtech is or will be a party that are required to be
executed at the Closing pursuant to this Agreement (the "Aimtech Ancillary
-----------------
Agreements"). The execution, delivery and performance of
- ----------
-5-
<PAGE>
this Agreement and the Aimtech Ancillary Agreements have been duly and validly
approved and authorized by Aimtech's Board of Directors.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Aimtech to enter into, and to perform its
obligations under, this Agreement and the Aimtech Ancillary Agreements, except
for (a) the filing of the Certificate of Merger with the Delaware Secretary of
State, and the filing of appropriate documents with the relevant authorities of
other states in which Aimtech is qualified to do business, if any, (b) such
filings as may be required to comply with federal and state securities laws, and
(c) the approval of the Aimtech Stockholders of the transactions contemplated
hereby.
3.2.3 This Agreement and the Aimtech Ancillary Agreements are, or
when executed by Aimtech will be, valid and binding obligations of Aimtech
enforceable in accordance with their respective terms, except as to the effect,
if any, of (a) applicable bankruptcy and other similar laws affecting the rights
of creditors generally, (b) rules of law governing specific performance,
injunctive relief and other equitable remedies, and (c) the enforceability of
provisions requiring indemnification in connection with the offering, issuance
or sale of securities; provided, however, that the Certificate of Merger will
not be effective until the Effective Time.
3.3 Capitalization. As of the date hereof, the authorized capital stock
--------------
of Aimtech consists of 20,000,000 shares of Aimtech Common Stock, of which
7,577,434 shares are issued and outstanding and 5,000,000 shares of Preferred
Stock, $0.01 par value per share ("Aimtech Preferred Stock"), none of which is
issued and outstanding. Immediately before the Effective Time, Aimtech may file
with the Delaware Secretary of State a Certificate of Amendment to its
Certificate of Incorporation that would, among other things, eliminate the
authorization of Aimtech to issue shares of Aimtech Preferred Stock. An
aggregate of 2,000,000 shares of Aimtech Common Stock are reserved and
authorized for issuance pursuant to Aimtech's 1989 Stock Incentive Plan, of
which options to purchase 872,416 shares of Aimtech Common Stock are
outstanding. All issued and outstanding shares of Aimtech Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable, are
not subject to any right of rescission, and have been offered, issued, sold and
delivered by Aimtech in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws. Schedule 3.3 of the Aimtech Schedule of Exceptions sets
------------
forth a true, correct and complete list of all holders of Aimtech Common Stock
and Aimtech Options, the number of shares and options held by each holder. The
address of each holder as of the Effective Time shall be provided by Aimtech to
Asymetrix at the Closing. Except as set forth in this Section, there are no
options, warrants, calls, commitments, conversion privileges or preemptive or
other rights or agreements outstanding to purchase or otherwise acquire any of
Aimtech's authorized but unissued capital stock or any securities convertible
into or exchangeable for shares of Aimtech capital stock or obligating Aimtech
to grant, extend, or enter into any such option, warrant, call, commitment,
conversion privilege or other right or agreement, and there is no liability for
dividends accrued but unpaid. There are no voting agreements, rights of first
refusal or other restrictions (other than normal restrictions on transfer under
applicable federal and state securities laws) applicable to any of Aimtech's
outstanding
-6-
<PAGE>
securities. Aimtech is not under any obligation to register under the Securities
Act any of its presently outstanding securities or any securities that may be
subsequently issued. All holders of Aimtech Common Stock reside in the States of
New Hampshire, Massachusetts, New York, Maine, Maryland, California, Illinois,
Connecticut, District of Columbia, Colorado, New Mexico, Virginia, Oregon, Ohio
and New Jersey and the countries of Taiwan, Singapore Japan and the Bahamas.
3.4 Subsidiaries. Aimtech does not presently own or control, directly or
------------
indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
3.5 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement nor any Aimtech Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach or violation of, or cause an acceleration or amendment of
any obligation under, (a) any provision of the Certificate of Incorporation or
Bylaws of Aimtech, as currently in effect, (b) in any material respect, any
Material Agreement (as defined in Section 3.11) to which Aimtech is a party or
by which Aimtech or its assets or properties are bound, or (c) to the knowledge
of Aimtech, any federal, state, local or foreign judgment, writ, decree, order,
statute, rule or regulation applicable to Aimtech or its assets or properties,
in each case, such that the conflict, termination, breach, acceleration or
amendment would have a Material Adverse Effect.
3.6 Litigation. There is no action, proceeding, claim or investigation
----------
pending against Aimtech before any federal, state, municipal, foreign or other
court or administrative agency, department, board or instrumentality that, if
concluded adversely to Aimtech, would have a Material Adverse Effect, and, to
the best of Aimtech's knowledge, no such action, proceeding, claim or
investigation has been threatened. There is, to the best of Aimtech's
knowledge, no reasonable basis for any stockholder or former stockholder of
Aimtech, or any other person, firm, corporation or entity, to assert a claim
against Aimtech, Sub or Asymetrix based upon: (a) ownership or rights to
ownership of any shares of Aimtech Common Stock, (b) any rights as or to become
a holder of securities of Aimtech, including any option or preemptive rights or
rights to notice or to vote, or (c) any rights under any agreement among Aimtech
and any of its stockholders or former stockholders or option holders or former
option holders.
3.7 Taxes. For purposes of this Section 3.7, the terms "tax" and "taxes"
----- --- -----
include all federal, state, local and foreign income, gains, franchise, excise,
property, sales, use, employment, license, payroll, occupation, recording,
value-added or transfer taxes, governmental charges, fees, levies or assessments
(whether payable directly or by withholding), and, with respect to such taxes,
any estimated taxes, interest, penalties, additions to tax and interest on any
such penalties and additions to tax. For purposes of this Section 3.7, the
terms "Return" and "Returns" include all federal, state, local and foreign tax
------ -------
returns, estimates, information statements and reports required to be filed by
Aimtech with respect to its income, assets or operations.
-7-
<PAGE>
3.7.1 Aimtech has or will have filed all Returns for tax periods
ending on or before the Effective Time, other than where a failure to file a
return did not or would not have a Material Adverse Effect. All such Returns
that have been filed were (as filed or after timely amendment) true, correct and
complete in all material respects. Aimtech has provided or made available to
Asymetrix copies of all material Returns actually filed by Aimtech during the
three-year period ending on the date hereof.
3.7.2 Aimtech has paid or deposited in full all taxes due and owing
or shown to be due on the Returns filed by Aimtech (including required estimated
tax payments with respect thereto), except where a failure to pay a tax in full
did not or would not have a Material Adverse Effect. Aimtech has established a
proper and adequate accrual or reserve on the Aimtech Financial Statements (as
defined in below) for all taxes not yet due and owing, whether or not shown or
required to be shown on any Return, except where a failure to establish such an
accrual or reserve did not or would not have a Material Adverse Effect.
3.7.3 Aimtech is not aware of any pending or threatened claim or
assessment with respect to any deficiencies for any tax in writing against
Aimtech by any taxing authority. Aimtech has not executed any waiver of any
statute of limitations relating to taxes or any extension of the period for the
assessment or collection of any tax (other than extensions which have expired by
the Effective Time). Aimtech has not received any written notification, and is
not otherwise aware, that any material issues are currently under audit,
examination or review by any taxing authority regarding Aimtech.
3.7.4 There are no material liens, pledges, charges, claims, security
interests or other encumbrances covering the assets of Aimtech and relating or
attributable to taxes, other than for taxes not yet due and payable and others
that do not have a Material Adverse Effect.
3.7.5 There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any current or
former employee of Aimtech that, individually or collectively, could give rise
to the payment of any amount with respect to which a deduction would be
disallowed under Sections 280G or 162(m) of the Internal Revenue Code of 1986,
as amended (the "Code").
3.7.6 Aimtech is not a party to a tax sharing or tax allocation
agreement, and Aimtech does not owe any amount under any such agreement.
3.7.7 Aimtech is not and has at no time been a "United States real
property holding corporation" within the meaning of Section 897(c) of the Code.
3.7.8 Aimtech has not filed any consent agreement under Section
341(f) of the Code and has not agreed to have Section 341(f)(2) of the Code
apply to any disposition of a "subsection (f) asset" (as defined in Section
341(f)(4) of the Code) owned by Aimtech.
-8-
<PAGE>
3.7.9 None of Aimtech's assets constitute "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
3.8 Aimtech Financial Statements. Aimtech has delivered to Asymetrix as
----------------------------
Schedule 3.8 of the Aimtech Schedule of Exceptions Aimtech's (a) audited balance
- ------------
sheet as of December 31, 1996 (the "Aimtech 1996 Balance Sheet") and income
--------------------------
statement and statement of cash flows for the 12 month period then ended
(collectively, the "Aimtech 1996 Financial Statements"), and (b) balance sheet
---------------------------------
as of March 31, 1997 (the "Aimtech March 31 Balance Sheet") and income statement
------------------------------
and statement of cash flows for the three month period then ended (collectively,
the "Aimtech March Financial Statements") (the Aimtech 1996 Financial Statements
----------------------------------
and the Aimtech March Financial Statements are collectively referred to herein
as the "Aimtech Financial Statements"). The Aimtech Financial Statements (a) are
----------------------------
in accordance with the books and records of Aimtech, (b) fairly present the
financial condition of Aimtech at the dates therein indicated and the results of
operations for the periods therein specified, and (c) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, subject, in the case of the Aimtech March Financial Statements, to normal
recurring year-end adjustments and the absence of any notes thereto. Aimtech has
no debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against or disclosed in the Aimtech Financial Statements, except for
those that may have been incurred after the date of the Aimtech Financial
Statements in the ordinary course of its business, consistent with past practice
and that are not material in amount either individually or collectively.
3.9 Title to Properties. Aimtech has good and marketable title to all of
-------------------
its tangible assets as shown on the Aimtech March 31 Balance Sheet, free and
clear of all liens, charges, restrictions or encumbrances, other than for taxes
not yet due and payable and others that do not have a Material Adverse Effect.
All machinery and equipment included in such properties is in good condition and
repair, normal wear and tear excepted, and all leases of real or personal
property to which Aimtech is a party are fully effective. Aimtech is not, to
its knowledge, in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable to
the operation of owned or leased properties (the violation of which would have a
Material Adverse Effect), and has not received any notice of such violation with
which it has not complied or had waived.
3.10 Absence of Certain Changes. Since March 31, 1997, other than actions
--------------------------
required by this Agreement (including, without limitation, the incurrence of
legal and accounting fees and expenses in connection therewith), there has not
been with respect to Aimtech:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of Aimtech which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or, to the knowledge of Aimtech, will have a
Material Adverse Effect (other than changes arising from the operation, at a
loss, of the business of Aimtech in the ordinary course);
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(b) any contingent liability incurred by Aimtech as guarantor, surety
or otherwise with respect to the obligations of others, which contingent
liability is in excess of $10,000 individually or $25,000 in the aggregate;
(c) any mortgage, encumbrance or lien placed on any of the properties
of Aimtech, which mortgage, encumbrance or lien is in excess of $10,000
individually or $25,000 in the aggregate;
(d) any obligation or liability incurred thereby other than
obligations and liabilities incurred in the ordinary course of business, which
obligation or liability is in excess of $10,000 individually or $25,000 in the
aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, other than in the
ordinary course, of any of the properties or assets of Aimtech, which purchase,
sale, other disposition or other arrangement is in excess of $10,000
individually or $25,000 in the aggregate;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of
Aimtech, any split, combination or recapitalization of the capital stock of
Aimtech or any direct or indirect redemption, purchase or other acquisition of
the capital stock of Aimtech;
(h) any labor dispute or claim of unfair labor practices or, other
than changes in the ordinary course of business, consistent with past practice,
any change in the compensation payable or to become payable to any of Aimtech's
officers, employees or agents, or any bonus payment or arrangement made to or
with any of such officers, employees or agents;
(i) any declaration or payment of an extraordinary dividend, within
the meaning of Section 1059(c) of the Code;
(j) any payment or discharge of a lien or liability thereof which
lien was not either shown on the Aimtech March 31 Balance Sheet or incurred in
the ordinary course of business thereafter; or
(k) any material transaction with any of its officers, directors,
employees or stockholders or any entity controlled by any of such individuals.
3.11 Material Agreements, Contracts and Commitments. Except as set forth
----------------------------------------------
on Schedule 3.11 of the Aimtech Schedule of Exceptions and other than this
-------------
Agreement and the Aimtech Ancillary Agreements, Aimtech is not on the date
hereof a party or subject to any oral or written contracts, obligations,
commitments, plans, leases, instruments, arrangements or
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licenses which are material to the business of Aimtech (each a "Material
--------
Agreement"), including, but not limited to any:
- ---------
(a) Contract, commitment, letter contract or purchase order providing
for payments by or to Aimtech in an aggregate amount of (1) $50,000 or more in
the ordinary course of business to any one vendor; or (2) $25,000 or more not in
the ordinary course of business to any one vendor;
(b) License agreement as licensor or licensee (except for standard
non-exclusive hardware and software licenses granted to end-user customers in
the ordinary course of business the current form of which has been provided to
Asymetrix's counsel), but in all events including site licenses for products
with initial year fees in excess of $50,000 and each agreement that provides for
either the delivery of source code to the licensee or escrow of such source code
for the benefit of such licensee and including any Aimtech IP Rights Agreement
(as defined in Section 3.12);
(c) Agreement for the lease of real or personal property involving
payments by or to Aimtech in an aggregate amount of $25,000 or more;
(d) Joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons;
(e) Written dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for the
ongoing distribution of Aimtech's products;
(f) Instrument evidencing or related in any way to indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business, and except as
disclosed in the Aimtech Financial Statements;
(g) Contract containing covenants purporting to limit Aimtech's
freedom to compete in any line of business in any geographic area; or
(h) Stock redemption or purchase agreement yet to be performed.
All Material Agreements constitute valid and enforceable obligations
of the parties thereto (except as to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (iii) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of
securities), and are in full force and effect. Aimtech is not, nor, to the best
knowledge of Aimtech, is any other party thereto, in breach or default in any
material respect under the terms of any such Material Agreement. A copy of each
Material Agreement has been delivered or made available to
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Asymetrix's counsel. Aimtech does not have any material liability for
renegotiation of government contracts or subcontracts, if any.
3.12 Intellectual Property. Aimtech owns all right, title or interest in,
---------------------
or has the rights to use, sell or license, all Intellectual Property Rights (as
defined below) necessary or required for the conduct of, or used in, its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "Aimtech IP Rights") and such rights
-----------------
to use, sell or license are reasonably sufficient for the conduct of its
business as presently conducted. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any Aimtech IP Right or materially impair the right of Aimtech to
use, sell or license any Aimtech IP Right or portion thereof. There are no
royalties, honoraria, fees or other payments payable by Aimtech to any person by
reason of the ownership, use, license, sale or disposition of the Aimtech IP
Rights. Except for matters which would not have a Material Adverse Effect,
neither the manufacture, marketing, license, sale or intended use of any product
currently licensed or sold by Aimtech or currently under development by Aimtech
violates any license or agreement between Aimtech and any third party or
infringes any Intellectual Property Right of any other party; and, except for
matters which would not have a Material Adverse Effect, there is no pending or,
to the best knowledge of threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any Aimtech IP Right;
nor, to the best knowledge of Aimtech without any independent investigation
thereof, is there any basis for any such claim; nor has Aimtech received any
notice asserting that any Aimtech IP Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the best knowledge of Aimtech, is there any basis for any such
assertion. Aimtech has taken all steps that it believes are reasonable and
practicable to safeguard and maintain the secrecy and confidentiality of, and
its proprietary rights in, all material Aimtech IP Rights. All past and present
officers, employees and consultants of Aimtech have executed and delivered to
Aimtech an agreement regarding the protection of proprietary information and the
assignment to Aimtech of all Intellectual Property Rights arising from the
services performed for Aimtech by such persons, copies of the form of all such
agreements have been delivered or made available to Asymetrix, and Aimtech is
not using any Intellectual Property Rights of any past or present officers,
employees or consultants. Schedule 3.12 of the Aimtech Schedule of Exceptions
-------------
contains a list of all applications, registrations, filings and other formal
actions made or taken pursuant to federal, state and foreign laws by Aimtech to
perfect or protect its interest in Aimtech IP Rights, including, without
limitation, all patents, patent applications, copyrights, copyright
registrations, trademarks, trademark applications and service marks and all
Aimtech IP Rights Agreements (except for object code end-user licenses granted
to end-users in the ordinary course of business that permit use of software
products without a right to modify, distribute or sublicense the same). As used
herein, the term "Intellectual Property Rights" shall mean all intellectual
----------------------------
property rights in any jurisdiction in the world, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyright, copyright
registrations, licenses, know-how, trade secrets, customer lists, proprietary
processes, formulae and other rights to Software. The term "Software" shall mean
--------
all source and
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object code, algorithms, architecture, structure, display screens, layouts,
inventions, development tools and all documentation and media constituting,
describing or relating to the above, including, without limitation, manuals,
memoranda and records. The term "Aimtech IP Rights Agreement" shall mean any
---------------------------
instrument or agreement governing any Aimtech IP Right.
3.13 Compliance with Laws. Aimtech has complied, or prior to the Closing
--------------------
Date will have complied, and is or will be at the Closing Date in full
compliance, in all material respects, with all applicable laws, ordinances and
regulations, and rules, and all orders, writs, injunctions, awards, judgments
and decrees, applicable to it or to its assets, properties, and business (the
violation of which would have a Material Adverse Effect), including, without
limitation: (a) all applicable federal and state securities laws and
regulations, (b) all applicable federal, state and local laws, ordinances and
regulations, and all orders, writs, injunctions, awards, judgments and decrees,
pertaining to (i) the sale, licensing, leasing, ownership or management of
Aimtech's owned, leased or licensed real or personal property, products and
technical data, and (ii) employment and employment practices, terms and
conditions of employment, and wages and hours, (c) the Export Administration Act
and regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgments and decrees applicable to the export or
re-export of controlled commodities or technical data and (d) the Immigration
Reform and Control Act; provided, however, that this Section 3.13 shall not be
deemed to apply to any matters within the general scope of any other
representation in this Section 3. Aimtech has received all permits and approvals
from, and has made all filings with, third parties, including government
agencies and authorities, that are necessary in connection with its present
business and which, if not received or filed, would have a Material Adverse
Effect. There are no legal or administrative proceedings or investigations
pending or threatened, that, if enacted or determined adversely to Aimtech,
would result in any Material Adverse Effect.
3.14 Certain Transactions and Agreements. None of the executive officers,
-----------------------------------
directors or affiliates (as that term is defined in Rule 405 under the
Securities Act) of Aimtech (each, an "Aimtech Insider") nor any member of their
---------------
immediate families is or has been directly or indirectly interested in any
contract or informal arrangement with Aimtech within the last three years,
except for compensation as an officer, director or employee of Aimtech. None of
the Aimtech Insiders nor any member of their immediate families has any interest
in any property, real or personal, tangible or intangible, including inventions,
patents, copyrights, trademarks or trade names or trade secrets, used in or
pertaining to the business of Aimtech, except for the normal rights of a
stockholder.
3.15. Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 Aimtech has no employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements with
the sole purpose of providing for the confidentiality of proprietary information
or assignment of inventions).
3.15.2 Aimtech (i) has not ever been or is not now subject to a
union organizing effort, (ii) is not subject to any collective bargaining
agreement with respect to any of its
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employees, (iii) is not subject to any other contract, written or oral, with any
trade or labor union, employees' association or similar organization, or (iv)
has no current labor dispute. Aimtech has no knowledge that either of Leo Lucas
or Robert Birnbaum intends to leave its employ.
3.15.3 Schedule 3.15.3 of the Aimtech Schedule of Exceptions
---------------
identifies each "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but
excluding workers' compensation, unemployment compensation and other government-
mandated programs currently or previously maintained, contributed to or entered
into by Aimtech under which Aimtech or any ERISA Affiliate (as defined below)
-----
thereof has any present or future obligation or liability (collectively, the
"Aimtech Employee Plans"). For purposes of this Section 3.15.3, "ERISA
---------------------- -----
Affiliate" shall mean any entity which is a member of (A) a "controlled group of
- ---------
corporations," as defined in Section 414(b) of the Code, (B) a group of entities
under "common control," as defined in Section 414(c) of the Code, or (C) an
"affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes Aimtech. Copies of all Aimtech Employee Plans (and, if applicable,
related trust agreements) and all amendments thereto and summary plan
descriptions thereof (including summary plan descriptions) have been delivered
or made available to Asymetrix or its counsel, together with the three most
recent annual reports (Form 5500, including, if applicable, Schedule B thereto)
prepared in connection with any such Aimtech Employee Plan. All Aimtech Employee
Plans which individually or collectively would constitute an "employee pension
benefit plan," as defined in Section 3(2) of ERISA (collectively, the "Aimtech
-------
Pension Plans"), are identified as such in Schedule 3.15.3 of the Aimtech
- ------------- ---------------
Schedule of Exceptions. As of the date hereof, all contributions due and
previously required to be made on or before the date hereof from Aimtech with
respect to any of the Aimtech Employee Plans have been made as required under
ERISA or have been accrued on the Aimtech Financial Statements. To the knowledge
of Aimtech, each Aimtech Employee Plan has been maintained substantially in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations, including, without limitation, ERISA
and the Code, which are applicable to such Aimtech Employee Plans.
3.15.4 No "prohibited transaction," as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any Aimtech
Employee Plan which is covered by Title I of ERISA which would result in a
material liability to Aimtech taken as a whole, excluding transactions effected
pursuant to a statutory or administrative exemption. Nothing done or omitted to
be done and no transaction or holding of any asset under or in connection with
any Aimtech Employee Plan has or will make Aimtech or any officer or director of
Aimtech subject to any material liability under Title I of ERISA or liable for
any material tax (as defined in Section 2.7) or penalty pursuant to Sections
4972, 4975, 4976 or 4979 of the Code or Section 502 of ERISA.
3.15.5 Any Aimtech Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "Aimtech 401(a) Plan") has received a
-------------------
favorable determination from the Internal Revenue Service as to its
qualifications, and Aimtech is not aware of any reason why such determination
may not be relied upon by such plan. Aimtech has delivered or made
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available to Asymetrix or its counsel a true, correct and complete copy of the
most recent Internal Revenue Service determination letter with respect to each
Aimtech 401(a) Plan.
3.15.6 Schedule 3.15.6 of the Aimtech Schedule of Exceptions lists
---------------
each employment, severance or other similar contract (written or oral),
arrangement or policy and each plan or arrangement providing for insurance
coverage (including any self-insured arrangements), workers' benefits, vacation
benefits, severance benefits, disability benefits, death benefits,
hospitalization benefits, retirement benefits, deferred compensation, profit-
sharing, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees, consultants or directors, but
excluding workers' compensation, unemployment compensation and other government-
mandated programs currently or previously maintained, which (A) is not an
Aimtech Employee Plan, (B) is entered into, maintained or contributed to, as the
case may be, by Aimtech and (C) covers any employee or former employee of
Aimtech. Such contracts, plans and arrangements as are described in this Section
3.15.6 are herein referred to collectively as the "Aimtech Benefit
---------------
Arrangements." Each Aimtech Benefit Arrangement has been maintained in
- ------------
substantial compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are applicable to such
Aimtech Benefit Arrangement. Aimtech has delivered or made available to
Asymetrix or its counsel a complete and correct copy or description of each
Aimtech Benefit Arrangement.
3.15.7 Aimtech has timely provided to individuals entitled thereto
all required notices and coverage pursuant to Section 4980B of the Code and the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"),
-----
with respect to any "qualifying event" (as defined in Section 4980B(f)(3) of the
Code) under any Aimtech Employee Plan occurring prior to and including the
Closing Date, and no material Tax payable on account of Section 4980B of the
Code has been incurred with respect to any current or former employees (or their
beneficiaries) of Aimtech.
3.15.8 No benefit payable or which may become payable by Aimtech
pursuant to any Aimtech Employee Plan or any Aimtech Benefit Arrangement or as a
result of or arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise Tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code.
3.15.9 [Intentionally Omitted]
3.15.10 To the knowledge of Aimtech and except for matters which
would not have a Material Adverse Effect, no employee of Aimtech is in violation
of any term of any employment contract, patent disclosure agreement,
noncompetition agreement, or any other contract or written agreement, or any
restrictive covenant contained in any such agreement relating to the right of
any such employee to be employed thereby, or to use trade secrets or proprietary
information of others, and the employment of such employees does not subject
Aimtech to any material liability.
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3.15.11 A list of all employees, officers and consultants of Aimtech
and their current compensation, bonus plans, commission plans, vacation rights
and severance rights is set forth on Schedule 3.15.11 of the Aimtech Schedule of
----------------
Exceptions. Aimtech is currently paying all amounts that are currently required
to be paid to such parties shown in such Schedule.
3.15.12 Aimtech is not a party to any (a) agreement with any
executive officer or other key employee of Aimtech (i) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving Aimtech in the nature of any of the transactions
contemplated by this Agreement and the Certificate of Merger, (ii) providing any
term of employment or compensation guarantee, or (iii) providing severance
benefits or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment, or (b) agreement or
plan, including, without limitation, any stock option plan, stock appreciation
rights plan or stock purchase plan, any of the benefits of which will be
materially increased, or the vesting of benefits of which will be materially
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement and the Certificate of Merger or the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated by
this Agreement and the Certificate of Merger. Aimtech is not obligated to make
any "excess parachute payment" (as defined in Section 280G(b)(1) of the Code),
nor will any excess parachute payment be deemed to have occurred as a result of
or arising out of the Merger.
3.16 Corporate Documents. Aimtech has made available to Asymetrix for
-------------------
examination all documents and information listed in the Aimtech Schedule of
Exceptions or other exhibits called for by this Agreement or which have been
requested by Asymetrix's counsel, including, without limitation, the following:
(a) copies of Aimtech's Certificate of Incorporation and Bylaws as currently in
effect; (b) Aimtech's Minute Book containing all records of all proceedings,
consents, actions and meetings of the stockholders, the board of directors and
any committees thereof; (c) Aimtech's stock ledger and journal reflecting all
stock issuances and transfers; (d) all material permits, orders, and consents
issued by any regulatory agency with respect to Aimtech, or any securities of
Aimtech, and all applications for such permits, orders, and consents; and (e)
copies or forms of all stock purchase agreements, warrants, option plans, grants
and exercise agreements and, where forms of agreements are provided rather than
copies of the signed documents, a true and complete list showing the names of
the security holder, numbers of shares, exercise or purchase prices, grant
dates, vesting dates, exercise dates, expiration dates and all other relevant
data necessary for Asymetrix to issue the Asymetrix Merger Stock .
3.17 No Brokers. Neither Aimtech nor any of the Former Aimtech
----------
Stockholders are obligated for the payment of fees or expenses of any investment
banker, broker or finder in connection with the origin, negotiation or execution
of this Agreement or the Aimtech Ancillary Agreements or in connection with any
transaction contemplated hereby or thereby. Except as otherwise provided in
this Agreement, each of Aimtech, and, to the knowledge of Aimtech, the
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Former Aimtech Stockholders, will pay only its own expenses, if any, incurred in
connection with this Agreement and the transactions contemplated herein.
3.18 Disclosure. Neither this Agreement, its exhibits and schedules, nor
----------
any of the certificates or documents to be delivered by Aimtech to Asymetrix
under this Agreement, taken together, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
3.19 Information Supplied. None of the information supplied or to be
--------------------
supplied by Aimtech to the Aimtech Stockholders in connection with the
Stockholders Meeting (collectively, with the information supplied or to be
supplied by Asymetrix, the "Notice Materials"), at the date such information is
----------------
supplied and at the time of the meeting of the Aimtech Stockholders to be held
to approve the Merger, taken together, contains or will contain any untrue
statement of a material fact or omits or will omit to state any material fact
necessary in order to make the statements contained herein and therein, in light
of the circumstances under which such statements were made, not misleading
(provided, however, that this Section 3.19 shall not apply to any information or
other materials supplied by or on behalf of Asymetrix solely for use therein).
3.20 Insurance. Aimtech maintains and at all times during the prior three
---------
years has maintained fire and casualty, general liability, business interruption
and product liability insurance which it believes to be reasonably prudent for
similarly sized and similarly situated businesses. A list of all such insurance
is set forth on Schedule 3.20 of the Aimtech Schedule of Exceptions.
-------------
3.21 Environmental Matters.
---------------------
3.21.1 During the period that Aimtech has leased or owned its
properties or owned or operated any facilities, there have been no disposals or
releases of Hazardous Materials (as defined below) by Aimtech, or to Aimtech's
knowledge, by others, on, from or under such properties or facilities, the
liability for which would have a Material Adverse Effect. Aimtech has no
knowledge of any presence, generation, manufacturing, disposals or releases of
Hazardous Materials on, from or under any of such properties or facilities,
which may have occurred prior to Aimtech having taken possession of any of such
properties or facilities, the liability for which would have a Material Adverse
Effect. For the purposes of this Agreement, the terms "disposal" and "release"
-------- -------
shall have the definitions assigned thereto by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as
amended ("CERCLA"). For the purposes of this Agreement, "Hazardous Materials"
------ -------------------
shall mean any hazardous or toxic substance, material or waste which is or
becomes prior to the Closing Date regulated under, or defined as a "hazardous
substance," "pollutant," "contaminant," "toxic chemical," "hazardous material,"
"toxic substance" or "hazardous chemical" under (i) CERCLA; (ii) the Emergency
Planning and Community Right-to-Know Act, 42 U.S.C. (S) 1801 et seq.; (iii) the
Toxic Substance Control Act, 15 U.S.C. (S) 2601 et seq.; (iv) the Occupational
Safety and Health Act of 1970, 29 U.S.C. (S) 651 et seq.; (v) any applicable
federal, state or local statute or
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ordinance that has a scope or purpose similar to those identified above; or (vi)
regulations promulgated under any of the laws or statutes identified above.
3.21.2 None of the properties or facilities of Aimtech is in material
violation of any federal, state or local law, ordinance, regulation or order
relating to industrial hygiene or to the environmental conditions on, under or
about such properties or facilities, including, but not limited to, soil and
ground water condition. During the time that Aimtech has owned or leased its
properties and facilities, neither Aimtech nor, to Aimtech's knowledge, any
third party, has used, generated, manufactured or stored on, under or about such
properties or facilities or transported to or from such properties or facilities
any Hazardous Materials except in substantial accordance with applicable
environmental laws.
3.21.3 During the time that Aimtech has owned or leased its
respective properties and facilities, there has been no litigation brought or,
to the knowledge of Aimtech, threatened against Aimtech by, or any settlement
reached by Aimtech with, any party or parties alleging the presence, disposal,
release or threatened release of any Hazardous Materials on, from or under any
of such properties or facilities.
3.22 Interested Party Transactions. No officer or director of Aimtech or
-----------------------------
any "affiliate" or "associate" (as those terms are defined in Rule 405 of the
Securities Act) of any such person has had, either directly or indirectly, a
material interest in: (i) any person or entity which purchases from or sells,
licenses or furnishes to Aimtech any goods, property, technology or intellectual
or other property rights or services; or (ii) any contract or agreement to which
Aimtech is a party or by which it may be bound or affected.
3.23 Books and Records. To the knowledge of Aimtech, the books, records
-----------------
and accounts of Aimtech (a) are in all material respects true, complete and
correct, (b) have been maintained in accordance with good business practices on
a basis consistent with prior years, (c) are stated in reasonable detail and
accurately and fairly reflect the material transactions and dispositions of the
assets of Aimtech, and (d) accurately and fairly reflect the basis for the
Aimtech Financial Statements.
3.24 Certain Dispositions After Closing. To the knowledge of Aimtech,
----------------------------------
none of the Former Aimtech Stockholders has any present plan or intention, or
any binding commitment, to dispose, after the Effective Time, of an amount of
Asymetrix Merger Stock that would cause the Former Aimtech Stockholders, in the
aggregate, to have disposed of such stock in an amount equal in value to 50% or
more of the value of all Aimtech Common Stock outstanding immediately prior to
the Effective Time.
3.25 Lead Tools License. Aimtech's use of LEADTOOLS imaging developer's
------------------
toolkits in developing its Jamba product does not violate the shrink-wrap
LEADTOOLS Software License Agreement between Aimtech and LEAD Technologies, Inc.
or such use of LEADTOOLS imaging developer's toolkits in developing its Jamba
products is otherwise validly licensed to Aimtech by LEAD Technologies, Inc.,
and such license is transferable to Asymetrix pursuant to the Merger.
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4. REPRESENTATIONS AND WARRANTIES OF ASYMETRIX AND SUB
Asymetrix and Sub hereby jointly and severally represent and warrant as
follows, that, except as set forth on the Asymetrix Schedule of Exceptions (in
numbered paragraphs that correspond to the Section numbers below) simultaneously
delivered to Aimtech as Exhibit 4.0 with the execution of this Agreement:
-----------
4.1 Organization, Good Standing and Qualification. Asymetrix and Sub are
---------------------------------------------
corporations duly organized, validly existing and in good standing under the
laws of the States of Washington and Delaware, respectively, and have the
corporate power and authority to own, operate and lease their properties and to
carry on their business as now conducted and as proposed to be conducted. Sub
was formed on June 20, 1997 and has conducted no business or operations prior to
the date hereof. Asymetrix is qualified to do business as a foreign corporation
in each jurisdiction where failure to be so qualified could reasonably be
expected to have a material adverse effect on the business, operations,
financial condition or prospects of Asymetrix (for purposes of this Section 4, a
"Material Adverse Effect").
-----------------------
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 Asymetrix and Sub have the corporate right, power, legal
capacity and authority to enter into and perform their obligations under this
Agreement, and all agreements to which Asymetrix and Sub are or will be a party
that are required to be executed pursuant to this Agreement (the "Asymetrix
---------
Ancillary Agreements"). The execution, delivery and performance of this
- --------------------
Agreement and the Asymetrix Ancillary Agreements have been duly and validly
approved and authorized by all necessary corporate action on the part of
Asymetrix and Sub.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable Asymetrix or Sub to enter into, and to perform
its obligations under, this Agreement and the Asymetrix Ancillary Agreements,
except for (a) the filing of the Certificate of Merger with the Delaware
Secretary of State, and the filing of appropriate documents with the relevant
authorities of other states in which Asymetrix is qualified to do business, if
any, (b) such filings as may be required to comply with federal and state
securities laws, and (c) the approval by Asymetrix as the sole stockholder of
Sub of the transactions contemplated hereby.
4.2.3 This Agreement and the Asymetrix Ancillary Agreements are, or
when executed by Asymetrix and Sub will be, valid and binding obligations of
Asymetrix and Sub enforceable in accordance with their respective terms, except
as to the effect, if any, of (a) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (b) rules of law governing specific
performance, injunctive relief and other equitable remedies, and (c) the
enforceability of provisions requiring indemnification in connection with the
offering, issuance or sale of securities; provided, however, that the
Certificate of Merger will not be effective until the Effective Time.
4.3 Capitalization. The capitalization of Asymetrix and Sub consist of
--------------
the following:
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<PAGE>
4.3.1 Asymetrix Capital Stock. A total of 5,000,000 authorized
-----------------------
shares of Class B Stock, $0.01 par value per share (the "Class B Stock"), of
-------------
which 50,000 shares are designated as Series 1 Class B Stock (the "Series 1
Stock"), of which 37,500 shares are outstanding, and 388,395 are designated as
Series A Preferred Stock (the "Series A Stock"), all of which are outstanding,
--------------
and 388,395 are designated as Series B Preferred Stock (the "Series B Stock"),
--------------
all of which are outstanding (310,560 shares of which are subject to a pledge
securing a note from the investors in such stock). A total of 40,000,000
authorized shares of Asymetrix Common Stock, of which 7,992,795 shares are
outstanding. A total of 2,500,000 shares of Asymetrix Series 4 Class B Stock
will be authorized prior to the Effective Time, of which no shares will be
outstanding. The rights, preferences and privileges of the Class B Stock,
including the Series 1 Stock, the Series A Stock and the Series B Stock, the
Asymetrix Common Stock and the Class B Stock, are as stated in Asymetrix's
Articles of Incorporation, as amended, and as provided by law. All issued and
outstanding shares of Asymetrix capital stock have been duly authorized and
validly issued, are fully paid and nonassessable, and have been offered, issued,
sold and delivered by Asymetrix in compliance with all registration or
qualification requirements (or applicable exemptions therefrom) of applicable
federal and state securities laws.
4.3.2 Asymetrix Options, Warrants, Reserved Shares. Except for: (i)
--------------------------------------------
conversion privileges of the Series A Stock, the Series B Stock and the Series 1
Stock, (ii) options to purchase 4,018,451 shares of Asymetrix Common Stock and a
like number shares of Asymetrix Common Stock reserved for issuance upon the
exercise thereof, (iii) 1,496,851 additional shares of Asymetrix Common Stock
reserved for future issuance under the Asymetrix's 1995 Combined Incentive and
Nonqualified Stock Option Plan (the "Asymetrix Option Plan"), and (iv) the
---------------------
proposed issuance of up to 50,000 shares of Series 1 Stock (of which shares,
37,500 are validly issued, outstanding, fully paid and nonassessable) to certain
of Asymetrix's vendors, there are not outstanding any options, warrants, calls,
commitments, rights (including conversion or preemptive rights) or agreements
for the purchase or acquisition from Asymetrix of any shares of its capital
stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of Asymetrix's capital stock or obligating Asymetrix
to grant, extend, or enter into any such option, warrant, call, commitment,
conversion privilege or other right or agreement, and there is no liability for
dividends accrued but unpaid. Apart from the exceptions noted in this Section
4.2.3, and except for rights of first refusal and rights of repurchase held by
Asymetrix to repurchase shares of Asymetrix Common Stock issued under Stock
Issuance and Restriction Agreements relating to the issuance of 8,100 shares of
Common Stock and to 37,500 shares of Series 1 Stock (the "Stock Issuance and
------------------
Restriction Agreements"), rights of first refusal and repurchase rights held by
- ----------------------
Asymetrix to purchase shares of its capital stock issued under the Asymetrix
Option Plan, the rights granted in that certain Amended and Restated Investor's
Rights Agreement dated as of December 20, 1996 by and among Asymetrix, SOFTVEN
No. 2 Investment Enterprise Partnership and Multimedia Asia Pacific Pty Ltd (the
"Investor's Rights Agreement") there are no voting agreements, rights of first
---------------------------
refusal or other restrictions (other than normal restrictions on transfer under
applicable federal and state securities laws) or registration rights applicable
to any of Asymetrix's outstanding securities.
4.3.3 Sub. A total of one authorized share of Common Stock, $0.01
---
par value per share (the "Sub Common Stock"), which is validly issued,
----------------
outstanding, fully paid and nonassessable.
-20-
<PAGE>
There are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from Sub of any
shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of Sub's capital stock.
4.4 Subsidiaries. Asymetrix does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity, other than Sub. Sub does not presently
own or control, directly or indirectly, any interest in any other corporation,
partnership, trust, joint venture, association, or other entity.Sub. Sub does
not presently own or control, directly or indirectly, any interest in any other
corporation, partnership, trust, joint venture, association, or other entity.
4.5 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement nor any Asymetrix Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or cause an acceleration or
amendment of any obligation under, (a) any provision of the Articles of
Incorporation, Certificate of Incorporation, Certificate of Incorporation or
Bylaws of Asymetrix or Sub or Sub, as currently in effect, (b) in any material
respect, any material instrument or contract to which Asymetrix or Sub or their
respective or Sub are parties or by which their respective assets or properties
are bound, or (c) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Asymetrix or Sub or Sub or
their respective assets or properties, in each case, such that
the conflict, termination, breach, acceleration or amendment would have a
Material Adverse Effect.
4.6 Litigation. There is no action, proceeding, claim or investigation
----------
pending against Asymetrix or Sub or Sub before any federal, state, municipal,
foreign or other court or administrative agency, department, board or
instrumentality that, if concluded adversely to Asymetrix or Sub or Sub, would
have a Material Adverse Effect, and, to the best of Asymetrix's and Sub's and
Sub's knowledge, no such action, proceeding, claim or investigation has been
threatened. There is, to the best of Asymetrix's and Sub's and Sub's knowledge,
no reasonable basis for any stocktockholder or former stocktockholder of
Asymetrix or Sub or Sub, or any other person, firm, corporation or entity, to
assert a claim against Asymetrix or Sub or Sub based upon: (a) ownership or
rights to ownership of any shares of Asymetrix capital stock or Sub capital
stock or Sub capital stock, (b) any rights as or to become a holder of
securities of Asymetrix or Sub, or Sub, including any option or preemptive
rights or rights to notice or to vote, or (c) share any rights under any
agreement among Asymetrix or Sub or Sub and any of their stockholders
or former stockholders or option holders or former option holders.
4.7 Taxes. Asymetrix has timely filed all tax returns and reports
-----
required by law, other than where a failure to file a return did not or would
not have a Material Adverse Effect, and has never been audited by any state or
federal taxing authority. All tax returns and reports of Asymetrix are true and
correct in all material respects. Asymetrix has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith (for which it has established a proper reserve). Asymetrix is not aware of
any pending or threatened claim or assessment with respect to any deficiencies
for any tax in writing against Asymetrix by any taxing authority. Asymetrix has
not executed any waiver of any statute of limitations relating to taxes or any
extension of the period for the assessment or collection of any tax (other than
extensions which have expired by the Effective Time). Asymetrix has not received
any written
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<PAGE>
notification, and is not otherwise aware, that any material issues are currently
under audit, examination or review by any taxing authority regarding Asymetrix.
There are no material liens, pledges, charges, claims, security interests or
other encumbrances covering the assets of Asymetrix and relating or attributable
to taxes, other than for taxes not yet due and payable and others that do no
have a Material Adverse Effect. Asymetrix is not a party to a tax sharing or tax
allocation agreement, and Asymetrix does not owe any amount under any such
agreement.
4.8 Financial Statements. Asymetrix has delivered to Aimtech Aimtech as
--------------------
Schedule 4.8 of the Asymetrix Schedule of Exceptions Asymetrix's (a) audited
- ------------
balance sheet as of December 31, 1996 (the "Asymetrix 1996 Balance Sheet") and
---------------------------
income statement and statement of cash flows for the 12 month period then ended
(collectively, the "Asymetrix 1996 Financial Statements"), and (b) balance sheet
----------------------------------
as of March 31 March 31, 1997 (the "Asymetrix March 31 Balance Sheet") and
--------------------------------
income statement and statement of cash flows for the three month period
then ended (collectively, the "Asymetrix March Financial Statements") (the
------------------------------------
Asymetrix 1996 Financial Statements and Asymetrix March Financial
Statements are collectively referred to herein as the "Asymetrix Financial
-------------------
Statements"). The Asymetrix Financial Statements (a) are in accordance with the
- ----------
books and records of Asymetrix, (b) fairly present the financial condition of
Asymetrix at the dates therein indicated and the results of operations for the
periods therein specified, and (c) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, subject,
in the case of the Asymetrix March Financial Statements, to normal recurring
year-end adjustments and the absence of any notes thereto. Asymetrix has no
debt, liability or obligation of any nature, whether accrued, absolute,
contingent or otherwise, and whether due or to become due, that is not reflected
or reserved against or disclosed in the Asymetrix Financial Statements, except
for those that may have been incurred after the date of the Asymetrix Financial
Statements in the ordinary course of its business, consistent with past practice
and that are not material in amount either individually or collectively.
4.9 Title to Properties.
-------------------
4.9.1 Asymetrix has good and marketable title to all of its tangible
assets as shown on the Asymetrix March 31March 31 Balance Sheet, free and clear
of all liens, charges, restrictions or encumbrances, other than for taxes not
yet due and payable and others that do not have a Material Adverse Effect. With
respect to the property and assets it leases, Asymetrix is in material
compliance with such leases.
4.9.2 Sub has been newly formed for the sole and express purpose of
participating in the Merger, and has at no time engaged in any activities or
owned any assests except as necessary for such purpose.
4.10 Absence of Certain Changes. Since the March 31, 1997,
--------------------------
other than actions required by this Agreement (including, without limitation,
the incurrence of legal and accounting fees and expenses in connection
therewith), there has not been with respect to Asymetrix or Sub or Sub:
-22-
<PAGE>
(a) any change in its financial condition, properties, assets,
liabilities, business or operations from that reflected in the Asymetrix
Financial Statements, other than those that do not have a Material Adverse
Effect;
(b) any contingent liability incurred by it as guarantor, surety or
otherwise with respect to the obligations of others, which contingent liability
is in excess of $50,000 individually or in excess of $100,000 in the aggregate;
(c) any mortgage, encumbrance or lien placed on any of its
properties, which mortgage, encumbrance or lien is in excess of $100,000
individually or in excess of $250,000 in the aggregate;
(d) any obligation or liability incurred by it other than obligations
and liabilities incurred in the ordinary course of business, which obligation or
liability is in excess of $100,000 individually or in excess of $250,000 in the
aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of its
properties or assets, which purchase, sale, other disposition or other
arrangement is in excess of $100,000 individually or $250,000 in the aggregate;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any distribution in respect of, its capital stock, or any split,
combination or recapitalization of its capital stock or any direct or indirect
redemption, purchase or other acquisition of its capital stock, including,
without limitation, any extraordinary dividend within the meaning of Section
1059(c) of the Code;
(h) any labor dispute or claim of unfair labor practices;
(i) any payment or discharge of a lien or liability thereof which
lien was not either shown on the Asymetrix March 31 Balance Sheet or incurred in
the ordinary course of business thereafter; or
(j) entered into any material transactions with any of its officers,
directors, employees or stockholders or any entity controlled by any of such
individuals.
4.11 Material Agreements, Contracts and Commitments. All oral or
----------------------------------------------
written contracts, obligations, commitments, plans, leases, instruments,
arrangements or licenses which are material to the business of Asymetrix (for
purposes of this Section 4.11, a "Material Agreement") constitute valid and
------------------
enforceable obligations of the parties thereto (except as to the effect, if any,
of (i) applicable bankruptcy and other similar laws affecting the rights of
creditors generally, (ii) rules of law governing specific performance,
injunctive relief and other equitable remedies, and
-23-
<PAGE>
(iii) the enforceability of provisions requiring indemnification in connection
with the offering, issuance or sale of securities); and are in full force and
effect. Asymetrix is not, nor, to the best knowledge of Asymetrix, is any other
party thereto, in breach or default in any material respect under the terms of
any such Material Agreement. A copy of each Material Agreement has been
delivered or made available to Aimtech's Aimtech's counsel. Asymetrix is not a
party to any contract or arrangement which, in the absence of a breach by the
other party or parties thereto, has had or could reasonably be expected to have
a Material Adverse Effect. Asymetrix does not have any material liability for
renegotiation of government contracts or subcontracts, if any.
4.12 Status of Proprietary Assets. Asymetrix owns all right, title or
----------------------------
interest in, or has the rights to use, sell or license, all Intellectual
Property Rights necessary or required for the conduct of, or used in, its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "Asymetrix IP Rights") and such
-------------------
rights to use, sell or license are reasonably sufficient for the conduct of its
business as presently conducted. Except for matters which would not have a
Material Adverse Effect, neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by Asymetrix or currently
under development by Asymetrix violates any license or agreement between
Asymetrix and any third party or infringes any Intellectual Property Right of
any other party; and, except for matters which would not have a Material Adverse
Effect, there is no pending or, to the best knowledge of Asymetrix, threatened
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any Asymetrix IP Right; nor, to the best knowledge of
Asymetrix without any independent investigation thereof, is there any basis for
any such claim; nor has Asymetrix received any notice asserting that any
Asymetrix IP Right or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the best
knowledge of Asymetrix, is there any basis for any such assertion.
4.13 Compliance with Laws. Each of Each of Asymetrix and Sub and Sub has
--------------------
complied, or prior to the Closing Date will have complied, and is or will be at
the Closing Date in full compliance, in all material respects, with all
applicable laws, ordinances and regulations, and rules, and all orders, writs,
injunctions, awards, judgments and decrees, applicable to it or to its assets,
properties, and business (the violation of which would have a Material Adverse
Effect), including, without limitation: (a) all applicable federal and state
securities laws and regulations, (b) all applicable federal, state and local
laws, ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing, ownership
or management of Asymetrix's owned, leased or licensed real or personal
property, products and technical data, and (ii) employment and employment
practices, terms and conditions of employment, and wages and hours, (c) the
Export Administration Act and regulations promulgated thereunder and all other
laws, regulations, rules, orders, writs, injunctions, judgments and decrees
applicable to the export or re-export of controlled commodities or technical
data and (d) the Immigration Reform and Control Act. Asymetrix has received all
permits and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in connection
with its present business and which, if not received or filed, would have a
Material Adverse Effect. There are no legal or administrative proceedings or
investigations pending or threatened, that, if enacted or determined adversely
to Asymetrix, would result in any Material Adverse Effect.
-24-
<PAGE>
4.14 Certain Transactions and Agreements. None of the executive officers,
-----------------------------------
directors or affiliates (other than SOFTVEN No. 2 Investment Enterprises
Partnership or its designated director) or its designated director) of Asymetrix
(each, an "Asymetrix Insider") nor any member of their immediate families is or
-----------------
has been directly or indirectly interested in any contract or informal
arrangement with Asymetrix within the last twelve (12) months, except for
compensation as an officer, director or employee of Asymetrix. None of the
Asymetrix Insiders nor any member of their immediate families has any interest
in any property, real or personal, tangible or intangible, including inventions,
patents, copyrights, trademarks or trade names or trade secrets, used in or
pertaining to the business of Aimtech, Aimtech, except for the normal rights of
a stocktockholder.
4.15 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of Asymetrix or Sub
or Sub is required in connection with the consummation of the transactions
contemplated by this Agreement, except for such qualifications or filings under
------ ---
the 1933 Act and the regulations thereunder and all other applicable securities
laws as may be required in connection with the transactions contemplated by this
Agreement. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law.
4.16 ERISA and Labor Issues.
----------------------
4.16.1 Asymetrix does not have any Employee Pension Benefit Plan as
defined in Section 3 of ERISA.
4.16.2 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, Asymetrix is in compliance in all
material respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, employee benefit plans as defined in
Section 3(3) of ERISA, hours, and terms and conditions of employment, including,
but not limited to, employee compensation matters, ERISA and the Code.
4.16.3 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, no employee of Asymetrix is in
violation of any term of any employment contract, patent disclosure agreement,
noncompetition agreement, or any other contract or written agreement, or any
restrictive covenant contained in any such agreement relating to the right of
any such employee to be employed thereby, or to use trade secrets or proprietary
information of others, and the employment of such employees does not subject
Asymetrix to any material liability.
4.16.4 Asymetrix is not bound by or subject to any contract,
commitment or arrangement with any labor union, employees association or similar
organization, and to the Asymetrix's best knowledge, no labor union, employees
association or similar organization has requested, sought or attempted to
represent any employees, representatives or agents of Asymetrix. There is no
strike or other labor dispute involving Asymetrix pending nor, to
-25-
<PAGE>
Asymetrix's best knowledge, threatened, nor is Asymetrix aware of any labor
organization activity involving its employees.
4.17 Corporate Documents. Asymetrix has made available to Aimtech for
-------------------
examination all documents and information listed in the Asymetrix Schedule of
Exceptions or other exhibits called for by this Agreement or which have been
requested by Aimtechs' counsel, Aimtech's counsel, including, without
limitation, the following: (a) copies of Asymetrix's and its subsidiaries'
Articles of Incorporation and Bylaws as currently in effect; (b) Asymetrix's
Minute Book containing all records that Asymetrix has of all proceedings,
consents, actions and meetings of the stockholders, the board of directors and
any committees thereof; (c) Asymetrix's stock ledger and journal reflecting all
stock issuances and transfers; (d) all material permits, orders, and
consents issued by any regulatory agency with respect to Asymetrix, or any
securities of Asymetrix, and all applications for such permits, orders, and
consents; and (e) copies or forms of all stock purchase agreements, warrants,
option plans, grants and exercise agreements and, where forms of agreements are
provided rather than copies of the signed documents, a true and complete list
showing the names of the security holder, numbers of shares, exercise or
purchase prices, grant dates, vesting dates, exercise dates, expiration dates
and all other relevant data necessary for Asymetrix to issue the Asymetrix
Merger Stock.
4.18 No Brokers. Neither Asymetrix nor Sub nor Sub is obligated
----------
for the payment of fees or expenses of any investment banker, broker or finder
in connection with the origin, negotiation or execution of this Agreement or the
Asymetrix Ancillary Agreements or in connection with any transaction
contemplated hereby or thereby.
4.19 Disclosure. Neither this Agreement, its exhibits and schedules, nor
----------
any of the certificates or documents to be delivered by Asymetrix or Sub or to
Aimtech under this Agreement, taken together, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
4.20 Information Supplied. None of the Notice Materials supplied or to be
--------------------
supplied by Asymetrix, at the date such information is supplied and at the time
of the meeting of the Aimtech Stockholders to be held to approve the Merger,
taken together, contains or will contain any untrue statement of a material fact
or omits or will omit to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
4.21 Insurance. Asymetrix maintains and at all times during the prior
---------
three years has maintained fire and casualty, general liability, business
interruption and product liability insurance which it believes to be reasonably
prudent for similarly sized and similarly situated businesses.
4.22 Environmental Matters.
---------------------
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<PAGE>
4.22.1 During the period that Asymetrix has leased or owned its
properties or owned or operated any facilities, there have been no disposals or
releases of Hazardous Materials (as defined below) by Asymetrix, or to
Asymetrix's knowledge, by others, on, from or under such properties or
facilities, the liability for which would have a Material Adverse Effect.
Asymetrix has no knowledge of any presence, generation, manufacturing, disposals
or releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to Asymetrix having taken possession
of any of such properties or facilities, the liability for which would have a
Material Adverse Effect. For the purposes of this Agreement, the terms
"disposal" and "release" shall have the definitions assigned thereto by the
- --------- -------
Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42
U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For the purposes of this
------
Agreement, "Hazardous Materials" shall mean any hazardous or toxic substance,
-------------------
material or waste which is or becomes prior to the Closing Date regulated under,
or defined as a "hazardous substance," "pollutant," "contaminant," "toxic
chemical," "hazardous material," "toxic substance" or "hazardous chemical" under
(i) CERCLA; (ii) the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. (S) 1801 et seq.; (iii) the Toxic Substance Control Act, 15 U.S.C. (S)
2601 et seq.; (iv) the Occupational Safety and Health Act of 1970, 29 U.S.C. (S)
651 et seq.; (v) any applicable federal, state or local statute or ordinance
that has a scope or purpose similar to those identified above; or (vi)
regulations promulgated under any of the laws or statutes identified above.
4.22.2 None of the properties or facilities of Asymetrix is in
material violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions on,
under or about such properties or facilities, including, but not limited to,
soil and ground water condition. During the time that Asymetrix has owned or
leased its properties and facilities, neither Asymetrix nor, to Asymetrix's
knowledge, any third party, has used, generated, manufactured or stored on,
under or about such properties or facilities or transported to or from such
properties or facilities any Hazardous Materials except in substantial
accordance with applicable environmental laws.
4.22.3 During the time that Asymetrix has owned or leased its
respective properties and facilities, there has been no litigation brought or,
to the knowledge of Asymetrix, threatened against Asymetrix by, or any
settlement reached by Asymetrix with, any party or parties alleging the
presence, disposal, release or threatened release of any Hazardous Materials on,
from or under any of such properties or facilities.
4.23 Real Property Holding Corporation Status. Each of Asymetrix
----------------------------------------
and Sub is not and has at no time been a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code.
4.24 Shares Issued in Merger. The Asymetrix Merger Stock to be
-----------------------
issued to the Aimtech Stockholders in the Merger, when issued by Asymetrix
pursuant to the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, free and clear of all liens, claims,
pledges, options, adverse claims, assessments or charges of any nature
whatsoever, and will have been issued materially in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state
-27-
<PAGE>
securities laws. The Statement of Designation shall be filed on or before the
Effective Time, and no further amendments to the Asymetrix Articles of
Incorporation shall have been adopted or filed.
4.25 Books and Records. To the knowledge of Asymetrix and Sub, the books,
-----------------
records and accounts of Asymetrix (a) are in all material respects true,
complete and correct, (b) have been maintained in accordance with good business
practices on a basis consistent with prior years, (c) are stated in reasonable
detail and accurately and fairly reflect the material transactions and
dispositions of the assets of Asymetrix, and (d) accurately and fairly reflect
the basis for the Asymetrix Financial Statements.
4.26 Certain Dispositions. Asymetrix has no present plan or intention, or
--------------------
any binding commitment, to dispose, subsequent to the Effective Time, of a
quantity of Aimtech Common Stock that would cause Asymetrix to lose "control" of
Sub within the meaning of Section 368(c) of the Code.
4.27 Control of Sub. At all times prior to and as of the Effective Time,
--------------
Asymetrix will be in "control" of Sub, as such term is defined in Section 368(c)
of the Code.
5. AIMTECH PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 10
hereof, Aimtech covenants and agrees as follows:
5.1 Advice of Changes. Aimtech will promptly advise Asymetrix in writing
-----------------
(a) of any event occurring subsequent to the date of this Agreement that would
render any representation or warranty of Aimtech contained in this Agreement, if
made on or as of the date of such event or the Closing Date, untrue or
inaccurate in any material respect and (b) of any change in Aimtech's business,
results of operations or financial condition that could reasonably be expected
to have a Material Adverse Effect. Notwithstanding the foregoing, the parties
acknowledge that Aimtech, with the knowledge and consent of Asymetrix, intends
to undertake a substantial downsizing of its workforce prior to the Effective
Time.
5.2 Conduct of Business. Aimtech will continue to conduct its business
-------------------
and use commercially reasonable efforts to maintain its business relationships
in the ordinary and usual course and will not, without the prior written consent
of Asymetrix (other than actions required by this Agreement, as required by law
or in connection with the performance of agreements disclosed in the Aimtech
Schedule of Exceptions):
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of
business or which involves an expense or capital commitment by Aimtech in excess
of $25,000, other than
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payments in connection with the reverse stock split described in Section 5.2(n)
below, or which obligates Aimtech for a period exceeding six months;
(c) encumber or permit to be encumbered any of its assets or grant
liens therein;
(d) dispose of any portion of its assets with a value exceeding
$10,000 (other than in the ordinary course of business);
(e) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business consistent
with past practice;
(f) fail to maintain its equipment and other assets in good working
condition and repair according to the standards it has maintained to the date of
this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary or special remuneration
to any officer, employee or consultant or agree to same or enter into any new
employment, severance, "golden parachute" or consulting agreement with any such
person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock;
(j) amend or terminate any contract, agreement or license to which it
is a party except those amended or terminated in the ordinary course of business
consistent with past practice, and which are not material in amount or effect;
(k) lend any amount to any person or entity, other than advances for
travel and expenses which are incurred in the ordinary course of business
consistent with past practice;
(l) guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business consistent with past practice;
(m) waive or release any material right or claim except in the
ordinary course of business consistent with past practice;
(n) split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities, other than to effectuate the Stock Split;
(o) merge, consolidate or reorganize with, or acquire any entity;
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(p) amend its Certificate of Incorporation or Bylaws, other than to
effectuate Stock Split;
(q) license any of its technology or intellectual property except in
the ordinary course of business consistent with past practice;
(r) agree to any audit assessment by any tax authority (unless the
amount thereof is not material or has been adequately accrued or reserved on the
Aimtech Financial Statements) or file any federal or state income or franchise
tax return unless (i) the amount payable with respect thereto is not material or
has been adequately accrued or reserved on the Aimtech Financial Statements or
(ii) copies of such returns have been delivered to Asymetrix for its review and
approved by Asymetrix prior to filing;
(s) change any insurance coverage or issue any certificates of
insurance except as is routinely done in the ordinary course of Aimtech's
business;
(t) hire any employee or consultant;
(u) adopt or amend any employee benefit plan;
(v) enter into any contracts for the sale of
advertising in an amount exceeding $10,000 or for longer than 30 days; or
(w) agree to do any of the things described in the
preceding clauses 5.2(a) through (v).
5.4 Stockholder Approval. Aimtech will hold a special meeting of its
--------------------
stockholders (the "Stockholders Meeting") at the earliest practicable date to
--------------------
submit this Agreement, the Merger and related matters for the consideration and
approval of the Aimtech Stockholders, which approval will be unanimously
recommended by Aimtech's Board of Directors. The Stockholders Meeting will be
called, held and conducted, and any proxies will be solicited, in compliance
with applicable law. In lieu of the Stockholders Meeting, at the earliest
practicable date, stockholder approval may be obtained by written consent in
compliance with applicable law.
5.5 Offering Material. Aimtech will send to its stockholders in a
-----------------
timely manner, for the purpose of providing information with respect to the
Merger at the Stockholders Meeting, the Notice Materials. Aimtech will promptly
provide all information relating to its business or operations necessary for
inclusion in the Notice Materials to satisfy all requirements of applicable
state and federal securities laws. Aimtech and Asymetrix each shall be solely
responsible for any statement, information or omission in the Notice Materials
relating to it or its affiliates based upon written information furnished by it.
The Notice Materials shall comply with the information requirements set forth in
Rule 502(b) of the Securities Act, including,
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without limitation, providing the information required by Form S-4 under the
Securities Act ("Form S-4"). Aimtech will not provide or publish to its
--------
stockholders any material concerning it or its affiliates that violates the
Securities Act with respect to the transactions contemplated hereby.
5.6 Regulatory Approvals. Aimtech will execute and file, or join in
--------------------
the execution and filing, of any application or other document that may be
required to be filed by it in order to obtain the authorization, approval or
consent of any governmental body (federal, state, local or foreign) which may be
reasonably required, in connection with the consummation of the transactions
contemplated by this Agreement. Aimtech will use its best efforts to obtain all
such authorizations, approvals and consents.
5.7 Necessary Consents. Aimtech will use commercially reasonable
------------------
efforts to obtain such written consents and take such other actions as may be
necessary or appropriate in addition to those set forth in Section 5.6 to allow
the consummation of the transactions contemplated hereby and to allow Asymetrix
to carry on Aimtech's business after the Closing.
5.8 Litigation. Aimtech will notify Asymetrix in writing promptly
----------
after learning of any actions, suits, proceedings or investigations by or before
any court, board or governmental agency, initiated by or against Aimtech, or
known by Aimtech to be threatened against it.
5.9 No Other Negotiations. From the date hereof until the earlier of
---------------------
the termination of this Agreement or consummation of the Merger, Aimtech will
not, and will not authorize any officer or director of Aimtech or any other
person on its behalf to, directly or indirectly, solicit, encourage, negotiate
or accept any offer from any party concerning the possible disposition of all or
any substantial portion of Aimtech's business, assets or capital stock by
merger, sale or any other means or any other transaction that would involve a
change in control of Aimtech, or any transaction in which Aimtech contemplates
issuing equity securities, except to employees and consultants for incentive and
not capital-raising purposes; provided, however, that the foregoing shall not
preclude Aimtech from discussing and consummating a cash investment by any of
the Aimtech stockholders. Aimtech will promptly notify Asymetrix in writing of
any third party inquiries or proposals.
5.10 Access to Information. Until the Closing, Aimtech will allow
---------------------
Asymetrix and its agents reasonable access to the files, books, records and
offices of Aimtech, including, without limitation, any and all information
relating to Aimtech's taxes, commitments, contracts, leases, licenses, and real,
personal and intangible property (including its intellectual property) and
financial condition. Aimtech will cause its accountants to cooperate with
Asymetrix and its agents in making available all financial information
reasonably requested, including, without limitation, the right to examine all
working papers pertaining to all financial statements prepared or audited by
such accountants.
5.11 Satisfaction of Conditions Precedent. Aimtech will use its
------------------------------------
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent which are set
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<PAGE>
forth in Section 9, and Aimtech will use commercially reasonable efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on their
part in order to effect the transactions contemplated hereby. Aimtech will
promptly notify Asymetrix in writing of any failure or inability to comply fully
with this Section.
5.12 Aimtech Dissenting Shares. As promptly as practicable after the
-------------------------
date of the Stockholders Meeting and prior to the Closing Date, Aimtech shall
furnish Asymetrix with the name and address of each Aimtech Dissenting
Stockholder and the number of Aimtech Dissenting Shares owned by such Aimtech
Dissenting Stockholder.
5.13 Blue Sky Laws. Aimtech will cooperate with Asymetrix in
-------------
connection with Asymetrix's efforts to comply with the securities and Blue Sky
laws of all jurisdictions which are applicable in connection with the Merger.
5.14 Purchaser Representative. Each of Andrew Huffman and David
------------------------
Johnson will act as "purchaser representative" for each Former Aimtech
Stockholder who is not an "accredited investor" as those terms are defined in
Rule 501 of the Securities Act.
5.15 Operations of Aimtech. From and after the date of this
---------------------
Agreement until the Closing Date (the "Transition Period"), Asymetrix shall be
-----------------
permitted to direct the management and operations of the business of Aimtech and
Aimtech shall, as requested by Asymetrix from time to time during the Transition
Period, manage the operations of its business on behalf of and for the benefit
of Asymetrix in accordance with instructions from Asymetrix. Each of James
Billmaier, John Atherly and E. Charles Ellison (the "Asymetrix Representatives")
-------------------------
shall be individually authorized to make requests or instructions on behalf of
Asymetrix in connection with the operations of Aimtech during the Transition
Period and Aimtech shall operate its business as instructed by any of the
Asymetrix Representatives. Aimtech shall be entitled to conclusively rely on
any instructions or notifications provided to it by such Asymetrix
Representatives. Notwithstanding the foregoing, in no event shall Asymetrix be
authorized to direct the business and operations of Aimtech in a manner which is
inconsistent with the obligations of Aimtech hereunder.
6. ASYMETRIX AND SUB PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of
the Effective Time or the termination of this Agreement pursuant to Section 10
hereof, Asymetrix and Sub covenant and agree as follows:
6.1 Advice of Changes; Conduct of Business. Asymetrix and Sub will
--------------------------------------
promptly advise Aimtech in writing (a) of any event occurring subsequent to the
date of this Agreement that would render any representation or warranty of
Asymetrix or Sub contained in this Agreement, if made on or as of the date of
such event or the Closing Date, untrue or inaccurate in
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<PAGE>
any material respect; or (b) of any material adverse change in the business,
results of operations or financial condition of Asymetrix or Sub. Asymetrix will
use commercially reasonable efforts to continue to conduct its business and
maintain its business relationships in the ordinary and usual course and will
not, without the prior written consent of Aimtech (other than action required by
this Agreement, as required by law or in connection with the performance of
agreements, arrangements or pending transactions disclosed in the Asymetrix
Schedule of Exceptions);
(a) enter into any material transaction not in the ordinary
course of business;
(b) declare, set aside or pay any material cash or stock
dividend or other material distribution in respect of capital stock, or redeem
or otherwise acquire any material portion of its capital stock;
(c) dispose of (including by license), whether to a third party,
a partially or wholly-owned subsidiary or otherwise, any material portion of its
assets (other than in the ordinary course of business);
(d) encumber or permit to be encumbered in any material respect
any of its assets or grant liens thereon;
(e) issue or sell a material number of shares of its capital
stock of any class (except upon the exercise of an Asymetrix option held by
Asymetrix employees) or any other of its securities, or issue or create any
material warrants, obligations, subscriptions, options, convertible securities
or other commitments to issue shares of capital stock; or
(f) merge, consolidate or reorganize with, or
acquire, any entity.
6.2 Regulatory Approvals. Asymetrix and Sub will execute and file,
--------------------
or join in the execution and filing, of any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be reasonably
required, in connection with the consummation of the transactions contemplated
by this Agreement. Each of Asymetrix and Sub will use its best efforts to obtain
all such authorizations, approvals and consents.
6.3 Satisfaction of Conditions Precedent. Each of Asymetrix and Sub
------------------------------------
will use its best efforts to satisfy or cause to be satisfied all the conditions
precedent which are set forth in Section 8, and each of Asymetrix and Sub will
use its best efforts to cause the transactions contemplated by this Agreement to
be consummated and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties and to make all filings with,
and give all notices to, third parties that may be necessary or reasonably
required on its part in order to effect the transactions contemplated hereby.
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<PAGE>
6.4 Blue Sky Laws. Asymetrix shall take such steps as may be
-------------
necessary to comply with the securities and Blue Sky laws of all jurisdictions
which are applicable in connection with the Merger.
6.5 Offering Material. Asymetrix will promptly provide all
-----------------
information relating to its business or operations necessary for inclusion in
the Notice Materials to satisfy all requirements of applicable state and federal
securities laws. Aimtech and Asymetrix each shall be solely responsible for any
statement, information or omission in the Notice Materials relating to it or its
affiliates based upon written information furnished by it. The Notice Materials
shall comply with the information requirements set forth in Rule 502(b) of the
Securities Act, including, without limitation, providing the information
required by Form S-4. Asymetrix will not provide any material concerning it or
its affiliates that violates the Securities Act or the Exchange Act with respect
to the transactions contemplated hereby.
6.6 Access to Information. Until the Closing, Asymetrix will allow
---------------------
Aimtech and its agents reasonable access to the files, books, records and
offices of Asymetrix, including, without limitation, any and all information
relating to Asymetrix's taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property (including its intellectual property) and
financial condition. Asymetrix will cause its accountants to cooperate with
Aimtech and its agents in making available all financial information reasonably
requested, including, without limitation, the right to examine all working
papers pertaining to all financial statements prepared or audited by such
accountants.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as
-----------
provided in Section 10 below, the Closing will take place at the offices of
Fenwick & West LLP, Two Palo Alto Square, Palo Alto, California on or before
September 15August 31, 1997, or, if all conditions to closing have not been
satisfied or waived by such date, such other place, time and date as Aimtech and
Asymetrix may mutually select (the "Closing Date"). Concurrently with the
------------
Closing, the Certificate of Merger will be filed in the office of the Delaware
Secretary of State. The Certificate of Merger provides that the Merger shall
become effective upon filing in the office of the Delaware Secretary of State.
7.2 Exchange of Certificates.
------------------------
7.2.1 As of the Effective Time, all shares of Aimtech Common Stock
that are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist and will be converted into the right to
receive from Asymetrix the number of shares of Asymetrix Merger StockAsymetrix
Common Stock determined as set forth in Section 1.1, subject to Section 1.2.
7.2.2 As soon as practicable after the Effective Time, each holder of
shares of Aimtech Common Stock that are not Dissenting Shares will surrender the
certificate(s) for such shares (the "Aimtech Certificates"), duly endorsed as
--------------------
requested by Asymetrix, to Asymetrix for
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<PAGE>
cancellation. Promptly after the Effective Time and receipt of such Aimtech
Certificates, Asymetrix will issue to each tendering holder a certificate for
the number of shares of Asymetrix Merger StockAsymetrix Common Stock to which
such holder is entitled pursuant to Section 2.1 hereof, less the shares of
Asymetrix Merger StockAsymetrix Common Stock deposited into escrow pursuant to
Section 2.4 hereof, and distribute any cash payable under Section 2.2.
7.2.3 No dividends or distributions payable to holders of record of
Asymetrix Merger StockAsymetrix Common Stock after the Effective Time, or cash
payable in lieu of fractional shares, will be paid to the holder of any
unsurrendered Aimtech Certificate(s) until the holder of the Aimtech
Certificate(s) surrenders such Aimtech Certificate(s), or if such certificates
are lost, stolen or destroyed, provides an indemnity reasonably acceptable to
Asymetrix. Subject to the effect, if any, of applicable escheat and other laws,
following surrender of any Aimtech Certificate, there will be delivered to the
person entitled thereto, without interest, the amount of any dividends and
distributions therefor paid with respect to Asymetrix Merger StockAsymetrix
Common Stock so withheld as of any date subsequent to the Effective Time and
prior to such date of delivery.
7.2.4 All Asymetrix Merger StockAsymetrix Common Stock (and, if
applicable, cash for Aimtech Dissenting Shares or in lieu of fractional shares)
delivered upon the surrender of Aimtech Common Stock in accordance with the
terms hereof will be deemed to have been delivered in full satisfaction of all
rights pertaining to such Aimtech Common Stock. There will be no further
registration of transfers on the stock transfer books of Aimtech or its transfer
agent of Aimtech Common Stock. If, after the Effective Time, Aimtech
Certificates are presented for any reason, they will be canceled and exchanged
as provided in this Section.
7.2.5 Until certificates representing Aimtech Common Stock
outstanding prior to the Merger are surrendered pursuant to Section 7.2.2 above,
such certificates will be deemed, for all purposes, to evidence ownership of the
number of shares of Asymetrix Merger StockAsymetrix Common Stock into which
Aimtech Common Stock will have been converted pursuant to Section 2.1 hereof,
reduced by the number of shares withheld as Escrow Shares.
7.2.6 Certificates which are not presented to Asymetrix within three
years after the Closing shall be canceled and the holder thereof will no longer
be entitled to receive any Asymetrix securities in consideration thereof.
7.3 Unterberg Harris Fee. At the Closing, Asymetrix shall deliver to
--------------------
Aimtech a certificate representing 44,171 shares of Series 4 Class B Stock which
represents the fee of Unterberg Harris pursuant to an agreement dated October
29, 1996 between Aimtech and Unterberg Harris.
7.4 "Change of Control," Severance and Retention Policy. At the
--------------------------------------------------
Closing, Asymetrix shall deliver certificates representing an aggregate of
33,128 shares of Series 4 Class B Stock (representing shares to be distributed
by management of Aimtech to employees pursuant to Aimtech's "Change of Control,"
severance and Retention Policy) in such names and
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<PAGE>
denominations as shall have been specified by the Aimtech Board of Directors in
writing at least two days prior to the Closing.
8. CONDITIONS TO OBLIGATIONS OF AIMTECH
Aimtech's obligations hereunder are subject to the fulfillment or
satisfaction, on and as of the Closing, of each of the following conditions (any
one or more of which may be waived by Aimtech, but only in a writing signed by
Aimtech):
8.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Asymetrix and Sub set forth in Section 4 that are not made as a
specific date shall be true and accurate in all material respects on and as of
the date of this Agreement, and Aimtech shall receive a certificate to such
effect executed by each of Asymetrix's and Sub's Chief Executive Officer.
8.2 Covenants. Each of Asymetrix and Sub shall have performed and complied
---------
in all material respects with all of their respective covenants contained in
Section 6 on or before the Closing, and Aimtech shall receive a certificate to
such effect signed by each of Asymetrix's and Sub's Chief Executive Officer and
Chief Financial Officer.
8.3 Compliance with Law. There shall be no order, decree, or ruling by any
-------------------
court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents. There shall have been obtained at or prior to the
-------------------
Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Merger by any regulatory
authority having jurisdiction over the parties and the actions herein proposed
to be taken, including but not limited to, requirements under applicable federal
and state securities laws.
8.5 Opinion of Asymetrix's Counsel. Aimtech shall have received from
------------------------------
Fenwick & West LLP, counsel to Asymetrix, an opinion substantially in the form
of Exhibit 8.5, relying as to matters of Washington law or an opinion from the
-----------
General Counsel of Asymetrix.
8.6 Stockholder Approval. The principal terms of this Agreement and the
--------------------
Certificate of Merger shall have been approved and adopted by the Aimtech
Stockholders, as required by applicable law and Aimtech's Certificate of
Incorporation and Bylaws.
8.7 Registration Rights Agreement. Asymetrix shall have executed and
-----------------------------
delivered a registration rights agreement substantially in the form of Exhibit
-------
8.7.
- ---
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<PAGE>
8.8 Stockholders' Agreement. Asymetrix and Paul Allen shall have entered
------------------------
into a stockholders' agreement in the form of Exhibit 8.8, and a representative
-----------
designated by a majority in interest of the Former Aimtech Stockholders (who is
reasonably acceptable to Asymetrix) shall have been elected to the Board of
Directors of Asymetrix effective upon the Effective Time.
8.9 Escrow Agreement. Aimtech shall have received the Escrow Agreement
----------------
executed by Asymetrix and the Escrow Agent, providing for the escrow of the
Escrow Shares on the terms and conditions of the Escrow Agreement.
8.10 Lucas Option. Leo Lucas shall be granted an option to purchase 19,431
------------
shares of Asymetrix Series 4 Class B Stock at an exercise price of $0.68 per
share.
9. CONDITIONS TO OBLIGATIONS OF ASYMETRIX AND SUB
The obligations of Asymetrix and Sub hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Asymetrix, but only in a
writing signed by Asymetrix):
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Aimtech set forth in Section 3 that are not made as a specific
date shall be true and accurate in all material respects on and as of the date
of this Agreement, and Asymetrix shall receive a certificate to such effect
executed by Aimtech's Chief Executive Officer and Chief Financial Officer.
9.2 Covenants. Aimtech shall have performed and complied in all material
---------
respects with all of its covenants contained in Section 5 on or before the
Closing, and Asymetrix shall receive a certificate to such effect signed by
Aimtech's Chief Executive Officer and Chief Financial Officer.
9.3 Compliance with Law. There shall be no order, decree, or ruling by any
-------------------
court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
9.4 Government Consents. There shall have been obtained at or prior to the
-------------------
Closing Date such permits or authorizations, and there shall have been taken
such other action, as are listed on Schedule 9.4.
------------
9.5 Opinion of Aimtech's Counsel. Asymetrix shall have received from Hale
----------------------------
& Dorr LLP, counsel to Aimtech, an opinion substantially in the form of Exhibit
-------
9.5.
- ---
9.6 Consents. Asymetrix or Aimtech shall have received duly executed
--------
copies of all material third party consents, approvals, assignments, waivers,
authorizations or other certificates contemplated by this Agreement or the
Aimtech Schedule of Exceptions or reasonably deemed necessary by Asymetrix's
counsel to provide for the continuation in full force and effect of any
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<PAGE>
and all material contracts and leases of Aimtech and for Aimtech to consummate
the transactions contemplated hereby in form and substance reasonably
satisfactory to Asymetrix, except for such consents and approvals thereof as
Asymetrix and Aimtech shall have agreed shall not be obtained.
9.7 No Litigation. No litigation or proceeding shall be overtly threatened
-------------
or pending to enjoin or prevent the consummation of any of the transactions
contemplated by this Agreement, or which could be reasonably expected to have a
Material Adverse Effect.
9.8 Requisite Approvals. The principal terms of this Agreement and the
-------------------
Certificate of Merger shall have been approved and adopted by the holders of no
less than ninety percent (90%) of Aimtech Common Stock outstanding on the record
date for obtaining stockholder approval of this Agreement and the Certificate of
Merger, and by a majority of Aimtech's Board of Directors.
9.9 Dissenting Shares. The Dissenting Shares shall not constitute more
-----------------
than ten percent (10%) of the total number of shares of Aimtech Common Stock
outstanding immediately prior to the Effective Time.
9.10 Escrow Agreement. Asymetrix shall have received the Escrow Agreement
----------------
executed by Aimtech and the Representative, providing for the escrow of the
Escrow Shares on the terms and conditions of the Escrow Agreement.
9.11 Resignation of Directors. The directors of Aimtech in office
------------------------
immediately prior to the Effective Time of the Merger shall have resigned as
directors of the surviving corporation effective as of the Effective Time of the
Merger.
9.12 Investment Representation Agreements. Asymetrix shall have received
------------------------------------
from each substantially all of the holders of Aimtech Common Stock receiving
Asymetrix Common Asymetrix Merger StockStock in the Merger hereunder an executed
Investment Representation Agreement substantially in the form of Exhibit 9.12
------------
hereto. To the extent Asymetrix has not received an executed Investment
Representation Agreement from a Former Aimtech Stockholder, Asymetrix may
withhold delivery of such Former Aimtech Stockholder's stock certificate until
it has received an executed Investment Representation Agreement.
9.13 Employment Agreements. Asymetrix shall have received from Leo Lucas
---------------------
an executed Employment Agreement substantially in the form of Exhibit 9.13
------------
hereto.
9.14 Reverse Stock Split. All corporate action on the part of Aimtech
-------------------
required to authorize and effect a 2,500 for one reverse stock split (the "Stock
Split") shall have been taken and an amendment to Aimtech's Certificate of
- -----
Incorporation effecting such Stock Split shall have been filed with the
Secretary of State of the State of Delaware on or before July 8, 1997. No
further action shall be required on the part of Aimtech, its Board of Directors
or its stockholders
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<PAGE>
(including, without limitation, the making of any required cash payments to
purchase fractional shares of Aimtech stock) to effectuate such Stock Split.
9.15 Investment in Aimtech. Prior to the Effective Date, Aimtech shall
---------------------
have received an investment in its Common Stock or otherwise, in the cash amount
of at least (i) $1,000,000 plus (ii) any amounts in excess of $105,000 to be
paid to Aimtech stockholders in connection with the Stock Split (the
"Financing"), provided that if such additional investment is not in the form of
---------
Aimtech Common Stock, such investment shall be in the form of a security which
shall be converted into Aimtech Common Stock immediately prior to the Effective
Time. Such securities shall have been issued in compliance with all applicable
federal securities and state "blue sky" laws
9.16 Purchaser Representative. Asymetrix shall have received a letter
------------------------
executed by each of Andrew Huffman and David Johnson in his capacity as
"purchaser representative" substantially in the form attached hereto as Exhibit
-------
9.16.
- -----
9.17 Aimtech Options; Other Securities; All outstanding options to
---------------------------------
purchase Aimtech securities shall have been exercised or shall have been
terminated. No securities of Aimtech other than Aimtech Common Stock shall be
outstanding immediately prior to the Effective Time.
10. TERMINATION OF AGREEMENT
10.1 Termination of Agreement. Asymetrix and Aimtech may terminate this
------------------------
Agreement prior to the Effective Time (whether before or after stockholder
approval has been obtained) solely as provided below:
10.1.1 Asymetrix may terminate this Agreement by giving written
notice to Aimtech in the event Aimtech is in breach, and Aimtech may terminate
this Agreement by giving written notice to Asymetrix in the event Asymetrix or
the Sub is in breach, for any material representation, warranty, or covenant
contained in this Agreement, and such breach is not remedied within 10 days of
delivery of written notice thereof;
10.1.2 Asymetrix may terminate this Agreement by giving written
notice to Aimtech if the Closing shall not have occurred on or before September
15August 31, 1997 by reason of the failure of any condition precedent under
Section 9 hereof (unless the failure results primarily for a breach by Asymetrix
or the Sub of any representation, warranty or covenant contained in this
Agreement); or
10.1.3 Aimtech may terminate this Agreement by giving written notice
to Asymetrix if the Closing shall not have occurred on or before August
31September 15, 1997 by reason of the failure of any condition precedent under
Section 8 hereof (unless the failure results primarily from a breach by Aimtech
of any representation, warranty or covenant contained in this Agreement).
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<PAGE>
10.2 No Liability. Any termination of this Agreement pursuant to this
------------
Section 10 will be without further obligation or liability upon any party in
favor of the other party hereto other than the obligations provided in Sections
11.2, 12.8 and 12.16 and in the Nondisclosure Agreement between Aimtech and
Asymetrix dated November 7, 1996, other than any liability of any party for
breaches of this Agreement, which will survive termination of this Agreement;
provided, however, that nothing herein will limit the obligation of Aimtech and
Asymetrix to use their best efforts to cause the Merger to be consummated, as
set forth in Sections 5.12 and 6.3 hereof, respectively.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of Aimtech, Asymetrix and Sub contained in this Agreement will survive
the Effective Time and remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the parties to this Agreement,
until the earlier of (a) the termination of this Agreement or (b) two (2) years
after the Closing Date, whereupon such representations, warranties and covenants
will expire (except for covenants that by their terms survive for a longer
period); provided, however, that, if the Closing occurs, representations and
warranties in Section 3.3, 3.7, 3.12, 4.3, 4.7 and 4.12 shall expire three (3)
years after the Closing Date; provided further, however, that representations,
warranties and covenants involving intentional fraud or willful misconduct shall
survive the Closing without the limitations of subsections (a) or (b) above. The
period of such survival shall be referred to herein as the "Survival Period."
---------------
11.2 Agreement to Indemnify.
----------------------
11.2.1 Subject to the limitations set forth in this Section 11, the
Former Aimtech Stockholders (during the term of the Escrow Agreement) shall
indemnify Asymetrix and the surviving corporation (the "Asymetrix Indemnified
---------------------
Persons") in respect of , and hold the Asymetrix Indemnified Persons harmless
- -------
against, any and all claims, demands, actions, causes of actions, losses, costs,
damages, liabilities and expenses including, without limitation, reasonable
legal fees (hereinafter referred to as "Damages"):
-------
(a) arising out of any misrepresentation or breach of or default
in connection with any of the representations, warranties and covenants given or
made by Aimtech in this Agreement (including any Schedule or Exhibit hereto);
(b) resulting from any failure of any of the Former Aimtech
Stockholders to have good, valid and marketable title to the issued and
outstanding Aimtech Common Stock held by such Stockholders, free and clear of
all liens, claims, pledges, options, adverse claims, assessments or charges of
any nature whatsoever, or to have full right, capacity and authority to vote
such Aimtech Common Stock in favor of the Merger and the other transactions
contemplated by the Certificate of Merger (provided, however, that any such
claim under this paragraph (b) shall be made only against the Former Aimtech
Stockholder whose failure to have
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<PAGE>
such good, valid and marketable titled gave rise to such Damages, and not
against any other person);
(c) arising out of or resulting from the Financing;
(d) arising out of or resulting from the Stock Split which are
in excess of $105,000; or
(e) arising out of or resulting from having Dissenting Shares in
excess of 5% of the total number of shares of Aimtech Common Stock outstanding
immediately prior to the Effective Time, provided, however, that 50% of any such
Damages which consist of litigation or arbitration costs and expenses relating
to the appraisal rights of the Dissenting Shares shall be borne by Asymetrix
11.2.2 The indemnification provided for in paragraphs (a), (b) and
(c) of subsection 11.2.1 shall not apply unless and until the aggregate Damages
for which one or more Asymetrix Indemnified Persons seeks indemnification under
such paragraphs (a), (b) and (c), exclusive of legal fees, exceeds $150,000 (the
"Basket") and then only to the extent that aggregate Damages exceed the Basket;
------
provided, however, that the Basket shall not apply to any Damages arising from
- -------- -------
the breach of the representations and warranties set forth in Section 3.25.
Asymetrix will use its best efforts to obtain recoveries under all applicable
insurance policies for all Damages. In seeking indemnification for Damages
under Section 11.2.1, the Asymetrix Indemnified Persons shall exercise their
remedies with respect to the Escrow Shares and any other assets deposited in
escrow pursuant to the Escrow Agreement and these Escrow Shares and such other
assets shall be the sole source of indemnification in connection therewith;
provided, however, that no such claim for Damages will be asserted after the
- -------- -------
expiration of the applicable Survival Period. Except for intentional fraud or
willful misconduct, the remedies set forth in this Section shall be the
exclusive remedies of Asymetrix and the other Asymetrix Indemnified Persons
hereunder against any of the Former Aimtech Stockholders.
11.2.3 Subject to the limitations set forth in this Section 11,
Asymetrix will indemnify and hold harmless the Former Aimtech Stockholders
(collectively, the "Aimtech Indemnified Persons") from and against any and all
---------------------------
Damages (a) arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties and covenants given or
made by Asymetrix or Sub in this Agreement or in any certificate, document or
instrument delivered by or on behalf of Asymetrix pursuant hereto, or (b)
resulting from any failure on the part of Asymetrix to issue to the Former
Aimtech Stockholders good, valid and marketable title to the Asymetrix Merger
StockAsymetrix Common Stock as provided in this Agreement, free and clear of all
liens, claims, pledges, options, adverse claims, assessments or charges of any
nature whatsoever; provided, however, that Asymetrix's maximum aggregate
liability under this Section 11.2.3 shall be equal to the product of the Stated
Value Per Share times the total number of shares issued to the Aimtech
Stockholders in the Merger.
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<PAGE>
11.2.4 Any Asymetrix Indemnified Person or Aimtech Indemnified Person
seeking indemnification hereunder shall give prompt written notification to a
majority in interest of Former Aimtech Stockholders (in the case of
indemnification sought by an Asymetrix Indemnified Person) or to Asymetrix (in
the case of indemnification sought by an Aimtech Indemnified Person) (as
applicable, the "Indemnification Representative") of the commencement of any
------------------------------
action, suit or proceeding relating to a third party claim for which
indemnification pursuant to this Section 11 may be sought; provided, however,
that no delay on the part of the Indemnified Person in providing such notice
shall relieve the Aimtech Stockholders or Asymetrix, as the case may be, of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnification Representative may, upon
written notice thereof to the Indemnified Person, assume control of the defense
of such action, suit or proceeding with counsel reasonably satisfactory to the
Indemnified Person, provided that the Indemnification Representative
acknowledges in writing to the Indemnified Person that any damages, fines, costs
or other liabilities that may be assessed against the Indemnified Person in
connection with such action, suit or proceeding constitute Damages for which the
Indemnified Person shall be entitled to indemnification pursuant to this Section
11. If the Indemnification Representative does not so assume control of such
defense, the Indemnified Person shall control such defense. The party not
controlling such defense may participate therein at it own expense; provided
that if the Indemnification Representative assumes control of such defense and
the Indemnified Person reasonably concludes that the indemnifying parties and
the Indemnified Person have conflicting interests or different defenses
available with respect to such action, suit or proceeding, the reasonable fees
and expenses of counsel to the Indemnified Person shall be considered "Damage"
for purpose of this Agreement. The party controlling such defense shall keep
the other party advised of the status of such action, suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
other party with respect thereto. The Indemnified Person shall not agree to any
settlement of such action, suit or proceeding without the prior written consent
of the Indemnification Representative.
11.2.5 Treatment of Indemnity Payments. Any payment made to an
-------------------------------
Indemnified Person pursuant to this Section 11 or the Escrow Agreement shall be
treated as a reduction in the merger consideration.
11.3 Directors and Officers Liability. The provisions with respect to
--------------------------------
indemnification set forth in Aimtech's Certificate of Incorporation and Bylaws
as currently in effect shall not be amended, repealed or otherwise modified in
any manner that would adversely affect the rights thereunder of individuals who
at any time prior to the Effective Time were directors, officers, employees or
agents of Aimtech, unless such modification is required by law.
12. MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
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<PAGE>
12.2 Assignment; Binding Upon Successors and Assigns. Neither party
-----------------------------------------------
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other party hereto and any attempt to do so will be void.
This Agreement will be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
12.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
12.6 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a party
of any breach hereof or default in the performance hereof will not be deemed to
constitute a waiver of any other default or any succeeding breach or default.
The Agreement may be amended by the parties hereto at any time before or after
approval of the Aimtech Stockholders; but, after such approval, no amendment
will be made which by applicable law requires the further approval of the
Aimtech Stockholders without obtaining such further approval.
12.7 No Waiver. The failure of any party to enforce any of the provisions
---------
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
12.8 Expenses. Each party will bear its respective expenses and fees of
--------
its own accountants, attorneys and other professionals incurred with respect to
this Agreement and the transactions contemplated hereby.
-43-
<PAGE>
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit, reasonable attorneys' fees to be fixed by the
court (including without limitation, costs, expenses and fees on any appeal).
The prevailing party will be entitled to recover its costs of suit, regardless
of whether such suit proceeds to final judgment.
12.10 Notices. Any notice or other communication required or permitted to
-------
be given under this Agreement will be in writing, will be delivered personally,
by registered or certified mail, postage prepaid, by confirmed facsimile or by
nationally recognized courier service, and will be deemed given upon delivery,
if delivered personally, or five days after deposit in the mails, if mailed, or
upon receipt if delivered by confirmed facsimile or by nationally recognized
courier service, to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 857-0361
(ii) If to Aimtech:
-------------
Aimtech Corporation
20 Trafalgar Square, Suite 300
Nashua, NH 03063-1987
Facsimile: (603) 594-4124
Attention: President
With a copy to:
--------------
Jeffrey A. Stein, Esq.
Hale & Dorr LLP
Boston, MA 02109
Facsimile: (617) 526-5000
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.10.
-44-
<PAGE>
12.11 Construction of Agreement. This Agreement has been negotiated by the
-------------------------
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a Section or an exhibit
will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
12.12 No Joint Venture. Nothing contained in this Agreement will be deemed
----------------
or construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other and their status is,
and at all times, will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
12.13 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.14 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
12.15 Public Announcement. Upon execution of the Agreement by both
-------------------
parties, and until the consummation of the Merger, all press releases and other
public communications shall be made by the parties only with the mutual consent
of Aimtech and Asymetrix.
12.16 Confidentiality. Asymetrix, Sub and Aimtech each recognize that they
---------------
have received and will receive confidential information concerning the other
during the course of the Merger negotiations and preparations. Accordingly, each
party agrees (a) to use its respective best efforts to prevent the unauthorized
disclosure of any confidential information concerning the other that was or is
disclosed during the course of such negotiations and preparations, and is
clearly designated in writing as confidential at the time of disclosure, and (b)
to not make use of or permit to be used any such confidential information other
than for the purpose of effectuating the Merger and related transactions. The
obligations of this Section will not apply to information that (i) is or becomes
part of the public domain, (ii) is disclosed by the disclosing party to third
parties without restrictions on disclosure, (iii) is received by the receiving
party from a third party without breach of a nondisclosure obligation to the
other party or (iv) is required to be disclosed by law. If this Agreement is
terminated, all copies of documents containing confidential information shall be
returned by the receiving party to the disclosing party.
-45-
<PAGE>
12.17 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
-46-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"ASYMETRIX" "AIMTECH"
Asymetrix Corporation Aimtech Corporation
By: /s/ James Billmaier By: /s/ Andy Huffman
----------------------- ---------------------
Name: JAMES BILLMAIER Name: ANDY HUFFMAN
--------------------- -------------------
Its: PRESIDENT & CEO Its: CEO
---------------------- --------------------
"SUB"
ASX Merger Corporation
By: /s/ James Billmaier
-----------------------
Name: JAMES BILLMAIER
---------------------
Its: PRESIDENT & CEO
----------------------
[SIGNATURE PAGE FOR AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION]
-47-
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
- ------------------------------
Exhibit A Certificate of Merger
Exhibit 1.9 Statement of Designation
Exhibit 2.4 Escrow Agreement
Exhibit 3.0 Aimtech Schedule of Exceptions
Exhibit 4.0 Asymetrix Schedule of Exceptions
Exhibit 8.5 Form of Opinion of Asymetrix Counsel
Exhibit 8.7 Registration Rights Agreement
Exhibit 8.8 Voting Agreement
Exhibit 9.5 Form of Opinion of Aimtech Counsel
Exhibit 9.12 Investment Representation Agreement
Exhibit 9.13 Form of Leo Lucas Employment Agreement
Exhibit 9.16 Purchaser Representative Letter
Schedule 3.3 List of Aimtech Common Stockholders
Schedule 9.4 List of Required Government Consents
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<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF AGREEMENT
OF MERGER, WHICH MERGES:
"ASX MERGER CORPORATION", A DELAWARE CORPORATION, WITH AND INTO "AIMTECH
CORPORATION" UNDER THE NAME OF "AIMTECH CORPORATION", A CORPORATION
ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND
FILED INTO THIS OFFICE THE TWELFTH DAY OF SEPTEMBER, A.D. 1997, AT 2:30 O'CLOCK
P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS FOR RECORDING.
________________________________________
Edward J. Freel, Secretary of State
AUTHENTICATION: 8648761
DATE: 09-12-97
<PAGE>
AGREEMENT OF MERGER
OF
ASX MERGER CORPORATION
WITH AND INTO
AIMTECH CORPORATION
This Agreement of Merger ("Agreement of Merger") is entered into as of
-------------------
September 11, 1997, by and between Aimtech Corporation, a Delaware corporation
("Aimtech") (survivor) and ASX Merger Corporation, a Delaware corporation
-------
("Sub") (nonsurvivor) that is a wholly-owned subsidiary of Asymetrix
---
Corporation, a Washington corporation ("Asymetrix").
---------
1. Effective Time of Merger. Pursuant to the Delaware General Corporation
------------------------
Law (the "Delaware Law"), Sub will be merged with and into Aimtech in a reverse
------------
triangular merger (the "Merger"), with Aimtech to be the surviving corporation
------
of the Merger. The Merger will be effective (the "Effective Time") upon the
--------------
filing of this Agreement of Merger with the Secretary of State of the State of
Delaware.
2. Conversion of Securities.
------------------------
(a) Conversion of Aimtech Shares. At the Effective Time, each share
----------------------------
of Aimtech Common Stock, $0.01 par value, that is issued and outstanding
immediately prior to the Effective Time, other than shares, if any, for which
dissenters' rights have been or will be perfected in compliance with applicable
law, will, by virtue of the Merger and without further action on the part of any
holder thereof or any other person, be converted into the right to receive such
number of shares (the "Applicable Fraction") of Series 4 Class B Stock of
-------------------
Asymetrix (the "Asymetrix Merger Stock") as is equal to 2,111,795 shares divided
----------------------
by the total number of shares of Aimtech Common Stock issued and outstanding
immediately prior to the Effective Time. No fractional shares of Asymetrix
Merger Stock will be issued in connection with the Merger, but in lieu thereof,
any holder of Aimtech Common Stock who would otherwise be entitled to receive a
fraction of a share of Asymetrix Merger Stock will receive from Asymetrix an
additional fraction of a share of Asymetrix Merger Stock, such that the total
number of shares of Asymetrix Merger Stock issued to each such holder of Aimtech
Common Stock shall be rounded up to the next larger whole number of shares of
Asymetrix Merger Stock.
(b) Conversion of Sub Shares. At the Effective Time, each share of
------------------------
Sub Common Stock, $0.01 par value ("Sub Common Stock"), issued and outstanding
----------------
immediately prior to the Effective Time, will, by virtue of the Merger and
without further action on the part of the holder thereof or any other person, be
converted into and become one (1) share of Aimtech Common Stock that is issued
and outstanding immediately after the Effective Time, and the shares of Aimtech
Common Stock into which the shares of Sub Common Stock are so converted shall be
the only shares of Aimtech Stock that are issued and outstanding immediately
after the Effective Time.
<PAGE>
(c) Aimtech Options; Other Securities. At the Effective Time, each
---------------------------------
option to purchase shares of Aimtech Common Stock under Aimtech's Amended and
Restated 1989 Stock Incentive Plan outstanding immediately prior to the
Effective Time, and all other equity securities of Aimtech (including warrants
to purchase securities of Aimtech), other than Aimtech Common Stock, issued and
outstanding immediately prior to the Effective Time will, by virtue of the
Merger and without any further action on the part of the holder thereof or any
other person, be canceled, and the holders thereof will not be entitled to
receive any Asymetrix securities in consideration thereof.
(d) Escrow Shares. Pursuant to the Escrow Agreement, at the closing
-------------
of the Merger, Asymetrix will (i) deduct, pro rata, from the shares of Asymetrix
Merger Stock that would otherwise be delivered to former holders of Aimtech
Common Stock (the "Stockholders") 20.9161% of the total number of shares of
------------
Asymetrix Merger Stock issued to them in the Merger and (ii) deliver on behalf
of the Stockholders certificates representing the shares thus withheld to
Commerce Bank as escrow agent (the "Escrow Agent"). The shares of Asymetrix
------------
Merger Stock withheld pursuant to this Section 2(d) at the closing of the Merger
(the "Escrow Shares") will be held in escrow pursuant to a separate Escrow
-------------
Agreement (the "Escrow Agreement") to secure the indemnification obligations of
----------------
the Stockholders.
(e) Surrender and Exchange of Outstanding Certificates. Each
--------------------------------------------------
certificate which immediately before the Effective Time evidenced shares of
Aimtech Common Stock will, from and after the Effective Time until such
certificate is surrendered to Asymetrix or its transfer agent, if any, be
deemed, for all corporate purposes, to evidence the right to receive the
consideration described above (subject to the terms and conditions of the Escrow
Agreement); provided, however, that until such certificate is so surrendered by
a Shareholder, no dividend or other distribution payable to such Shareholder at
the Effective Time will be paid in respect of the shares of Asymetrix Merger
Stock represented by such certificate. Upon surrender, all dividends and
distributions, if any, theretofore declared and accrued but unpaid in respect of
such shares, will be paid. The Stockholders will be requested to surrender to
Asymetrix or its transfer agent, if any, as soon as practicable after the
Effective time, the certificate or certificates representing all the shares of
Aimtech Common Stock issued and outstanding immediately prior to the Effective
Time. Upon such surrender, the Stockholders will be entitled to receive
certificate(s) evidencing ownership of the shares of Asymetrix Merger Stock
which are deemed to be represented by the certificate or certificate(s)
surrendered (which do not include the Escrow Shares). Asymetrix or its transfer
agent will issue to the Stockholders such certificate(s) as soon as practicable
following such surrender.
3. Effects of Merger. At the Effective Time: (a) the separate existence
-----------------
of Sub will cease and Sub will be merged with and into Aimtech, and Aimtech will
be the surviving corporation pursuant to the terms of this Agreement of Merger;
(b) the Certificate of Incorporation and Bylaws of Aimtech will become the
Certificate of Incorporation and Bylaws of the surviving corporation; (c) each
share of Aimtech Common Stock outstanding immediately prior to the Effective
Time will be converted as provided in Section 2 of this Agreement; (d) each
share of Sub Common Stock outstanding immediately prior to the Effective Time
will be converted into one (1) outstanding share of Aimtech Common Stock; (e)
each Aimtech Option
2
<PAGE>
and all other equity securities of Aimtech (including warrants to purchase
securities of Aimtech), other than Aimtech Common Stock, issued and outstanding
immediately prior to the Effective Time will be canceled; (f) the directors and
officers of Sub immediately prior to the Effective Time will become the
directors and officers of the surviving corporation; and (g) the Merger will, at
and after the Effective Time, have all of the effects provided by applicable
law.
4. Plan. Asymetrix, Aimtech and Sub are parties to the Amended and
----
Restated Agreement and Plan of Reorganization dated as of June 24, 1997 (the
"Plan"). The Plan and this Agreement are intended to be construed together in
----
order to effectuate their purposes.
5. Further Assignments. After the Effective Time, Sub and its officers
-------------------
and directors may execute and deliver such deeds, assignments and assurances and
do all other things necessary to desirable to vest, perfect or confirm title to
Aimtech's property or rights in Sub and otherwise to carry out the purposes of
the Plan in the name of Aimtech or otherwise.
6. Termination. This Agreement may be terminated and the proposed Merger
-----------
abandoned at any time prior to the Effective Time, whether before or after
approval of this Agreement by the Stockholders of Aimtech, by either party
hereto upon termination of the Plan or by the mutual consent of the Board of
Directors of Sub and Aimtech.
7. Dissenters Rights. Holders of shares of Aimtech Common Stock who have
-----------------
complied with all requirements for perfecting stockholders' rights of appraisal,
as set forth in Section 262 of the Delaware Law, shall be entitled to their
rights under Delaware Law with respect to such shares.
8. Assignment. Neither party hereto may assign any of its rights or
----------
obligations hereunder without the prior written consent of the other party
hereto and any attempt to do so will be void. This Agreement will be binding
upon and inure to the benefit of the parties hereto and their respective
successors, personal representatives and permitted assigns.
9. Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of laws principles) shall govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
10. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement of Merger
to be duly executed on the date and year first above written.
ASX MERGER CORPORATION AIMTECH CORPORATION
By: _____________________________ By: _______________________________
James Billmaier, President Andrew Huffman, President
By: _____________________________ By: _______________________________
Steven Esau, Secretary David Johnson, Secretary
4
<PAGE>
CERTIFICATE OF APPROVAL OF MERGER
OF
ASX MERGER CORPORATION
WITH AND INTO
AIMTECH CORPORATION
James Billmaier and Steven Esau hereby certify that:
1. They are the President and Secretary, respectively, of ASX MERGER
CORPORATION, a Delaware corporation (the "Corporation"). The Corporation is the
-----------
NONSURVIVOR.
2. The Agreement of Merger to which this certificate is attached (the
"Agreement of Merger"), after having been first duly approved by the Board of
-------------------
Directors of the Corporation on June 24, 1997 and by the written consent of the
sole stockholder of the Corporation as of June 24, 1997, was duly signed on
behalf of the Corporation by the undersigned.
3. The Corporation has authorized capital stock consisting of one share
of Common Stock, $0.01 par value. The total number of outstanding shares of the
Corporation's capital stock entitled to vote on the Agreement of Merger was one
share of Common Stock.
4. The percentage vote required to approve the Agreement of Merger was
the affirmative vote of at least a majority of the outstanding shares of the
Corporation's Common Stock.
5. The Agreement of Merger was approved by the vote of a number of shares
of the Corporation's Common Stock which equaled or exceeded the vote required.
6. No vote of the stockholders of Asymetrix Corporation, a Washington
corporation of which the Corporation is a wholly owned subsidiary, was required.
We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct of
our own knowledge.
Dated: September 11, 1997
By: ______________________________ By: ___________________________
James Billmaier Steven Esau
President Secretary
<PAGE>
CERTIFICATE OF APPROVAL OF MERGER
OF
ASX MERGER CORPORATION
WITH AND INTO
AIMTECH CORPORATION
Andrew Huffman and David Johnson hereby certify that:
1. They are the President and Secretary, respectively, of AIMTECH
CORPORATION, a Delaware corporation ("Aimtech"). Aimtech is the SURVIVOR.
-------
2. The Agreement of Merger to which this certificate is attached, after
having been first duly approved by the Board of Directors on June 23, 1997 and
by a majority of the holders of the outstanding capital stock of Aimtech on
August 22, 1997, was duly signed on behalf of Aimtech by the undersigned.
3. Aimtech has authorized capital stock consisting of 20,000,000 shares
of Common Stock, $0.01 par value per share. The total number of outstanding
shares of Aimtech Common Stock entitled to vote on the Agreement of Merger was
2,970.
4. The percentage vote required to approve the Agreement of Merger was
the affirmative vote of at least a majority of the outstanding shares of Aimtech
capital stock.
5. The Agreement of Merger was approved by the vote of a number of shares
of Aimtech Common Stock which equaled or exceeded the vote required.
We further declare under penalty of perjury under the laws of the State of
Delaware that the matters set forth in this certificate are true and correct of
our own knowledge.
Dated: September 11, 1997
By: ______________________________ By: ___________________________
Andrew Huffman, President David Johnson, Secretary
<PAGE>
EXHIBIT A
---------
STATEMENT OF DESIGNATION OF RIGHTS,
PREFERENCES AND LIMITATIONS
OF SERIES 4 CLASS B STOCK
Series 4 Class B Stock, $0.01 par value
- ---------------------------------------
1. Equivalent to Common Stock. Except as otherwise set forth in this
--------------------------
Statement of Designation of Rights, Preferences and Limitations of Series 4
Class B Stock, the Series 4 Class B Stock of the Asymetrix Corporation (the
"Company") shall have rights, preferences and limitations identical with those
of the Company's $.01 par value Common Stock. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company, the holders
of any shares of the Series 4 Class B Stock and of the Common Stock shall be
entitled to receive pro rata on an equal priority, pari passu basis, any payment
or distribution of the assets of the Company (whether capital, surplus or
earnings), but not until payment in full of any amounts due the holders of the
Series 1 Class B Stock, the Series A Class B Stock, the Series B Class B Stock
and any future series of Class B Stock that may be entitled to priority over the
Common Stock in the payment or distribution of the assets of the Company in the
event of any such dissolution or winding-up.
2. Voting. Except as may otherwise be agreed in writing, the holders of
------
shares of Series 4 Class B Stock shall be entitled to vote upon all matters upon
which holders of the Common Stock have the right to vote, and each share of
Series 4 Class B Stock shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of Series 4
Class B Stock could be converted pursuant to the applicable provisions of
Section 3 below, at the record date established by the Board of Directors of the
Company for the determination of the shareholders entitled to vote on such
matters, or, if no such record date is so established, at the record date
provided by law, such votes to be counted together with all other shares of
capital stock having general voting powers and not separately as a class. The
holders of the Series 4 Class B Stock shall be entitled to receive notice of any
meeting of the shareholders in accordance with applicable law and with the
bylaws of the Company as in effect at the time of such notice. Except as
otherwise expressly required by law, in no event shall the holders of shares of
Series 4 Class B Stock have the right to vote separately as a class.
3. Conversion. The Series 4 Class B Stock shall be converted into Common
----------
Stock as follows:
(a) Conversion Events. Each outstanding share of Series 4 Class B
-----------------
Stock shall automatically be converted, without any further act of the Company
or its shareholders, into fully paid and nonassessable shares of Common Stock
pursuant to the formula as set forth in subsection 3(c) below upon the earliest
to occur of: (i) the distribution by the Company to holders of its securities
(other than the holders of Series 4 Class B Stock) of a controlling interest in
SuperCede, Inc., a wholly-owned subsidiary of the Company, in a spin-off
transaction; (ii) the distribution by the Company to holders of its securities
(other than the holders of Series 4 Class
<PAGE>
B Stock) of the consideration received by the Company in one of the following
transactions with respect to SuperCede, Inc.: (1) the sale of all or
substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; (iii) immediately prior to the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Company at an
aggregate offering price to the Company of not less than $10,000,000; or (iv)
upon acquisition of the Company by another entity by means of merger,
consolidation or otherwise, in which the holders of the Company's shares
outstanding immediately before such merger, consolidation or other transaction
do not, immediately after such merger, consolidation or other transaction,
retain stock representing a majority of the voting power of the surviving
corporation of such merger, consolidation or other transaction.
(b) Series 4 Conversion Ratio. Each share of Series 4 Class B Stock
-------------------------
shall be converted into one share of Common Stock. The Series 4 Conversion
Ratio shall be subject to adjustment as set forth in subsection 3(e).
(c) Mechanics of Conversion. Upon the occurrence of one of the
-----------------------
events specified in subsection 3(a), the outstanding shares of Series 4 Class B
Stock shall be converted automatically without any further action by the holders
of such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
--------
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 4 Class B Stock are delivered to the Company or
any transfer agent of the Company. Conversion of the Series 4 Class B Stock
shall be deemed to have been effected on the date on which the event specified
with respect to such Series 4 Class B Stock in subsection 3(a) shall have
occurred, and such date is referred to herein with respect to the Series 4 Class
B Stock as the "Series 4 Conversion Date." The holder in whose name the
--------
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of record of such Common Stock on the applicable Series 4
--------
Conversion Date. Following the Conversion Date, upon the request of any holder
of Series 4 Class B Stock so converted and after surrender of the certificate or
certificates representing such holder's shares of Series 4 Class B Stock to the
Company or any transfer agent of the Company (except in the case of conversions
pursuant to subsection 3(a)(iv)), the Company shall issue and deliver to such
holder a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in subsection 3(d).
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series 4 Class B Stock, but the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series 4 Class B
Stock so converted. Instead of any fractional shares of
<PAGE>
Common Stock which would otherwise be issuable upon conversion of any shares of
Series 4 Class B Stock, the Company shall pay a cash adjustment in respect of
such fractional interest in an amount equal to that fractional interest of the
then fair value per share of Common Stock, as determined by the Board of
Directors.
(e) Conversion Ratio Adjustments for the Series 4 Class B Stock. The
-----------------------------------------------------------
Conversion Ratio for the Series 4 Class B Stock shall be subject to adjustment
from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 4 Class B Stock
is increased by a stock dividend or other distribution on Common Stock payable
in shares of Common Stock or by a subdivision, split-up or reclassification of
outstanding shares of Common Stock, then immediately after the record date fixed
for the determination of holders of Common Stock entitled to receive such stock
dividend or the effective date of such subdivision, split-up or
reclassification, as the case may be, the Series 4 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 4 Class B
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 4 Class B Stock been converted
immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common
--------------------
Stock outstanding at any time after the date of issuance of the Series 4 Class B
Stock is decreased by a combination or reclassification of the outstanding
shares of Common Stock, then, immediately after the effective date of such
combination or reclassification, the Series 4 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 4 Class B
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 4 Class B Stock been converted
immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the Common
------------------------------------------
Stock issuable upon the conversion of the Series 4 Class B Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this subsection 3(e)), then and in each such event the holder of
each share of Series 4 Class B Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by the holders of the number of shares of Common Stock into which such share of
Series 4 Class B Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(iv) Rounding of Calculations; Minimum Adjustment. All
--------------------------------------------
calculations under this subsection (e) shall be made to the nearest one
hundredth (1/100th) of a share. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Series 4
<PAGE>
Conversion Ratio shall be made if the amount of such adjustment would be less
than 1% of the Series 4 Conversion Ratio then in effect, but any such amount
shall be carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
1% or more of the Series 4 Conversion Ratio then in effect.
(f) Statement Regarding Adjustments. In each case of an adjustment
-------------------------------
or readjustment of the Conversion Ratio for the Series 4 Class B Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series 4 Class B Stock at the holder's address as shown in the Company's
books.
(g) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 4 Class B
Stock; provided that the Company shall not be required to pay any taxes which
--------
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series 4 Class B Stock in respect of which such shares are being
issued.
(h) Reservation of Shares. So long as any shares of Series 4 Class B
---------------------
Stock remain outstanding, the Company shall reserve out of its authorized but
unissued shares of Common Stock, free from preemptive rights, sufficient shares
of Common Stock to provide for the conversion of all shares of Series 4 Class B
Stock outstanding, solely for the purpose of effecting such conversion.
(i) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 4 Class B Stock will upon issuance by
the Company be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 4 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
(j) Notices. Any notice required by the provisions of this Section 3
-------
to be given to the holders of shares of the Series 4 Class B Stock shall be
deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
4. Dividends. Dividends shall be declared and set aside for any shares
---------
of the Series 4 Class B Stock only upon resolution of the Board of Directors of
the Company. Except as otherwise set forth in this Section 4, no dividends
(other than Common Stock dividends in a transaction described in Section
3(e)(i)) shall be paid to the holders of the Common Stock or the Series 4 Class
B Stock unless an equivalent dividend is concurrently paid to the holders of the
Series 4 Class B Stock (on a as-converted to Common Stock basis); provided, that
--------
this restriction
<PAGE>
shall not apply to Permitted Repurchases. Notwithstanding the foregoing, no
holder of Series 4 Class B Stock shall be entitled to receive in any
distribution thereof to the holders of any other securities of the Company,
including Common Stock: (i) any shares of SuperCede, Inc. or (ii) any
consideration received by the Company in any of the following transactions with
respect to SuperCede, Inc.; (1) the sale of all or substantially all of the
assets of SuperCede, Inc., (2) the sale of a controlling interest in SuperCede,
Inc. to a third party, or (3) the acquisition of SuperCede, Inc. by another
entity by means of merger, consolidation or otherwise, in which the Company does
not, immediately after such merger, consolidation or other transaction, retain
stock representing a majority of the voting power of SuperCede, Inc.; "Permitted
Repurchases" means the repurchase by the Company of shares of Common Stock held
by employees, officers, directors, consultants, independent contractors,
advisors, or other persons performing services for the Company or a subsidiary
that are subject to restricted stock purchase agreements or stock option
exercise agreements under which the Company has the option to repurchase such
shares.
<PAGE>
ESCROW AGREEMENT
This Escrow Agreement (this "AGREEMENT") is made and entered into as of
September 11, 1997 (the "EFFECTIVE DATE"), by and among ASYMETRIX CORPORATION, a
Washington corporation ("ASYMETRIX"), the persons and entities listed on Exhibit
-------
A hereto (collectively, the "FORMER AIMTECH STOCKHOLDERS" and each individually,
- -
a "FORMER AIMTECH STOCKHOLDER") who immediately prior to the closing and
consummation of the Merger (as defined below) are the stockholders of AIMTECH
CORPORATION, a Delaware corporation ("AIMTECH"), and COMMERCE BANK as Escrow
Agent (the "ESCROW AGENT").
A. Aimtech, Asymetrix and ASX Merger Corporation, a Delaware corporation
("SUB"), have entered into an Agreement and Plan of Reorganization (the "PLAN")
dated as of June 24, 1997, pursuant to which Sub will merge with and into
Aimtech in a reverse triangular merger, with Aimtech to be the surviving
corporation (the "MERGER"). The capitalized terms used in this Agreement and not
otherwise defined herein shall have the meanings given them in the Plan, a copy
of which (without exhibits) is attached hereto as Exhibit C and incorporated
---------
herein by this reference.
B. Section 2.4 of the Plan provides that twenty percent (20%) of the
total number of shares of Asymetrix Series 4 Class B Stock that are issued in
the Merger to the Former Aimtech Stockholders in accordance with Section 2.1.1
of the Plan (the "ESCROW SHARES") shall be deducted and withheld from the shares
of Asymetrix Series 4 Class B Stock to be issued to the Former Aimtech
Stockholder Asymetrix in the Merger and shall be placed in an escrow account
(the "ESCROW ACCOUNT") to secure certain indemnification obligations of the
Former Aimtech Stockholders to Asymetrix and other Asymetrix Indemnified Persons
(as defined in Section 11.2 of the Plan) under Section 11 of the Plan on the
terms and conditions set forth herein. The Escrow Shares required to be
deposited by each Former Aimtech Stockholder in the Escrow Account pursuant to
this Agreement are shown on Exhibit A attached hereto.
---------
C. The parties hereto desire to establish the terms and conditions
pursuant to which the Escrow Shares shall be deposited, held in, and disbursed
from the Escrow Account.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. ESCROW AND INDEMNIFICATION
--------------------------
(a) Former Aimtech Stockholders; Damages. As used herein, the
------------------------------------
term "FORMER AIMTECH STOCKHOLDERS" shall have the meaning given to such term in
Section 1.5 of the Plan. As used herein, the term "DAMAGES" means "Damages" as
defined in Section 11.2 of the Plan.
(b) Escrow of Shares. Promptly after the Closing Date,
----------------
Asymetrix or its transfer agent, if any, shall deposit the Escrow Shares to be
deducted and withheld from the shares of Asymetrix Series 4 Class B Common Stock
issued to the Former Aimtech Stockholders in the Merger with the Escrow Agent,
accompanied by written notice making reference to this Agreement and identifying
the shares so deposited as the Escrow Shares. The Escrow Agent shall hold the
Escrow Shares in escrow as collateral for the indemnification obligations of the
<PAGE>
Former Aimtech Stockholders under Section 11 of the Plan until the Escrow Agent
is required to release such Escrow Shares pursuant to the terms of this
Agreement. As used in this Agreement, the term "ESCROW SHARES" shall include all
"ADDITIONAL ESCROW SHARES" as that term is defined in Section 2(b) of this
Agreement and any securities of Asymetrix issuable upon conversion of such
Escrow Shares and Additional Escrow Shares. The Escrow Agent agrees to accept
delivery of the Escrow Shares and to hold such Escrow Shares in escrow subject
to the terms and conditions of this Agreement.
(c) Indemnification. Asymetrix and the other Asymetrix
---------------
Indemnified Persons are indemnified pursuant to the terms of Section 11.2 of the
Plan (which terms are incorporated herein by reference) from and against any
Damages, subject to the limitations set forth in Section 11 of the Plan and
herein. The Escrow Shares shall be security for these indemnity obligations,
subject to the limitations, and in the manner provided, in Section 11 of the
Plan and in this Agreement. For purposes of this Agreement, references to
Asymetrix in this Agreement shall include all other Asymetrix Indemnified
Persons, as applicable.
2. DEPOSIT OF ESCROW SHARES; RELEASE FROM ESCROW.
---------------------------------------------
(a) Delivery of Escrow Shares. On the Effective Date or as soon
-------------------------
thereafter as is reasonably practicable: (i) the Escrow Shares allocable to each
Former Aimtech Stockholder as shown on Exhibit A (the "INITIAL ESCROW SHARES")
shall be delivered by Asymetrix or Asymetrix's transfer agent, if any, to the
Escrow Agent in the form of duly authorized stock certificates issued in the
respective names of the holders thereof; and (ii) each of the Former Aimtech
Stockholders shall deliver to the Escrow Agent two (2) duly endorsed stock
powers in the form of Exhibit B attached hereto covering such Initial Escrow
---------
Shares. Each Former Aimtech Stockholder will execute and deliver to the Escrow
Agent such additional stock powers relating to the Escrow Shares as may be
necessary, in the Escrow Agent's opinion, to carry out its responsibilities
under this Agreement. In the event Asymetrix issues any Additional Escrow Shares
(as defined below), Asymetrix shall or shall instruct its transfer agent, if
any, to deliver such Additional Escrow Shares to the Escrow Agent, and each
Former Aimtech Stockholder shall deliver endorsed stock powers for such Former
Aimtech Stockholder's Additional Escrow Shares to the Escrow Agent, in the same
manner as the Initial Escrow Shares and stock powers therefor were delivered to
the Escrow Agent hereunder.
(b) Dividends, Voting and Rights of Ownership. Except for
-----------------------------------------
dividends paid in shares of Asymetrix stock that are declared with respect to
the Escrow Shares ("ADDITIONAL ESCROW SHARES"), any cash dividends, dividends
payable in securities or other distributions of any kind made or paid in respect
of the Escrow Shares shall be distributed currently by Asymetrix to each Former
Aimtech Stockholder. The Former Aimtech Stockholder shall have the right to vote
the Escrow Shares deposited in the Escrow Account for the account of such Former
Aimtech Stockholder so long as such Escrow Shares are held in escrow, and
Asymetrix shall take all reasonable steps necessary to allow the exercise of
such rights. So long as the Escrow Shares remain in the Escrow Agent's
possession pursuant to this Agreement and have not been canceled as provided
herein, the Former Aimtech Stockholder shall retain and shall be able to
exercise voting rights with respect to such Escrow Shares and all other
incidents of ownership of said Escrow Shares that are not inconsistent with the
terms and conditions of this Agreement.
2
<PAGE>
(c) Distributions to Shareholders. Upon the date on which is
-----------------------------
two years from the Effective Date (the "RELEASE DATE"), the Escrow Agent shall
release from escrow to each Former Aimtech Stockholder the remaining number of
such Former Aimtech Stockholder's Escrow Shares or the remaining amount of
Escrow Consideration (as defined in Section 2(d)) of such Former Aimtech
Stockholder. Notwithstanding the foregoing, if on the Release Date, a written
notice of a Claim (a "NOTICE OF CLAIM") has been received by the Escrow Agent
and the Former Aimtech Stockholders and the amount demanded therein has not been
paid or has not been resolved pursuant to Section 4(b) (a "PENDING CLAIM"), the
Escrow Agent shall hold in escrow an amount of Escrow Shares or Escrow
Consideration necessary to pay the full amount specified in such Notice of
Claim. After such Pending Claim has been resolved and paid, the Escrow Agent
shall release from escrow to each Former Aimtech Stockholder the remaining
number of such Former Aimtech Stockholder's Escrow Shares or the remaining
amount of Escrow Consideration of such Former Aimtech Stockholder.
(d) Cash in Lieu of Escrow Shares. At any time during the term
-----------------------------
of this Agreement, a Former Aimtech Stockholder shall be permitted to deposit
cash in escrow and have released to such Former Aimtech Stockholder a number of
Escrow Shares (the "CASH OUT SHARES") equal to the amount of cash so deposited
divided by the Stated Value Per Share. The Cash Out Shares to be so released
shall be released to the Former Aimtech Stockholder as provided in Section 2(e).
Any cash deposited in escrow pursuant to this Section 2 is referred to herein as
"ESCROW CONSIDERATION." Interest earned on the Escrow Consideration shall remain
in escrow and the term "Escrow Consideration" shall be deemed to include any
interest earned thereon. Any Escrow Consideration shall be held in a passbook
savings account with the Escrow Agent.
(e) Release of Shares. The Escrow Shares shall be held by the
-----------------
Escrow Agent until such Escrow Shares are required to be released pursuant to
either Section 2(c) or 2(d) or when required under applicable provisions of
Section 4, and the Escrow Agent shall deliver to the Former Aimtech Stockholders
or to Asymetrix, as applicable hereunder, the requisite number of Escrow Shares
to be released on such applicable date as is called for by this Agreement. Such
delivery shall be in the form of stock certificate(s) registered in the name of
such Former Aimtech Stockholders or Asymetrix, as applicable hereunder. The
Escrow Agent shall coordinate with Asymetrix or Asymetrix's transfer agent, if
any, who shall cause such stock certificates to be registered in the appropriate
names as determined by the Escrow Agent in accordance with this Agreement.
Asymetrix shall give the Escrow Agent prompt written notice of the name and
address of any new transfer agent for Asymetrix's Series 4 Class B Stock.
Asymetrix and the Former Aimtech Stockholders undertake to deliver a prompt
written notice to the Escrow Agent identifying the number of Escrow Shares to be
released to the Former Aimtech Stockholders and/or Asymetrix, as applicable.
Escrow Shares released to the Former Aimtech Stockholders shall be released to
them in proportion to their respective interests as set forth in Exhibit A. The
Escrow Agent shall use good faith efforts (with Asymetrix's assistance) to have
such stock certificates in its possession no later than three (3) business days
prior to the day on which the Escrow Agent is to deliver such certificates to
the Former Aimtech Stockholders. Cash shall be paid in lieu of fractions of
Escrow Shares in an amount equal to the applicable fraction of an Escrow Share
multiplied by the Stated Value Per Share (as defined in the Plan) (such
applicable price per share as adjusted to reflect any capital change of the type
described in subsection 2.1.2 of the Plan, whether occurring prior to, at or
after the Effective Time). Within five (5) business days after written request
from a majority in interest of the Former Aimtech
3
<PAGE>
Stockholders, Asymetrix shall submit to the Escrow Agent and the Former Aimtech
Stockholders a certified schedule of the cash amounts payable for fractional
shares (if any) and shall deposit with the Escrow Agent sufficient funds to pay
such cash amounts for fractional shares.
(f) No Encumbrance. No Escrow Shares or any beneficial interest
--------------
therin may be pledged, encumbered, sold, assigned or transferred (including any
transfer by operation of law), by a Former Aimtech Stockholder or be taken or
reached by any legal or equitable process in satisfaction of any debt or other
liability of the Former Aimtech Stockholder, prior to the delivery to such
Former Aimtech Stockholders of the Escrow Shares by the Escrow Agent. The Escrow
Agent shall have no responsibility for determining or enforcing compliance with
this Section 2(f), except that the Escrow Agent shall retain possession of the
stock certificates evidencing the Escrow Shares as required by this Agreement.
(g) Power to Transfer Escrow Shares. The Escrow Agent is hereby
-------------------------------
granted the power to effect any transfer of Escrow Shares contemplated by this
Agreement. Asymetrix shall cooperate with the Escrow Agent in causing
Asymetrix's transfer agent, if any, to promptly issue stock certificates to
effect such transfers.
3. NOTICE OF CLAIM.
---------------
(a) Each Notice of Claim by Asymetrix pursuant to the Plan,
whether or not the Claim described in such Notice of Claim would be included in
the Basket (as defined in the Plan), shall be in writing and shall contain the
following information to the extent it is reasonably available to Asymetrix:
(1) Asymetrix's good faith estimate of the reasonably
foreseeable maximum amount of the alleged Damages (which amount may, without
limitation, include the amount of damages claimed by a third party plaintiff in
an action brought against Asymetrix, or Aimtech, based on alleged facts, which
if true, would give rise to Damages); and
(2) A brief description in reasonable detail of the facts,
circumstances or events giving rise to the alleged Damages based on Asymetrix's
good faith belief thereof, including, without limitation and if applicable, the
identity and address of any third-party claimant (to the extent reasonably
available to Asymetrix) and copies of any formal demand or complaint of any such
third-party claimant.
(b) The Escrow Agent shall not transfer any of the Escrow Shares
held in the Escrow Account to Asymetrix pursuant to a Notice of Claim until such
Notice of Claim has been resolved in accordance with Section 4 below.
4. RESOLUTION OF NOTICE OF CLAIM AND TRANSFER OF ESCROW SHARES. Any
-----------------------------------------------------------
Notice of Claim received by the Former Aimtech Stockholders and the Escrow Agent
pursuant to Section 3 above shall be resolved as follows:
(a) Uncontested Claims. If, within 30 calendar days after the
------------------
Notice of Claim containing a statement of claimed Damages is deemed to have been
delivered by Asymetrix to the Former Aimtech Stockholders and the Escrow Agent
pursuant to Section 7 hereof, a majority in interest of the former Aimtech
Stockholders have not contested such Notice of Claim in writing to the Escrow
Agent as provided in Section 4(b) and the Escrow Agent has
4
<PAGE>
not received written confirmation from Asymetrix that the Former Aimtech
Stockholders have paid Asymetrix in full the amount demanded in such Notice of
Claim, then the Escrow Agent shall: (i) immediately release from escrow and
transfer to Asymetrix for cancellation that number of Escrow Shares having a
value (determined pursuant to Section 4(d) hereof) equal to the amount of
Damages specified in the Notice of Claim, which transferred and forfeited Escrow
Shares shall be taken from and forfeited by each of the Former Aimtech
Stockholders in proportion to their respective percentage interest in the Escrow
Shares as set forth on Exhibit A, provided, however, that any claim under
paragraph (b) of subsection 11.2.1 of the Plan shall be made only against the
Former Aimtech Stockholder whose failure to have such good, valid and marketable
title gave rise to such Damages, and not against any other person; and (ii)
notify the Former Aimtech Stockholders in writing of such transfer of Escrow
Shares (or, if applicable, Escrow Consideration as provided in the following
sentence) as promptly as reasonably practicable. Notwithstanding the foregoing,
in the event a Former Aimtech Stockholder has deposited cash in escrow pursuant
to Section 2(d), the Escrow Agent shall first satisfy the Former Aimtech
Stockholder's portion of the amount of any Claim by withdrawing from escrow and
paying to Asymetrix an amount of Escrow Consideration equal to the Stated Value
Per Share multiplied by the number of Escrow Shares which would otherwise be
required to be released pursuant to the provisions hereof. Any amounts remaining
to be paid after such Escrow Consideration has been exhausted shall be satisfied
from the Escrow Shares.
(b) Contested Claims. In the event that a majority in interest
----------------
of the Former Aimtech Stockholders deliver written notice contesting all, or a
portion of, a Notice of Claim to Asymetrix and the Escrow Agent (a "CONTESTED
CLAIM") and such written notice is deemed, under the provisions of Section 7
hereof, to have been delivered to Asymetrix and the Escrow Agent within the 30-
day period described in Section 4(a) above, then such Contested Claim shall be
resolved prior to the expiration of the Escrow Period by either (i) a written
settlement agreement executed by Asymetrix and a majority in interest of the
Former Aimtech Stockholders or (ii) in the absence of such a written settlement
agreement, by binding arbitration as provided herein. Any portion of the Notice
of Claim that is not contested shall be resolved as an uncontested claim as set
forth in Section 4(a) above. The final decision of the arbitrator shall be
furnished to the Escrow Agent, the Former Aimtech Stockholders and Asymetrix in
writing and shall constitute a conclusive determination of the issues in
question, binding upon the Former Aimtech Stockholders and Asymetrix and shall
include an affirmative statement to such effect. After notice that the Notice of
Claim is contested by a majority in interest of the Former Aimtech Stockholders,
the Escrow Agent shall continue to hold Escrow Shares and the Escrow
Consideration in the Escrow Account until the Escrow Shares and the Escrow
Consideration are required to be released under the terms of this Agreement.
(1) Arbitration. Any Contested Claim shall be settled by
-----------
binding arbitration in Chicago, Illinois, and, except as herein specifically
stated, in accordance with the commercial arbitration rules of the American
Arbitration Association ("AAA RULES") then in effect. However, in all events,
these arbitration provisions shall govern over any conflicting rules which may
now or hereafter be contained in the AAA Rules. Judgment upon the award rendered
by the arbitrator may be entered in any court having competent jurisdiction.
(2) Compensation of Arbitrator. Any such arbitration shall
--------------------------
be conducted before a single arbitrator who shall be compensated for his or her
services at a rate to be determined by the parties or by the American
Arbitration Association, but based upon
5
<PAGE>
reasonable hourly or daily consulting rates for the arbitrator in the event the
parties are not able to agree upon his or her rate of compensation.
(3) Selection of Arbitrator. The American Arbitration
-----------------------
Association shall have the authority to select an arbitrator from a list of
arbitrators who are lawyers experienced in the representation of software
companies; provided, however, that such arbitrator cannot be the current or
-------- -------
former legal counsel to any interested party; and provided further that
-------- -------
Asymetrix and a majority in interest of the Former Aimtech Stockholders shall
each have the opportunity to promptly make such reasonable objection to up to
two (2) of the arbitrators listed as such party may wish and that the American
Arbitration Association shall select the arbitrator from the list of arbitrators
as to whom neither Asymetrix nor a majority in interest of the Former Aimtech
Stockholders makes any such objection. Neither Asymetrix nor the Former Aimtech
Stockholders may object to any arbitrator for the purpose of delaying the
arbitration. In the event that the foregoing procedure is not followed,
Asymetrix, on the one hand, and a majority in interest of the Former Aimtech
Stockholders, on the other hand, shall each choose one (1) person from the list
of arbitrators provided by the American Arbitration Association (provided that
such person does not have a conflict of interest or relationship with any
interested party), and the two persons so selected shall select from the list
provided by the American Arbitration Association the person who shall act as the
arbitrator.
(4) Payment of Costs. Asymetrix and the Former Aimtech
----------------
Stockholders shall bear the expense of deposits and advances required by the
arbitrator in equal proportions, but either party may advance such amounts,
subject to recovery as an addition or offset to any award. The arbitrator shall
award to the prevailing party, as determined by the arbitrator, all costs, fees
and expenses related to the arbitration, including reasonable fees and expenses
of attorneys, accountants and other professionals incurred by the prevailing
party.
(5) Burden of Proof. For any Claim submitted to
---------------
arbitration, the burden of proof shall be as it would be if the claim were
litigated in a judicial proceeding governed by Washington law exclusively.
(6) Award. Upon the conclusion of any arbitration
-----
proceedings hereunder, the arbitrator shall render findings of fact and
conclusions of law and a written opinion setting forth the basis and reasons for
any decision reached and shall deliver such documents to each party to this
Agreement along with a signed copy of the award.
(7) Timing. A majority in interest of the Former Aimtech
------
Stockholders, Asymetrix and the arbitrator shall conclude each arbitration
pursuant to this Section 4 promptly and shall use its best efforts to conclude
each arbitration prior to the second anniversary of the Closing Date (as defined
in the Plan).
(8) Terms of Arbitration. The arbitrator chosen in
--------------------
accordance with these provisions shall not have the power to alter, amend or
otherwise affect the terms of these arbitration provisions or the provisions of
this Agreement or the Plan.
(9) Exclusive Remedy. Except as specifically otherwise
----------------
provided in this Agreement or the Plan, arbitration shall be the sole and
exclusive remedy of the parties for any Claim made pursuant to Section 11 of the
Plan and this Agreement.
6
<PAGE>
(10) Release of Escrow Shares or Escrow Consideration
------------------------------------------------
Pursuant to Arbitration Award. Upon the arbitrator's issuance of a final award
- -----------------------------
in such arbitration, the arbitrator shall immediately deliver a copy of such
final award to the Former Aimtech Stockholders, Asymetrix and the Escrow Agent.
Upon its receipt of a copy of the final arbitration award, the Escrow Agent
shall first permit the Former Aimtech Stockholders, at the Former Aimtech
Stockholders' option, the opportunity to pay such award to Asymetrix in full in
cash within forty-five (45) days after the Escrow Agent's receipt of a copy of
such final arbitration award (but in no event later than expiration of the
Escrow Period), and if the Escrow Agent does not receive written confirmation
from Asymetrix that such award has been paid in full in cash to Asymetrix prior
to the expiration of such forty-five (45) day period and the expiration of the
Escrow Period, then the Escrow Agent will (i) immediately release from escrow
and transfer to Asymetrix for cancellation that number of Escrow Shares having a
value (determined pursuant to Section 4(d) hereof) equal to the amount of
Damages (if any) awarded by such final arbitration award, which transferred and
forfeited Escrow Shares shall be taken from each of the Former Aimtech
Stockholders in proportion to their respective percentage interest in the Escrow
Shares as set forth on Exhibit A, provided, however, that any claim under
paragraph (b) of subsection 11.2.1 of the Plan shall be made only against the
Former Aimtech Stockholder whose failure to have such good, valid and marketable
title gave rise to such Damages, and not against any other person, and (ii)
notify the Former Aimtech Stockholders in writing of such transfer of Escrow
Shares (or, if applicable, Escrow Consideration as provided in the following
sentence) as promptly as reasonably practicable. Notwithstanding the foregoing,
in the event a Former Aimtech Stockholder has deposited cash in escrow pursuant
to Section 2(d), the Escrow Agent shall first satisfy the Former Aimtech
Stockholder's portion of the amount of any Claim by withdrawing from escrow and
paying to Asymetrix an amount of Escrow Consideration equal to the Stated Value
Per Share multiplied by the number of Escrow Shares which would otherwise be
required to be released pursuant to the provisions hereof. Any amounts remaining
to be paid after such Escrow Consideration has been exhausted shall be satisfied
from the Escrow Shares.
(c) Settled Claims. If a Claim (including a Contested Claim is
--------------
settled by a written settlement agreement executed by a majority in interest of
the Former Aimtech Stockholders and Asymetrix, then a majority in interest of
the Former Aimtech Stockholders and Asymetrix shall promptly deliver such
executed settlement agreement to the Escrow Agent together with written
instructions executed by both Asymetrix and a majority in interest of the Former
Aimtech Stockholders to the Escrow Agent ("SETTLEMENT INSTRUCTIONS") which
shall, in accordance with and subject to the terms of the written settlement
agreement, instruct the Escrow Agent either: (i) to release a stated number of
Escrow Shares or amount of Escrow Consideration to Asymetrix pursuant to such
settlement agreement; and/or (ii) that no action need be taken by the Escrow
Agent with respect to such Claim. Upon its receipt of such settlement agreement
and Settlement Instructions instructing the Escrow Agent to release Escrow
Shares or Escrow Consideration to Asymetrix, the Escrow Agent shall (i)
immediately release from escrow and transfer to Asymetrix for cancellation that
number of Escrow Shares or amount of Escrow Consideration that Asymetrix and a
majority in interest of the Former Aimtech Stockholders have agreed shall be
transferred and forfeited or paid by the Former Aimtech Stockholders in such
written settlement agreement and Settlement Instructions, which transferred and
forfeited Escrow Shares shall be taken from each of the Former Aimtech
Stockholders in proportion to their respective percentage interests in the
Escrow Shares as set forth on Exhibit A or from the Former Aimtech Stockholder's
Escrow Consideration as specified in the Settlement
7
<PAGE>
Instructions, provided, however, that any claim under paragraph (b) of
Subsection 11.2.1 of the Plan shall be made only against the Former Aimtech
Stockholder whose failure to have such good, valid and marketable title gave
rise to such Damages, and not against any other person; and (ii) notify the
Former Aimtech Stockholders in writing of such transfer of Escrow Shares or
Escrow Consideration as promptly as reasonably practicable.
(d) Determination of Amount of Claims. Any amount of Damages
---------------------------------
owed to Asymetrix hereunder, determined pursuant to Section 4(a), 4(b) or 4(c)
above, and not paid in cash by the Former Aimtech Stockholders in accordance
with the above provisions of this Section 4, shall be immediately payable to
Asymetrix out of the Escrow Shares then held by the Escrow Agent, and shall be
forfeited and taken from the Former Aimtech Stockholders in proportion to their
respective percentage interest in the Escrow Shares as set forth on Exhibit A,
provided, however, that any claim under paragraph (b) of subsection 11.2.1 of
the Plan shall be made only against the Former Aimtech Stockholder whose failure
to have such good, valid and marketable title gave rise to such Damages, and not
against any other person. For purposes of this Agreement, Escrow Shares shall be
deemed to have a per share value equal to the Stated Value Per Share (as that
term is defined in the Plan) (such price per share to be equitably adjusted to
reflect any capital change of the type described in subsection 2.1.2 of the Plan
but not to be affected by the conversion of the Escrow Shares into Common Stock
of Asymetrix, whether occurring at or after the Effective Date). Thus, the
number of Escrow Shares to be released from escrow and transferred to Asymetrix
in satisfaction of a Claim for Damages (whether an Uncontested Claim, a
Contested Claim or a Settled Claim) and not paid in cash as provided above shall
be the amount of such Damages divided by the Stated Value Per Share (such price
per share to be equitably adjusted to reflect any capital change of the type
described in subsection 2.1.2 of the Plan but not to be affected by the
conversion of the Escrow Shares into Common Stock of Asymetrix, whether
occurring prior to, at or after the Effective Date). In the event the Escrow
Agent intends to satisfy all or a portion of a Claim for Damages (whether an
Uncontested Claim, a Contested Claim or a Settled Claim) by paying cash from the
Escrow Consideration in lieu of releasing Escrow Shares from Escrow and
transferring such Escrow Shares to Asymetrix, the amount of Escrow Consideration
to be paid in lieu of Escrow Shares shall equal the Stated Value Per Share
multiplied by the number of Escrow Shares otherwise required to be released from
escrow and transferred to Asymetrix. Asymetrix shall promptly give the Escrow
Agent and the Former Aimtech Stockholders notice of the occurrence of any
capital change described in subsection 2.1.2 of the Plan or of any automatic
conversion of the Escrow Shares and the impact thereof, if any, on such price
per share of Escrow Shares referred to above.
(e) No Exhaustion of Remedies. Asymetrix need not exhaust any
-------------------------
other remedies that may be available to it but may proceed directly in
accordance with the provisions of this Agreement. Asymetrix may institute Claims
against the Escrow Shares or Escrow Consideration and in satisfaction thereof
may recover Escrow Shares or Escrow Consideration, in accordance with the terms
of this Agreement, without making any other Claims directly against the Former
Aimtech Stockholders and without rescinding or attempting to rescind the
transactions consummated pursuant to the Plan. The assertion of any single Claim
for indemnification hereunder shall not bar Asymetrix from asserting any other
Claims hereunder.
5. LIMITATION OF ESCROW AGENT'S LIABILITY.
--------------------------------------
8
<PAGE>
(a) The Escrow Agent shall incur no liability with respect to
any action taken or suffered by it in reliance upon any notice, direction,
instruction, consent, statement or other document believed by it to be genuine
and duly authorized, nor for any other action or inaction, except its own
willful misconduct or gross negligence. The Escrow Agent shall have no duty to
inquire into or investigate the validity, accuracy or content of any document
delivered to it. The Escrow Agent shall not be responsible for the validity or
sufficiency of this Agreement. In all questions arising under this Agreement,
the Escrow Agent may rely on the advice or opinion of counsel, and for anything
done, omitted or suffered in good faith by the Escrow Agent based on such
advice, the Escrow Agent shall not be liable to anyone. The Escrow Agent shall
not be required to take any action hereunder involving any expense unless the
payment of such expense is made or provided for in a manner satisfactory to it.
The Escrow Agent shall have no duties or responsibilities other than those
expressly set forth in this Agreement and the implied duty of good faith and
fair dealing.
(b) In the event conflicting demands are made or conflicting
notices are served upon the Escrow Agent with respect to the Escrow Account, the
Escrow Agent shall have the absolute right, at the Escrow Agent's election, to
do either or both of the following: (i) resign so a successor can be appointed
pursuant to Section 10 hereof; (ii) file a suit in interpleader and obtain an
order from a court of competent jurisdiction requiring the parties to interplead
and litigate in such court their several claims and rights among themselves; or
(iii) give written notice to the other parties that it has received conflicting
instructions from Asymetrix and a majority in interest of the Former Aimtech
Stockholders and is refraining from taking action until it receives instructions
consented to in writing by both Asymetrix and a majority in interest of the
Former Aimtech Stockholders. In the event an interpleader suit as described in
clause (ii) above is brought, the Escrow Agent shall thereby be fully released
and discharged from all further obligations imposed upon it under this Agreement
with respect to the matters that are the subject of such interpleader suit, and
Asymetrix shall pay the Escrow Agent all costs, expenses and reasonable
attorneys' fees expended or incurred by the Escrow Agent pursuant to the
exercise of Escrow Agent's rights under this Section 5 (such costs, fees and
expenses shall be treated as extraordinary fees and expenses for the purposes of
Section 9 hereof). Asymetrix shall be entitled to reimbursement from the Former
Aimtech Stockholders of any extraordinary fees and expenses of Escrow Agent in
the event Asymetrix prevails in such dispute pursuant to Section 9 hereof.
(c) Each party to this Agreement other than the Escrow Agent
(each an "INDEMNIFYING PARTY" and together the "INDEMNIFYING PARTIES"), hereby
jointly and severally covenants and agrees to reimburse, indemnify and hold
harmless Escrow Agent, the Escrow Agent's officers, directors, employees,
counsel and agents (severally and collectively, "ESCROW AGENT"), from and
against any loss, damage, liability or loss suffered, incurred by, or asserted
against Escrow Agent (including amounts paid in settlement of any action, suit,
proceeding, or claim brought or threatened to be brought and including
reasonable expenses of legal counsel) arising out of, in connection with or
based upon, any act or omission by Escrow Agent (not involving gross negligence
or willful misconduct on Escrow Agent's part) relating in any way to this
Agreement or the Escrow Agent's services hereunder. The aggregate liability of
the Former Aimtech Stockholders to the Escrow Agent under this indemnity shall
be limited to the Escrow Shares then in escrow hereunder. Anything in this
Agreement to the contrary notwithstanding, in no event shall the Escrow Agent be
liable for special, indirect or consequential loss or damage of any kind
whatsoever (including but not limited to lost profits),
9
<PAGE>
even if the Escrow Agent has been advised of the likelihood of such loss or
damage and regardless of the form of action. Any Indemnifying Party who
reimburses or indemnifies the Escrow Agent pursuant to this Section 5(c) shall
have a right to seek contribution from any and all other Indemnifying Parties
according to their relative fault.
(d) Each Indemnifying Party may participate at its own expense
in the defense of any claim or action that may be asserted against Escrow Agent,
and if the Indemnifying Parties so elect, the Indemnifying Parties may assume
the defense of such claim or action; provided, however, that if there exists a
-------- -------
conflict of interest that would make it inappropriate, in the sole discretion of
the Escrow Agent, for the same counsel to represent both Escrow Agent and the
Indemnifying Parties, Escrow Agent's retention of separate counsel shall be
reimbursable as hereinabove provided. Escrow Agent's right to indemnification
hereunder shall survive Escrow Agent's resignation or removal as Escrow Agent
and shall survive the termination of this Agreement by lapse of time or
otherwise.
(e) The Escrow Agent shall notify each Indemnifying Party by
letter, or by telephone or telecopy confirmed by letter, of any receipt by
Escrow Agent of a written assertion of a claim against Escrow Agent, or any
action commenced against Escrow Agent, for which indemnification is required
under Section 5(c), within ten (10) days after Escrow Agent's receipt of written
notice of such claim. The Indemnifying Parties will be relieved of their
indemnification obligations under this Section 5 if Escrow Agent fails to timely
give such notice and such failure adversely affects the Indemnifying Parties'
ability to defend such claim. However, Escrow Agent's failure to so notify each
Indemnifying Party shall not operate in any manner whatsoever to relieve an
Indemnifying Party from any liability that it may have otherwise than on account
of this Section 5.
(f) The Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys and shall be entitled to consult with its
counsel, including in-house counsel, as to any questions or matters arising
hereunder and the reasonable, good faith written opinion of such counsel shall
be full and complete authorization and protection to Escrow Agent in respect of
any act or omission by Escrow Agent undertaken in good faith and in accordance
with the opinion of such counsel. The Escrow Agent shall have no liability for
the conduct of any outside attorneys, accountants or other similar professionals
it retains. Nothing in this Agreement shall be deemed to impose upon Escrow
Agent any duty to qualify to do business or to act as a fiduciary or otherwise
in any jurisdiction other than the State of Washington.
6. NOTICES. Any notice or other communication required or permitted
-------
to be given under this Agreement will be in writing, will be delivered
personally, by registered or certified mail, postage prepaid, by confirmed
facsimile or by nationally recognized courier service, and will be deemed given
upon delivery, if delivered personally, or five days after deposit in the mails,
if mailed, upon receipt if delivered by confirmed facsimile or by national
recognized courier service to the following addresses:
If to the Escrow Agent:
- -----------------------
Facsimile:
Attention:
10
<PAGE>
If to Asymetrix: Asymetrix Corporation
- ---------------
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
11
<PAGE>
With a copy to: Mark C. Stevens, Esq.
- --------------
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, California 94306
Facsimile: (415) 857-0361
If to a Former Aimtech
Stockholder : To the address specified on Exhibit D herein.
- ---------------------- ---------
or to such other address as Asymetrix, the Former Aimtech Stockholders or the
Escrow Agent, as the case may be, designates in a writing delivered to each of
the other parties hereto in accordance with this Section 6.
7. GENERAL.
-------
(a) Governing Law; Assigns. The internal laws of the State of
----------------------
Washington (respective of its conflict of law principles) will govern the
validity of this Agreement, the construction of its terms, and the
interpretation and enforcement of the rights and duties of the parties hereto.
(b) Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
(c) Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute entire understanding and agreement of the parties hereto with respect
to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
(d) Waivers. No waiver by any party hereto of any condition or
-------
of any breach of any provision of this Agreement shall be effective unless in
writing. No waiver by any party of any such condition or breach, in any one
instance, shall be deemed to be a further or continuing waiver of any such
condition or breach or a waiver of any other condition or breach of any other
provision contained herein.
(e) Tax Identification Numbers. If applicable, each party
--------------------------
hereto the Former Aimtech Stockholders), other than the Escrow Agent, shall
provide the Escrow Agent with its Tax Identification Number (TIN) as assigned by
the Internal Revenue Service or Social Security Number prior to the execution of
this Agreement.
8. COMPENSATION AND EXPENSES OF ESCROW AGENT. All fees and expenses
-----------------------------------------
of the Escrow Agent incurred in the ordinary course of performing its
responsibilities hereunder shall be paid by Asymetrix upon receipt of a written
invoice by Escrow Agent. Any
12
<PAGE>
extraordinary fees and expenses, including without limitation any fees or
expenses (including the fees or expenses of outside counsel to the Escrow Agent)
incurred by the Escrow Agent in connection with a dispute over the distribution
of Escrow Shares or the validity of a Notice of Claim, shall be paid by
Asymetrix upon receipt of a written invoice by Escrow Agent; provided, however,
-------- -------
that notwithstanding the foregoing, the Former Aimtech Stockholders shall be
liable for any extraordinary fees and expenses of the Escrow Agent arising in
connection with a dispute hereunder, in the event Asymetrix prevails in such
dispute up to the value of the Escrow Shares. The Escrow Agent shall have no
duty to solicit any payments which may be due it hereunder.
9. SUCCESSOR ESCROW AGENT. In the event the Escrow Agent becomes
----------------------
unavailable or unwilling to continue in its capacity herewith, the Escrow Agent
may resign and be discharged from its duties or obligations hereunder by giving
notice of its resignation to the parties to this Agreement, specifying a date
not less than thirty (30) days following such notice date of when such
resignation shall take effect. Asymetrix shall designate a successor Escrow
Agent prior to the expiration of such thirty (30) day period by giving written
notice to the escrow agent and the Former Aimtech Stockholders. Asymetrix may
appoint a successor Escrow Agent without the consent of the Former Aimtech
Stockholders so long as such successor is a bank which, together with its
parent, has assets of at least $50 million, and may appoint any other successor
Escrow Agent with the consent of a majority in interest of the Former Aimtech
Stockholders, which shall not be unreasonably withheld. If no successor escrow
agent is named by Asymetrix, the Escrow Agent may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent. The Escrow Agent
shall promptly transfer the Escrow Shares to such designated successor.
10. LIMITATION OF RESPONSIBILITY. The Escrow Agent's duties are
----------------------------
limited to those set forth in this Agreement, and Escrow Agent, acting as such
under this Agreement, is not charged with knowledge of or any duties or
responsibilities under any other document or agreement, including without
limitation the Plan. Escrow Agent may execute any of its powers or
responsibilities hereunder and exercise any rights hereunder either directly or
by or through its agents or attorneys. Nothing in this Escrow Agreement shall be
deemed to impose upon the Escrow Agent any duty to qualify to do business or to
act as a fiduciary or otherwise in any jurisdiction other than the State of
Washington. Escrow Agent shall not be responsible for and shall not be under a
duty to examine into or pass upon the validity, binding effect, execution or
sufficiency of this Escrow Agreement or of any agreement amendatory or
supplemental hereto. In no event shall the Escrow Agent have any duty or
obligation to determine or enforce compliance with the requirements of any
agreement or instrument other than this Agreement (including without limitation
the Plan).
11. FORCE MAJEURE. Neither Asymetrix nor the Former Aimtech
-------------
Stockholders or Escrow Agent shall be responsible for delays or failures in
performance resulting from acts beyond its control. Such acts shall include but
not be limited to acts of God, strikes, lockouts, riots, acts of war, epidemics,
governmental regulations superimposed after the fact, fire, communication line
failures, computer viruses, power failures, earthquakes or other disasters.
12. REPRODUCTION OF DOCUMENTS. This Agreement and all documents
-------------------------
relating thereto, including, without limitation, (a) consents, waivers and
modifications which may hereafter be executed, and (b) certificates and other
information previously or hereafter furnished, may be reproduced by any
photographic, photostatic, microfilm, optical disk, micro-
13
<PAGE>
card, miniature photographic or other similar process. The parties hereto agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a party in the
regular course of business, and that any enlargement, facsimile or further
reproduction shall likewise be admissible in evidence.
13. AMENDMENT. This Agreement may be amended by the written
---------
agreement of Asymetrix, the Escrow Agent and a majority in interest of the
Former Aimtech Stockholders, provided that, if the Escrow Agent does not agree
to an amendment agreed upon by Asymetrix and a majority in interest of the
Former Aimtech Stockholders, the Escrow Agent shall resign and Asymetrix shall
appoint a successor Escrow Agent in accordance with Section 9 above. No
amendment of the Plan shall increase Escrow Agent's responsibilities or
liability hereunder without Escrow Agent's written agreement.
14. TERMS DEFINED IN PLAN. The capitalized terms used in this
---------------------
Agreement but not defined herein are defined in the Plan are set forth in the
Plan, a copy of which is attached hereto as Exhibit C.
---------
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK]
14
<PAGE>
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the
day and year first above written.
ASYMETRIX CORPORATION
By:________________________________
Title:_____________________________
ESCROW AGENT
By:________________________________
Authorized Signatory
[SIGNATURE PAGE TO ESCROW AGREEMENT]
15
<PAGE>
September 11, 1997
Aimtech Corporation
20 Trafalgar Square, Suite 300
Nashua, NH 03063
Ladies and Gentlemen:
We have acted as counsel to Asymetrix Corporation, a Washington corporation
("ASYMETRIX") in connection with the Amended and Restated Agreement and Plan of
Reorganization, made effective as of June 24, 1997, by and among Asymetrix, ASX
Merger Corporation, a Delaware corporation and a wholly owned subsidiary of
Asymetrix ("MERGER SUB"), and Aimtech Corporation, a Delaware corporation
("AIMTECH"), such agreement, together with all Exhibits and Schedules thereto,
being referred to as the "REORGANIZATION AGREEMENT." Pursuant to the
Reorganization Agreement, upon the Effective Time (as defined in the
Reorganization Agreement) Aimtech will merge with and into Merger Sub (the
"MERGER"). This opinion is being delivered pursuant to Section 8.5 of the
Reorganization Agreement. Unless otherwise indicated, all capitalized terms used
herein have the meanings given to those terms in the Reorganization Agreement.
In order to render this opinion we have examined the documents described on
Attachment A to this letter. We have not examined any documents other than those
described on Attachment A hereto nor have we made any independent factual
investigation. We have examined such matters of law as we have deemed necessary.
We have not caused the search of any docket of any court, tribunal, agency or,
except as listed on Attachment A hereto, similar authority or any other record
of any governmental agency or third party.
In our examination of documents for purposes of this opinion, we have
assumed, and express no opinion as to, the genuineness of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies, the lack of any undisclosed terminations, modifications, waivers or
amendments to any agreements reviewed by us, the legal competence or capacity of
all natural persons executing the same, and (except with respect to due
execution and delivery of the Reorganization Agreement and the Asymetrix
Ancillary Agreements by Asymetrix and Merger Sub) the due authorization,
execution and delivery of all documents where due authorization, execution and
delivery are prerequisites to the effectiveness thereof.
As to matters of fact relevant to this opinion, we have relied solely upon
(a) our examination of the documents referred to on Attachment A hereto and our
actual knowledge, and have assumed the current accuracy and completeness of the
information obtained from public officials and records included in the documents
referred to on Attachment A hereto, (b) the representations and warranties of
the parties to the Reorganization Agreement as set forth
<PAGE>
Aimtech Corporation
September 11, 1997
Page 2
therein, and (c) the representations and warranties made by representatives of
Asymetrix and Merger Sub to us in the Management Certificate described on
Attachment A hereto. We have made no attempt to verify the accuracy of any of
such information, representations or warranties or to determine the existence or
non-existence of any other factual matters; however, we are not aware of any
-------
facts that would lead us to believe that any of the opinions expressed herein
are not accurate.
As used in this opinion, the phrases "our actual knowledge," "we are not
aware" or "to our knowledge" refer only to the actual knowledge of the attorneys
currently in this firm who have rendered legal services to Asymetrix or Merger
Sub and mean that such attorneys have not been informed by Asymetrix or Merger
Sub that the matters stated are factually incorrect. We have made no
investigation of such matters other than our examination of documents referred
to on Attachment A hereto. No inference as to our knowledge of any matters
bearing on the accuracy of any such statement should be drawn from the fact of
our representation of Asymetrix or Merger Sub.
For the purposes of this opinion, we have also assumed that: (a) each party
(other than Asymetrix and Merger Sub) has all requisite power and authority, and
has taken any and all corporate or other action necessary, for the due
authorization by such party of the execution, delivery and performance by such
party of the Reorganization Agreement and each Aimtech Ancillary Agreement to
which it is a party and the performance by it of all of its respective
obligations thereunder; (b) Aimtech has fully performed all the obligations
which it is to perform at or before the Effective Time; (c) all the
representations and warranties made by each party other than Asymetrix or Merger
Sub in, or pursuant to, the Reorganization Agreement and each Aimtech Ancillary
Agreement are true and complete in all material respects; and (d) each of the
Reorganization Agreement and each Aimtech Ancillary Agreement is duly
enforceable in accordance with its terms against, and constitutes the legal,
valid and binding obligations of, the respective parties thereto other than
Asymetrix or Merger Sub.
This opinion is qualified by, and is subject to, and we render no opinion
with respect to, the limitations and exceptions to the enforceability of
contracts and obligations generally, including, without limitation:
(a) the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance and other similar laws
relating to or affecting the rights of creditors generally;
(b) the effect of principles of public policy, general principles of
equity and similar principles, including, without limitation, concepts of
materiality, reasonableness and unconscionability and the possible
unavailability of specific performance, injunctive relief or other
equitable remedies, regardless of whether considered in a proceeding in
equity or at law; and
(c) the effect of Section 1670.5 of the California Civil Code and of
California court decisions indicating that certain covenants and provisions
of agreements are unenforceable where (I) the breach of such covenants or
provisions imposes restrictions
2
<PAGE>
Aimtech Corporation
September 11, 1997
Page 3
or burdens upon the other party and it cannot be demonstrated that the
enforcement of such restrictions or burdens is reasonably necessary for the
protection of the party seeding to enforce such provisions or (ii) the
enforcement of such covenants or provisions under the circumstances would
violate the implied covenant of good faith and fair dealing.
We render no opinion with respect to: (a) compliance or noncompliance with
antifraud provisions of applicable state and federal statutes, rules and
regulations concerning the issuance and sale of securities; (b) as to the tax
consequences of the Merger under applicable federal, state and local tax laws
and regulations, (c) the enforceability of the voting provisions contained in
the Voting Agreement; and (d) the non-competition covenant contained in the
Employment Agreement.
In rendering the opinion expressed in paragraph 1 below regarding the good
standing of Asymetrix and Merger Sub, we have relied solely on the certification
of Asymetrix and Merger Sub's good standing set forth in the Certificates of
Good Standing described on Attachment A hereto.
We are admitted to practice law in the State of California, and we express
no opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the State of California, the
Delaware General Corporation Law as in effect on the date hereof (without
reference to case law or secondary sources) and the existing federal laws of the
United States of America. Special rulings of such authorities or opinions of
other counsel have not been sought or obtained. Our opinion is limited to such
California and United States statutes, laws, rules or regulations and provisions
of the Delaware General Corporation Law as in our experience are of general
application to transactions of the sort contemplated by the Reorganization
Agreement and we express no opinion as to the laws of any other state. With
respect to matters of Washington State law, we refer you to the opinion of
Steven Esau, general counsel to Asymetrix, dated as of the date hereof and
attached hereto as Attachment B.
------------
We also call your attention to the fact that under various reports
published by committees of the State Bar of California, certain assumptions,
qualifications and exceptions are implicit in opinions of lawyers. Although we
have expressly set forth some assumptions, qualifications and exceptions herein,
we are not limiting or omitting any others set forth in the various reports or
otherwise deemed standard by practice for lawyers in California.
Based upon the foregoing, subject to the assumptions and qualifications
referred to herein and except as may be otherwise set forth in the
Reorganization Agreement, the Exhibits thereto, the Asymetrix Schedule of
Exceptions and the Asymetrix Ancillary Agreements and the respective Exhibits
and Schedules thereto, as applicable, it is our opinion that as of immediately
prior to the Closing on the date hereof:
l. Asymetrix is a corporation duly organized, validly existing and
in good standing under the laws of the State of Washington. Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware.
3
<PAGE>
Aimtech Corporation
September 11, 1997
Page 4
2. Each of Asymetrix and Merger Sub had the requisite corporate
right, power and authority to enter into, execute and deliver the Reorganization
Agreement and each Asymetrix Ancillary Agreement to which it is a party and to
perform the transactions contemplated thereby. All corporate action required to
be taken by or on the part of Asymetrix and Merger Sub to authorize Asymetrix or
Merger Sub, as the case may be, to enter into, execute and deliver the
Reorganization Agreement and each Asymetrix Ancillary Agreement to which it is a
party has been duly and validly taken.
3. No government consents, approvals, authorizations, registrations,
declarations or filings are required to be obtained by Asymetrix or Merger Sub
for the execution, delivery or performance by Asymetrix or Merger Sub of the
Reorganization Agreement or the Asymetrix Ancillary Agreements to which it is a
party, except such as have been obtained or made, except for (a) the filing of a
Form D with respect to the issuance of the Merger Shares in the Merger, (b)
filings made under applicable securities laws of the various states of the
United States and (c) the filing of the Agreement of Merger with the Delaware
Secretary of State.
4. The Reorganization Agreement and each Asymetrix Ancillary
Agreement to which Asymetrix or Merger Sub is a party have been duly authorized,
executed and delivered by Asymetrix or Merger Sub, as applicable, and are valid
and binding obligations of Asymetrix or Merger Sub, as applicable, enforceable
against Asymetrix or Merger Sub, as applicable, in accordance with their
respective terms.
5. The authorized capital stock of Asymetrix consists of 40,000,000
shares of Asymetrix Common Stock, $0.01 par value, 8,803,558 shares of which are
outstanding, and 5,000,000 shares of Class B Stock, $0.001 par value, 50,000
shares of which are designated as Series 1 Class B Stock, of which 37,500 shares
are outstanding, and of which 388,395 shares are designated as Series A Stock,
all of which are outstanding, and of which 388,395 shares are designated as
Series B Stock, all of which are outstanding, and 2,250,000 of which are
designated as Series 4 Class B Stock, of which 200,000 shares are outstanding.
To our knowledge, options to purchase 3,981,529 shares of Asymetrix Common Stock
and 19,431 shares of Series 4 Class B Stock are outstanding on the date hereof.
The authorized capital stock of Merger Sub consists of one share of Common
Stock, which share is outstanding.
6. The shares of Asymetrix Series 4 Class B Stock that are issuable
upon, and in exchange for, the outstanding shares of Aimtech Common Stock in the
Merger, when so issued in accordance with the terms and conditions of the
Reorganization Agreement, will be duly and validly issued, fully paid and non-
assessable.
7. Neither the execution nor the delivery by each of Asymetrix or
Merger Sub of the Reorganization Agreement or any Asymetrix Ancillary Agreement
to which it is a party, nor the consummation of the transactions provided for
therein, is in conflict with any provision of: (a) the Articles of Incorporation
or Bylaws of Asymetrix or the Certificate of Incorporation or Bylaws of Merger
Sub, as currently in effect or (b) to our knowledge, any
4
<PAGE>
Aimtech Corporation
September 11, 1997
Page 5
judgment, order or decree of any court or arbitrator to which Asymetrix or
Merger Sub is a party or is subject.
In rendering the opinions above, we are opining only as to the specific
legal issues expressly set forth herein, and no opinion shall be inferred as to
other matters. This opinion is intended solely for Aimtech's use for the purpose
of the above transaction, and is not to be made available to, or relied upon for
any other purpose, or by any other person or entity, without our prior written
consent. We assume no obligation to advise you of any fact, circumstance, event
or change in the law or the facts that may hereafter be brought to our attention
whether or not they would affect or modify the opinions expressed herein.
Very truly yours,
5
<PAGE>
ATTACHMENT A
DOCUMENTS REVIEWED
(1) The Reorganization Agreement.
(2) Registration Rights Agreement dated as of the date hereof between Asymetrix
and the persons and entities listed on Exhibit A thereto
(3) The Voting Agreement dated as of the date hereof between Asymetrix and Paul
Allen.
(4) Escrow Agreement dated as of the date hereof between Asymetrix and the
Escrow Agent.
(5) Employment Agreement effective as of September 11, 1997 between Asymetrix
and Leo Lucas.
(6) A copy of Asymetrix's Articles of Incorporation, certified by the
Washington Secretary of State on September 9, 1997.
(7) A copy of Merger Sub's Certificate of Incorporation, certified by the
Delaware Secretary of State on June 24, 1997.
(8) A copy of the By-Laws of each of Asymetrix and Merger Sub, certified by the
Secretary of Asymetrix or Merger Sub, as applicable, on the date hereof.
(9) Action by Unanimous Written Consent of the Board of Directors of Asymetrix
dated as of June 24, 1997.
(10) Action by Unanimous Written Consent of the Board of Directors of Merger Sub
and of the sole stockholder of Merger Sub dated as of June 24, 1997.
(11) A Management Certificate with respect to Asymetrix and Merger Sub addressed
to us and dated as of the date hereof and executed by Asymetrix and Merger
Sub (the "MANAGEMENT CERTIFICATE"), a copy of which is attached hereto as
Attachment A.
(12) Certificate of Secretary of Asymetrix dated as of the date hereof.
(13) Certificate of Secretary of Merger Sub dated as of the date hereof.
(14) A Certificate of Good Standing regarding Merger Sub issued by the Delaware
Secretary of State, dated September 9, 1997 together with the certificate
referred to in item (15), the "CERTIFICATES OF GOOD STANDING"
(15) A Certificate of Good Standing regarding Asymetrix issued by the Secretary
State of the State of Washington, dated September 9, 1997.
(16) A copy of the shareholder and option holder list of Asymetrix dated as of
September 11, 1997 provided to us by Asymetrix.
<PAGE>
(17) Certificates of Good Standing and bring-down telegrams of good standing,
each regarding Asymetrix, dated as of September 11, 1997, September 11,
1997, September 9, 1997, September 9, 1997 and September 9, 1997
(respectively), issued by the States of California, New York, New
Hampshire, Texas and Virginia.
7
<PAGE>
September 11, 1997
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Ladies and Gentlemen:
This opinion refers to the Amended and Restated Agreement and Plan of
Reorganization, made effective as of June 24, 1997, by and among Asymetrix
Corporation, a Washington corporation ("ASYMETRIX"), ASX Merger Corporation, a
Delaware corporation and a wholly owned subsidiary of Asymetrix ("MERGER SUB"),
and Aimtech Corporation, a Delaware corporation (the "AIMTECH"), such agreement,
together with all Exhibits and Schedules thereto, being referred to as the
"REORGANIZATION AGREEMENT." Pursuant to the Reorganization Agreement, upon the
Effective Time (as defined in the Reorganization Agreement) Merger Sub will
merge with and into Aimtech (the "MERGER"). Unless otherwise indicated, all
capitalized terms used herein have the meanings given to those terms in the
Reorganization Agreement.
In order to render this opinion I have examined the documents described on
Attachment A to this letter. I have not examined any documents other than those
- ------------
described on Attachment A or made any independent factual investigation. I have
------------
examined such matters of law as I have deemed necessary. I have not caused the
search of any docket of any court, tribunal, agency or, except as listed on
Attachment A, similar authority or any other record of any governmental agency
- ------------
or third party.
In my examination of documents for purposes of this opinion, I have assumed
(to the extent that I do not have actual knowledge of), and express no opinion
as to, the genuineness of all signatures on original documents, the authenticity
of all documents submitted as originals, the conformity to originals of all
documents submitted as copies, the lack of any undisclosed terminations,
modifications, waivers or amendments to any agreements reviewed by me, the legal
competence or capacity of all natural persons executing the same, and (except
with respect to due execution and delivery of the Reorganization Agreement by
Asymetrix) the due authorization, execution and delivery of all documents where
due authorization, execution and delivery are prerequisites to the effectiveness
thereof.
As to matters of fact relevant to this opinion, I have relied solely upon
my examination of the documents referred to on Attachment A and my actual
------------
knowledge, and have assumed the current accuracy and completeness of the
information obtained from public officials and records included in the documents
referred to on Attachment A, and (b) the representations and warranties of the
------------
parties to the Reorganization Agreement as set forth therein. I have made no
attempt to verify the accuracy of any of such information, representations or
warranties or to determine the existence or non-existence of any other factual
matters; however, I am not aware of
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<PAGE>
Fenwick & West LLP
September 11, 1997
Page 2
any facts that would lead me to believe that any of the opinions expressed
herein are not accurate.
As used in this opinion, the phrases "my actual knowledge," "I am not
aware", "to my knowledge," or "known to me" refer only to my actual knowledge
and I have made no investigation of such matters other than my examination of
documents referred to on Attachment A. No inference as to my knowledge of any
------------
matters bearing on the accuracy of any such statement should be drawn from the
fact of my representation of Asymetrix.
For the purposes of this opinion, I have also assumed that: (a) each party
(other than Asymetrix) has all requisite power and authority, and has taken any
and all corporate or other action necessary, for the due authorization by such
party of the execution, delivery and performance by it of the Reorganization
Agreement and each Aimtech Ancillary Agreement to which it is a party and the
performance by it of all its obligations thereunder; (b) Aimtech has fully
performed all the other obligations which it is to perform at or before the
Effective Time; (c) all the representations and warranties made by any party
other than Asymetrix or Merger Sub in, or pursuant to, the Reorganization
Agreement and each Aimtech Ancillary Agreement are true and complete in all
material respects; and (d) the Reorganization Agreement and each Aimtech
Ancillary Agreement is duly enforceable in accordance with its terms against,
and constitutes the legal, valid and binding obligations of, the parties thereto
other than Asymetrix or Merger Sub.
This opinion is qualified by, and is subject to, and I render no opinion
with respect to, the limitations and exceptions to the enforceability of
contracts and obligations generally, including, without limitation:
(a) the effect of bankruptcy, insolvency, reorganization, arrangement,
moratorium, fraudulent conveyance and other similar laws relating to or
affecting the rights of creditors generally;
(b) the effect of principles of public policy, general principles of
equity and similar principles, including, without limitation, concepts of
materiality, reasonableness and unconscionability and the possible
unavailability of specific performance, injunctive relief or other
equitable remedies, regardless of whether considered in a proceeding in
equity or at law.
I render no opinion with respect to: (a) compliance or noncompliance with
provisions of applicable state and federal statutes, rules and regulations
concerning the issuance and sale of securities; (b) as to the tax consequences
of the Merger under applicable federal, state and local income tax laws and
regulations, (c) the enforceability of the voting provisions contained in the
Voting Agreement; and (d) the non-competition covenant contained in the
Employment Agreement.
I am admitted to practice law in the State of Washington, and I express no
opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the State of Washington and the
existing federal laws of the United States of America. Special rulings of such
authorities or opinions of other counsel have not been sought or obtained.
<PAGE>
Fenwick & West LLP
September 11, 1997
Page 3
My opinion is limited to such Washington and United States statutes, laws, rules
or regulations as in my experience are of general application to transactions of
the sort contemplated by the Reorganization Agreement.
Based upon the foregoing, subject to the assumptions and qualifications
referred to herein and except as may be otherwise set forth in the
Reorganization Agreement, the Exhibits thereto, the Asymetrix Schedule of
Exceptions, or the Asymetrix Ancillary Agreements, it is my opinion that as of
immediately prior to the Closing on the date hereof:
1. Asymetrix had the requisite corporate right, power and authority
to enter into, execute and deliver the Reorganization Agreement and each
Asymetrix Ancillary Agreement to which it is a party. All corporate action
required to be taken by or on the part of Asymetrix to authorize Asymetrix to
enter into, execute and deliver the Reorganization Agreement and each Asymetrix
Ancillary Agreement to which it is a party has been duly and validly taken.
2. No consents, approvals, authorizations, registrations,
declarations or filings by or with the State of Washington are required to be
obtained by Asymetrix for the execution, delivery or performance by Asymetrix of
the Reorganization Agreement or the Asymetrix Ancillary Agreements to which it
is a party, except such as have been obtained or made, except for the filing of
a Form D with respect to the issuance of the Merger Shares in the Merger and
except for filings made under applicable securities laws.
3. The Reorganization Agreement and each Asymetrix Ancillary
Agreement to which Asymetrix is a party have been duly authorized, executed and
delivered by Asymetrix, are valid and binding obligations of Asymetrix,
enforceable against Asymetrix in accordance with their respective terms.
4. The authorized capital stock of Asymetrix consists of 40,000,000
shares of Asymetrix Common Stock, $0.01 par value, 8,080,555 of which are
outstanding, and 5,000,000 shares of Class B Stock, $0.01 par value, of which
50,000 shares are designated as Series 1 Class B Stock, of which 37,500 shares
are outstanding, and 388,395 are designated as Series A Stock, all of which are
outstanding, 388,395 are designated as Series B Stock, all of which are
outstanding, and 2,500,000 of which are designated as Series 4 Class B Stock,
200,000 of which are outstanding.
6. The shares of Asymetrix Series 4 Class B Stock that are issuable
upon, and in exchange for, the outstanding shares of Aimtech Common Stock in the
Merger, when so issued in accordance with the terms and conditions of the
Reorganization Agreement, will be duly and validly issued, fully paid and non-
assessable.
7. Neither the execution nor the delivery by Asymetrix of the
Reorganization Agreement or any Asymetrix Ancillary Agreement to which it is a
party, nor the consummation of the transactions provided for therein, are in
conflict with any provision of: (a) the Articles of Incorporation or Bylaws of
Asymetrix, as applicable, as currently in effect or (b) to my
<PAGE>
Fenwick & West LLP
September 11, 1997
Page 4
knowledge, any judgment, order or decree of any court or arbitrator to which
Asymetrix is a party or is subject.
In rendering the opinions above, I am opining only as to the specific legal
issues expressly set forth herein, and no opinion shall be inferred as to other
matters. This opinion is intended solely for the use of Fenwick & West LLP for
the purpose of rendering its opinion to Aimtech in connection with the above
transaction, and is not to be made available to, or relied upon for any other
purpose, or by any other person or entity, without my prior written consent. I
assume no obligation to advise you of any fact, circumstance, event or change in
the law or the facts that may hereafter be brought to my attention whether or
not they would affect or modify the opinions expressed herein.
Very truly yours,
Steven Esau
General Counsel
<PAGE>
ATTACHMENT A
Documents Reviewed
(1) The Reorganization Agreement.
(2) Registration Rights Agreement dated as of the date hereof between Asymetrix
and the persons and entities listed on Exhibit A thereto.
(3) The Voting Agreement dated as of the date hereof between Asymetrix and Paul
Allen.
(4) Escrow Agreement dated as of the date hereof between Asymetrix and the
persons and entities listed on Exhibit A thereto.
(5) Bank Escrow Agreement dated as of the date hereof between Asymetrix and the
Escrow Agent.
(5) Employment Agreement made effective as of September 11, 1997 between
Asymetrix and Leo Lucas.
(6) A copy of Asymetrix's Articles of Incorporation.
(7) A copy of Merger Sub's Certificate of Incorporation, certified by the
Delaware Secretary of State on June 24, 1997.
(8) A copy of the By-Laws of each of Asymetrix and Merger Sub.
(9) Action by Unanimous Written Consent of the Board of Directors of Asymetrix
dated as of June 24, 1997.
(10) Action by Unanimous Written Consent of the Board of Directors and of the
sole stockholder of Merger Sub dated as of June 24, 1997.
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "AGREEMENT") is made and entered into as of
September 11, 1997 (the "EFFECTIVE DATE") by and among ASYMETRIX CORPORATION, a
Washington corporation, (the "COMPANY"), AIMTECH CORPORATION, a Delaware
corporation (the "AIMTECH"), Shelley A. Harrison, as representative for the
Designators (defined below) (the "REPRESENTATIVE"), and Paul Allen (the
"SHAREHOLDER").
R E C I T A L S
- - - - - - - -
A. The Company, ASX Merger Corporation, a Delaware corporation
("SUB") and wholly-owned subsidiary of the Company, and Aimtech have entered
into that certain Amended and Restated Agreement and Plan of Reorganization (the
"PLAN") dated as of June 24, 1997 pursuant to which Sub will merge into Aimtech
in a reverse triangular merger.
B. As an inducement to Aimtech to enter into the Plan, the Company,
the Shareholder and Aimtech desire to enter into this Agreement to set forth
their agreement and understanding with respect to the voting of shares of the
Company's capital stock held by Shareholder on certain matters.
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants made herein, the parties hereby agree as follows:
1. ELECTION OF MEMBER OF BOARD OF DIRECTORS.
----------------------------------------
1.1 Voting. During the term of this Agreement, Shareholder
------
agrees to vote all shares of capital stock of the Company now or hereafter
directly or indirectly owned (of record or beneficially) by Shareholder, in such
manner as may be necessary to elect (and maintain in office) as a member of the
Company's Board of Directors, a representative (the "BOARD DESIGNEE") who is
reasonably acceptable to the Company, designated by a majority in interest of
the Former Aimtech Stockholders (as defined in the Plan) (the "DESIGNATORS").
1.2 Initial Board Member. The initial Board Designee shall be
--------------------
_______________________.
1.3 Changes in Board Designee. From time to time during the
-------------------------
term of this Agreement, the Designators may, in their sole discretion:
(a) elect to remove from the Company's Board of Directors
any incumbent Board Designee who occupies a Board seat for which the Designators
are entitled to designate the Board Designee under Section 1.1; and/or
(b) designate a new Board Designee for election to the
Board seat for which such Designators are entitled to designate the Board
Designee under Section 1.1 (whether to replace the prior Board Designee or to
fill a vacancy in such Board seat); provided such removal and/or designation of
--------
a Board Designee is approved in a writing signed by the Designators, in which
case such election to remove a Board Designee and/or elect a new Board Designee
will be binding on all Former Aimtech Stockholders. In the event of such a
removal and/or designation of a Board Designee under this Section 1.3, the
Representative shall notify the Shareholder in writing of such removal and/or
designation and the Shareholder shall be entitled to conclusively rely on such
written information. Upon such written notification, the Shareholder shall vote
his shares of the Company's capital stock as provided in Section 1.1 to cause:
(a) the removal from the Company's Board of Directors of the Board Designee so
designated for
<PAGE>
removal by the Designators; and (b) the election to the Company's Board
Directors of a new Board Designee so designated for election to the Company's
Board of Directors by the Designators.
2. FURTHER ASSURANCES. The Shareholder and the Company agree not to
------------------
vote any shares of Company stock, or to take any other actions, that would in
any manner defeat, impair, be inconsistent with or adversely affect the stated
intentions of the parties under Section 1 of this Agreement, and each party
agrees to cooperate fully with the other parties and execute such further
instruments, documents and agreements and to give such further written
assurances as may be reasonably requested by any other party to evidence and
reflect the transactions described herein and contemplated hereby and to carry
into effect the intents and purposes of this Agreement.
3. ENFORCEMENT OF AGREEMENT. The Shareholder acknowledges and agrees
------------------------
that any breach by him of this Agreement shall cause Designators irreparable
harm which may not be adequately compensable by money damages. Accordingly, in
the event of a breach or threatened breach by Shareholder of any provision of
this Agreement, the Company and Designators shall each be entitled to the
remedies of specific performance, injunction or other preliminary or equitable
relief, including the right to compel Shareholder, as appropriate, to vote
Shareholder's shares of capital stock of the Company in accordance with the
provisions of this Agreement, in addition to such other rights remedies as may
be available to the Designators for any such breach or threatened breach,
including but not limited to the recovery of money damages.
4. TERM. This Agreement shall commence on the Effective Date and
----
shall terminate upon the first to occur of the following:
(a) September 10, 2002;
(b) The execution by the Shareholder, the Company and Aimtech of
a written agreement to terminate this Agreement;
(c) The consummation of the first sale of securities of the
Company to the public pursuant to an effective registration statement filed by
the Company under the Securities Act of 1933, as amended;
(d) The first date on which the outstanding capital stock of the
Company owned by the Former Aimtech Stockholders (calculated on an as-converted-
into-Common Stock basis) constitutes less than five percent (5%) of the number
of shares of the Company's Common Stock that would be outstanding if all then
outstanding shares of the Company's convertible capital stock were then
converted into shares of the Company's Common Stock; or
(e) Immediately prior to the closing of (i) any consolidation or
merger of the Company with or into any other corporation or corporations in
which the holders of the Company's outstanding shares immediately before such
consolidation or merger do not, immediately after such consolidation or merger,
retain stock representing a majority of the voting power of the surviving
corporation of such consolidation or merger or stock representing a majority of
the voting power of a corporation that wholly owns, directly or indirectly, the
surviving corporation of such consolidation or merger; (ii) the sale, transfer
or assignment of securities of the Company representing a majority of the voting
power of all the Company's outstanding voting securities by the holders thereof
to an acquiring party in a single transaction or series of related transactions;
(iii) any other sale, transfer or assignment of securities of the Company
representing over fifty percent (50%) of the voting power of the Company's then
2
<PAGE>
outstanding voting securities by the holders thereof to an acquiring party; or
(iv) the sale of all or substantially all the Company's assets.
5. REPRESENTATIVE. Asymetrix and the Shareholder shall be entitled
--------------
to conclusively rely on any written notification provided by the Representative
and Representative shall indemnify and hold harmless Asymetrix and the
Shareholder for any Damages (as defined in the Plan) arising out of the breach
of any representations of Representative made in this Section 5. In the event
that Representative dies, becomes unable to perform the responsibilities
hereunder or resigns from such position, a substitute representative shall be
appointed by a majority in the interest of the Former Aimtech Stockholder to act
as the Representative of the Former Aimtech Stockholders hereunder.
6. MISCELLANEOUS.
-------------
6.1 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
6.2 Assignment; Binding Upon Successors and Assigns. Neither
-----------------------------------------------
party hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto and any attempt to do so will be
void. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
6.3 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
6.4 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
6.5 Amendments and Waivers. Any terms of this Agreement may be
----------------------
amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Shareholder, the Company and
Former Aimtech Stockholders representing a majority in interest of the Former
Aimtech Stockholders. Any amendment or waiver effected in accordance with this
Section shall be binding upon the Company and the Shareholder and his permitted
transferees and assignees.
6.6 Third Party Beneficiaries. The parties hereto agree that
-------------------------
the Former Aimtech Stockholders are intended to be third party beneficiaries to
this Agreement and shall be entitled to enforce this Agreement against the
Stockholder and/or the Company and may exercise Aimtech's rights hereunder.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
3
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
COMPANY: AIMTECH:
- ------- -------
By:______________________________ By:_________________________
Printed Name:____________________ Printed Name:_______________
Title:___________________________ Title:______________________
SHAREHOLDER: REPRESENTATIVE:
- ----------- --------------
__________________________________ ____________________________
Paul Allen
[SIGNATURE PAGE TO VOTING AGREEMENT]
4
<PAGE>
September 11, 1997
Asymetrix Corporation
110 110th Avenue, N.E., Suite 700
Bellevue, Washington 98004
Re: Acquisition by Merger of Aimtech Corporation
--------------------------------------------
Ladies and Gentlemen:
This opinion is furnished to you pursuant to Section 9.5 of the Amended and
Restated Agreement and Plan of Reorganization, made effective June 24, 1997
(together with all Exhibits and Schedules thereto, the "Reorganization
Agreement"), by and among Aimtech Corporation, a Delaware corporation
("Aimtech"), Asymetrix Corporation, a Washington corporation ("Asymetrix"), and
ASX Merger Corporation, a Delaware corporation and a wholly-owned subsidiary of
Asymetrix ("Merger Sub"). Capitalized terms used in this opinion and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Reorganization Agreement.
We have acted as counsel to Aimtech in connection with the Merger, pursuant
to which Merger Sub will merge with and into Aimtech, with Aimtech as the
surviving corporation. Each share of Aimtech Common Stock outstanding
immediately prior to the Effective Time of the Merger (other than Dissenting
Shares and shares held by Aimtech as treasury stock) will be converted into the
right to receive a certain number of shares of Merger Stock determined in
accordance with a formula set forth in the Reorganization Agreement.
In connection with rendering this opinion, we have reviewed and relied upon
the following documents:
1. The Reorganization Agreement;
2. The Side Letter dated as of September 10, 1997 between Asymetrix,
Merger Sub and Aimtech (the "Side Letter");
3. The Escrow Agreement dated as of the date hereof among Asymetrix and
the persons and entities listed on Exhibit A thereto;
4. The Bank Escrow Agreement dated as of the date hereof among Asymetrix,
The Commerce Bank of Washington, N.A. and the persons and entities
listed on Exhibit A thereto;
5. The Certificate of Incorporation of Aimtech, with all amendments,
together with a long-form good standing certificate of the Secretary
of State of Delaware listing the Certificate of Incorporation and all
of such amendments dated September 9, 1997 (the "Delaware
Certificate);
<PAGE>
Asymetrix Corporation
September 11, 1997
Page 2
6. The Bylaws of Aimtech, as amended to date, as certified by the
Secretary of Aimtech;
7. Resolutions of the Board of Directors of Aimtech authorizing the
execution and delivery by Aimtech of the Reorganization Agreement and
the transactions contemplated therein, as certified by the Secretary
of Aimtech;
8. Resolutions of the stockholders of Aimtech authorizing the
Reorganization Agreement, as certified by the Secretary of Aimtech;
9. A certificate of the New Hampshire Secretary of State dated September
9, 1997 as to the corporate authority of Aimtech to do business in New
Hampshire (the "New Hampshire Certificate");
10. The corporate minute and stock record books of Aimtech, as certified
by the Secretary of Aimtech;
11. An Officers' Certificate from Aimtech to Hale and Dorr LLP, dated as
of the date hereof (the "Officers' Certificate"), a copy of which is
attached hereto as Exhibit A;
---------
12. The Agreement of Merger to be filed with the Secretary of State of
Delaware pursuant to the Reorganization Agreement; and
13. The Bridge Notes (as defined below); and
14. Such other documents, corporate records, certificates (including, but
not limited to, certificates of public officials and officers of
Aimtech) and materials as we have deemed necessary for the purpose of
the opinions rendered herein.
In our examination of the above documents, we have relied, as to all
questions of fact material to this opinion, upon certificates of public
officials and officers of Aimtech (including the Officers' Certificate), and we
have assumed the genuineness of all signatures, the legal capacity of all
individual signatories, the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified, facsimile or photostatic copies and the authenticity of the
originals of such latter documents. Furthermore, with your permission, we have
assumed without independent investigation that the representations and
warranties of the parties contained in the Reorganization Agreement are true and
correct as to all factual matters stated therein.
Any reference to the "best of our knowledge" or "our knowledge", or to any
matter "known to us," "coming to our attention" or "of which we are aware" or
any variation of any of the foregoing shall mean the conscious awareness of any
of the attorneys of this firm who have rendered substantive attention to the
transactions contemplated by the Reorganization Agreement
-2-
<PAGE>
Asymetrix Corporation
September 11, 1997
Page 3
of the existence or absence of any facts which would contradict the opinions set
forth below. We have not undertaken any independent investigation to determine
the existence or absence of such facts, and no inference as to our knowledge of
the existence or absence of such facts should be drawn from our representation
of Aimtech. Without limiting the foregoing, we have not examined any electronic
database, or the records of any court, administrative tribunal, regulatory
agency or other similar entity in connection with our opinions set forth below.
For purposes of our opinions set forth below, we have assumed that each
party to the Reorganization Agreement and the Side Letter other than Aimtech has
all requisite power, legal authority and capacity and has taken all necessary
action to execute and deliver the Reorganization Agreement and to effect the
transactions contemplated thereby, and we have assumed that the Reorganization
Agreement constitutes the valid, binding and enforceable obligation of each
party thereto other than Aimtech. We are expressing no opinion herein as to the
application of any federal or state law or regulation to the power, authority or
competence of any party to the documents referenced below other than Aimtech, or
as to the compliance by any such party with any such law or regulation.
Our opinions expressed herein are qualified to the extent that they may be
subject to or affected by ((i)applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance or transfer, moratorium or similar laws affecting the
rights and remedies of creditors generally, (ii) statutory or decisional law
concerning recourse by creditors to security in the absence of notice or hearing
and (iii) duties and standards imposed on creditors and parties to contracts,
including, without limitation, requirements of good faith, reasonableness and
fair dealing. Further, we do not express any opinion as to the availability of
any remedy of specific performance or any other equitable remedy upon breach of
any provision of any agreement as to which we are opining herein, whether
applied by a court of law or equity. We also do not express any opinion as to
the enforceability of any noncompetition covenants or provisions relating to the
indemnification of, or contribution to, any person for securities laws
violations.
In rendering the opinion in paragraph 1 below, insofar as it relates to the
due incorporation, corporate good standing and valid existence of Aimtech, and
as to the foreign qualification and good standing of Aimtech in New Hampshire,
we have relied solely on the Delaware Certificate and the New Hampshire
Certificate, and such opinions are limited accordingly and are rendered as of
the respective dates of such certificates.
Our opinions in the first and last sentences of paragraph 5 below are based
solely on our review of the stock and corporate record books of Aimtech and on
the Officers' Certificate. Our opinion in paragraph 5 below as to full payment
for outstanding Aimtech shares is based solely on the Officers' Certificate.
Except as expressly set forth in paragraph 8 below, we express no opinion as to
the compliance by Aimtech with applicable state or federal securities laws in
connection with the issuance at any time of shares of Aimtech Common Stock. We
express no opinion as to the compliance by Aimtech with applicable state or
federal antifraud laws.
-3-
<PAGE>
Asymetrix Corporation
September 11, 1997
Page 4
We are expressing no opinion as to compliance by Aimtech with any state
securities or "blue sky" laws or with any state or federal antifraud laws, nor
are we expressing any opinion as to compliance with any applicable fiduciary
obligations of Aimtech or the directors or officers thereof. We are expressing
no opinion herein as to the tax consequences of the Merger under applicable
federal, state and local income tax laws and regulations or as to the accounting
treatment of the Merger.
In rendering the opinions below, we are opining only as to the specific
legal issues expressly set forth herein, and no opinion shall be inferred as to
any other matters.
We do not express any opinion as to the laws of any state or jurisdiction
other than the state laws of the Commonwealth of Massachusetts, the statutory
provisions of the Delaware General Corporation Law and the federal law of the
United States of America. To the extent that any other laws govern the matters
as to which we are opining below, we have assumed, without any investigation
whatsoever, that such laws are identical to the state laws of the Commonwealth
of Massachusetts, and we express no opinion as to whether such assumption is
reasonable or correct. We note that the Reorganization Agreement is governed by
the laws of the State of Washington. We are expressing no opinion herein as to
the enforceability of choice of law or choice of forum provisions of any
agreement.
For purposes of our opinion in paragraph 8 below, we have relied upon the
representations made by the purchasers of Aimtech Common Stock and Warrants in
Section 4.1 of the Common Stock and Warrant Purchase Agreement dated May 2, 1996
(such Common Stock and Warrant Purchase Agreement being hereinafter referred to
as the "1996 Agreement" and the shares of Common Stock and Warrants being sold
at the Closing contemplated by such agreement being referred to as the "1996
Securities"), on the accuracy of the information in the Stockholder
Questionnaires completed by each of the stockholders of Aimtech who purchased
the 8% Convertible Demand Notes issued by Aimtech in July 1997 (the "Bridge
Notes") (other than stockholders under the management of Zesiger Capital Group)
and on the confirmation dated July 3, 1997 of Mary Estabil of Zesiger Capital
Group confirming that all stockholders of Aimtech under the management of
Zesiger Capital Group are accredited investors for federal securities laws
purposes.
Based upon and subject to the foregoing, we are of the opinion that:
1. Aimtech is a corporation duly organized, validly existing and in
corporate good standing under the laws of the State of Delaware. Aimtech is
duly qualified to do business as a foreign corporation in the State of New
Hampshire.
2. Aimtech has the requisite corporate power and authority to own, lease
and operate its properties (as such properties are known to us) and to carry on
its business as, to our knowledge, it is now conducted, and to enter into the
Reorganization Agreement and the Side Letter and to perform its obligations
thereunder.
-4-
<PAGE>
Asymetrix Corporation
September 11, 1997
Page 5
3. No government consents, approvals, authorizations, registrations,
declarations or filings are required to be obtained by Aimtech for the
execution, delivery or performance by or on behalf of Aimtech of the
Reorganization Agreement and the Side Letter, except such as have been obtained
or made.
4. Each of the Reorganization Agreement and the Side Letter has been duly
authorized, executed and delivered by Aimtech. All corporate action required to
be taken by Aimtech's Board of Directors and stockholders to authorize Aimtech
to enter into, execute and deliver each of the Reorganization Agreement and the
Side Letter and to perform its obligations thereunder has been duly and validly
taken. Each of the Reorganization Agreement and the Side Letter is a valid and
binding obligation of Aimtech, enforceable against Aimtech in accordance with
its terms.
5. The authorized capital stock of Aimtech consists of 20,000,000 shares
of Aimtech Common Stock, of which 4,462 shares were issued and outstanding
immediately before the Effective Time (taking into account the conversion of the
Bridge Notes). All currently outstanding shares of Aimtech's capital stock have
been duly authorized and validly issued, and are fully paid and nonassessable.
Other than as set forth in the Aimtech Schedule of Exceptions, there are, to our
knowledge, (a) no outstanding subscriptions, warrants, options, calls, claims,
commitments, convertible securities or other agreements or arrangements under
which Aimtech is or may be obligated to issue any shares of its capital stock,
(b) no preemptive rights to subscribe for or to purchase capital stock of
Aimtech, and (c) no outstanding rights to cause Aimtech to register shares of
capital stock of Aimtech under the 1933 Act or under any other jurisdiction's
securities laws. The Stock Split has been duly effected in accordance with the
Delaware General Corporation Law. The Former Aimtech Stockholders are the only
stockholders of record of Aimtech.
6. Neither the execution and delivery of the Reorganization Agreement or
the Side Letter nor the consummation of the transactions provided for in the
Reorganization Agreement or the Side Letter are in conflict with any provision
of: (a) the Certificate of Incorporation or Bylaws of Aimtech currently in
effect; (b) any judgment, order or decree of any court or arbitrator
specifically naming Aimtech which is known to us or (c) to our knowledge, any
agreement (including government contracts), indenture, mortgage, franchise,
license, permit, lease or other instrument identified in the Aimtech Schedule of
Exceptions.
7. To our knowledge and except as set forth on the Aimtech Schedule of
Exceptions, Aimtech is not a party to any pending or threatened action, suit,
labor dispute (including any union representation proceeding), proceeding,
arbitration, mediation, investigation, or discrimination claim in or by any
court or governmental board, commission, agency, department or officer, or by
any arbitrator.
8. The offer, issuance and sale by Aimtech of the 1996 Securities pursuant
to the 1996 Agreement and the offer, issuance and sale by Aimtech of the Bridge
Notes (and the
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<PAGE>
Asymetrix Corporation
September 11, 1997
Page 6
conversion or exercise of such securities into Aimtech Common Stock prior to the
Effective Time) were exempt from registration under the Securities Act of 1933,
as amended.
This opinion is provided solely for the benefit of the Asymetrix and the
Merger Sub in connection with the Reorganization Agreement and is not to be made
available to, quoted or relied upon by any other person, firm or entity, or for
any other purpose, without our prior written consent. This opinion is based
upon currently existing statutes, rules, regulations and judicial decisions, and
we disclaim any obligation to advise you of any change in any of these sources
of law or subsequent legal or factual developments which might affect any
matters or opinions set forth herein.
Very truly yours,
HALE AND DORR LLP
-6-
<PAGE>
Officer's Certificate
This certificate is being delivered by Aimtech Corporation ("Aimtech") to
Hale and Dorr LLP in connection with the legal opinion being rendered as of the
date hereof by Hale and Dorr LLP to Asymetrix Corporation ("Asymetrix") pursuant
to the Amended and Restated Agreement and Plan of Reorganization, made effective
June 24, 1997 by and among Aimtech Corporation, Asymetrix Corporation and ASX
Merger Corporation (the "Reorganization Agreement").
1. No actions have been taken to dissolve or liquidate Aimtech or
otherwise terminate the corporate existence of Aimtech. Aimtech has
no offices and owns no property other than in the State of New
Hampshire and the United Kingdom, except for property (a) that has
been moved to the State of Washington at the direction of Asymetrix
and (b) in the possession of John Synk, an Aimtech sales person based
in the State of Maryland. Aimtech has no employees other than in the
States of New Hampshire, Washington and Maryland and the United
Kingdom.
2. Aimtech's sole business is the development and licensing of multimedia
and Java authoring software and software for use in the field of
computer based training.
3. As of the time that the Reorganization Agreement was executed and
delivered, and at the Effective Time, Aimtech had fewer than 75
employees.
4. The only members of the Board of Directors of Aimtech at the time the
Reorganization Agreement and the transactions contemplated thereby
were authorized, and at all times since such date through the date
hereof, were Shelley A. Harrison, Susanne Harrison, Andrew Huffman,
Charles G. Moore and Jody A. Owen.
5. The consideration paid for each outstanding share of Aimtech Common
Stock was not less than $.01 per share, and all such consideration was
paid in the form of cash, services rendered, personal property, real
property, leases of real property or a combination thereof.
6. Other than as set forth in the Aimtech Schedule of Exceptions to the
Reorganization Agreement, there are (a) no outstanding subscriptions,
warrants, options, calls, claims, commitments, convertible securities
or other agreements or arrangements under which Aimtech is or may be
obligated to issue any shares of its capital stock; (b) no preemptive
or other rights to subscribe for or to purchase capital stock of
Aimtech; or (c) no outstanding rights to cause Aimtech to register
shares of capital stock of Aimtech under the 1933 Act or under any
other jurisdiction's securities laws.
7. The stockholder list attached hereto as Exhibit I is the true,
---------
complete and correct list of Aimtech Stockholders.
<PAGE>
8. Aimtech is not party to any judgment, order or decree of any court or
arbitrator or any agreement (including government contracts),
indenture, mortgage, franchise, license, permit, lease or other
instrument except as identified in the Aimtech Schedule of Exceptions
to the Reorganization Agreement.
9. Aimtech is not a party to any pending or threatened action, suite,
labor dispute (including any union representation proceeding),
proceeding, arbitration, mediation, investigation, or discrimination
claim in or by any court or governmental board, commission, agency,
department or officer, or by any arbitrator.
10. To the knowledge of the undersigned, all of the purchasers of the
Aimtech Common Stock and Warrants pursuant to the Common Stock and
Warrant Purchase Agreement dated May 2, 1996 and all of the purchasers
if the 8% Convertible Demand Notes issued by Aimtech in July 1997 are
accredited investors for federal securities laws purposes.
11. Other than the 8% Convertible Demand Notes issued in July 1997 in a
principal amount not greater than $1,000,000, Aimtech has not issued
any securities since May 2, 1996.
EXECUTED as of the 11th day of September, 1997.
AIMTECH CORPORATION
By: ________________________________
David Johnson, Secretary and
Chief Financial Officer
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<PAGE>
EXHIBIT 9.12
__________, 1997
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
INVESTMENT REPRESENTATION LETTER
The undersigned holder ("STOCKHOLDER") of Common Stock (the "AIMTECH
STOCK") of Aimtech Corporation, a Delaware corporation ("AIMTECH"), is acquiring
shares of the capital stock of Asymetrix Corporation, a Washington corporation
("ASYMETRIX") pursuant to that certain Agreement and Plan of Reorganization (the
"PLAN") dated as of June 24, 1997 among Asymetrix, ASX Merger Corporation, a
Delaware corporation and wholly-owned subsidiary of Asymentrix ("SUB") and
Aimtech Corporation, a Delaware corporation ("AIMTECH"), pursuant to which Sub
will merge with and into Aimtech in a reverse triangular merger (the "MERGER"),
and all of the outstanding capital stock of Aimtech will be converted into
shares of Asymetrix Series 4, Class B Stock (the "RESTRICTED SECURITIES")
pursuant to a private placement effected pursuant to Section 4(2) of the U.S.
Securities Act of 1933, as amended (the "SECURITIES ACT") and/or Regulation D
promulgated thereunder. Unless otherwise defined herein, all capitalized terms
used herein shall have the meanings given to such terms in the Plan.
In connection with the Merger, Stockholder hereby represents and warrants
to Asymetrix as follows:
(1) Status of Stockholder. [OMIT FOR ANY INVESTORS WHICH ARE NOT
---------------------
ACCREDITED] Stockholder is an "accredited investor" within the meaning of
Regulation D promulgated under the Securities Act (i.e., Stockholder is a trust
----
with total assets in excess of $5,000,000, was not formed for the specific
purpose of acquiring the Restricted Securities, and the investment decision to
acquire the Restricted Securities was made by a trustee who has such knowledge
and experience in financial and business matters that he is capable of
evaluating the merits and risks of the prospective investment). Stockholder has
the knowledge and experience in financial and business matters necessary to
evaluate and make an informed decision regarding the exchange of Stockholder's
shares of Aimtech Stock for the Restricted Securities and to make the investment
in the Restricted Securities pursuant to the Merger. Stockholder has the
capacity to protect its own interests in connection with the Merger.
<PAGE>
(2) Plan and Notice Materials. Stockholder acknowledges that Stockholder
-------------------------
has received, read and understood the Plan and the Notice Materials referred to
in Section 3.19 of the Plan.
(3) Access to Other Information. Stockholder acknowledges that Asymetrix
---------------------------
has made available to Stockholder the opportunity to examine such additional
documents and to ask questions of, and receive answers from, Asymetrix and its
management concerning, among other things, Asymetrix, its business, financial
condition, management, activities and any other information which Stockholder
considers relevant, important or material in making the decision to participate
in the Merger and to invest in the Restricted Securities.
(4) Risks of Investment. Stockholder acknowledges that the Restricted
-------------------
Securities involve a degree of risk and is aware of the lack of liquidity of the
Restricted Securities. Stockholder appreciates the financial hazards involved in
making the investment and understands the tax consequences of investing in the
Restricted Securities. Stockholder has not relied on Asymetrix or its counsel
for any advice regarding the tax consequences of the Merger and/or Stockholder's
investment in the Restricted Securities.
(5) Investment Intent. Stockholder is acquiring the Restricted Securities
-----------------
in the Exchange for investment purposes for Stockholder's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act. Stockholder has no present intention
of disposing of the Restricted Securities and no one other than the
beneficiaries of Stockholder has any beneficial interest in the Restricted
Securities.
(6) Restricted Securities; Registration Rights. Stockholder acknowledges
------------------------------------------
and understands that the terms of the Merger have not been reviewed by the
Securities and Exchange Commission (the "SEC") or by any state securities
authorities, that the Restricted Securities to be received by Stockholder
pursuant to the Merger have not been registered under the Securities Act and
constitute "restricted securities" within the meaning of Rule 144 promulgated
under the Securities Act ("RULE 144"), and have been issued in reliance on the
exemptions for non-public offerings provided by Section 4(2) of the Securities
Act and/or Regulation D promulgated thereunder, which exemptions depend upon,
among other things, the representations made and information furnished by
Stockholder herein, including but not limited to the bona fide nature of
Stockholder's investment intent as expressed above. Stockholder and Asymetrix
acknowledge that Stockholder has certain "piggyback" registration rights to
cause Asymetrix to include such Restricted Securities in a registration
statement under the Securities Act, if any such registration statement is filed
by Asymetrix and subject to the limitations set forth in the Registration Rights
Agreement being entered into by and among the Aimtech Stockholders and Asymetrix
pursuant to the Plan and that Asymetrix is not otherwise obligated to register
the Restricted Securities to be issued to Stockholder.
(7) Rule 144. Stockholder acknowledges that, absent such registration of
--------
the Restricted Securities, Stockholder will not be able to publicly sell the
Restricted Securities until one year after the Effective Time of the Merger.
After that date, Stockholder may sell the Restricted Securities in compliance
with Rule 144. Stockholder is familiar with the provisions of Rule 144 which
permit limited public resales of "restricted securities," subject to the
satisfaction of certain conditions and has been advised by securities counsel
retained by Aimtech regarding
2
<PAGE>
the restrictions on the transfer of the Restricted Securities imposed by Rule
144. Stockholder understands that in the event all of the applicable
requirements of Rule 144 are not satisfied, registration under the Securities
Act or some other exemption from the registration requirements of the Securities
Act will be required in order to enable Stockholder to dispose of the Restricted
Securities, and that Stockholder may be required to hold the Restricted
Securities for a significant period of time prior to reselling them. Stockholder
acknowledges that if it is or becomes an "affiliate" of Asymetrix, then certain
restrictions, including volume limits, imposed by Rule 144 will continue to
apply to Stockholder beyond the second anniversary of the date on which
Stockholder acquires the Restricted Securities.
(8) Procedures for Transfer. Stockholder will not sell, transfer,
-----------------------
exchange, pledge or otherwise dispose of, or make any offer or agreement
relating to any of the foregoing with respect to, any Restricted Securities, or
any option, right or other interest with respect to any Restricted Securities,
unless: (i) such transaction is permitted pursuant to Rule 144; (ii) counsel
representing Stockholder shall have advised Asymetrix in a written opinion
letter reasonably satisfactory to Asymetrix and Asymetrix's legal counsel, and
upon which Asymetrix and its legal counsel may reasonably rely, that no
registration under the Securities Act would be required in connection with the
proposed sale, transfer or other disposition of Restricted Securities; or (iii)
a registration statement under the Securities Act covering the Restricted
Securities proposed to be sold, transferred or otherwise disposed of, describing
the manner and terms of the proposed sale, transfer or other disposition, and
containing a current prospectus, shall have been filed with the SEC and be
effective under the Securities Act.
(9) Legends. Stockholder also understands and agrees that there will be
-------
placed on the certificates evidencing the ownership of the Restricted
Securities, the following legend (in addition to any legends required by
applicable state laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, OR TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT (AND CURRENT PROSPECTUS) IS IN EFFECT AS TO
THE SECURITIES, (2) AN EXEMPTION THEREFROM IS AVAILABLE, OR (3)
THE SECURITIES ARE SOLD PURSUANT TO RULE 144 OF THE SECURITIES
ACT. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(10) Stop Transfer Instructions; No Requirement to Transfer. Stockholder
------------------------------------------------------
agrees that, in order to ensure compliance with the restrictions referred to
herein, Asymetrix may issue appropriate "stop transfer" instructions to its
transfer agent, if any. Asymetrix shall not be required (i) to transfer or have
transferred on its books any Restricted Securities that have been sold or
otherwise transferred in violation of any of the provisions of this letter or
the Plan or (ii) to treat as owner of such Restricted Securities or to accord
the right to vote or pay dividends to any purchaser or other transferee to whom
such Restricted Securities shall have been so transferred in violation of any
provision of this letter or the Plan.
3
<PAGE>
(11) Ability to Bear Economic Risk. Stockholder represents that it (i) is
-----------------------------
able to bear the economic risk of its investment in the Restricted Securities,
(ii) is able to hold the Restricted Securities for an indefinite period of time,
(iii) can afford a complete loss of its investment in the Restricted Securities
and (iv) has adequate means of providing for its current needs and possible
contingencies and has no need for liquidity in this investment.
(12) No Public Solicitation. Stockholder represents that at no time was
----------------------
such Stockholder presented with or solicited by any general mailing, leaflet,
public promotional meeting, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or general solicitation
in connection with the Merger.
[THE NEXT TWO SECTIONS ARE ONLY FOR STOCKHOLDERS WHICH ARE NOT INDIVIDUALS]
[(13) NOT FORMED FOR THIS INVESTMENT. STOCKHOLDER HEREBY WARRANTS AND
------------------------------
REPRESENTS TO ASYMETRIX THAT STOCKHOLDER HAS NOT BEEN FORMED FOR THE SPECIFIC
PURPOSE OF ACQUIRING THE RESTRICTED SECURITIES IN THE MERGER AND STOCKHOLDER HAS
ENGAGED IN SUBSTANTIAL BUSINESS ACTIVITIES AND/OR MADE SUBSTANTIAL INVESTMENTS
IN THE PAST.]
[(14) AUTHORITY. STOCKHOLDER IS DULY ORGANIZED AND VALIDLY EXISTING UNDER
---------
THE LAWS OF THE JURISDICTION OF ITS FORMATION, WITH ALL REQUISITE POWER AND
AUTHORITY TO ENTER INTO AND PERFORM ITS OBLIGATIONS UNDER THIS LETTER AND
STOCKHOLDER'S EXECUTION, DELIVERY AND PERFORMANCE OF THIS LETTER HAVE BEEN DULY
AUTHORIZED AS REQUIRED BY ITS GOVERNING INSTRUMENTS AND APPLICABLE LAW. THE
UNDERSIGNED TRUSTEE IS DULY AUTHORIZED TO EXECUTE THIS LETTER.]
Sincerely,
__________________________________
Name of Stockholder
By:_______________________________
Name:_____________________________
Title:____________________________
[SIGNATURE PAGE TO INVESTMENT REPRESENTATION LETTER]
4
<PAGE>
EXHIBIT 9.16
------------
[Letterhead of Purchaser Representative]
[Date]
Dear [Investor]:
You have asked me to serve as your Purchaser Representative in connection
with your proposed acquisition of shares of Series 4 Class B Stock ("Shares") of
------
Asymetrix Corporation, a Washington corporation ("Asymetrix") in exchange for
---------
your shares of common stock of Aimtech Corporation, a Delaware corporation
("Aimtech") pursuant to the Agreement and Plan of Reorganization, dated June 24,
-------
1997, among Asymetrix, Aimtech and ASX Merger Corporation, a Delaware
corporation ("ASX"), pursuant to which ASX will be merged with and into Aimtech
---
in a reverse triangular merger (the "Merger"). If you execute this document, I
------
will be able to counsel you on the merits and risks of an investment in
Asymetrix. I understand that Asymetrix may be relying upon my service on your
behalf as your Purchaser Representative, and upon statements made by me herein,
in determining your eligibility for the purchase of the Shares.
I am not an affiliate, director, officer or other employee of Asymetrix, or
the beneficial owner of ten percent or more of any class of the equity
securities of, or ten percent or more of the equity interest in, Asymetrix. I
have such knowledge and experience in financial and business matters that I am
capable of evaluating the merits and risks of an investment in Asymetrix. I am
an "accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act of 1933, as amended.
There exists no material relationship between me or any of my affiliates,
on the one hand, and Asymetrix or any of its affiliates, on the other hand,
[OTHER THAN __________________ AND THE PROPOSED PURCHASE BY (MY AFFILIATES)(ME),
OF SHARES IN THE MERGER.] Other than as set forth in the preceding sentence, no
relationship between me or any of my affiliates, on the one hand, and Asymetrix
and any of its affiliates, on the other hand, is contemplated or has existed at
any time during the last two years.
I will be receiving no compensation for acting as your Purchaser
Representative in connection with the Merger. I will notify you as soon as
practicable of any changes in the information contained in this letter which may
occur prior to the closing of the Merger, which is expected to occur on
September __, 1997.
By executing this letter, you acknowledge that I, __________, will act as
your Purchaser Representative in connection with the evaluation of the merits
and risks of an investment in
<PAGE>
Asymetrix, [AND THAT YOU HAVE BEEN ADVISED, IN WRITING, OF THE MATERIAL
RELATIONSHIP BETWEEN MYSELF AND ASYMETRIX DESCRIBED ABOVE].
Sincerely,
[Purchaser Representative]
Acknowledged and Agreed:
_______________________
[Investor]
2
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered
---------
into as of September 30, 1997, by and among Asymetrix Corporation, a Washington
corporation ("Asymetrix"), Oakes Acquisition Corp., a Massachusetts corporation
---------
and a wholly-owned subsidiary of Asymetrix ("Oakes Interactive Sub"), TopShelf
---------------------
Acquisition Corp., a Massachusetts corporation and a wholly-owned subsidiary of
Asymetrix ("TopShelf Sub") Acorn Acquisition Corp. ("Acorn Sub"), a
------------ ---------
Massachusetts corporation and a wholly-owned subsidiary of Asymetrix, Oakes
Interactive Incorporated, a Massachusetts corporation ("Oakes Interactive"),
-----------------
TopShelf Multimedia, Inc., a Massachusetts corporation ("TopShelf"), Acorn
--------
Associates Incorporated, a Massachusetts corporation ("Acorn" and, together with
-----
TopShelf and Oakes Interactive, the "Oakes Companies") and Gordon Oakes and
---------------
Kevin Oakes (each of whom is a stockholder of each of the Oakes Companies, and
are collectively referred to herein as the "Principals" and each individual
----------
referred to as a "Principal").
---------
RECITALS
The parties intend that, subject to the terms and conditions of this
Agreement:
(i) Oakes Interactive Sub will merge with and into Oakes Interactive
in a reverse triangular merger, with Oakes Interactive to be the corporation
surviving the Oakes Interactive Merger (as defined below), all pursuant to the
terms and conditions of this Agreement and Articles of Merger in the form of
Exhibit A-1 attached hereto (the "Oakes Interactive Articles of Merger") and the
- ----------- ------------------------------------
applicable provisions of the law of the Commonwealth of Massachusetts.
(ii) TopShelf Sub will merge with and into TopShelf in a reverse
triangular merger, with TopShelf to be the corporation surviving the TopShelf
Merger (as defined below), all pursuant to the terms and conditions of this
Agreement and Articles of Merger in the form of Exhibit A-2 attached hereto (the
-----------
"TopShelf Articles of Merger") and the applicable provisions of the laws of the
---------------------------
Commonwealth of Massachusetts, and
(iii) Acorn Sub will merge with and into Acorn in a reverse triangular
merger, with Acorn to be the corporation surviving the Acorn Merger (as defined
below), all pursuant to the terms and conditions of this Agreement and Articles
of Merger in the form of Exhibit A-3 attached hereto (the "Acorn Articles of
----------- -----------------
Merger") and the applicable provisions of the laws of the Commonwealth of
- ------
Massachusetts.
Upon the effectiveness of the Mergers (as defined below), all of the
outstanding capital stock of each of the Oakes Companies will be converted into
shares of Asymetrix Series 5 Class B Stock, as provided in this Agreement and
the respective Articles of Merger. Each of the Mergers is intended to be treated
as a tax-free reorganization pursuant to the provisions of Section 368(a)(1)(A)
of the Internal Revenue Code of 1986, as amended (the "Code") by virtue of the
----
provisions of Section 368(a)(2)(E) of the Code and will be treated as a
"purchase" for accounting purposes.
<PAGE>
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms have
the meanings set forth below:
1.1 "Acorn Common Stock" means the Common Stock of Acorn, no par value per
------------------
share.
1.2 "Acorn Merger" means the merger of Acorn Sub with and into Acorn in a
------------
reverse triangular merger pursuant to this Agreement and the Acorn Articles of
Merger.
1.3 "Asymetrix Merger Stock" means the Series 5 Class B Stock of
----------------------
Asymetrix, $0.01 par value per share, having the rights, preferences and
limitations set forth in the Statement of Designation (as defined below), and
any Asymetrix Common Stock into which such Series 5 Class B Stock may be
converted pursuant to the terms in the Statement of Designation.
1.4 "Asymetrix Options" means options exercisable for Asymetrix Common
-----------------
Stock to be granted to employees of the Oakes Companies as provided in Section
11.3.
1.5 "Articles of Merger" mean collectively the Oakes Interactive Articles
------------------
of Merger, the Acorn Articles of Merger and the TopShelf Articles of Merger.
1.6 "Effective Time" means the time and date on which each of the Oakes
--------------
Interactive Articles of Merger, the Acorn Articles of Merger and the TopShelf
Articles of Merger, as applicable, has been filed with the Commonwealth of
Massachusetts, and each of the Mergers becomes effective under Massachusetts
law.
1.7 "Former Oakes Interactive Stockholders" means any holder of shares of
-------------------------------------
Oakes Interactive Common Stock that are issued and outstanding immediately prior
to the Effective Time.
1.8 The "Mergers" means each of the Oakes Interactive Merger, the
-------
TopShelf Merger and the Acorn Merger.
1.9 "Merger Subs" means collectively each of Oaks Sub, TopShelf Sub and
-----------
Acorn Sub.
1.10 "Oakes Interactive Common Stock" means the Common Stock of Oakes
------------------------------
Interactive, no par value per share.
1.11 "Oakes Interactive Merger" means the merger of Oakes Interactive
------------------------
Sub with and into Oakes Interactive in a reverse triangular merger pursuant to
this Agreement and the Oakes Interactive Articles of Merger.
1.12 "Stated Value Per Share" means $3.47 per share of Asymetrix Merger
----------------------
Stock.
<PAGE>
1.13 "Statement of Designation" means the Statement of Designation of
------------------------
Rights, Preferences and Limitations of Series 5 Class B Stock in the form
attached hereto as Exhibit 1.13.
------------
1.14 "TopShelf Common Stock" means the Common Stock of TopShelf, no par
---------------------
value per share.
1.15 "TopShelf Merger" means the merger of TopShelf Sub with and into
---------------
TopShelf in a reverse triangular merger pursuant to this Agreement and the
TopShelf Articles of Merger.
Other capitalized terms defined elsewhere in this Agreement and not defined
in this Section 1 have the meanings assigned to such terms in this Agreement.
2. PLAN OF REORGANIZATION
2.1 The Oakes Interactive Merger. At the Effective Time, Oakes Interactive
----------------------------
Sub will be merged with and into Oakes Interactive pursuant to this Agreement
and the Oakes Interactive Articles of Merger and in accordance with applicable
provisions of the laws of the Commonwealth of Massachusetts. Each share of Oakes
Interactive Common Stock issued and outstanding immediately prior to the
Effective Time will, by virtue of the Oakes Interactive Merger and at the
Effective Time, and without further action on the part of any holder thereof, be
converted into the right to receive such number of shares (the "Oakes
-----
Interactive Applicable Fraction") of Asymetrix Merger Stock as is equal to
- -------------------------------
1,210,000 shares divided by the total number of shares of Oakes Interactive
Common Stock issued and outstanding immediately prior to the Effective Time.
2.2 The TopShelf Merger. Simultaneously with Oakes Interactive Merger,
-------------------
Asymetrix shall cause the TopShelf Articles of Merger to be filed with the
Secretary of State of the Commonwealth of Massachusetts. At the Effective Time,
TopShelf Sub will be merged with and into TopShelf pursuant to this Agreement
and the TopShelf Articles of Merger and in accordance with applicable provisions
of the laws of the Commonwealth of Massachusetts. Each share of TopShelf Common
Stock issued and outstanding immediately prior to the Effective Time will, by
virtue of the TopShelf Merger and at the Effective Time, and without further
action on the part of any holder thereof, be converted into the right to receive
such number of shares (the "TopShelf Applicable Fraction") of Asymetrix Merger
----------------------------
Stock as is equal to 151,250 shares divided by the total number of shares of
TopShelf Common Stock issued and outstanding immediately prior to the Effective
Time.
2.3 The Acorn Merger. Simultaneously with the Oakes Interactive Merger and
----------------
the TopShelf Merger, Asymetrix shall cause the Acorn Articles of Merger to be
filed with the Secretary of State of the Commonwealth of Massachusetts. At the
Effective Time, Acorn Sub will be merged with and into Acorn pursuant to this
Agreement and the Acorn Articles of Merger and in accordance with applicable
provisions of the laws of the Commonwealth of Massachusetts. Each share of Acorn
Common Stock issued and outstanding immediately prior to the Effective Time
will, by virtue of the Acorn Merger and at the Effective Time, and without
further action on the part of any holder thereof, be converted into the right to
receive such
<PAGE>
number of shares (the "Acorn Applicable Fraction"; the Oakes Interactive
-------------------------
Applicable Fraction, the TopShelf Applicable Fraction and the Acorn Applicable
Fraction are collectively referred to as the "Applicable Fractions") of
--------------------
Asymetrix Merger Stock as is equal to 151,250 shares divided by the total number
of shares of Acorn Common Stock issued and outstanding immediately prior to the
Effective Time.
2.4 Adjustments for Capital Changes. If, prior to the Effective Time,
-------------------------------
Asymetrix or any of the Oakes Companies recapitalizes through a split-up of its
outstanding shares into a greater number, or a combination of its outstanding
shares into a lesser number, reorganizes, reclassifies or otherwise changes its
outstanding shares into the same or a different number of shares of other
classes (other than through a split-up or combination of shares provided for in
the previous clause), or declares a dividend on its outstanding shares payable
in shares, securities convertible into shares or other property, then the
Applicable Fractions will be adjusted appropriately.
2.5 Fractional Shares. No fractional shares of Asymetrix Merger Stock will
-----------------
be issued in connection with any of the Mergers, but in lieu thereof, the
holders of Oakes Interactive Common Stock, TopShelf Common Stock or Acorn Common
Stock who would otherwise be entitled to receive a fraction of a share of
Asymetrix Merger Stock will receive from Asymetrix, promptly after the Effective
Time, an amount of cash equal to the Stated Value Per Share, multiplied by the
fraction of a share of Asymetrix Merger Stock to which such holder would
otherwise be entitled. Such cash payment in lieu of fractional share interests
is merely intended to provide a mechanism to avoid fractional shares.
2.6 Options; Other Securities. No shares of Asymetrix Merger Stock (or any
-------------------------
other securities of Asymetrix) shall be issued or issuable with respect to
options to purchase Oakes Interactive Common Stock, TopShelf Common Stock or
Acorn Common Stock or with respect to any other equity securities of the Oakes
Companies (including warrants and stock appreciation rights), other than Oakes
Interactive Common Stock, TopShelf Common Stock or Acorn Common Stock and all
such options or other equity securities shall be canceled at the Effective Time.
2.7 Effects of the Mergers. At the Effective Time: (a) the separate
----------------------
existence of each of the Merger Subs will cease and (i) Oakes Interactive Sub
will be merged with and into Oakes Interactive, and Oakes Interactive will be
the surviving corporation of the Oakes Interactive Merger, pursuant to the terms
of the Oakes Interactive Articles of Merger; (ii) TopShelf Sub will be merged
with and into TopShelf and TopShelf will be the surviving corporation of the
TopShelf Merger, pursuant to the terms of the TopShelf Articles of Merger, and
(iii) Acorn Sub will be merged with and into Acorn, and Acorn will be the
surviving corporation of the Acorn Merger, pursuant to the terms of the Acorn
Articles of Merger; (b) the Articles of Organization and Bylaws of Oakes
Interactive, TopShelf or Acorn will be unchanged and will continue to be the
Articles of Organization and Bylaws of the surviving corporation of the Oaks
Interactive Merger, the TopShelf Merger or the Acorn Merger, as applicable; (c)
each share of capital stock of each Merger Sub outstanding immediately prior to
the Effective Time will continue to be an identical outstanding share of the
respective surviving corporation; (d) the directors and officers
<PAGE>
of Oakes Interactive Sub, TopShelf Sub or Acorn Sub shall become the directors
and officers of the respective surviving corporation; (e) each share of Oakes
Interactive Common Stock, TopShelf Common Stock or Acorn Common Stock
outstanding immediately prior to the Effective Time will be converted into the
right to receive that number of shares of Asymetrix Merger Stock as provided in
Sections 2.1, 2.2 or 2.3, as applicable; (f) the purposes of the surviving
corporation of each of the Mergers shall be as specified in the Articles of
Organization of each of the Oakes Companies immediately prior to the Mergers;
(g) the authorized capitalization of the surviving corporation of each of the
Mergers shall be the authorized capital of the applicable Oakes Company
immediately prior to the Mergers; and (h) the Mergers will, from and after the
Effective Time, have all of the effects provided by applicable law.
2.8 Further Assurances. Each of the Oakes Companies and the Principals
------------------
agree that if, at any time after the Effective Time, Asymetrix considers or is
advised that any further deeds, assignments or assurances are reasonably
necessary or desirable to vest, perfect or confirm in Asymetrix title to any
property or rights of the Oakes Companies, Asymetrix and its officers and
directors may execute and deliver all such proper deeds, assignments and
assurances and do all other things necessary or desirable to vest, perfect or
confirm title to such property or rights in Asymetrix and otherwise carry out
the purpose of this Agreement, in the name of the Oakes Companies or otherwise.
2.9 Securities Law Compliance. Asymetrix will issue the shares of
-------------------------
Asymetrix Merger Stock in the Mergers pursuant to the "private placement"
exemption from registration under Section 4(2) of, and Rule 506 of Regulation D
promulgated under, the Securities Act of 1933, as amended (the "Securities
Act"), and the shares received by the Principals and the other Former Oakes
Interactive Stockholders in the Mergers will therefore be restricted securities
within the meaning of Rule 144 of the Securities Act, and Articles evidencing
such shares will bear a restrictive legend evidencing that fact. Asymetrix shall
also take any action that is required to be taken under any applicable state
securities or Blue Sky laws in connection with the issuance of Asymetrix Merger
Stock in the Mergers. The Oakes Companies and the Principals shall furnish to
Asymetrix all information known to the Oakes Companies or the Principals (or
reasonably ascertainable by the Oakes Companies or the Principals) concerning
each of the Oakes Companies, the Principals and the other Former Oakes
Interactive Stockholders, as may be reasonably requested in connection with any
action contemplated by this Section.
2.10 Purchase Accounting. The parties intend that each of the Mergers be
-------------------
treated as a purchase for accounting purposes.
2.11 Tax-Free Reorganization. The parties intend to adopt this Agreement as
-----------------------
a tax-free plan of reorganization and to consummate the Mergers in accordance
with the provisions of Section 368(a)(1)(A) of the Code. The parties believe
that the value of the Asymetrix Merger Stock to be received in each applicable
Merger is equal, in each instance, to the value of the Oakes Interactive Common
Stock, TopShelf Common Stock or Acorn Common Stock, as applicable, to be
surrendered in exchange therefor. The Asymetrix Merger Stock issued in the
Mergers will be issued solely in exchange for Oakes Interactive Common Stock,
TopShelf Common Stock or Acorn Common Stock, as applicable, and no other
transaction other than the
<PAGE>
applicable Merger represents, provides for or is intended to be an adjustment to
the consideration paid for the Oakes Interactive Common Stock, TopShelf Common
Stock or Acorn Common Stock, as applicable. No consideration that could
constitute "other property" within the meaning of Section 356 of the Code is
being paid by Asymetrix for the Oakes Interactive Common Stock, TopShelf Common
Stock or Acorn Common Stock in the Merger. The parties shall not take a position
on any tax returns inconsistent with this Section 2.11. In addition, Asymetrix
represents now, and as of the Effective Time, that it presently intends to
continue the Oakes Companies' historic business or use a significant portion of
the Oakes Companies' business assets in a business. At the Effective Time,
officers of each of Asymetrix and each of the Oakes Companies shall execute and
deliver officers' Certificates in the forms of Exhibits 2.11A, 2.11B, 2.11C and
--------------------------------
2.11D attached hereto. The provisions and representations contained or referred
- -----
to in this Section 2.11 shall survive until the expiration of the applicable
statute of limitations.
3. REPRESENTATIONS AND WARRANTIES OF THE OAKES COMPANIES
Each of the Principals and each Oakes Company, jointly and severally,
hereby represents and warrants as follows, except as set forth in the Oakes
Schedule of Exceptions (in numbered paragraphs that correspond to the Section
numbers below) simultaneously delivered to Asymetrix as Exhibit 3.0 with the
-----------
execution of this Agreement:
3.1 Organization, Good Standing and Qualification. Each Oakes Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the Commonwealth of Massachusetts, has the corporate power and authority to
own, operate and lease its properties and to carry on its business as now
conducted and as proposed to be conducted, and is qualified as a foreign
corporation in the jurisdictions listed in Schedule 3.1 of the Oakes Schedule of
------------
Exceptions. None of the Oakes Companies owns or leases any property outside of
the Commonwealth of Massachusetts and has no employees or offices outside of the
Commonwealth of Massachusetts. None of the Oakes Companies has received any
notice from any state in which the Oakes Companies are not qualified as a
foreign corporation to the effect that the Oakes Companies should be so
qualified.
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 Each Oakes Company has the corporate right, power, legal
capacity and authority to enter into and perform its obligations under this
Agreement and all agreements to which such Oakes Company is or will be a party
that are required to be executed at the Closing (defined below) pursuant to this
Agreement (the "Oakes Ancillary Agreements"). The execution, delivery and
--------------------------
performance of this Agreement and the Oakes Ancillary Agreements to which the
Oakes Companies are a party have been duly and validly approved and authorized
by the Boards of Directors of Oakes Interactive, TopShelf and Acorn,
respectively. The Oakes Interactive Merger, the TopShelf Merger and the Acorn
Merger have been approved by all of the stockholders of Oakes Interactive,
TopShelf and Acorn, respectively.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable the Oakes Companies to enter into, and to
perform its obligations under, this Agreement and the Oakes Ancillary
Agreements, except for (a) the filing of the Articles of
<PAGE>
Merger with the Commonwealth of Massachusetts, and (b) such filings as may be
required to comply with federal and state securities laws.
3.2.3 This Agreement and the Oakes Ancillary Agreements are, or
when executed by the Oakes Companies, will be, valid and binding obligations of
the Oakes Companies, enforceable in accordance with their respective terms,
except as to the effect, if any, of (a) applicable bankruptcy and other similar
laws affecting the rights of creditors generally and (b) rules of law governing
specific performance, injunctive relief and other equitable remedies; provided,
however, that the Articles of Merger will not be effective until the Effective
Time.
3.3 Capitalization. As of the date hereof, the authorized capital stock of
--------------
(i) Oakes Interactive consists of 200,000 shares of Oakes Interactive Common
Stock, of which 200 shares are issued and outstanding, (ii) TopShelf consists of
200,000 shares of TopShelf Common Stock, of which 200 shares are issued and
outstanding and (iii) Acorn consists of 200,000 shares of Acorn Common Stock, of
which 200 shares are outstanding. All issued and outstanding shares of Oakes
Interactive Common Stock, TopShelf Common Stock and Acorn Common Stock have been
duly authorized and validly issued, are fully paid and nonassessable, are not
subject to any right of rescission, and have been offered, issued, sold and
delivered by Oakes Interactive, TopShelf or Acorn, as applicable, in compliance
with all registration or qualification requirements (or applicable exemptions
therefrom) of applicable federal and state securities laws. Schedule 3.3 of the
------------
Oakes Schedule of Exceptions sets forth a true, correct and complete list of all
holders of Oakes Interactive Common Stock, TopShelf Common Stock and Acorn
Common Stock. There are no options, warrants, stock appreciation rights, calls,
commitments, conversion privileges or preemptive or other rights or agreements
outstanding to purchase or otherwise acquire any of Oakes Interactive's,
TopShelf's or Acorn's authorized but unissued capital stock or any securities
convertible into or exchangeable for shares of Oakes Interactive, TopShelf or
Acorn capital stock or obligating any Oakes Company to grant, extend, or enter
into any such option, warrant, call, commitment, conversion privilege or other
right or agreement, and there is no liability for dividends accrued but unpaid.
There are no voting agreements, rights of first refusal or other restrictions
(other than normal restrictions on transfer under applicable federal and state
securities laws) applicable to any of the Oakes Companies' outstanding
securities. No Oakes Company is under any obligation to register under the
Securities Act any of its presently outstanding securities or any securities
that may be subsequently issued. All holders of Common Stock of any Oakes
Company reside in the Commonwealth of Massachusetts.
3.4 Subsidiaries. No Oakes Company presently owns or controls, directly or
------------
indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
3.5 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any Oakes Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach or violation of, or cause an acceleration or amendment of
any obligation under, (a) any provision of the Articles of Organization or
Bylaws of any Oakes Company, as currently in effect, (b) any Material Agreement
(as defined in Section 3.11) to
<PAGE>
which any Oakes Company is a party or by which the Oakes Companies or its assets
or properties are bound, or (c) to the knowledge of the Oakes Companies, any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to the Oakes Companies, or their respective assets or
properties, in each case, such that the conflict, termination, breach,
acceleration or amendment would have a material adverse effect on the business,
operations, financial condition or prospects of such Oakes Companies (for
purposes of this Section 3, Section 3A and Section 5, a "Material Adverse
----------------
Effect").
- ------
3.6 Litigation. There is no action, proceeding, claim or investigation
----------
pending against any Oakes Company before any federal, state, municipal, foreign
or other court or administrative agency, department, board or instrumentality
that, if concluded adversely to such Oakes Company, would have a Material
Adverse Effect, and, to the best of the Oakes Companies' knowledge, no such
action, proceeding, claim or investigation has been threatened. There is, to the
best of the Oakes Companies' knowledge, no reasonable basis for any stockholder
or former stockholder of any Oakes Company, or any other person, firm,
corporation or entity, to assert a claim against any Oakes Company, Principal or
Asymetrix based upon: (a) ownership or rights to ownership of any shares of
Oakes Interactive Common Stock, TopShelf Common Stock or Acorn Common Stock, (b)
any rights as or to become a holder of securities of any Oakes Company,
including any option or preemptive rights or rights to notice or to vote, or (c)
any rights under any agreement among any Oakes Company and any of their
respective stockholders or former stockholders or option holders or former
option holders.
3.7 Taxes. For purposes of this Section 3.7, the terms "tax" and "taxes"
----- --- -----
include all federal, state, local and foreign income, gains, franchise, excise,
property, sales, use, employment, license, payroll, occupation, recording,
value-added or transfer taxes, governmental charges, fees, levies or assessments
(whether payable directly or by withholding), and, with respect to such taxes,
any estimated taxes, interest, penalties, additions to tax and interest on any
such penalties and additions to tax.
3.7.1 Each of the Oakes Companies has timely filed all federal,
state, local and foreign tax returns or information statements required to be
filed by it, has timely paid all taxes required to be paid by it in respect of
all periods for which returns have been filed, has established an adequate
accrual or reserve for the payment of all taxes payable in respect of the
periods subsequent to the periods covered by the most recent applicable tax
returns, has made all necessary estimated tax payments, and has no material
liability for taxes in excess of the amount so paid or accruals or reserves so
established. Each of the Oakes Companies is not delinquent in the payment of
any tax or in the filing of any tax returns, and no deficiencies for any tax
have been threatened, claimed, proposed or assessed against the Oakes Companies
or any of its officers, employees or agents. None of the Oakes Companies has
received any notification that any material issues have been raised by (or are
currently pending) before the Internal Revenue Service or any other taxing
authority (including but not limited to any sales or use tax authority)
regarding any of the Oakes Companies and no tax return of any of the Oakes
Companies has ever been audited by the Internal Revenue Service or any state or
local taxing agency or authority. No tax liens have been filed against any
assets of the Oakes Companies.
<PAGE>
3.7.2 Each of the Oakes Companies and/or its stockholders have made
an effective election (acknowledged by the Internal Revenue Service) to be
treated as a subchapter S corporation for each Oakes Company's taxable year
beginning January 1, 1995 , January 1, 1996 and January 1, 1997 (which were the
first taxable year as a subchapter S corporation of Oakes Interactive, TopShelf
and Acorn, respectively) pursuant to the provisions of the Code, and have not
taken (and, at all times from the date of this Agreement until the earlier of
(i) the Effective Time or (ii) the termination of this Agreement in accordance
with its terms, will not take) any actions inconsistent with the requirements
for subchapter S corporations, and such election has not been rescinded,
revoked, or terminated (and will not be rescinded, revoked, or terminated at any
time prior to the earlier of (i) the Effective Time or (ii) the termination of
this Agreement in accordance with its terms). Each of the stockholders of the
Oakes Companies is an individual who is a resident citizen of the United States
of America, and none of the Oakes Companies has ever authorized or issued any
stock other than Common Stock. None of the stockholders of the Oakes Company
has taken, caused or permitted, nor will, at any time prior to the earlier of
(i) the Effective Time or (ii) the termination of this Agreement in accordance
with its terms, take, cause or permit any action inconsistent with the
requirements for subchapter S corporations. Each Oakes Company and/or its
stockholders have validly and timely filed all elections and notices with the
Commonwealth of Massachusetts and with any other taxing authorities of any other
state or jurisdiction having jurisdiction over the Oakes Companies for income
tax purposes that are required by the laws of Massachusetts or any such other
jurisdiction to be filed in order to enable each Oakes Company to be taxed as a
subchapter S corporation under such tax laws for all tax periods for which such
Oakes Company has prepared its tax returns on the basis that it was a subchapter
S corporation within the meaning of the Code. None of the Oakes Companies is a
"personal holding company" within the meaning of Section 542 of the Code.
3.7.3 None of the Oakes Companies is aware of any pending or
threatened claim or assessment with respect to any deficiencies for any tax in
writing against the Oakes Companies by any taxing authority. None of the Oakes
Companies has executed any waiver of any statute of limitations relating to
taxes or any extension of the period for the assessment or collection of any tax
(other than extensions which have expired by the Effective Time). None of the
Oakes Companies has received any written notification, or is otherwise aware,
that any material issues are currently under audit, examination or review by any
taxing authority regarding the Oakes Companies.
3.7.4 There are no material liens, pledges, charges, claims,
security interests or other encumbrances covering the assets of the Oakes
Companies and relating or attributable to taxes, other than for taxes not yet
due and payable and others that do not have a Material Adverse Effect.
3.7.5 There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
current or former employee of the Oakes Companies that, individually or
collectively, could give rise to the payment of any amount with respect to which
a deduction would be disallowed under Sections 280G or 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code").
<PAGE>
3.7.6 None of the Oakes Companies is a party to a tax sharing or
tax allocation agreement, and none of the Oakes Companies owes any amount under
any such agreement.
3.7.7 None of the Oakes Companies is or has at any time been a
"United States real property holding corporation" within the meaning of Section
897(c) of the Code.
3.7.8 None of the Oakes Companies has filed any consent agreement
under Section 341(f) of the Code or has agreed to have Section 341(f)(2) of the
Code apply to any disposition of a "subsection (f) asset" (as defined in Section
341(f)(4) of the Code) owned by any of the Oakes Companies.
3.7.9 None of the Oakes Companies' assets constitute "tax-exempt
use property" within the meaning of Section 168(h) of the Code.
3.8 Financial Statements. Each of the Oakes Companies has delivered to
--------------------
Asymetrix as Schedule 3.8 of the Oakes Schedule of Exceptions, as appropriate
(a) with respect to Oakes Interactive, a balance sheet as of December 31, 1996
(the "Oakes Interactive 1996 Balance Sheet") and income statement and statement
------------------------------------
of cash flows for the 12 month period then ended (collectively, the "Oakes
-----
Interactive 1996 Financial Statements"), which have been reviewed by Oakes
- -------------------------------------
Interactive's accounting firm, and with respect to TopShelf, an internally
prepared balance sheet as of December 31, 1996 and income statement for the 12
month period then ended (which, collectively with the Oakes Interactive 1996
Financial Statements, are referred to herein as the "1996 Financial
--------------
Statements"), and (b) an internally prepared balance sheet as of June 30, 1997
- ----------
(the "June 30 Balance Sheet") and income statement for the six month period then
---------------------
ended (collectively, the "Oakes June Financial Statements") (the 1996 Financial
-------------------------------
Statements and the Oakes June Financial Statements are collectively referred to
herein as the "Oakes Financial Statements"). The Oakes Financial Statements (a)
--------------------------
are in accordance with the books and records of the respective Oakes Companies,
(b) fairly present the financial condition of the Oakes Companies at the dates
therein indicated and the results of operations for the periods therein
specified, and (c) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, subject, in the case of the
Oakes June Financial Statements, to normal recurring year-end adjustments and
the absence of any notes thereto. None of the Oakes Companies has any debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected or reserved
against or disclosed in the Oakes Financial Statements, except for those that
may have been incurred after the date of the Oakes Financial Statements in the
ordinary course of its business, consistent with past practice and that are not
material in amount either individually or collectively.
3.9 Title to Properties. Each of the Oakes Companies has good and
-------------------
marketable title to all of its tangible assets as shown on the June 30 Balance
Sheets, free and clear of all liens, charges, restrictions or encumbrances,
other than for taxes not yet due and payable and others that do not have a
Material Adverse Effect and all leases of real or personal property to which any
Oakes Company is a party are fully effective.
<PAGE>
3.10 Absence of Certain Changes. Since June 30, 1997, other than actions
--------------------------
required by this Agreement (including, without limitation, the incurrence of
legal and accounting fees and expenses in connection therewith), there has not
been with respect to any Oakes Company:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of any Oakes Company which change by itself
or in conjunction with all other such changes, whether or not arising in the
ordinary course of business, has had or, to the knowledge of the Oakes Companies
and the Principals, will have a Material Adverse Effect (other than changes
arising from the operation, at a loss, of the business of any of the Oakes
Companies in the ordinary course);
(b) any contingent liability incurred by any Oakes Company as
guarantor, surety or otherwise with respect to the obligations of others, which
contingent liability is in excess of $10,000 individually or $25,000 in the
aggregate;
(c) any mortgage, encumbrance or lien placed on any of the properties
of any Oakes Company, which mortgage, encumbrance or lien is in excess of
$10,000 individually or $25,000 in the aggregate;
(d) any obligation or liability incurred thereby other than
obligations and liabilities incurred in the ordinary course of business, which
obligation or liability is in excess of $10,000 individually or $25,000 in the
aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, other than in the
ordinary course, of any of the properties or assets of any Oakes Company, which
purchase, sale, other disposition or other arrangement is in excess of $10,000
individually or $25,000 in the aggregate;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of any
Oakes Company, any split, combination or recapitalization of the capital stock
of any Oakes Company or any direct or indirect redemption, purchase or other
acquisition of the capital stock of any Oakes Company;
(h) any labor dispute or claim of unfair labor practices or, other
than changes in the ordinary course of business, consistent with past practice,
any change in the compensation payable or to become payable to any of the Oakes
Companies' officers, employees or agents, any bonus payment or arrangement made
to or with any of such officers, employees or agents or any employee
terminations or resignations;
(i) any declaration or payment of an extraordinary dividend, within
the meaning of Section 1059(c) of the Code;
<PAGE>
(j) any payment or discharge of a lien or liability thereof which
lien was not either shown on the June 30 Balance Sheets or incurred in the
ordinary course of business thereafter; or
(k) any material transaction with any of its officers, directors,
employees or stockholders or any entity controlled by any of such individuals.
3.11 Material Agreements, Contracts and Commitments. Except as set
----------------------------------------------
forth on Schedule 3.11 of the Oakes Schedule of Exceptions and other than this
-------------
Agreement and the Oakes Ancillary Agreements, no Oakes Company is on the date
hereof a party or subject to any oral or written contracts, obligations,
commitments, plans, leases, instruments, arrangements or licenses which are
material to the business of any Oakes Company (each a "Material Agreement"),
------------------
including, but not limited to any:
(a) Contract, commitment, letter contract or purchase order providing
for payments by or to any Oakes Company in an aggregate amount of (1) $50,000 or
more in the ordinary course of business to any one vendor or customer; or (2)
$25,000 or more not in the ordinary course of business to any one vendor or
customer;
(b) License agreement as licensor or licensee (except for standard
non-exclusive hardware and software licenses granted to end-user customers in
the ordinary course of business the current form of which has been provided to
Asymetrix's counsel), but in all events including site licenses for products
with initial year fees in excess of $50,000 and each agreement that provides for
either the delivery of source code to the licensee or escrow of such source code
for the benefit of such licensee and including any Oakes IP Rights Agreement (as
defined in Section 3.12);
(c) Consulting, development or similar agreement under which any
Oakes Company provides or will provide any advice or services to a customer of
any Oakes Company (collectively, the "Current Service Agreements." Consulting
--------------------------
Service Agreements which are memorialized in definitive written form are
referred to herein as "Definitive Agreements");
---------------------
(d) Contract for the current or future sale, provision or
manufacture of products (including computer software), material, supplies or
equipment from any Oakes Company or in which any Oakes Company has granted or
received manufacturing rights, most favored customer pricing provisions nor
exclusive marketing rights relating to any product or services, group of
products or services or territory (collectively, "Current Sales Agreements,"
------------------------
together with the Current Service Agreements, the "Customer Agreements");
-------------------
(e) Contract providing for the development of software by or for any
Oakes Company, or license of software to any Oakes Company, which software is
used or incorporated in any products distributed or services provided by any
Oakes Company or is contemplated to be used or incorporated in any products to
be distributed or services to be provided by any Oakes Company (other than
software generally available to the public at a per copy license fee of less
than $1,000 per copy);
<PAGE>
(f) Contract or commitment for the employment of any officer,
employee or consultant of any Oakes Company or any other type of contract or
understanding with any officer, employee or consultant of any Oakes Company
which is not immediately terminable by such Oakes Company without a fixed
obligation on part of the Oakes Company in the nature of severance payments;
(g) Agreement for the lease of real or personal property involving
payments by or to any Oakes Company in an aggregate amount of $25,000 or more;
(h) Joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons;
(i) Written dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for the
ongoing distribution of any products of any Oakes Company;
(j) Instrument evidencing or related in any way to indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business, and except as
disclosed in the Oakes Financial Statements;
(k) Contract containing covenants purporting to limit any Oakes
Company's freedom to compete in any line of business in any geographic area; or
(l) Stock redemption or purchase agreement yet to be performed.
All Material Agreements other than Current Services Agreements which
are not Definitive Agreements, and to the best of the Oakes Companies'
knowledge, all Current Services Agreements which are not Definitive Agreements,
constitute valid and enforceable obligations of the parties thereto (except as
to the effect, if any, of (i) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and (iii)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities), and are and will, immediately
after the Effective Time, be in full force and effect. None of the Oakes
Companies has received any notice that any Material Agreement is subject to
termination based upon the failure of any Oakes Company to be qualified to do
business in a state. None of the Oakes Companies is, nor, to the best knowledge
of the Oakes Companies, is any other party thereto, in breach or default in any
material respect under the terms of any such Material Agreement. A copy of each
Material Agreement has been delivered or made available to Asymetrix's counsel.
No Oakes Company is a party to any contract, agreement or arrangement which has
had, or could reasonably be expected to have, a Material Adverse Effect. None
of the Oakes Companies has any material liability for renegotiation of
government contracts or subcontracts, if any.
3.12 Intellectual Property. Each Oakes Company owns all right, title or
---------------------
interest in, or has the rights to use, sell or license, all Intellectual
Property Rights (as defined below) necessary or required for the conduct of, or
used in, its business as presently conducted (such Intellectual
<PAGE>
Property Rights being hereinafter collectively referred to as the "Oakes IP
--------
Rights") and such rights to use, sell or license are reasonably sufficient for
- ------
the conduct of its business as presently conducted. The execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not cause the forfeiture or termination or give rise to
a right of forfeiture or termination of any Oakes IP Right or materially impair
the right of any Oakes Company to use, sell or license any Oakes IP Right or
portion thereof. There are no royalties, honoraria, fees or other payments
payable by any Oakes Company to any person by reason of the ownership, use,
license, sale or disposition of any Oakes IP Rights. Except for matters which
would not have a Material Adverse Effect, neither the manufacture, marketing,
license, sale or intended use of any product currently licensed or sold by any
Oakes Company or currently under development by any Oakes Company violates any
license or agreement between any Oakes Company and any third party or to the
best of each Oakes Company's knowledge infringes any Intellectual Property Right
of any other party; and, except for matters which would not have a Material
Adverse Effect, there is no pending or, to the best knowledge of the Oakes
Companies, threatened claim or litigation contesting the validity, ownership or
right to use, sell, license or dispose of any Oakes IP Right; nor, to the best
knowledge of the Oakes Companies without any independent investigation thereof,
is there any basis for any such claim; nor has any Oakes Company received any
notice asserting that any Oakes IP Right or the proposed use, sale, license or
disposition thereof conflicts or will conflict with the rights of any other
party, nor, to the best knowledge of the Oakes Companies, is there any basis for
any such assertion. All past and present officers, employees and consultants of
each Oakes Company have executed and delivered to such Oakes Company an
agreement regarding the protection of proprietary information and the assignment
to such Oakes Company of all Intellectual Property Rights arising from the
services performed for such Oakes Company by such persons, copies of the form of
all such agreements have been delivered or made available to Asymetrix, and no
Oakes Company is using any Intellectual Property Rights of any past or present
officers, employees or consultants. Schedule 3.12 of the Oakes Schedule of
-------------
Exceptions contains a list of all applications, registrations, filings and other
formal actions made or taken pursuant to federal, state and foreign laws by each
Oakes Company to perfect or protect its interest in Oakes IP Rights, including,
without limitation, all patents, patent applications, copyrights, copyright
registrations, trademarks, trademark applications and service marks and all
Oakes IP Rights Agreements (except for object code end-user licenses granted to
end-users in the ordinary course of business that permit use of software
products without a right to modify, distribute or sublicense the same). As used
herein, the term "Intellectual Property Rights" shall mean all intellectual
----------------------------
property rights in any jurisdiction in the world, including, without limitation,
patents, patent applications, patent rights, trademarks, trademark applications,
trade names, service marks, service mark applications, copyright, copyright
registrations, licenses, know-how, trade secrets, customer lists, proprietary
processes, formulae and other rights to Software. The term "Software" shall mean
--------
all source and object code, algorithms, architecture, structure, display
screens, layouts, inventions, development tools and all documentation and media
constituting, describing or relating to the above, including, without
limitation, manuals, memoranda and records. The term "Oakes IP Rights Agreement"
-------------------------
shall mean any instrument or agreement governing any Oakes IP Right.
<PAGE>
3.13 Compliance with Laws. Each Oakes Company has complied, or prior
--------------------
to the Closing Date will have complied, and is or will be at the Closing Date in
full compliance, in all material respects, with all applicable laws, ordinances
and regulations, and rules, and all orders, writs, injunctions, awards,
judgments and decrees, applicable to it or to its assets, properties, and
business (the violation of which would have a Material Adverse Effect),
including, without limitation: (a) all applicable federal and state securities
laws and regulations, (b) all applicable federal, state and local laws,
ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing, ownership
or management of such Oakes Company's owned, leased or licensed real or personal
property, products and technical data, and (ii) employment and employment
practices, terms and conditions of employment, and wages and hours, (c) the
Export Administration Act and regulations promulgated thereunder and all other
laws, regulations, rules, orders, writs, injunctions, judgments and decrees
applicable to the export or re-export of controlled commodities or technical
data and (d) the Immigration Reform and Control Act; provided, however, that
this Section 3.13 shall not be deemed to apply to any matters within the general
scope of any other representation in this Section 3. Each Oakes Company has
received all permits and approvals from, and has made all filings with, third
parties, including government agencies and authorities, that are necessary in
connection with its present business and which, if not received or filed, would
have a Material Adverse Effect. There are no legal or administrative
proceedings or investigations pending or threatened, that, if enacted or
determined adversely to any Oakes Company or any Principal, would result in any
Material Adverse Effect.
3.14 Certain Transactions and Agreements. None of the executive officers,
-----------------------------------
directors or affiliates (as that term is defined in Rule 405 under the
Securities Act) of any Oakes Company (each, an "Oakes Insider") nor any member
-------------
of their immediate families is or has been directly or indirectly interested in
any contract or informal arrangement with any Oakes Company within the last
three years, except for compensation as an officer, director or employee of such
Oakes Company. None of the Oakes Insiders nor any member of their immediate
families has any interest in any property, real or personal, tangible or
intangible, including inventions, patents, copyrights, trademarks or trade names
or trade secrets, used in or pertaining to the business of any Oakes Company,
except for the normal rights of a stockholder.
3.15 Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 No Oakes Company has any employment contracts or consulting
agreements currently in effect that are not terminable at will (other than
agreements with the sole purpose of providing for the confidentiality of
proprietary information or assignment of inventions).
3.15.2 No Oakes Company (i) has ever been or is now subject to a
union organizing effort, (ii) is subject to any collective bargaining agreement
with respect to any of its employees, (iii) is subject to any other contract,
written or oral, with any trade or labor union, employees' association or
similar organization, or (iv) has any current labor dispute. The Oakes
Companies have no knowledge that a material number of employees intend to leave
the employ of any Oakes Company.
<PAGE>
3.15.3 Schedule 3.15.3 of the Oakes Schedule of Exceptions
---------------
identifies each "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but
-----
excluding workers' compensation, unemployment compensation and other government-
mandated programs currently or previously maintained, contributed to or entered
into by any Oakes Company under which any Oakes Company or any ERISA Affiliate
(as defined below) thereof has any present or future obligation or liability
(collectively, the "Oakes Employee Plans"). For purposes of this Section 3.15.3,
--------------------
"ERISA Affiliate" shall mean any entity which is a member of (A) a "controlled
---------------
group of corporations," as defined in Section 414(b) of the Code, (B) a group of
entities under "common control," as defined in Section 414(c) of the Code, or
(C) an "affiliated service group," as defined in Section 414(m) of the Code, or
treasury regulations promulgated under Section 414(o) of the Code, any of which
includes any Oakes Company. Copies of all Oakes Employee Plans (and, if
applicable, related trust agreements) and all amendments thereto and summary
plan descriptions thereof (including summary plan descriptions) have been
delivered or made available to Asymetrix or its counsel, together with the three
most recent annual reports (Form 5500, including, if applicable, Schedule B
thereto) prepared in connection with any such Oakes Employee Plan. All Oakes
Employee Plans which individually or collectively would constitute an "employee
pension benefit plan," as defined in Section 3(2) of ERISA (collectively, the
"Oakes Pension Plans"), are identified as such in Schedule 3.15.3 of the Oakes
------------------- ---------------
Schedule of Exceptions. As of the date hereof, all contributions due and
previously required to be made on or before the date hereof from Oakes with
respect to any of the Oakes Employee Plans have been made as required under
ERISA or have been accrued on the Oakes Financial Statements. To the knowledge
of the Oakes Companies and the Principals, each Oakes Employee Plan has been
maintained substantially in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including,
without limitation, ERISA and the Code, which are applicable to such Oakes
Employee Plans.
3.15.4 No "prohibited transaction," as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to any Oakes
Employee Plan which is covered by Title I of ERISA which would result in a
material liability to any Oakes Company taken as a whole, excluding transactions
effected pursuant to a statutory or administrative exemption. Nothing done or
omitted to be done and no transaction or holding of any asset under or in
connection with any Oakes Employee Plan has made or will make such Oakes Company
or any officer or director of any Oakes Company subject to any material
liability under Title I of ERISA or liable for any material tax (as defined in
Section 2.7) or penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the
Code or Section 502 of ERISA.
3.15.5 Any Oakes Pension Plan which is intended to be qualified
under Section 401(a) of the Code (an "Oakes 401(a) Plan") has received a
-----------------
favorable determination from the Internal Revenue Service as to its
qualifications, and the Oakes Companies and the Principals are not aware of any
reason why such determination may not be relied upon by such plan. The Oakes
Companies and the Principals have delivered or made available to Asymetrix or
its counsel a true, correct and complete copy of the most recent Internal
Revenue Service determination letter with respect to each Oakes 401(a) Plan, if
any.
<PAGE>
3.15.6 Schedule 3.15.6 of the Oakes Schedule of Exceptions lists each
---------------
employment, severance or other similar contract (written or oral), arrangement
or policy and each plan or arrangement providing for insurance coverage
(including any self-insured arrangements), workers' benefits, vacation benefits,
severance benefits, disability benefits, death benefits, hospitalization
benefits, retirement benefits, deferred compensation, profit-sharing, bonuses,
stock options, stock purchase, phantom stock, stock appreciation or other forms
of incentive compensation or post-retirement insurance, compensation or benefits
for employees, consultants or directors, but excluding workers' compensation,
unemployment compensation and other government-mandated programs currently or
previously maintained, which (A) is not an Oakes Employee Plan, (B) is entered
into, maintained or contributed to, as the case may be, by an Oakes Company and
(C) covers any employee or former employee of any Oakes Company. Such
contracts, plans and arrangements as are described in this Section 3.15.6 are
herein referred to collectively as the "Oakes Benefit Arrangements." Each Oakes
--------------------------
Benefit Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such Oakes Benefit Arrangement. The Oakes
Companies have delivered or made available to Asymetrix or its counsel a
complete and correct copy or description of each Oakes Benefit Arrangement.
3.15.7 The Oakes Companies have timely provided to individuals
entitled thereto all required notices and coverage pursuant to Section 4980B of
the Code and the Consolidated Omnibus Budget Reconciliation Act of 1985, as
amended ("COBRA"), with respect to any "qualifying event" (as defined in Section
-----
4980B(f)(3) of the Code) under any Oakes Employee Plan occurring prior to and
including the Closing Date, and no material Tax payable on account of Section
4980B of the Code has been incurred with respect to any current or former
employees (or their beneficiaries) of any Oakes Company.
3.15.8 No benefit payable or which may become payable by an Oakes
Company pursuant to any Oakes Employee Plan or any Oakes Benefit Arrangement or
as a result of or arising under this Agreement shall constitute an "excess
parachute payment" (as defined in Section 280G(b)(1) of the Code) which is
subject to the imposition of an excise Tax under Section 4999 of the Code or
which would not be deductible by reason of Section 280G of the Code.
3.15.9 [Intentionally Omitted]
3.15.10 To the knowledge of the Oakes Companies and the Principals
and except for matters which would not have a Material Adverse Effect, no
employee of any Oakes Company is in violation of any term of any employment
contract, patent disclosure agreement, noncompetition agreement, or any other
contract or written agreement, or any restrictive covenant contained in any such
agreement relating to the right of any such employee to be employed thereby, or
to use trade secrets or proprietary information of others, and the employment of
such employees does not subject any Oakes Company to any material liability.
3.15.11 A list of all employees, officers and consultants of each
Oakes Company and their current compensation, bonus plans, commission plans,
vacation rights and severance
<PAGE>
rights is set forth on Schedule 3.15.11 of the Oakes Schedule of Exceptions. The
----------------
Oakes Companies are currently paying all amounts that are currently required to
be paid to such parties shown in such Schedule.
3.15.12 No Oakes Company is a party to any (a) agreement with any
executive officer or other key employee of such Oakes Company (i) the benefits
of which are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving any Oakes Company in the nature of any of
the transactions contemplated by this Agreement and the Articles of Merger, (ii)
providing any term of employment or compensation guarantee, or (iii) providing
severance benefits or other benefits after the termination of employment of such
employee regardless of the reason for such termination of employment, or (b)
agreement or plan, including, without limitation, any stock option plan, stock
appreciation rights plan or stock purchase plan, any of the benefits of which
will be materially increased, or the vesting of benefits of which will be
materially accelerated, by the occurrence of any of the transactions
contemplated by this Agreement and the Articles of Merger or the value of any of
the benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement and the Articles of Merger. No Oakes Company is
obligated to make any "excess parachute payment" (as defined in Section
280G(b)(1) of the Code), nor will any excess parachute payment be deemed to have
occurred as a result of or arising out of the Mergers.
3.16 Corporate Documents. The Oakes Companies have made available to
-------------------
Asymetrix for examination all documents and information listed in the Oakes
Schedule of Exceptions or other exhibits called for by this Agreement or which
have been requested by Asymetrix's counsel, including, without limitation, the
following: (a) copies of the Articles of Organization and Bylaws of each Oakes
Company as currently in effect; (b) the Minute Book containing all records of
all proceedings, consents, actions and meetings of the stockholders, the board
of directors and any committees thereof of each Oakes Company; (c) the stock
ledger and journal reflecting all stock issuances and transfers of each Oakes
Company; (d) all material permits, orders, and consents issued by any regulatory
agency with respect to any Oakes Company, or any securities of any Oakes
Company, and all applications for such permits, orders, and consents; and (e)
copies or forms of all stock purchase agreements, warrants, option plans, grants
and exercise agreements and, where forms of agreements are provided rather than
copies of the signed documents, a true and complete list showing the names of
the security holder, numbers of shares, exercise or purchase prices, grant
dates, vesting dates, exercise dates, expiration dates and all other relevant
data necessary for Asymetrix to issue the Asymetrix Merger Stock .
3.17 No Brokers. None of the Oakes Companies is obligated for the payment
----------
of fees or expenses of any investment banker, broker or finder in connection
with the origin, negotiation or execution of this Agreement or the Oakes
Ancillary Agreements or in connection with any transaction contemplated hereby
or thereby. Except as otherwise provided in this Agreement, each Oakes Company
will pay only its own expenses, if any, incurred in connection with this
Agreement and the transactions contemplated herein.
3.18 Disclosure. Neither this Agreement, its exhibits and schedules, nor
----------
any of the Certificates or documents to be delivered by any Oakes Company or the
Principals to Asymetrix
<PAGE>
under this Agreement, taken together, contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements contained herein and therein, in light of the circumstances under
which such statements were made, not misleading.
3.19 Insurance. Each Oakes Company maintains and at all times during the
---------
prior three years has maintained fire and casualty, general liability, business
interruption and product liability insurance which it believes to be reasonably
prudent for similarly sized and similarly situated businesses. A list of all
such insurance is set forth on Schedule 3.19 of the Oakes Schedule of
-------------
Exceptions.
3.20 Environmental Matters.
---------------------
3.20.1 During the period that any Oakes Company has leased or owned
its properties or owned or operated any facilities, there have been no disposals
or releases of Hazardous Materials (as defined below) by any Oakes Company, or
to the Oakes Companies' knowledge, by others, on, from or under such properties
or facilities, the liability for which would have a Material Adverse Effect.
The Oakes Companies have no knowledge of any presence, generation,
manufacturing, disposals or releases of Hazardous Materials on, from or under
any of such properties or facilities, which may have occurred prior to any Oakes
Company having taken possession of any of such properties or facilities, the
liability for which would have a Material Adverse Effect. For the purposes of
this Agreement, the terms "disposal" and "release" shall have the definitions
-------- -------
assigned thereto by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, 42 U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For
------
the purposes of this Agreement, "Hazardous Materials" shall mean any hazardous
-------------------
or toxic substance, material or waste which is or becomes prior to the Closing
Date regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance" or
"hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. (S) 1801 et seq.; (iii) the Toxic Substance Control
Act, 15 U.S.C. (S) 2601 et seq.; (iv) the Occupational Safety and Health Act of
1970, 29 U.S.C. (S) 651 et seq.; (v) any applicable federal, state or local
statute or ordinance that has a scope or purpose similar to those identified
above; or (vi) regulations promulgated under any of the laws or statutes
identified above.
3.20.2 None of the properties or facilities of any of the Oakes
Companies is in material violation of any federal, state or local law,
ordinance, regulation or order relating to industrial hygiene or to the
environmental conditions on, under or about such properties or facilities,
including, but not limited to, soil and ground water condition. During the time
that each of the Oakes Companies has owned or leased its properties and
facilities, none of the Oakes Companies nor, to the Oakes Companies' knowledge,
any third party, has used, generated, manufactured or stored on, under or about
such properties or facilities or transported to or from such properties or
facilities any Hazardous Materials except in substantial accordance with
applicable environmental laws.
3.20.3 During the time that each of the Oakes Companies has owned or
leased its respective properties and facilities, there has been no litigation
brought or, to the knowledge of
<PAGE>
the Oakes Companies, threatened against any Oakes Company by, or any settlement
reached by any Oakes Company with, any party or parties alleging the presence,
disposal, release or threatened release of any Hazardous Materials on, from or
under any of such properties or facilities.
3.21 Books and Records. The books, records and accounts of the Oakes
-----------------
Companies (a) are in all material respects true, complete and correct, (b) have
been maintained in accordance with good business practices on a basis consistent
with prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the material transactions and dispositions of the assets of each of the
Oakes Companies, and (d) accurately and fairly reflect the basis for the Oakes
Financial Statements, except as would not have a material adverse effect on the
business, operations, financial condition or prospects of all of the Oakes
Companies in the aggregate, and subject to normal recurring year end adjustments
and, in the case of financial statements, the absence of any notes thereto.
3.22 Prior Customer Agreements. Each of the Oakes Companies has previously
-------------------------
provided to Asymetrix a copy of (i) all consulting, development or similar
agreement under which any Oakes Company has provided any advice or services to a
customer of any Oakes Company and (which agreements are not Current Service
Agreements), and (ii) all contracts for the sale, provision or manufacture of
products (including computer software), material, supplies or equipment (which
agreements are not Current Sales Agreements). Such agreements described in this
Section 3.22 are collectively referred to herein as "Prior Agreements."
----------------
3A. REPRESENTATIONS AND WARRANTIES OF THE PRINCIPALS
In addition to the provisions of Section 3 hereof, each of the Principals
and, jointly and severally, hereby represents and warrants as follows, except as
set forth in the Oakes Schedule of Exceptions:
3A.1 Power, Authorization and Validity.
---------------------------------
3A.1.1 Each Principal has the right, power, legal capacity and
authority to enter into and perform his obligations under this Agreement and all
Oakes Ancillary Agreements to which such Principal is or will be a party.
3A.1.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable the Principals to enter into, and to perform
his obligations under, this Agreement and the Oakes Ancillary Agreements, except
for (a) the filing of the Articles of Merger with the Commonwealth of
Massachusetts, if any, and (b) such filings as may be required to comply with
federal and state securities laws.
3A.1.3 This Agreement and the Oakes Ancillary Agreements are, or
when executed by the Principals, as applicable, will be, valid and binding
obligations of Principals, enforceable in accordance with their respective
terms, except as to the effect, if any, of (a) applicable bankruptcy and other
similar laws affecting the rights of creditors generally and (b)
<PAGE>
rules of law governing specific performance, injunctive relief and other
equitable remedies; provided, however, that the Articles of Merger will not be
effective until the Effective Time.
3A.2 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any Oakes Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach or violation of, or cause an acceleration or amendment of
any obligation under, (a) any Material Agreement to which any Oakes Company is a
party or by which the Oakes Companies or the Principals or his or its assets or
properties are bound, or (b) to the knowledge of the Principals, any federal,
state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to the Principals, or their assets or properties, in each
case, such that the conflict, termination, breach, acceleration or amendment
would have a Material Adverse Effect.
3A.3 Litigation. There is no action, proceeding, claim or investigation
----------
pending against any Principal before any federal, state, municipal, foreign or
other court or administrative agency, department, board or instrumentality that,
if concluded adversely to Principal, would have a Material Adverse Effect, and,
to the best of the Principals' knowledge, no such action, proceeding, claim or
investigation has been threatened. There is, to the best of Principals'
knowledge, no reasonable basis for any stockholder or former stockholder of any
Oakes Company, or any other person, firm, corporation or entity, to assert a
claim against any Oakes Company, Principal or Asymetrix based upon: (a)
ownership or rights to ownership of any shares of Oakes Interactive Common
Stock, TopShelf Common Stock or Acorn Common Stock, (b) any rights as or to
become a holder of securities of any Oakes Company, including any option or
preemptive rights or rights to notice or to vote, or (c) any rights under any
agreement among any Oakes Company and any of their respective stockholders or
former stockholders or option holders or former option holders.
3A.4 None of the Principals is aware of any pending or threatened claim or
assessment with respect to any deficiencies for any tax in writing against the
Oakes Companies by any taxing authority. None of the Principals has executed any
waiver of any statute of limitations relating to taxes or any extension of the
period for the assessment or collection of any tax (other than extensions which
have expired by the Effective Time). None of the Principals has received any
written notification, or is otherwise aware, that any material issues are
currently under audit, examination or review by any taxing authority regarding
the Oakes Companies.
3A.5 Title to Properties. To the knowledge of each of the Principals, no
-------------------
Oakes Company is in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable to
the operation of owned or leased properties (the violation of which would have a
Material Adverse Effect), or has received any notice of such violation with
which it has not complied or had waived.
3A.6 Material Agreements, Contracts and Commitments. Except as set forth on
----------------------------------------------
Schedule 3.11 of the Oakes Schedule of Exceptions and other than this Agreement
- -------------
and the Oakes
<PAGE>
Ancillary Agreements, no Principal is on the date hereof a party or subject to
Material Agreement.
All Material Agreements other than Current Services Agreements which
are not Definitive Agreements, and to the best of the Oakes Companies'
knowledge, all Current Services Agreements which are not Definitive Agreements,
constitute valid and enforceable obligations of the parties thereto (except as
to the effect, if any, of (i) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and (iii)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities), and are and will, immediately
after the Effective Time, be in full force and effect. None of Principals is,
nor, to the best knowledge of the Principals, is any other party thereto, in
breach or default in any material respect under the terms of any such Material
Agreement. No Principal is a party to any contract, agreement or arrangement
which has had, or could reasonably be expected to have, a Material Adverse
Effect.
3A.7 Intellectual Property. Except for matters which would not have a
---------------------
Material Adverse Effect, neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by any Oakes Company or
currently under development by any Oakes Company to the best of each Principal's
knowledge, infringes any Intellectual Property Right of any third party. Except
for matters which would not have a Material Adverse Effect, there is no pending
or, to the best knowledge of the Principals, threatened claim or litigation
contesting the validity, ownership or right to use, sell, license or dispose of
any Oakes IP Right; nor, To the best knowledge of the Principals without any
independent investigation thereof, is there any basis for any such claim; no
Principal has received any notice asserting that any Oakes IP Right or the
proposed use, sale, license or disposition thereof conflicts or will conflict
with the rights of any other party, nor, to the best knowledge of the
Principals, is there any basis for any such assertion.
3A.8 Compliance with Laws. There are no legal or administrative
--------------------
proceedings or investigations pending or threatened, that, if enacted or
determined adversely to any Oakes Company or any Principal, would result in any
Material Adverse Effect.
3A.9 Employees, ERISA and Other Compliance.
-------------------------------------
3A.9.1 The Principals have no knowledge that a material number of
employees intend to leave the employ of any Oakes Company.
3A.9.2 To the knowledge of the Principals, each Oakes Employee
Plan has been maintained substantially in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, without limitation, ERISA and the Code, which are applicable to such
Oakes Employee Plans.
3A.10 No Brokers. None of the Principals is obligated for the payment of
----------
fees or expenses of any investment banker, broker or finder in connection with
the origin, negotiation or execution of this Agreement or the Oakes Ancillary
Agreements or in connection with any transaction contemplated hereby or thereby.
Except as otherwise provided in this Agreement,
<PAGE>
each Principal will pay only its own expenses, if any, incurred in connection
with this Agreement and the transactions contemplated herein.
3A.11 Environmental Matters.
---------------------
3A.11.1 During the period that any Oakes Company has leased or owned
its properties or owned or operated any facilities, there have been no disposals
or releases of Hazardous Materials (as defined below) by any Oakes Company, or
to Principals' knowledge, by others, on, from or under such properties or
facilities, the liability for which would have a Material Adverse Effect. The
Principals have no knowledge of any presence, generation, manufacturing,
disposals or releases of Hazardous Materials on, from or under any of such
properties or facilities, which may have occurred prior to any Oakes Company
having taken possession of any of such properties or facilities, the liability
for which would have a Material Adverse Effect.
3A.11.2 During the time that each of the Oakes Companies has owned
or leased its properties and facilities, none of the Oakes Companies nor, to the
Principals' knowledge, any third party, has used, generated, manufactured or
stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials except in substantial
accordance with applicable environmental laws.
3A.11.3 During the time that each of the Oakes Companies has owned
or leased its respective properties and facilities, there has been no litigation
brought or, to the knowledge of the Principals, threatened against any Oakes
Company by, or any settlement reached by any Oakes Company with, any party or
parties alleging the presence, disposal, release or threatened release of any
Hazardous Materials on, from or under any of such properties or facilities.
3A.12 Certain Dispositions After Effective Time. None of the Principals has
-----------------------------------------
any present plan or intention, or any binding commitment, to dispose, after the
Effective Time, of an amount of Asymetrix Merger Stock that would cause the
Principals, in the aggregate, to have disposed of such stock in an amount equal
in value to 50% or more of the value of each of the Oakes Interactive Common
Stock, TopShelf Common Stock and Acorn Common Stock outstanding immediately
prior to the Effective Time.
4. REPRESENTATIONS AND WARRANTIES OF ASYMETRIX AND MERGER SUBS
Asymetrix and each Merger Sub hereby jointly and severally represent and
warrant as follows, except as set forth on the Asymetrix Schedule of Exceptions
(in numbered paragraphs that correspond to the Section numbers below)
simultaneously delivered to the Oakes Companies and the Principals as Exhibit
-------
4.0 with the execution of this Agreement:
- ---
4.1 Organization, Good Standing and Qualification. Asymetrix is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted
and as proposed to be conducted. Each Merger Sub is a corporation
<PAGE>
duly organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the corporate power and authority to own,
operate and lease its properties and carry on its business as now conducted and
as proposed to be conducted. Each Merger Sub was formed in September 1997 and
has conducted no business or operations prior to the date hereof. Asymetrix is
qualified to do business as a foreign corporation in each jurisdiction where
failure to be so qualified could reasonably be expected to have a material
adverse effect on the business, operations, financial condition or prospects of
Asymetrix and its subsidiaries taken as a whole (for purposes of this Section 4
and 6, a "Material Adverse Effect").
-----------------------
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 Each of Asymetrix and each Merger Sub has the corporate right,
power, legal capacity and authority to enter into and perform its respective
obligations under this Agreement, and all agreements to which Asymetrix and
Merger Subs are or will be a party that are required to be executed pursuant to
this Agreement (the "Asymetrix Ancillary Agreements"). The execution, delivery
------------------------------
and performance of this Agreement and the Asymetrix Ancillary Agreements have
been duly and validly approved and authorized by all necessary corporate action
on the part of each of Asymetrix and each Merger Sub.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable each of Asymetrix and each Merger Sub to enter
into, and to perform its respective obligations under, this Agreement and the
Asymetrix Ancillary Agreements, except for (a) the filing of the Articles of
Merger with the Commonwealth of Massachusetts , and the filing of appropriate
documents with the relevant authorities of other states in which Asymetrix is
qualified to do business, if any, and (b) such filings as may be required to
comply with federal and state securities laws.
4.2.3 This Agreement and the Asymetrix Ancillary Agreements are, or
when executed by Asymetrix and Merger Subs will be, valid and binding
obligations of Asymetrix and each Merger Sub enforceable in accordance with
their respective terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(b) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of securities;
provided, however, that none of the Articles of Merger will be effective until
the Effective Time.
4.3 Capitalization. The capitalization of Asymetrix and Merger Subs
--------------
consist of the following:
4.3.1 Asymetrix Capital Stock. A total of 5,000,000 authorized
-----------------------
shares of Class B Stock, $0.01 par value per share (the "Class B Stock"), of
-------------
which 50,000 shares are designated as Series 1 Class B Stock (the "Series 1
--------
Stock"), and of which 37,500 shares are outstanding, and 388,395 are designated
- -----
as Series A Preferred Stock (the "Series A Stock"), all of which are
--------------
outstanding, 388,395 are designated as Series B Preferred Stock (the "Series B
--------
Stock"), all of which are outstanding (310,560 shares of which are subject to a
- -----
pledge securing a note from the investors in such stock), and 2,500,000 are
designated as Series 4 Class B Stock (the "Series 4
--------
<PAGE>
Stock") of which 2,383,894 shares are outstanding. A total of 40,000,000
- -----
authorized shares of Asymetrix Common Stock, of which 8,078,172 shares are
outstanding. A total of 1,512,500 shares of Asymetrix Series 5 Class B Stock
will be authorized prior to the Effective Time, of which no shares will be
outstanding. The rights, preferences and privileges of the Class B Stock,
including the Series 1 Stock, the Series A Stock, the Series B Stock, the Series
4 Stock, the Asymetrix Common Stock and the Class B Stock, are as stated in
Asymetrix's Articles of Incorporation, as amended, and as provided by law. All
issued and outstanding shares of Asymetrix capital stock have been duly
authorized and validly issued, are fully paid and nonassessable, and have been
offered, issued, sold and delivered by Asymetrix in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws.
4.3.2 Asymetrix Options, Warrants, Reserved Shares. Except for: (i)
--------------------------------------------
conversion privileges of the Series A Stock, the Series B Stock, the Series 1
Stock and the Series 4 Stock, (ii) options to purchase 4,283,008 shares of
Asymetrix Common Stock (outstanding as of September 29, 1997) and a like number
shares of Asymetrix Common Stock reserved for issuance upon the exercise
thereof, (iii) 1,135,210 additional shares of Asymetrix Common Stock (as of
September 29, 1997) reserved for future issuance under the Asymetrix's 1995
Combined Incentive and Nonqualified Stock Option Plan (the "Asymetrix Option
----------------
Plan"), (iv) an option to purchase 19,431 shares of Series 4 Stock, and (v) the
- ----
proposed issuance of up to 50,000 shares of Series 1 Stock (of which shares,
37,500 are validly issued, outstanding, fully paid and nonassessable) to certain
of Asymetrix's vendors, there are not outstanding any options, warrants, calls,
commitments, rights (including conversion or preemptive rights) or agreements
for the purchase or acquisition from Asymetrix of any shares of its capital
stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of Asymetrix's capital stock or obligating Asymetrix
to grant, extend, or enter into any such option, warrant, call, commitment,
conversion privilege or other right or agreement, and there is no liability for
dividends accrued but unpaid. Apart from the exceptions noted in this Section
4.3.2, and except for (i) rights of first refusal and rights of repurchase held
by Asymetrix to repurchase shares of Asymetrix Common Stock issued under Stock
Issuance and Restriction Agreements relating to the issuance of 8,100 shares of
Common Stock and to 37,500 shares of Series 1 Stock (the "Stock Issuance and
------------------
Restriction Agreements"), (ii) rights of first refusal and repurchase rights
- ----------------------
held by Asymetrix to purchase shares of its capital stock issued under the
Asymetrix Option Plan, (iii) the rights granted in that certain Amended and
Restated Investor's Rights Agreement dated as of December 20, 1996 by and among
Asymetrix, SOFTVEN No. 2 Investment Enterprise Partnership and Multimedia Asia
Pacific Pty Ltd (the "Investor's Rights Agreement") and (iv) a Voting Agreement
---------------------------
and Registration Rights Agreement dated as of September 11, 1997 entered into in
connection with the acquisition of Aimtech, there are no voting agreements,
rights of first refusal or other restrictions (other than normal restrictions on
transfer under applicable federal and state securities laws) or registration
rights applicable to any of Asymetrix's outstanding securities.
4.3.3 Merger Subs. A total of one authorized share of Common Stock,
-----------
$0.01 par value per share for each of Oakes Interactive Sub, TopShelf Sub and
Acorn Sub, each of which is validly issued, outstanding, fully paid and
nonassessable. There are not outstanding any
<PAGE>
options, warrants, rights (including conversion of preemptive rights) or
agreements for the purchase or acquisition from any Merger Sub of any shares of
its capital stock or any securities convertible into or ultimately exchangeable
or exercisable for any shares of any Merger Sub's capital stock.
4.4 Subsidiaries. Asymetrix does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity, other than Aimtech Corporation, a
Delaware corporation, SuperCede, Inc. and Merger Subs. Each Merger Sub does not
presently own or control, directly or indirectly, any interest in any other
corporation, partnership, trust, joint venture, association, or other entity.
4.5 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any Asymetrix Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or cause an acceleration or
amendment of any obligation under, (a) any provision of the Articles of
Incorporation or Organization or Bylaws of Asymetrix and each Merger Sub, as
currently in effect, (b) in any material respect, any material instrument or
contract to which Asymetrix and each Merger Sub is a party or by which any of
their assets or properties are bound, or (c) any federal, state, local or
foreign judgment, writ, decree, order, statute, rule or regulation applicable to
Asymetrix and each Merger Sub or their assets or properties, in each case, such
that the conflict, termination, breach, acceleration or amendment would have a
Material Adverse Effect.
4.6 Litigation. There is no action, proceeding, claim or investigation
----------
pending against Asymetrix before any federal, state, municipal, foreign or other
court or administrative agency, department, board or instrumentality that, if
concluded adversely to Asymetrix, would have a Material Adverse Effect, and, to
the best of Asymetrix's knowledge, no such action, proceeding, claim or
investigation has been threatened. There is, to the best of Asymetrix's
knowledge, no reasonable basis for any shareholder or former shareholder of
Asymetrix, or any other person, firm, corporation or entity, to assert a claim
against Asymetrix based upon: (a) ownership or rights to ownership of any shares
of Asymetrix capital stock, (b) any rights as or to become a holder of
securities of Asymetrix, including any option or preemptive rights or rights to
notice or to vote, or (c) share any rights under any agreement among Asymetrix
and any of its shareholders or former shareholders or option holders or former
option holders.
4.7 Taxes. Asymetrix has timely filed all tax returns and reports
-----
required by law, other than where a failure to file a return did not or would
not have a Material Adverse Effect, and has never been audited by any state or
federal taxing authority. All tax returns and reports of Asymetrix are true and
correct in all material respects. Asymetrix has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith (for which it has established a proper reserve). Asymetrix is not aware
of any pending or threatened claim or assessment with respect to any
deficiencies for any tax in writing against Asymetrix by any taxing authority.
Asymetrix has not executed any waiver of any statute of limitations relating to
taxes or any extension of the period for the assessment or collection of any tax
(other than extensions which have expired by the Effective Time). Asymetrix has
not received any written
<PAGE>
notification, and is not otherwise aware, that any material issues are currently
under audit, examination or review by any taxing authority regarding Asymetrix.
There are no material liens, pledges, charges, claims, security interests or
other encumbrances covering the assets of Asymetrix and relating or attributable
to taxes, other than for taxes not yet due and payable and others that do no
have a Material Adverse Effect. Asymetrix is not a party to a tax sharing or tax
allocation agreement, and Asymetrix does not owe any amount under any such
agreement.
4.8 Financial Statements. Asymetrix has delivered to the Oakes Companies
--------------------
and the Principals as Schedule 4.8 of the Asymetrix Schedule of Exceptions
------------
Asymetrix's (a) audited balance sheet as of December 31, 1996 (the "Asymetrix
---------
1996 Balance Sheet") and income statement and statement of cash flows for the 12
- ------------------
month period then ended (collectively, the "Asymetrix 1996 Financial
------------------------
Statements"), and (b) balance sheet as of June 30, 1997 (the "Asymetrix June 30
- ---------- -----------------
Balance Sheet") and income statement and statement of cash flows for the six
- -------------
month period then ended (collectively, the "Asymetrix June Financial
------------------------
Statements") (the Asymetrix 1996 Financial Statements and Asymetrix June
- ----------
Financial Statements are collectively referred to herein as the "Asymetrix
---------
Financial Statements"). The Asymetrix Financial Statements (a) are in
- --------------------
accordance with the books and records of Asymetrix, (b) fairly present the
financial condition of Asymetrix at the dates therein indicated and the results
of operations for the periods therein specified, and (c) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, subject, in the case of the Asymetrix June Financial Statements, to
normal recurring year-end adjustments and the absence of any notes thereto.
Asymetrix has no debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is not
reflected or reserved against or disclosed in the Asymetrix Financial
Statements, except for those that may have been incurred after the date of the
Asymetrix Financial Statements in the ordinary course of its business,
consistent with past practice and that are not material in amount either
individually or collectively.
4.9 Title to Properties.
-------------------
4.9.1 Asymetrix has good and marketable title to all of its tangible
assets as shown on the Asymetrix June 30 Balance Sheet, free and clear of all
liens, charges, restrictions or encumbrances, other than for taxes not yet due
and payable and others that do not have a Material Adverse Effect. With respect
to the property and assets it leases, Asymetrix is in material compliance with
such leases.
4.9.2 Each Merger Sub has been newly formed for the sole and express
purpose of participating in the Mergers and has at no time engaged in any
activities or owned any assets except as necessary for such purpose.
4.10 Absence of Certain Changes. Since the June 30, 1997, other than
--------------------------
actions required by this Agreement (including, without limitation, the
incurrence of legal and accounting fees and expenses in connection therewith),
there has not been with respect to Asymetrix and each Merger Sub.
<PAGE>
(a) any change in its financial condition, properties, assets,
liabilities, business or operations from that reflected in the Asymetrix
Financial Statements, other than those that do not have a Material Adverse
Effect;
(b) any contingent liability incurred by it as guarantor, surety or
otherwise with respect to the obligations of others, which contingent liability
is in excess of $50,000 individually or in excess of $100,000 in the aggregate;
(c) any mortgage, encumbrance or lien placed on any of its properties,
which mortgage, encumbrance or lien is in excess of $100,000 individually or in
excess of $250,000 in the aggregate;
(d) any obligation or liability incurred by it other than obligations
and liabilities incurred in the ordinary course of business, which obligation or
liability is in excess of $100,000 individually or in excess of $250,000 in the
aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of its
properties or assets, which purchase, sale, other disposition or other
arrangement is in excess of $100,000 individually or $250,000 in the aggregate;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any distribution in respect of, its capital stock, or any split,
combination or recapitalization of its capital stock or any direct or indirect
redemption, purchase or other acquisition of its capital stock, including,
without limitation, any extraordinary dividend within the meaning of Section
1059(c) of the Code;
(h) any labor dispute or claim of unfair labor practices;
(i) any payment or discharge of a lien or liability thereof which lien
was not either shown on the Asymetrix June 30 Balance Sheet or incurred in the
ordinary course of business thereafter; or
(j) entered into any material transactions with any of its officers,
directors, employees or stockholders or any entity controlled by any of such
individuals.
4.11 Material Agreements, Contracts and Commitments. All oral or written
----------------------------------------------
contracts, obligations, commitments, plans, leases, instruments, arrangements or
licenses which are material to the business of Asymetrix and its subsidiaries
taken as a whole (for purposes of this Section 4.11, a "Material Agreement")
------------------
constitute valid and enforceable obligations of the parties thereto (except as
to the effect, if any, of (i) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and (iii)
the enforceability of provisions requiring
<PAGE>
indemnification in connection with the offering, issuance or sale of
securities); and are in full force and effect. Asymetrix is not, nor, to the
best knowledge of Asymetrix, is any other party thereto, in breach or default in
any material respect under the terms of any such Material Agreement. A copy of
each Material Agreement has been delivered or made available to counsel for the
Oakes Companies and the Principals. Asymetrix is not a party to any contract or
arrangement which, in the absence of a breach by the other party or parties
thereto, has had or could reasonably be expected to have a Material Adverse
Effect. Asymetrix does not have any material liability for renegotiation of
government contracts or subcontracts, if any.
4.12 Status of Proprietary Assets. Asymetrix owns all right, title or
----------------------------
interest in, or has the rights to use, sell or license, all Intellectual
Property Rights necessary or required for the conduct of, or used in, its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "Asymetrix IP Rights") and such
-------------------
rights to use, sell or license are reasonably sufficient for the conduct of its
business as presently conducted. Except for matters which would not have a
Material Adverse Effect, neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by Asymetrix or currently
under development by Asymetrix violates any license or agreement between
Asymetrix and any third party or infringes any Intellectual Property Right of
any other party; and, except for matters which would not have a Material Adverse
Effect, there is no pending or, to the best knowledge of Asymetrix, threatened
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any Asymetrix IP Right; nor, to the best knowledge of
Asymetrix without any independent investigation thereof, is there any basis for
any such claim; nor has Asymetrix received any notice asserting that any
Asymetrix IP Right or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the best
knowledge of Asymetrix, is there any basis for any such assertion.
4.13 Compliance with Laws. Asymetrix and each Merger Sub has complied, or
--------------------
prior to the Closing Date will have complied, and is or will be at the Closing
Date in full compliance, in all material respects, with all applicable laws,
ordinances and regulations, and rules, and all orders, writs, injunctions,
awards, judgments and decrees, applicable to it or to its assets, properties,
and business (the violation of which would have a Material Adverse Effect),
including, without limitation: (a) all applicable federal and state securities
laws and regulations, (b) all applicable federal, state and local laws,
ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing, ownership
or management of Asymetrix's owned, leased or licensed real or personal
property, products and technical data, and (ii) employment and employment
practices, terms and conditions of employment, and wages and hours, (c) the
Export Administration Act and regulations promulgated thereunder and all other
laws, regulations, rules, orders, writs, injunctions, judgments and decrees
applicable to the export or re-export of controlled commodities or technical
data and (d) the Immigration Reform and Control Act. Asymetrix has received all
permits and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in connection
with its present business and which, if not received or filed, would have a
Material Adverse Effect. There are no legal or administrative proceedings or
investigations pending or threatened, that, if enacted or determined adversely
to Asymetrix, would result in any Material Adverse Effect.
<PAGE>
4.14 Certain Transactions and Agreements. None of the executive officers,
-----------------------------------
directors or affiliates (other than SOFTVEN No. 2 Investment Enterprises
Partnership, or its designated director or the designated director of the former
stockholders of Aimtech corporation) of Asymetrix (each, an "Asymetrix Insider")
-----------------
nor any member of their immediate families is or has been directly or indirectly
interested in any contract or informal arrangement with Asymetrix within the
last twelve (12) months, except for compensation as an officer, director or
employee of Asymetrix. None of the Asymetrix Insiders nor any member of their
immediate families has any interest in any property, real or personal, tangible
or intangible, including inventions, patents, copyrights, trademarks or trade
names or trade secrets, used in or pertaining to the business of Asymetrix,
except for the normal rights of a shareholder.
4.15 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of Asymetrix or any
Merger Sub is required in connection with the consummation of the transactions
contemplated by this Agreement, except for such qualifications or filings under
------ ---
the 1933 Act and the regulations thereunder and all other applicable securities
laws as may be required in connection with the transactions contemplated by this
Agreement. All such qualifications and filings will, in the case of
qualifications, be effective on the Closing and will, in the case of filings, be
made within the time prescribed by law.
4.16 ERISA and Labor Issues.
----------------------
4.16.1 Asymetrix does not have any Employee Pension Benefit Plan as
defined in Section 3 of ERISA.
4.16.2 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, Asymetrix is in compliance in all
material respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, employee benefit plans as defined in
Section 3(3) of ERISA, hours, and terms and conditions of employment, including,
but not limited to, employee compensation matters, ERISA and the Code.
4.16.3 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, no employee of Asymetrix is in
violation of any term of any employment contract, patent disclosure agreement,
noncompetition agreement, or any other contract or written agreement, or any
restrictive covenant contained in any such agreement relating to the right of
any such employee to be employed thereby, or to use trade secrets or proprietary
information of others, and the employment of such employees does not subject
Asymetrix to any material liability.
4.16.4 Asymetrix is not bound by or subject to any contract,
commitment or arrangement with any labor union, employees association or similar
organization, and to the Asymetrix's best knowledge, no labor union, employees
association or similar organization has requested, sought or attempted to
represent any employees, representatives or agents of Asymetrix. There is no
strike or other labor dispute involving Asymetrix pending nor, to
<PAGE>
Asymetrix's best knowledge, threatened, nor is Asymetrix aware of any labor
organization activity involving its employees.
4.17 Corporate Documents. Asymetrix has made available to the Oakes
-------------------
Companies and the Principals for examination all documents and information
listed in the Asymetrix Schedule of Exceptions or other exhibits called for by
this Agreement or which have been requested by the Oakes Companies and the
Principals' counsel, including, without limitation, the following: (a) copies
of Asymetrix's and its subsidiaries' Articles or Articles of Organization and
Bylaws and as currently in effect; (b) Asymetrix's Minute Book containing all
records that Asymetrix has of all proceedings, consents, actions and meetings of
the stockholders, the board of directors and any committees thereof; (c)
Asymetrix's and its subsidiaries' stock ledger or stockholder lists and journal
reflecting stock issuances and transfers; (d) all material permits, orders, and
consents issued by any regulatory agency with respect to Asymetrix, or any
securities of Asymetrix, and all applications for such permits, orders, and
consents; and (e) copies or forms of all stock purchase agreements, warrants,
option plans, grants and exercise agreements and, where forms of agreements are
provided rather than copies of the signed documents, a true and complete list
showing the names of the security holder, numbers of shares, exercise or
purchase prices, grant dates, vesting dates, exercise dates, expiration dates
and all other relevant data necessary for Asymetrix to issue the Asymetrix
Merger Stock.
4.18 No Brokers. Neither Asymetrix nor any Merger Sub is obligated for the
----------
payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Agreement or the
Asymetrix Ancillary Agreements or in connection with any transaction
contemplated hereby or thereby.
4.19 Disclosure. Neither this Agreement, its exhibits and schedules, nor
----------
any of the Certificates or documents to be delivered by Asymetrix or any Merger
Sub to the Oakes Companies and the Principals under this Agreement, taken
together, contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein and
therein, in light of the circumstances under which such statements were made,
not misleading.
4.20 Insurance. Asymetrix maintains and at all times during the prior
---------
three years has maintained fire and casualty, general liability, business
interruption and product liability insurance which it believes to be reasonably
prudent for similarly sized and similarly situated businesses.
4.21 Environmental Matters.
---------------------
4.22.1 During the period that Asymetrix has leased or owned its
properties or owned or operated any facilities, there have been no disposals or
releases of Hazardous Materials (as defined below) by Asymetrix, or to
Asymetrix's knowledge, by others, on, from or under such properties or
facilities, the liability for which would have a Material Adverse Effect.
Asymetrix has no knowledge of any presence, generation, manufacturing, disposals
or releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to Asymetrix having taken possession
of any of such properties or facilities, the liability for which
<PAGE>
would have a Material Adverse Effect. For the purposes of this Agreement, the
terms "disposal" and "release" shall have the definitions assigned thereto by
-------- -------
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For the purposes of
------
this Agreement, "Hazardous Materials" shall mean any hazardous or toxic
-------------------
substance, material or waste which is or becomes prior to the Closing Date
regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance" or
"hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. (S) 1801 et seq.; (iii) the Toxic Substance Control
Act, 15 U.S.C. (S) 2601 et seq.; (iv) the Occupational Safety and Health Act of
1970, 29 U.S.C. (S) 651 et seq.; (v) any applicable federal, state or local
statute or ordinance that has a scope or purpose similar to those identified
above; or (vi) regulations promulgated under any of the laws or statutes
identified above.
4.22.2 None of the properties or facilities of Asymetrix is in
material violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions on,
under or about such properties or facilities, including, but not limited to,
soil and ground water condition. During the time that Asymetrix has owned or
leased its properties and facilities, neither Asymetrix nor, to Asymetrix's
knowledge, any third party, has used, generated, manufactured or stored on,
under or about such properties or facilities or transported to or from such
properties or facilities any Hazardous Materials except in substantial
accordance with applicable environmental laws.
4.22.3 During the time that Asymetrix has owned or leased its
properties and facilities, there has been no litigation brought or, to the
knowledge of Asymetrix, threatened against Asymetrix by, or any settlement
reached by Asymetrix with, any party or parties alleging the presence, disposal,
release or threatened release of any Hazardous Materials on, from or under any
of such properties or facilities.
4.23 Real Property Holding Corporation Status. Asymetrix and each Merger
----------------------------------------
Sub is not and has at no time been a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code.
4.24 Shares Issued in Merger. The Asymetrix Merger Stock to be issued to
-----------------------
the stockholders of the Oakes Companies in the Merger, when issued by Asymetrix
pursuant to the terms of this Agreement, will be duly authorized, validly
issued, fully paid and nonassessable, free and clear of all liens, claims,
pledges, options, adverse claims, assessments or charges of any nature
whatsoever, and will have been issued materially in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws. The Statement of Designation
shall be filed on or before the Effective Time, and no further amendments to the
Asymetrix's Articles of Incorporation shall have been adopted or filed.
4.25 Books and Records. To the knowledge of Asymetrix and each Merger Sub,
-----------------
the books, records and accounts of Asymetrix (a) are in all material respects
true, complete and correct, (b) have been maintained in accordance with good
business practices on a basis
<PAGE>
consistent with prior years, (c) are stated in reasonable detail and accurately
and fairly reflect the material transactions and dispositions of the assets of
Asymetrix, and (d) accurately and fairly reflect the basis for the Asymetrix
Financial Statements.
4.26 Certain Dispositions. Asymetrix has no present plan or intention, or
--------------------
any binding commitment, to dispose, subsequent to the Effective Time, of a
quantity of Common Stock of any Oakes Company that would cause Asymetrix to lose
"control" of any Merger Sub within the meaning of Section 368(c) of the Code.
4.27 Control of Merger Subs. At all times prior to and as of the Effective
----------------------
Time, Asymetrix will be in "control" of each Merger Sub, as such term is defined
in Section 368(c) of the Code.
5. OAKES PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 10
hereof, each of the Oakes Companies and the Principals covenants and agrees as
follows:
5.1 Advice of Changes. Each of the Oakes Companies will, and the
-----------------
Principals will cause each of the Oakes Companies to, promptly advise Asymetrix
in writing (a) of any event occurring subsequent to the date of this Agreement
that would render any representation or warranty of any of the Oakes Companies
or the Principals contained in this Agreement, if made on or as of the date of
such event or the Closing Date, untrue or inaccurate in any material respect and
(b) of any change in the business, results of operations or financial condition
of any of the Oakes Companies that could reasonably be expected to have a
Material Adverse Effect.
5.2 Conduct of Business. Each of the Oakes Companies will, and the
-------------------
Principals will cause each of the Oakes Companies to, continue to conduct its
business and use commercially reasonable efforts to maintain its business
relationships in the ordinary and usual course and will not, and each of the
Principals will cause the Oakes Companies not to, without the prior written
consent of Asymetrix (other than actions required by this Agreement, as required
by law or in connection with the performance of agreements disclosed in the
Oakes Schedule of Exceptions):
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of business
or which involves an expense or capital commitment by any one or more of the
Oakes Companies in excess of $25,000, or which obligates any Oakes Company for a
period exceeding six months;
(c) encumber or permit to be encumbered any of its assets or grant
liens therein;
(d) dispose of any portion of any of the assets of the Oakes Companies
with a value exceeding $10,000 (other than in the ordinary course of business);
<PAGE>
(e) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business consistent
with past practice;
(f) fail to maintain any of the equipment and other assets of the
Oakes Companies in good working condition and repair according to the standards
such Oakes Company has maintained to the date of this Agreement, subject only to
ordinary wear and tear;
(g) pay any bonus, royalty, increased salary or special remuneration
to any officer, employee or consultant or agree to same or enter into any new
employment, severance, "golden parachute" or consulting agreement with any such
person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its or any other Oakes Company' capital stock;
(j) amend or terminate any contract, agreement or license to which an
Oakes Company is a party except those amended or terminated in the ordinary
course of business consistent with past practice, and which are not material in
amount or effect;
(k) lend any amount to any person or entity, other than advances for
travel and expenses which are incurred in the ordinary course of business
consistent with past practice;
(l) guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business consistent with past practice;
(m) waive or release any material right or claim except in the
ordinary course of business consistent with past practice;
(n) split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;
(o) merge, consolidate or reorganize with, or acquire any entity;
(p) amend its Articles of Organization or Bylaws;
(q) issue or sell any shares of its capital stock of any class;
(r) license any of its or any other Oakes Company's technology or
intellectual property except in the ordinary course of business consistent with
past practice;
(s) agree to any audit assessment by any tax authority (unless the
amount thereof is not material or has been adequately accrued or reserved on the
Oakes Financial Statements) or file any federal or state income or franchise tax
return unless (i) the amount
<PAGE>
payable with respect thereto is not material or has been adequately accrued or
reserved on the Oakes Financial Statements or (ii) copies of such returns have
been delivered to Asymetrix for its review and approved by Asymetrix prior to
filing;
(t) change any insurance coverage or issue any Certificates of
insurance except as is routinely done in the ordinary course of business of the
Oakes Companies;
(u) hire any employee or consultant;
(v) adopt or amend any employee benefit plan;
(w) enter into any contracts for the sale of advertising in an amount
exceeding $10,000 or for longer than 30 days; or
(x) agree to do any of the things described in the preceding clauses
5.2(a) through (w).
5.4 Regulatory Approvals. Each of the Oakes Companies will, and the
--------------------
Principals will cause the Oakes Companies to, execute and file, or join in the
execution and filing, of any application or other document that may be required
to be filed by it in order to obtain the authorization, approval or consent of
any governmental body (federal, state, local or foreign) which may be reasonably
required, in connection with the consummation of the transactions contemplated
by this Agreement. Each of the Oakes Companies will, and the Principals will
cause the Oakes Companies to, use its best efforts to obtain all such
authorizations, approvals and consents.
5.5 Necessary Consents. The Oakes Companies will, and the Principals
------------------
shall cause the Oakes Company to, use commercially reasonable efforts to obtain
such written consents and take such other actions as may be necessary or
appropriate in addition to those set forth in Section 5.4 (including, without
limitation those consents set forth on Schedule 9.6) to allow the consummation
of the transactions contemplated hereby and to allow Asymetrix to carry on the
business of the Oakes Companies business after the Closing.
5.6 Litigation. The Oakes Companies and the Principals will notify
----------
Asymetrix in writing promptly after learning of any actions, suits, proceedings
or investigations by or before any court, board or governmental agency,
initiated by or against the Oakes Companies, or known by the Oakes Companies or
the Principals to be threatened against the Oakes Companies.
5.7 No Other Negotiations. From the date hereof until the earlier of the
---------------------
termination of this Agreement or consummation of the Merger, the Oakes Company
will not, and the Principals will not permit the Oakes Companies to, and will
not authorize any officer or director of the Oakes Companies or any other person
on its behalf to, directly or indirectly, solicit, encourage, negotiate or
accept any offer from any party concerning the possible disposition of all or
any substantial portion of any of the Oakes Companies' business, assets or
capital stock by merger, sale or any other means or any other transaction that
would involve a change in control of any of the Oakes Companies, or any
transaction in which any of the Oakes Companies
<PAGE>
contemplates issuing equity or debt securities. The Oakes Companies and the
Principals will promptly notify Asymetrix in writing of any third party
inquiries or proposals.
5.8 Access to Information. Until the Closing, each of the Oakes Companies
---------------------
and the Principals will allow Asymetrix and its agents reasonable access to the
files, books, records and offices of each of the Oakes Companies, including,
without limitation, any and all information relating to each of the Oakes
Company' taxes, commitments, contracts, leases, licenses, and real, personal and
intangible property (including its intellectual property) and financial
condition. Each of the Oakes Companies, and the Principals will cause the Oakes
Companies' accountants to cooperate with Asymetrix and its agents in making
available all financial information reasonably requested, including, without
limitation, the right to examine all working papers pertaining to all financial
statements prepared or audited by such accountants.
5.9 Satisfaction of Conditions Precedent. Each of the Oakes Companies and
------------------------------------
each of the Principals will use its or his commercially reasonable efforts to
satisfy or cause to be satisfied all the conditions precedent which are set
forth in Section 9, and each such person will use its or his commercially
reasonable efforts to cause the transactions contemplated by this Agreement to
be consummated, and, without limiting the generality of the foregoing, to obtain
all consents and authorizations of third parties (including without limitation,
those third parties described in Section 9.6) and to make all filings with, and
give all notices to, third parties that may be necessary or reasonably required
on their part in order to effect the transactions contemplated hereby. The
Oakes Parties and the Principals will promptly notify Asymetrix in writing of
any failure or inability to comply fully with this Section.
5.10 Blue Sky Laws. Each of the Oakes Companies and the Principals will
-------------
cooperate with Asymetrix in connection with Asymetrix's efforts to comply with
the securities and Blue Sky laws of all jurisdictions which are applicable in
connection with the Mergers.
6. ASYMETRIX PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 10
hereof, Asymetrix and Merger Subs covenant and agree as follows:
6.1 Advice of Changes; Conduct of Business. Asymetrix and Merger Subs
--------------------------------------
will promptly advise the Oakes Companies in writing (a) of any event occurring
subsequent to the date of this Agreement that would render any representation or
warranty of Asymetrix or Merger Subs contained in this Agreement, if made on or
as of the date of such event or the Closing Date, untrue or inaccurate in any
material respect; or (b) of any material adverse change in the business, results
of operations or financial condition of Asymetrix. Asymetrix will use
commercially reasonable efforts to continue to conduct its business and maintain
its business relationships in the ordinary and usual course and will not,
without the prior written consent of the Oakes Companies (other than action
required by this Agreement, as required by law or in connection with the
performance of agreements, arrangements or pending transactions disclosed in the
Asymetrix Schedule of Exceptions);
<PAGE>
(a) enter into any material transaction not in the ordinary course of
business other than an investment in, or the spin-off of, its SuperCede, Inc.
subsidiary a "SuperCede Transaction";
---------------------
(b) declare, set aside or pay any material cash or stock dividend or
other material distribution in respect of capital stock, or redeem or otherwise
acquire any material portion of its capital stock other than in connection with
a SuperCede Transaction;
(c) dispose of (including by license), whether to a third party, a
partially or wholly-owned subsidiary or otherwise, any material portion of its
assets (other than in the ordinary course of business) other than in connection
with the SuperCede Transaction;
(d) encumber or permit to be encumbered in any material respect any of
its assets or grant liens thereon;
(e) issue or sell a material number of shares of its capital stock of
any class (except upon the exercise of an Asymetrix option held by Asymetrix
employees) or any other of its securities, or issue or create any material
warrants, obligations, subscriptions, options, convertible securities or other
commitments to issue shares of capital stock other than in connection with the
SuperCede Transaction; or
(f) merge, consolidate or reorganize with, or acquire, any entity.
6.2 Regulatory Approvals. Asymetrix and Merger Subs will execute and
--------------------
file, or join in the execution and filing, of any application or other document
that may be necessary in order to obtain the authorization, approval or consent
of any governmental body, federal, state, local or foreign, which may be
reasonably required, in connection with the consummation of the transactions
contemplated by this Agreement. Asymetrix will use its best efforts to obtain
all such authorizations, approvals and consents.
6.3 Satisfaction of Conditions Precedent. Each of Asymetrix and each
------------------------------------
Merger Sub will use its commercially reasonable efforts to satisfy or cause to
be satisfied all the conditions precedent which are set forth in Section 8, and
each of Asymetrix and each Merger Sub will use its commercially reasonable
efforts to cause the transactions contemplated by this Agreement to be
consummated and, without limiting the generality of the foregoing, to obtain all
consents and authorizations of third parties and to make all filings with, and
give all notices to, third parties that may be necessary or reasonably required
on its part in order to effect the transactions contemplated hereby.
6.4 Blue Sky Laws. Asymetrix shall take such steps as may be necessary to
-------------
comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Mergers.
6.5 Access to Information. Until the Closing, Asymetrix will allow the
---------------------
Oakes Companies and their respective agents reasonable access to the files,
books, records and offices of Asymetrix, including, without limitation, any and
all information relating to Asymetrix's
<PAGE>
taxes, commitments, contracts, leases, licenses, and real, personal and
intangible property (including its intellectual property) and financial
condition. Asymetrix will cause its accountants to cooperate with the Oakes
Companies and their respective agents in making available all financial
information reasonably requested, including, without limitation, the right to
examine all working papers pertaining to all financial statements prepared or
audited by such accountants.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
-----------
Section 10 below, the Closing will take place at the offices of Fenwick & West
LLP, Two Palo Alto Square, Palo Alto, California on or before September 30,
1997, or, if all conditions to closing have not been satisfied or waived by such
date, such other place, time and date as the Oakes Companies and Asymetrix may
mutually select (the "Closing Date"). Concurrently with the Closing, each of
------------
the Articles of Merger will be filed in the office of the Massachusetts
Secretary of State.
7.2 Exchange of Certificates.
------------------------
7.2.1 As of the Effective Time, all shares of Oakes Interactive
Common Stock, TopShelf Common Stock and Acorn Common Stock that are outstanding
immediately prior thereto will, by virtue of the Mergers and without further
action, cease to exist and will be converted into the right to receive from
Asymetrix the number of shares of Asymetrix Merger Stock determined as set forth
in Section 2.1, 2.2, or 2.3, as applicable, subject to Section 2.4.
7.2.2 As soon as practicable after the Effective Time, each holder of
shares of Oakes Interactive Common Stock, TopShelf Common Stock or Acorn Common
will surrender the Certificate(s) for such shares (the "Certificates"), duly
------------
endorsed as requested by Asymetrix, to Asymetrix for cancellation. Promptly
after the Effective Time and receipt of such Certificates, Asymetrix will issue
to each tendering holder a Certificates for the number of shares of Asymetrix
Merger Stock to which such holder is entitled pursuant to Sections 2.1, 2.2 or
2.3 hereof, as applicable and distribute any cash payable under Section 2.4.
7.2.3 No dividends or distributions payable to holders of record of
Asymetrix Merger Stock after the Effective Time, or cash payable in lieu of
fractional shares, will be paid to the holder of any unsurrendered
Certificates(s) until the holder of the Certificates(s) surrenders such
Certificates(s), or if such Certificates are lost, stolen or destroyed, provides
an indemnity reasonably acceptable to Asymetrix. Subject to the effect, if any,
of applicable escheat and other laws, following surrender of any Certificates,
there will be delivered to the person entitled thereto, without interest, the
amount of any dividends and distributions therefor paid with respect to
Asymetrix Merger Stock so withheld as of any date subsequent to the Effective
Time and prior to such date of delivery.
7.2.4 All Asymetrix Merger Stock (and, if applicable, cash in lieu of
fractional shares) delivered upon the surrender of Oakes Interactive Common
Stock, TopShelf Common Stock or Acorn Common Stock in accordance with the terms
hereof will be deemed to have been delivered in full satisfaction of all rights
pertaining to such Oakes Interactive Common Stock, TopShelf Common Stock or
Acorn Common Stock. There will be no further registration of
<PAGE>
transfers on the stock transfer books of any of the Oakes Companies or the
transfer agent of such Oakes Interactive Common Stock, TopShelf Common Stock or
Acorn Common Stock. If, after the Effective Time, Certificates are presented for
any reason, they will be canceled and exchanged as provided in this Section.
7.2.5 Until Certificates representing Oakes Interactive Common Stock,
TopShelf Common Stock or Acorn Common Stock outstanding prior to the Merger are
surrendered pursuant to Section 7.2.2 above, such Certificates will be deemed,
for all purposes, to evidence ownership of the number of shares of Asymetrix
Merger Stock into which Oakes Interactive Common Stock, TopShelf Common Stock or
Acorn Common Stock will have been converted pursuant to Sections 2.1, 2.2 or 2.3
hereof, as applicable.
7.2.6 Certificates which are not presented to Asymetrix within three
years after the Closing shall be canceled and the holder thereof will no longer
be entitled to receive any Asymetrix securities in consideration thereof.
8. CONDITIONS TO OBLIGATIONS OF THE OAKES COMPANIES AND THE
PRINCIPALS
The Oakes Companies' and the Principals' obligations hereunder are subject
to the fulfillment or satisfaction, on and as of the Closing, of each of the
following conditions (any one or more of which may be waived by the Oakes
Company and the Principals, but only in a writing signed by the Oakes Companies
and the Principals):
8.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of Asymetrix and each Merger Sub set forth in Section 4 that are not
made as a specific date shall be true and accurate in all material respects on
and as of the date of this Agreement, and the Oakes Companies shall receive a
Certificate to such effect executed by Asymetrix's Chief Executive Officer.
8.2 Covenants. Each of Asymetrix and each Merger Sub shall have performed
---------
and complied in all material respects with all of its covenants contained in
Section 6 on or before the Closing, and the Oakes Companies shall receive a
Certificate to such effect signed by Asymetrix's Chief Executive Officer and
Chief Financial Officer.
8.3 Compliance with Law. There shall be no order, decree, or ruling by
-------------------
any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such permits or authorizations, and there shall have been taken
such other action, as may be required to consummate the Mergers by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to, requirements under
applicable federal and state securities laws.
<PAGE>
8.5 Opinion of Asymetrix's Counsel. The Oakes Companies shall have
------------------------------
received from the General Counsel of Asymetrix, an opinion substantially in the
form of Exhibit 8.5.
-----------
8.6 Stockholder Approval. The principal terms of this Agreement and the
--------------------
Articles of Merger shall have been approved and adopted by the stockholders of
the applicable Oakes Company, as required by applicable law and each of the
Oakes Companies' Articles of Organization and Bylaws.
8.7 Registration Rights Agreement. Asymetrix shall have executed and
-----------------------------
delivered a registration rights agreement substantially in the form of Exhibit
-------
8.7.
- ---
8.8 Voting and Co-Sale Agreement. Asymetrix and Paul Allen shall have
----------------------------
executed and delivered a voting and co-sale agreement in the form of Exhibit
-------
8.8, and Kevin Oakes shall have been elected to the Board of Directors of
- ---
Asymetrix effective upon the Effective Time.
8.9 Employment Agreements. Asymetrix shall have executed and delivered (i)
---------------------
an employment agreement with Kevin Oakes in the form of Exhibit 8.9(a) (the
--------------
"Oakes Employment Agreement"), and (ii) an employment agreement with Doug Foster
- ---------------------------
in the form of Exhibit 8.9(b) (the "Foster Employment Agreement").
-------------- ---------------------------
8.10 Payment on Note. Asymetrix shall have paid the Oakes Companies an
---------------
aggregate amount of $350,000, which represents partial payment of the
outstanding principal amount of indebtedness of Oakes Interactive to Gordon
Oakes and such payments shall be promptly applied to the repayment of such
indebtedness.
8.11 Release of Guaranties. Each of Kevin Oakes and Gordon Oakes shall be
---------------------
released from the guaranty obligations under those guarantees set forth in
Schedule 8.11, subject only to the occurrence of the Effective Time, provided,
- -------------
however, that in the event such releases are not obtained prior to the Closing,
in lieu of obtaining such releases, the parties agree that the provisions of
Section 11.2.3(c) shall satisfy the closing condition set forth in this Section
8.11.
9. CONDITIONS TO OBLIGATIONS OF ASYMETRIX
The obligations of Asymetrix and Merger Subs hereunder are subject to the
fulfillment or satisfaction on, and as of the Closing, of each of the following
conditions (any one or more of which may be waived by Asymetrix, but only in a
writing signed by Asymetrix):
9.1 Accuracy of Representations and Warranties. The representations and
------------------------------------------
warranties of the Oakes Companies and the Principals set forth in Section 3 and
Section 3A that are not made as a specific date shall be true and accurate in
all material respects on and as of the date of this Agreement, and Asymetrix
shall receive Certificates to such effect executed by the Chief Executive
Officer and Chief Financial Officer of each of the Oakes Companies and by the
Principals.
9.2 Covenants. Each of the Oakes Companies and the Principals shall have
---------
performed and complied in all material respects with all of its covenants
contained in Section 5
<PAGE>
on or before the Closing, and Asymetrix shall receive Certificates to such
effect executed by the Chief Executive Officer and Chief Financial Officer of
each of the Oakes Companies and by the Principals.
9.3 Compliance with Law. There shall be no order, decree, or ruling by
-------------------
any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
9.4 Government Consents. There shall have been obtained at or prior to
-------------------
the Closing Date such consents, permits or authorizations, and there shall have
been taken such other action, as are listed on Schedule 9.4.
------------
9.5 Opinion of Counsel. Asymetrix shall have received from counsel to the
------------------
Oakes Companies and the Principals, an opinion substantially in the form of
Exhibit 9.5.
- -----------
9.6 Consents. Asymetrix or the Oakes Companies shall have received duly
--------
executed copies of all material third party consents, approvals, assignments,
waivers, authorizations or other Certificates contemplated by this Agreement or
the Oakes Schedule of Exceptions or reasonably deemed necessary by Asymetrix's
counsel to provide for the continuation in full force and effect of any and all
material contracts and leases of the Oakes Companies (including. without
limitation, the consents as to Material Contracts hereto and the Customer
Agreements) and for the Oakes Companies and the Principals to consummate the
transactions contemplated hereby in form and substance reasonably satisfactory
to Asymetrix, except for such consents and approvals thereof as Asymetrix and
the Oakes Companies and the Principals shall have agreed shall not be obtained.
9.7 No Litigation. No litigation or proceeding shall be overtly
-------------
threatened or pending to enjoin or prevent the consummation of any of the
transactions contemplated by this Agreement, or which could be reasonably
expected to have a Material Adverse Effect.
9.8 Requisite Approvals. The principal terms of this Agreement and the
-------------------
Articles of Merger shall have been approved and adopted by the holders of all of
the Oakes Interactive Common Stock, TopShelf Common Stock and Acorn Common Stock
outstanding, and by a majority of the Board of Directors of each of the Oakes
Companies.
9.9 Resignation of Directors. The directors of each Oakes Companies in
------------------------
office immediately prior to the Effective Time of the Mergers shall have
resigned as directors of the Oakes Company effective as of the Effective Time of
the Mergers.
9.10 Investment Representation Agreements. Asymetrix shall have received
------------------------------------
from all of the holders of the Oakes Interactive Common Stock, TopShelf Common
Stock and Acorn Common Stock an executed Investment Representation Agreement
substantially in the form of Exhibit 9.10 hereto.
------------
<PAGE>
9.11 Employment Agreements. Asymetrix shall have received the Oakes
---------------------
Employment Agreement executed by Kevin Oakes and the Foster Employment Agreement
executed by Doug Foster.
9.12 Employees. Each of the Oakes Companies shall have still employed,
---------
with any current expressed intent to resign, the number of employees with the
job responsibilities as indicated on Schedule 9.12.
-------------
9.13 Absence of Material Adverse Changes. There shall not have been in the
-----------------------------------
reasonable judgment of Asymetrix, any material adverse change in the financial
conditions, properties, assets, liabilities, business, prospectus or results of
operations of any of the Oakes Companies.
9.14 Note. The Oakes Note shall have been amended substantially in the
----
form attached hereto as Exhibit 9.14 and shall evidence all remaining
------------
indebtedness of the Oakes Companies to Gordon Oakes (after taking into account
the repayment described in Section 8.10).
10. TERMINATION OF AGREEMENT
10.1 Termination of Agreement. Asymetrix on the one hand and the Oakes
------------------------
Companies and the Principals on the other may terminate this Agreement prior to
the Effective Time (whether before or after stockholder approval has been
obtained) solely as provided below:
10.1.1 Asymetrix may terminate this Agreement by giving written
notice to the Oakes Companies and the Principals in the event any of the Oakes
Companies or the Principals is in breach, and the Oakes Company and the
Principals may terminate this Agreement by giving written notice to Asymetrix in
the event Asymetrix is in breach, of any material representation, warranty, or
covenant contained in this Agreement, and such breach is not remedied within 10
days of delivery of written notice thereof;
10.1.2 Asymetrix may terminate this Agreement by giving written
notice to the Oakes Companies and the Principals if the Closing shall not have
occurred on or before September 30, 1997 by reason of the failure of any
condition precedent under Section 9 hereof (unless the failure results primarily
for a breach by Asymetrix of any representation, warranty or covenant contained
in this Agreement); or
10.1.3 The Oakes Companies and the Principals may terminate this
Agreement by giving written notice to Asymetrix if the Closing shall not have
occurred on or before September 30, 1997 by reason of the failure of any
condition precedent under Section 8 hereof (unless the failure results primarily
from a breach by any of the Oakes Companies or the Principals of any
representation, warranty or covenant contained in this Agreement made by him or
it).
10.2 No Liability. Any termination of this Agreement pursuant to this
------------
Section 10 will be without further obligation or liability upon any party in
favor of the other party hereto other than the obligations provided in Sections
11.2, 12.8 and 12.16 and in the Nondisclosure
<PAGE>
agreement between Asymetrix and Principals dated August 1, 1997, other than any
liability of any party for breaches of this Agreement, which will survive
termination of this Agreement; provided, however, that nothing herein will limit
the obligation of the Oakes Companies and the Principals on the one hand and
Asymetrix on the other to use their best efforts to cause the Merger to be
consummated, as set forth in Sections 5.12 and 6.3 hereof, respectively.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of the Oakes Companies, the Principals and Asymetrix contained in this
Agreement will survive the Effective Time and remain operative and in full force
and effect, regardless of any investigation made by or on behalf of the parties
to this Agreement, until the earlier of (a) the termination of this Agreement or
(b) two (2) years after the Closing Date, whereupon such representations,
warranties and covenants will expire (except for covenants that by their terms
survive for a longer period); provided, however, that, if the Closing occurs,
representations and warranties in Section 3.3, 3.7, 3.12, 4.3, 4.7 and 4.12
shall expire three (3) years after the Closing Date; provided further, however,
that representations, warranties and covenants involving intentional fraud or
willful misconduct shall survive the Closing without the limitations of
subsections (a) or (b) above. The period of such survival shall be referred to
herein as the "Survival Period."
---------------
11.2 Agreement to Indemnify.
----------------------
11.2.1 Subject to the limitations set forth in this Section 11, the
Principals (during the time period specified below) shall indemnify Asymetrix
and the surviving corporations of the Mergers (the "Asymetrix Indemnified
---------------------
Persons") in respect of, and hold the Asymetrix Indemnified Persons harmless
- -------
against, any and all claims, demands, actions, causes of actions, losses, costs,
damages, liabilities and expenses including, without limitation, reasonable
legal fees that have actually been paid (hereinafter referred to as "Damages"):
-------
(a) arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties and covenants
given or made by any of the Oakes Companies or the Principals in this Agreement
(including any Schedule or Exhibit hereto) which indemnity shall survive for the
time period specified in Section 11.1;
(b) resulting from any failure of any of the Principals or
the Other Former Oakes Interactive Stockholder to have good, valid and
marketable title to the issued and outstanding Oakes Interactive Common Stock,
TopShelf Common Stock and Acorn Common Stock held by such stockholders, free and
clear of all liens, claims, pledges, options, adverse claims, assessments or
charges of any nature whatsoever, which indemnity shall survive for a three year
period; or
(c) arising out of, related to, in connection with or
otherwise resulting from any Prior Agreement whatsoever, which indemnity shall
survive for a three year period.
<PAGE>
11.2.2 The indemnification provided for in paragraphs (a), (b) and
(c) of subsection 11.2.1 shall not apply unless and until the aggregate Damages
for which one or more Asymetrix Indemnified Persons seeks indemnification under
such paragraphs (a), (b) and (c), exclusive of legal fees, exceeds $150,000 (the
"Basket") and then only to the extent that aggregate Damages exceed the Basket.
------
From the Effective Time until the date of the closing of an initial public
offering (the "Pre-IPO Period") under the Securities Act of any capital stock of
--------------
Asymetrix (the "IPO Date") the maximum aggregate liability of the Principals
--------
under paragraphs (a) and (b) of this subsection 11.2.2 shall be equal to
$1,110,000, provided, however, that in lieu of making cash payments in
-------- -------
satisfaction of the Principals' indemnification obligations hereunder, during
the Pre-IPO Period, the Principals can elect, in lieu of such cash payment, to
surrender a number of shares of Merger Stock equal to the amount of the Damages
divided by the Stated Value (appropriately adjusted for stock splits,
recapitalizations and stock dividends). From and after the IPO Date (the "Post-
----
IPO Period"), the maximum aggregate liability of the Principals under paragraphs
- ----------
(a) and (b) of this subsection 11.2.2 shall be equal to the greater of (i)
$3,200,000 or (ii) the product of (A) 320,000 and (B) the price at which the
shares of Asymetrix capital stock are initially offered to the public in the
initial public offering occurring on the IPO Date; provided further, that in
-------- -------
lieu of making cash payments in satisfaction of the Principals' indemnification
obligations hereunder, during the Post-IPO Period, the Principals can elect, in
lieu of such cash payment, to surrender a number of shares of Asymetrix Common
Stock equal to the amount of the Damages divided by the fair market value per
share of the Asymetrix Common Stock, in which case any brokers' fees,
commissions or transfer taxes shall be borne by the Principals. For the
purposes hereof, the term "fair market value per share" shall mean the closing
price of the Asymetrix Common Stock on the Nasdaq National Market or other stock
exchange or quotation service on which the Asymetrix Common Stock is primarily
traded on the trading date immediately prior to the date the payment is to be
made. Asymetrix will use its best efforts to obtain recoveries under all
applicable insurance policies for all Damages. Except for intentional fraud or
willful misconduct, the remedies set forth in this Section shall be the
exclusive remedies of the Asymetrix Indemnified Persons against any of the
Principals.
11.2.3 Subject to the limitations set forth in this Section 11,
Asymetrix will indemnify and hold harmless the Principals (collectively, the
"Oakes Indemnified Persons") from and against any and all Damages:
- --------------------------
(a) arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties and covenants given or
made by Asymetrix in this Agreement or in any Certificate, document or
instrument delivered by or on behalf of Asymetrix pursuant hereto;
(b) resulting from any failure on the part of Asymetrix to issue to
the Principals and the other Former Oakes Interactive Stockholders good, valid
and marketable title to the Asymetrix Merger Stock as provided in this
Agreement, free and clear of all liens, claims, pledges, options, adverse
claims, assessments or charges of any nature whatsoever; or
<PAGE>
(c) the obligations of Kevin Oakes and Gordon Oakes to repay the
indebtedness subject to the guarantees listed on Schedule 8.11 from which Kevin
Oakes and Gordon Oakes are not released prior to the Closing.
Asymetrix's maximum aggregate liability under paragraphs (a) and (b)
of this subsection 11.2.3 shall be equal to the product of the Stated Value Per
Share times the total number of shares issued to the Principals and the other
Former Oakes Interactive Stockholder in the Mergers.
11.2.4 Any Asymetrix Indemnified Person or any Oakes Indemnified
Person seeking indemnification hereunder shall give prompt written notification
to the Principals (in the case of indemnification sought by the Asymetrix
Indemnified Person) or to Asymetrix (in the case of indemnification sought by an
Oakes Indemnified Person) (as applicable, the "Indemnification Representative")
------------------------------
of the commencement of any action, suit or proceeding relating to a third party
claim for which indemnification pursuant to this Section 11 may be sought;
provided, however, that no delay on the part of the Indemnified Person in
providing such notice shall relieve the Principals or Asymetrix, as the case may
be, of any liability or obligation hereunder except to the extent of any damage
or liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnification Representative may, upon
written notice thereof to the Indemnified Person, assume control of the defense
of such action, suit or proceeding with counsel reasonably satisfactory to the
Indemnified Person, provided that the Indemnification Representative
acknowledges in writing to the Indemnified Person that any damages, fines, costs
or other liabilities that may be assessed against the Indemnified Person in
connection with such action, suit or proceeding constitute Damages for which the
Indemnified Person shall be entitled to indemnification pursuant to this Section
11. If the Indemnification Representative does not so assume control of such
defense, the Indemnified Person shall control such defense. The party not
controlling such defense may participate therein at it own expense; provided
that if the Indemnification Representative assumes control of such defense and
the Indemnified Person reasonably concludes that the indemnifying parties and
the Indemnified Person have conflicting interests or different defenses
available with respect to such action, suit or proceeding, the reasonable fees
and expenses of counsel to the Indemnified Person shall be considered "Damage"
for purpose of this Agreement. The party controlling such defense shall keep
the other party advised of the status of such action, suit or proceeding and the
defense thereof and shall consider in good faith recommendations made by the
other party with respect thereto. The Indemnified Person shall not agree to any
settlement of such action, suit or proceeding without the prior written consent
of the Indemnification Representative.
11.2.5 Treatment of Indemnity Payments. Any payment made to an
-------------------------------
Indemnified Person pursuant to this Section 11 shall be treated as a reduction
in the Merger consideration.
11.3 Employee Stock Options. Asymetrix shall take all action necessary to
----------------------
reserve for issuance under the Asymetrix Option Plan, and as soon as reasonably
practicable following the Closing, grant Asymetrix Options to purchase an
aggregate of 350,000 shares of Asymetrix Common Stock at an exercise price of
$4.50 per share for awards to those employees of the Oakes Companies who become
Asymetrix employees, as shall be agreed upon between
<PAGE>
Asymetrix and the Principals. The vesting schedule for such options shall
commence as of the date such grantees shall have commenced employment with the
applicable Oakes Company.
11.4 Insurance. Asymetrix shall maintain in effect for the three year
---------
period following the date of this Agreement the insurance policies of the Oakes
Companies set forth on Schedule 3.19 of the Oakes Schedule of Exceptions or
other insurance coverage with substantially similar or greater coverage then the
policies set forth on Schedule 3.19 of the Oakes Schedule of Exceptions.
11.5 Employment Agreements. As soon as reasonably practicable after the
---------------------
Closing, Asymetrix shall enter into an Employment Agreement with each of Lee
Maxey and Greg Butler on terms to be mutually agreed upon between Asymetrix and
Lee Maxey or Greg Butler, as applicable.
12. MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
12.2 Assignment; Binding Upon Successors and Assigns. Neither party hereto
-----------------------------------------------
may assign any of its rights or obligations hereunder without the prior written
consent of the other party hereto and any attempt to do so will be void. This
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
12.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
<PAGE>
12.6 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a
party of any breach hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. The Agreement may be amended by the parties hereto at any time before
or after approval of the stockholders of the Oakes Companies but, after such
approval, no amendment will be made which by applicable law requires the further
approval of the stockholders of the Oakes Companies obtaining such further
approval.
12.7 No Waiver. The failure of any party to enforce any of the provisions
---------
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
12.8 Expenses. Each party will bear its respective expenses and fees of its
--------
own accountants, attorneys and other professionals incurred with respect to this
Agreement and the transactions contemplated hereby.
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit, reasonable attorneys' fees to be fixed by the
court (including without limitation, costs, expenses and fees on any appeal).
The prevailing party will be entitled to recover its costs of suit, regardless
of whether such suit proceeds to final judgment.
12.10 Notices. Any notice or other communication required or permitted to
-------
be given under this Agreement will be in writing, will be delivered personally,
by registered or certified mail, postage prepaid, by confirmed facsimile or by
nationally recognized courier service, and will be deemed given upon delivery,
if delivered personally, or five days after deposit in the mails, if mailed, or
upon receipt if delivered by confirmed facsimile or by nationally recognized
courier service, to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (650) 857-0361
<PAGE>
(ii) If to the Oakes Companies:
-------------------------
Facsimile:
Attention:
With a copy to:
--------------
Facsimile:
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.10.
12.11 Construction of Agreement. This Agreement has been negotiated by the
-------------------------
respective parties hereto and their attorneys and the language hereof will not
be construed for or against either party. A reference to a Section or an exhibit
will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
12.12 No Joint Venture. Nothing contained in this Agreement will be deemed
----------------
or construed as creating a joint venture or partnership between any of the
parties hereto. No party is by virtue of this Agreement authorized as an agent,
employee or legal representative of any other party. No party will have the
power to control the activities and operations of any other and their status is,
and at all times, will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
12.13 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the transactions described herein and
contemplated hereby and to carry into effect the intents and purposes of this
Agreement.
12.14 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
<PAGE>
12.15 Public Announcement. Upon execution of the Agreement by both
-------------------
parties, and until the consummation of the Mergers, all press releases and other
public communications shall be made by the parties only with the mutual consent
of the Oakes Companies and Asymetrix.
12.16 Confidentiality. Asymetrix, each of the Oakes Companies and the
---------------
Principals each recognize that they have received and will receive confidential
information concerning the other during the course of the negotiations and
preparations for the Mergers. Accordingly, each party agrees (a) to use its
respective best efforts to prevent the unauthorized disclosure of any
confidential information concerning the other that was or is disclosed during
the course of such negotiations and preparations, and is clearly designated in
writing as confidential at the time of disclosure, and (b) to not make use of or
permit to be used any such confidential information other than for the purpose
of effectuating the Mergers and related transactions. The obligations of this
Section will not apply to information that (i) is or becomes part of the public
domain, (ii) is disclosed by the disclosing party to third parties without
restrictions on disclosure, (iii) is received by the receiving party from a
third party without breach of a nondisclosure obligation to the other party or
(iv) is required to be disclosed by law. If this Agreement is terminated, all
copies of documents containing confidential information shall be returned by the
receiving party to the disclosing party.
12.17 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"ASYMETRIX" "OAKES INTERACTIVE"
Asymetrix Corporation Oakes Interactive Incorporated
By: /s/ J. Billmaier By: /s/ Gordon N. Oakes Jr.
--------------------------- ------------------------------
Name: JAMES BILLMAIER Name: GORDON N. OAKES J.R.
-------------------------- ------------------------------
Its: CHIEF EXECUTIVE OFFICER Its: TREASURER
--------------------------- ------------------------------
By: /s/ Kevin Oakes
------------------------------
Name: KEVIN OAKES
------------------------------
Its: PRESIDENT
------------------------------
"OAKES SUB" "TOPSHELF"
Oakes Acquisition Corp. TopShelf Multimedia, Inc.
By: /s/ J. Billmaier By: /s/ Gordon N. Oakes
-------------------------- ------------------------------
Name: JAMES BILLMAIER Name: GORDON N. OAKES
------------------------- -----------------------------
Its: PRESIDENT Its: TREASURER
-------------------------- ------------------------------
By: /s/ Steven Esau By: /s/ Kevin Oakes
-------------------------- ------------------------------
Name: STEVEN ESAU Name: KEVIN OAKES
------------------------- -----------------------------
Its: CLERK Its: PRESIDENT
-------------------------- ------------------------------
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE>
"ACORN SUB" "ACORN"
Acorn Acquisition Corp. Acorn Associates Incorporated
By: /s/ J. Billmaier By: /s/ Gordon N. Oakes
------------------------- -----------------------------
Name: JAMES BILLMAIER Name: GORDON N. OAKES
------------------------ ----------------------------
Its: PRESIDENT Its: TREASURER
------------------------- -----------------------------
By: /s/ Steven Esau By: /s/ Kevin Oakes
------------------------- -----------------------------
Name: STEVEN ESAU Name: KEVIN OAKES
------------------------ ----------------------------
Its: CLERK Its: PRESIDENT
------------------------- -----------------------------
"TOPSHELF SUB" "PRINCIPALS"
TopShelf Acquisition Corp.
By: /s/ J. Billmaier /s/ Gordon Oakes
------------------------- ----------------------------------
Gordon Oakes
Name: JAMES BILLMAIER
------------------------
Its: PRESIDENT /s/ Kevin Oakes
------------------------- ----------------------------------
Kevin Oakes
By: /s/ Steven Esau
-------------------------
Name: STEVEN ESAU
------------------------
Its: CLERK
-------------------------
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
- ------------------------------
Exhibit A-1 Oakes Interactive Articles of Merger
Exhibit A-2 TopShelf Articles of Merger
Exhibit A-3 Acorn Articles of Merger
Exhibit 1.12 Statement of Designation
Exhibit 2.11A Asymetrix Officers' Certificate
Exhibit 2.11B Oakes Interactive Officers' Certificate
Exhibit 2.11C TopShelf Officers' Certificate
Exhibit 2.11D Acorn Officers' Certificate
Exhibit 3.0 Oakes Schedule of Exceptions
Exhibit 4.0 Asymetrix Schedule of Exceptions
Exhibit 8.5 Form of Opinion of General Counsel of Asymetrix
Exhibit 8.7 Registration Rights Agreement
Exhibit 8.8 Voting and Co-Sale Agreement
Exhibit 8.9(a) Oakes Employment Agreement
Exhibit 8.9(b) Foster Employment Agreement
Schedule 8.11 Guarantees
Exhibit 9.4 Government Consents
Exhibit 9.5 Form of Opinion of Counsel to Oakes Companies and Principals
Exhibit 9.10 Investment Representation Agreement
Schedule 9.12 Oakes Employees
Exhibit 9.14 Amended Oakes Note
<PAGE>
FEDERAL IDENTIFICATION FEDERAL IDENTIFICATION
NO. _____________________ NO. 04-3277303
---------------------
Oakes Interactive
Incorporated
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF * / *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
* /*merger of
_________________________________________
Oakes Acquisition Corp.
-----------------------------------------
AND
-----------------------------------------
Oakes Interactive Incorporated
-----------------------------------------
,
-----------------------------------------
the constituent corporations, into
Oakes Interactive Incorporated
-----------------------------------------
*a new corporation / *one of the
constituent corporations.
The undersigned officers of each of the constituent corporations certify under
the penalties of perjury as follows:
1. An agreement of * /*merger has been duly adopted in compliance
with the requirements of General Laws, Chapter 156B, Section 78, and will be
kept as provided by Subsection (d) thereof. The *resulting / *surviving
corporation will furnish a copy of said agreement to any of its stockholders, or
to any person who was a stockholder of any constituent corporation, upon written
request and without charge.
2. The effective date of the * /*merger determined pursuant to the
agreement of * /*merger shall be the date approved and filed by
the Secretary of the Commonwealth. If a later effective date is desired,
specify such date which shall not be more than thirty days after the date of
filing.
3. (FOR A MERGER)
** The following amendments to the Articles of Organization of the surviving
corporation have been effected pursuant to the agreement of merger.
NONE
* Delete the inapplicable word. **If there are no provisions state "None".
NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS
INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON SEPARATE 81/2 X 11 SHEETS OF PAPER
WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MOVE THAN ONE ARTICLE MAY BE
MADE ON A SINGLE SHEET AS LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS
CLEARLY INDICATED.
<PAGE>
(FOR A CONSOLIDATION)
(a) The purpose of the resulting corporation is to engage in the following
business activities:
N/A
(b) State the total number of shares and the par value, if any, of each class of
stock which the resulting corporation is authorized to issue.
<TABLE>
<CAPTION>
N/A
- ----------------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ----------------------------------------------------------------------------------------
Common: Common:
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Preferred: Preferred:
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
**(c) If more than one class of stock is authorized, state a distinguishing
designation for each class and provide a description of the preferences, voting
powers, qualifications, and special or relative rights or privileges of each
class and of each series then established.
N/A
**(d) The restrictions, if any, on the transfer of stock contained in the
agreement of consolidation are:
N/A
**(e) Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
NONE
**If there are no provisions state "None".
<PAGE>
4. The information contained in Item 4 is not a permanent part of the Articles
of Organization of the *resulting / *surviving corporation.
(a) The street address of the *resulting / *surviving corporation in
Massachusetts is: (post office boxes are not acceptable)
255 Highland Avenue, Needham, MA 02194
(b) The name, residential address, and post office address of each director and
officer of the *resulting / *surviving corporation is:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President: James Billmaier 22322 NE 157th St. SAME
Woodinville, WA 98072
Treasurer: John Atherly 2237 273rd Ct. S.E. SAME
Issaquah, WA 98029
Clerk: Steven Esau 11970 Marine View Drive S.W. SAME
Seattle, WA 98146
Directors: James Billmaier SAME AS ABOVE SAME AS ABOVE
</TABLE>
(c) The fiscal year (i.e. tax year) of the * /*surviving corporation
shall end on the last day of the month of: December
(d) The name and business address of the resident agent, if any, of the
* /*surviving corporation is:
Donald J. Allison, 69 South Pleasant Street, Suite 201, Amherst, MA 01002
The undersigned officers of the several constituent corporations listed above
further state under the penalties of perjury as to their respective corporations
that the agreement of * /*merger has been duly executed on behalf
of such corporation and duly approved by the stockholders of such corporation in
the manner required by General Laws, Chapter 156B, Section 78.
_________________________________________________________, *President/ *
____________________________________________________________, *Clerk/ *
of Oakes Acquisition Corp.
----------------------------------------------------------------------------
(Name of constituent corporation)
_________________________________________________________, *President/ *
____________________________________________________________, *Clerk/ *
of Oakes Interactive Incorporated
----------------------------------------------------------------------------
(Name of constituent corporation)
*Delete the inapplicable words.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF * / *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
==============================================
I hereby approve the within Articles of * /
*Merger and, the filing fee in the amount of
$ 250.00, having been paid, said articles are
deemed to have been filed with me this 30th
day of September, 1997
Effective Date: 9/30/97
------------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Steven Esau
----------------------------------------------------
110 - 110th Avenue NE, Suite 700
----------------------------------------------------
Bellevue, WA 98004
----------------------------------------------------
Telephone: (425) 637-5829
------------------------------------------
<PAGE>
FEDERAL IDENTIFICATION FEDERAL IDENTIFICATION
NO. ____________________ NO. 04-3308220
----------------------------
TopShelf Multimedia, Inc.
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF * / *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
* /*merger of
_____________________________________________
Top Shelf Acquisition Corp.
---------------------------------------------
AND
---------------------------------------------
TopShelf Multimedia, Inc.
---------------------------------------------
,
---------------------------------------------
the constituent corporations, into
TopShelf Multimedia, Inc.
---------------------------------------------
* / *one of the constituent corporations.
The undersigned officers of each of the constituent corporations certify under
the penalties of perjury as follows:
1. An agreement of * / *merger has been duly adopted in compliance
with the requirements of General Laws, Chapter 156B, Section 78, and will be
kept as provided by Subsection (d) thereof. The * / *surviving
corporation will furnish a copy of said agreement to any of its stockholders, or
to any person who was a stockholder of any constituent corporation, upon written
request and without charge.
2. The effective date of the * / *merger determined pursuant to the
agreement of * / *merger shall be the date approved and filed by
the Secretary of the Commonwealth. If a later effective date is desired,
specify such date which shall not be more than thirty days after the date of
filing.
3. (FOR A MERGER)
**The following amendments to the Articles of Organization of the surviving
corporation have been effected pursuant to the agreement of merger.
NONE
*Delete the inapplicable word. **If there are no provisions state "None".
NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS
INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON SEPARATE 8 1/2 X 11 SHEETS OF
PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE
MAY BE MADE ON A SINGLE SHEET AS LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS
CLEARLY INDICATED.
<PAGE>
(FOR A CONSOLIDATION)
(a) The purpose of the resulting corporation is to engage in the following
business activities:
N/A
(b) State the total number of shares and the par value, if any, of each class of
stock which the resulting corporation is authorized to issue.
<TABLE>
<CAPTION>
N/A
- ------------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ------------------------------------------------------------------------------------
Common: Common:
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
Preferred: Preferred:
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
</TABLE>
**(c) If more than one class of stock is authorized, state a distinguishing
designation for each class and provide a description of the preferences, voting
powers, qualifications, and special or relative rights or privileges of each
class and of each series then established.
N/A
**(d) The restrictions, if any, on the transfer of stock contained in the
agreement of consolidation are:
N/A
**(e) Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
NONE
*If there are no provisions state "None".
<PAGE>
4. The information contained in Item 4 is not a permanent part of the Articles
of Organization of the *resulting / *surviving corporation.
(a) The street address of the * / *surviving corporation in
Massachusetts is: (post office boxes are not acceptable)
255 Highland Avenue, Needham, MA 02194
(b) The name, residential address, and post office address of each director and
officer of the * / *surviving corporation is:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President: James Billmaier 22322 NE 157th St. SAME
Woodinville, WA 98072
Treasurer: John Atherly 2237 273rd Ct. S.E. SAME
Issaquah, WA 98029
Clerk: Steven Esau 11970 Marine View Drive S.W. SAME
Seattle, WA 98146
Directors: James Billmaier SAME AS ABOVE SAME AS ABOVE
</TABLE>
(c) The fiscal year (i.e. tax year) of the * / *surviving corporation
shall end on the last day of the month of: December
(d) The name and business address of the resident agent, if any, of the
* / *surviving corporation is:
Donald J. Allison, 69 South Pleasant Street, Suite 201, Amherst, MA 01002
The undersigned officers of the several constituent corporations listed above
further state under the penalties of perjury as to their respective corporations
that the agreement of * / *merger has been duly executed on behalf
of such corporation and duly approved by the stockholders of such corporation in
the manner required by General Laws, Chapter 156B, Section 78.
____________________________________________________________, *President / *
____________________________________________________________, *Clerk / *
of TopShelf Multimedia Inc.
------------------------------------------------------------------------------
(Name of constituent corporation)
____________________________________________________________, *President / *
____________________________________________________________, *Clerk / *
of TopShelf Acquisition Inc.
------------------------------------------------------------------------------
(Name of constituent corporation)
Delete the inapplicable words.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF * / *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
==================================================
I hereby approve the within Articles of * /
*Merger and, the filing fee in the amount of
$ 250.00, having been paid, said articles are
deemed to have been filed with me this 30th day
of September, 1997
Effective Date: 9/30/97
----------------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Steven Esau
-------------------------------------------
110 - 110th Avenue NE, Suite 700
-------------------------------------------
Bellevue, WA 98004
-------------------------------------------
Telephone: (425) 637-5829
---------------------------------
<PAGE>
FEDERAL IDENTIFICATION FEDERAL IDENTIFICATION
NO. _____________________ NO. 04-3366270
---------------------
Acorn Associates
Incorporated
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF * / *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
* / *merger of
__________________________________________________
Acorn Acquisition Corp.
--------------------------------------------------
AND
--------------------------------------------------
Acorn Associates Incorporated
--------------------------------------------------
,
--------------------------------------------------
the constituent corporations, into
Acorn Associates Incorporated
--------------------------------------------------
* / *one of the constituent corporations.
The undersigned officers of each of the constituent corporations certify under
the penalties of perjury as follows:
1. An agreement of * / *merger has been duly adopted in compliance
with the requirements of General Laws, Chapter 156B, Section 78, and will be
kept as provided by Subsection (d) thereof. The * / *surviving
corporation will furnish a copy of said agreement to any of its stockholders, or
to any person who was a stockholder of any constituent corporation, upon written
request and without charge.
2. The effective date of the * / *merger determined pursuant to the
agreement of * / *merger shall be the date approved and filed by
the Secretary of the Commonwealth. If a later effective date is desired,
specify such date which shall not be more than thirty days after the date of
filing.
3. (FOR A MERGER)
** The following amendments to the Articles of Organization of the surviving
corporation have been effected pursuant to the agreement of merger.
NONE
*Delete the inapplicable word. **If there are no provisions state "None".
NOTE: IF THE SPACE PROVIDED UNDER ANY ARTICLE OR ITEM ON THIS FORM IS
INSUFFICIENT, ADDITIONS SHALL BE SET FORTH ON SEPARATE 8 1/2 X 11 SHEETS OF
PAPER WITH A LEFT MARGIN OF AT LEAST 1 INCH. ADDITIONS TO MORE THAN ONE ARTICLE
MAY BE MADE ON A SINGLE SHEET AS LONG AS EACH ARTICLE REQUIRING EACH ADDITION IS
CLEARLY INDICATED.
<PAGE>
(FOR A CONSOLIDATION)
(a) The purpose of the resulting corporation is to engage in the following
business activities:
N/A
(b) State the total number of shares and the par value, if any, of each class of
stock which the resulting corporation is authorized to issue.
<TABLE>
<CAPTION>
N/A
- ------------------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- ------------------------------------------------------------------------------------------
Common: Common:
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
Preferred: Preferred:
- ------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
</TABLE>
**(c) If more than one class of stock is authorized, state a distinguishing
designation for each class and provide a description of the preferences, voting
powers, qualifications, and special or relative rights or privileges of each
class and of each series then established.
N/A
**(d) The restrictions, if any, on the transfer of stock contained in the
agreement of consolidation are:
N/A
**(e) Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
NONE
**If there are no provisions state "None".
<PAGE>
4. The information contained in Item 4 is not a permanent part of the Articles
of Organization of the * / *surviving corporation.
(a) The street address of the * / *surviving corporation in
Massachusetts is: (post office boxes are not acceptable)
255 Highland Avenue, Needham, MA 02194
(b) The name, residential address, and post office address of each director and
officer of the * / *surviving corporation is:
<TABLE>
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C> <C>
President: James Billmaier 22322 NE 157th St. SAME
Woodinville, WA 98072
Treasurer: John Atherly 2237 273rd Ct. S.E. SAME
Issaquah, WA 98029
Clerk: Steven Esau 11970 Marine View Drive S.W. SAME
Seattle, WA 98146
Directors: James Billmaier SAME AS ABOVE SAME AS ABOVE
</TABLE>
(c) The fiscal year (i.e. tax year) of the * / *surviving corporation
shall end on the last day of the month of: December
(d) The name and business address of the resident agent, if any, of the
* / *surviving corporation is:
Donald J. Allison, 69 South Pleasant Street, Suite 201, Amherst, MA
01002
The undersigned officers of the several constituent corporations listed above
further state under the penalties of perjury as to their respective corporations
that the agreement of * / *merger has been duly executed on behalf
of such corporation and duly approved by the stockholders of such corporation in
the manner required by General Laws, Chapter 156B, Section 78.
VICE
__________________________________________________________, *President/ *
_____________________________________________________________, *Clerk/ *
of Acorn Associates Incorporated
------------------------------------------------------------------------------
(Name of constituent corporation)
__________________________________________________________, *President/ *
_____________________________________________________________, *Clerk/ *
of Acorn Acquisition Corp.
------------------------------------------------------------------------------
(Name of constituent corporation)
*Delete the applicable words.
<PAGE>
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF * / *MERGER
(GENERAL LAWS, CHAPTER 156B, SECTION 78)
====================================================
I hereby approve the within Articles of * /
*Merger and, the filing in the amount of $ 250.00,
having been paid, said articles are deemed to have
been filed with me this 30th day of September, 1997
Effective Date: 9/30/97
-----------------------------------
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILLED IN BY CORPORATION
PHOTOCOPY OF DOCUMENT TO BE SENT TO:
Steven Esau
------------------------------------------------
110 - 110th Avenue NE, Suite 700
-------------------------------------------------
Bellevue, WA 98004
-------------------------------------------------
Telephone: (425) 637-5829
---------------------------------------
<PAGE>
EXHIBIT 1.12
DESIGNATION OF RIGHTS PREFERENCES AND LIMITATIONS OF
ASYMETRIX SERIES 5 CLASS B STOCK
SERIES 5 CLASS B STOCK, $0.01 PAR VALUE
1. Equivalent to Common Stock. Except as otherwise set forth in this
--------------------------
Statement of Designation of Rights, Preferences and Limitations of Series 5
Class B Stock, the Series 5 Class B Stock of Asymetrix Corporation (the
"Company") shall have rights, preferences and limitations identical with those
of the Company's $.01 par value common stock ("Common Stock") and the Company's
Series 4 Class B Stock, $0.01 par value ("Series 4 Class B Stock"). In the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the holders of any shares of the Series 5 Class B Stock, of the
Series 4 Class B Stock and of the Common Stock shall be entitled to receive pro
rata on an equal priority, pari passu basis, any payment or distribution of the
assets of the Company (whether capital, surplus or earnings), but not until
payment in full of any amounts due the holders of the Series 1 Class B Stock,
the Series A Preferred Stock, the Series B Preferred Stock and any future series
of Class B Stock that may be entitled to priority over the Common Stock in the
payment or distribution of the assets of the Company in the event of any such
dissolution or winding-up.
2. Voting. Except as may otherwise be agreed in writing, the holders of
------
shares of Series 5 Class B Stock shall be entitled to vote upon all matters upon
which holders of the Common Stock have the right to vote, and each share of
Series 5 Class B Stock shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of Series 5
Class B Stock could be converted pursuant to the applicable provisions of
Section 3 below, at the record date established by the Board of Directors of the
Company for the determination of the shareholders entitled to vote on such
matters, or, if no such record date is so established, at the record date
provided by law, such votes to be counted together with all other shares of
capital stock having general voting powers and not separately as a class. The
holders of the Series 5 Class B Stock shall be entitled to receive notice of any
meeting of the shareholders in accordance with applicable law and with the
bylaws of the Company as in effect at the time of such notice. Except as
otherwise expressly required by law, in no event shall the holders of shares of
Series 5 Class B Stock have the right to vote separately as a class.
3. Conversion. The Series 5 Class B Stock shall be converted into Common
----------
Stock as follows:
(a) Conversion Events. Each outstanding share of Series 5 Class B
-----------------
Stock shall automatically be converted, without any further act of the Company
or its shareholders, into fully paid and nonassessable shares of Common Stock
pursuant to the formula as set forth in subsection 3(c) below upon the earliest
to occur of: (i) the distribution by the Company to holders of its securities
(other than the holders of Series 5 Class B Stock and Series 4 Class B Stock) of
a controlling interest in SuperCede, Inc., a wholly-owned subsidiary of the
Company, in a spin-off transaction; (ii) the distribution by the Company to
holders of its securities (other than the holders of Series 5 Class B Stock and
Series 4 Class B Stock) of the consideration
<PAGE>
received by the Company in one of the following transactions with respect to
SuperCede, Inc.: (1) the sale of all or substantially all of the assets of
SuperCede, Inc., (2) the sale of a controlling interest in SuperCede, Inc. to a
third party, or (3) the acquisition of SuperCede, Inc. by another entity by
means of merger, consolidation or otherwise, in which the Company does not,
immediately after such merger, consolidation or other transaction, retain stock
representing a majority of the voting power of SuperCede, Inc.; (iii)
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company at an aggregate offering price to the Company of
not less than $10,000,000; or (iv) upon acquisition of the Company by another
entity by means of merger, consolidation or otherwise, in which the holders of
the Company's shares outstanding immediately before such merger, consolidation
or other transaction do not, immediately after such merger, consolidation or
other transaction, retain stock representing a majority of the voting power of
the surviving corporation of such merger, consolidation or other transaction.
(b) Series 5 Conversion Ratio. Each share of Series 5 Class B Stock
-------------------------
shall be converted into one share of Common Stock. The Series 5 Conversion
Ratio shall be subject to adjustment as set forth in subsection 3(e).
(c) Mechanics of Conversion. Upon the occurrence of one of the events
-----------------------
specified in subsection 3(a), the outstanding shares of Series 5 Class B Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
--------
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 5 Class B Stock are delivered to the Company or
any transfer agent of the Company. Conversion of the Series 5 Class B Stock
shall be deemed to have been effected on the date on which the event specified
with respect to such Series 5 Class B Stock in subsection 3(a) shall have
occurred, and such date is referred to herein with respect to the Series 5 Class
B Stock as the "Series 5 Conversion Date." The holder in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of record of such Common Stock on the applicable Series 5
Conversion Date. Following the Conversion Date, upon the request of any holder
of Series 5 Class B Stock so converted and after surrender of the certificate or
certificates representing such holder's shares of Series 5 Class B Stock to the
Company or any transfer agent of the Company (except in the case of conversions
pursuant to subsection 3(a)(iv)), the Company shall issue and deliver to such
holder a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in subsection 3(d).
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series 5 Class B Stock, but the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series 5 Class B
Stock so converted. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of any shares of Series 5
2
<PAGE>
Class B Stock, the Company shall pay a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest of the then
fair value per share of Common Stock, as determined by the Board of Directors.
(e) Conversion Ratio Adjustments for the Series 5 Class B Stock. The
-----------------------------------------------------------
Conversion Ratio for the Series 5 Class B Stock shall be subject to adjustment
from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 5 Class B Stock
is increased by a stock dividend or other distribution on Common Stock payable
in shares of Common Stock or by a subdivision, split-up or reclassification of
outstanding shares of Common Stock, then immediately after the record date fixed
for the determination of holders of Common Stock entitled to receive such stock
dividend or the effective date of such subdivision, split-up or
reclassification, as the case may be, the Series 5 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 5 Class B
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 5 Class B Stock been converted
immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common
--------------------
Stock outstanding at any time after the date of issuance of the Series 5 Class B
Stock is decreased by a combination or reclassification of the outstanding
shares of Common Stock, then, immediately after the effective date of such
combination or reclassification, the Series 5 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 5 Class B
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 5 Class B Stock been converted
immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the Common
------------------------------------------
Stock issuable upon the conversion of the Series 5 Class B Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this subsection 3(e)), then and in each such event the holder of
each share of Series 5 Class B Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by the holders of the number of shares of Common Stock into which such share of
Series 5 Class Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(iv) Rounding of Calculations; Minimum Adjustment. All
--------------------------------------------
calculations under this subsection (e) shall be made to the nearest one
hundredth (1/100th) of a share. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Series 5 Conversion Ratio shall be made if
the amount of such adjustment would be less than 1% of the
3
<PAGE>
Series 5 Conversion Ratio then in effect, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of and
together with any subsequent adjustment which, together with such amount and any
other amount or amounts so carried forward, shall aggregate 1% or more of the
Series 5 Conversion Ratio then in effect.
(f) Statement Regarding Adjustments. In each case of an adjustment or
-------------------------------
readjustment of the Conversion Ratio for the Series 5 Class B Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series 5 Class B Stock at the holder's address as shown in the Company's
books.
(g) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 5 Class B
Stock; provided that the Company shall not be required to pay any taxes which
--------
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series 5 Class B Stock in respect of which such shares are being
issued.
(h) Reservation of Shares. So long as any shares of Series 5 Class B
---------------------
Stock remain outstanding, the Company shall reserve out of its authorized but
unissued shares of Common Stock, free from preemptive rights, sufficient shares
of Common Stock to provide for the conversion of all shares of Series 5 Class B
Stock outstanding, solely for the purpose of effecting such conversion.
(i) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 5 Class B Stock will upon issuance by
the Company be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 5 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
(j) Notices. Any notice required by the provisions of this Section 3
-------
to be given to the holders of shares of the Series 5 Class B Stock shall be
deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
4. Dividends. Dividends shall be declared and set aside for any shares of
---------
the Series 5 Class B Stock only upon resolution of the Board of Directors of the
Company. Except as otherwise set forth in this Section 4, no dividends (other
than Common Stock dividends in a transaction described in Section 3(e)(i)) shall
be paid to the holders of the Common Stock or the Series 4 Class B Stock unless
an equivalent dividend is concurrently paid to the holders of the Series 5 Class
B Stock (on a as-converted to Common Stock basis); provided, that this
--------
restriction shall not apply to Permitted Repurchases. Notwithstanding the
foregoing, no holder of Series 5
4
<PAGE>
Class B Stock shall be entitled to receive in any distribution thereof to the
holders of any other securities of the Company, including Common Stock: (i) any
shares of SuperCede, Inc. or (ii) any consideration received by the Company in
any of the following transactions with respect to SuperCede, Inc.; (1) the sale
of all or substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; "Permitted Repurchases" means the repurchase by
the Company of shares of Common Stock held by employees, officers, directors,
consultants, independent contractors, advisors, or other persons performing
services for the Company or a subsidiary that are subject to restricted stock
purchase agreements or stock option exercise agreements under which the Company
has the option to repurchase such shares.
5
<PAGE>
September 30, 1997
Oakes Interactive Incorporated
One Multimedia Plaza
255 Higland Avenue
Needham, MA 02194-3019
TopShelf Multimedia, Inc.
One Multimedia Plaza
255 Higland Avenue
Needham, MA 02194-3019
Acorn Associates Incorporated
One Multimedia Plaza
255 Higland Avenue
Needham, MA 02194-3019
Ladies and Gentlemen:
This opinion refers to the Agreement and Plan of Reorganization, dated as
of September 30, 1997, by and among Asymetrix Corporation, a Washington
corporation ("ASYMETRIX"), Oakes Acquisition Corp., a Massachusetts corporation
and a wholly owned subsidiary of Asymetrix ("OAKES INTERACTIVE SUB"), TopShelf
Acquisition Corp., a Massachusetts corporation and a wholly owned subsidiary of
Asymetrix ("TOPSHELF SUB"), Acorn Acquisition Corp., a Massachusetts corporation
and a wholly owned subsidiary of Asymetrix ("ACORN SUB" and, together with Oakes
Interactive Sub and TopShelf Sub, the "ACQUISITION COMPANIES"), Oakes
Interactive Incorporated, a Massachusetts corporation ("OAKES INTERACTIVE"),
TopShelf Multimedia, Inc., a Massachusetts corporation ("TOPSHELF"), Acorn
Associates Incorporated, a Massachusetts corporation ("ACORN" and, together with
Oakes Interactive and TopShelf, the "OAKES COMPANIES"), Gordon Oakes and Kevin
Oakes, such agreement, together with all Exhibits and Schedules thereto, being
referred to as the "REORGANIZATION AGREEMENT." Pursuant to the Reorganization
Agreement, upon the Effective Time (as defined in the Reorganization Agreement)
each of the Acquisition Companies will merge with and into the respective Oakes
Company (the "MERGERS"). Unless otherwise indicated, all capitalized terms used
herein have the meanings given to those terms in the Reorganization Agreement.
In order to render this opinion I have examined the documents described on
Attachment A to this letter. I have not examined any documents other than those
- ------------
described on Attachment A or made any independent factual investigation. I have
------------
examined such matters of law as I have deemed necessary. I have not caused the
search of any docket of any court,
<PAGE>
Oakes Interactive Corporation
TopShelf Multimedia, Inc.
Acorn Associates Corporation
September 30, 1997
Page 2
tribunal, agency or, except as listed on Attachment A, similar authority or any
------------
other record of any governmental agency or third party.
In my examination of documents for purposes of this opinion, I have assumed
(to the extent that I do not have actual knowledge of), and express no opinion
as to, the genuineness of all signatures on original documents, the authenticity
of all documents submitted as originals, the conformity to originals of all
documents submitted as copies, the lack of any undisclosed terminations,
modifications, waivers or amendments to any agreements reviewed by me, the legal
competence or capacity of all natural persons executing the same, and (except
with respect to due execution and delivery of the Reorganization Agreement by
Asymetrix) the due authorization, execution and delivery of all documents where
due authorization, execution and delivery are prerequisites to the effectiveness
thereof.
As to matters of fact relevant to this opinion, I have relied solely upon
my examination of the documents referred to on Attachment A and my actual
------------
knowledge, and have assumed the current accuracy and completeness of the
information obtained from public officials and records included in the documents
referred to on Attachment A, and (b) the representations and warranties of the
------------
parties to the Reorganization Agreement as set forth therein. I have made no
attempt to verify the accuracy of any of such information, representations or
warranties or to determine the existence or non-existence of any other factual
matters; however, I am not aware of any facts that would lead me to believe that
-------
any of the opinions expressed herein are not accurate.
As used in this opinion, the phrases "my actual knowledge," "I am not
aware", "to my knowledge," or "known to me" refer only to my actual knowledge
and I have made no investigation of such matters other than my examination of
documents referred to on Attachment A. No inference as to my knowledge of any
------------
matters bearing on the accuracy of any such statement should be drawn from the
fact of my representation of Asymetrix.
For the purposes of this opinion, I have also assumed that: (a) each party
(other than Asymetrix) has all requisite power and authority, and has taken any
and all corporate or other action necessary, for the due authorization by such
party of the execution, delivery and performance by it of the Reorganization
Agreement and each Oakes Ancillary Agreement to which it is a party and the
performance by it of all its obligations thereunder; (b) each of the Oakes
Companies and the Principals has fully performed all the other obligations which
it is to perform at or before the Effective Time; (c) all the representations
and warranties made by any party other than Asymetrix or the Acquisition
Companies in, or pursuant to, the Reorganization Agreement and each Oakes
Ancillary Agreement are true and complete in all material respects; and (d) the
Reorganization Agreement and each Oakes Ancillary Agreement is duly enforceable
in accordance with its terms against, and constitutes the legal, valid and
binding obligations of, the parties thereto other than Asymetrix or the
Acquisition Companies.
2
<PAGE>
Oakes Interactive Corporation
TopShelf Multimedia, Inc.
Acorn Associates Corporation
September 30, 1997
Page 3
This opinion is qualified by, and is subject to, and I render no opinion
with respect to, the limitations and exceptions to the enforceability of
contracts and obligations generally, including, without limitation:
(a) the effect of bankruptcy, insolvency, reorganization,
arrangement, moratorium, fraudulent conveyance and other similar laws
relating to or affecting the rights of creditors generally;
(b) the effect of principles of public policy, general principles of
equity and similar principles, including, without limitation, concepts of
materiality, reasonableness and unconscionability and the possible
unavailability of specific performance, injunctive relief or other
equitable remedies, regardless of whether considered in a proceeding in
equity or at law.
I render no opinion with respect to: (a) compliance or noncompliance with
provisions of applicable state and federal statutes, rules and regulations
concerning the issuance and sale of securities; (b) as to the tax consequences
of the Mergers under applicable federal, state and local income tax laws and
regulations, (c) the enforceability of the voting provisions contained in the
Voting and Co-Sale Agreement; and (d) the non-competition covenants contained in
the Oakes Employment Agreement and Foster Employment Agreement.
I am admitted to practice law in the State of Washington, and I express no
opinion herein with respect to the application or effect of the laws of any
jurisdiction other than the existing laws of the State of Washington and the
existing federal laws of the United States of America. Special rulings of such
authorities or opinions of other counsel have not been sought or obtained. My
opinion is limited to such Washington and United States statutes, laws, rules or
regulations as in my experience are of general application to transactions of
the sort contemplated by the Reorganization Agreement.
Based upon the foregoing, subject to the assumptions and qualifications
referred to herein and except as may be otherwise set forth in the
Reorganization Agreement, the Exhibits thereto, the Asymetrix Schedule of
Exceptions, or the Asymetrix Ancillary Agreements, it is my opinion that as of
immediately prior to the Effective Time on the date hereof:
1. Asymetrix had the requisite corporate right, power and authority
to enter into, execute and deliver the Reorganization Agreement and each
Asymetrix Ancillary Agreement to which it is a party. All corporate action
required to be taken by or on the part of Asymetrix to authorize Asymetrix to
enter into, execute and deliver the Reorganization Agreement and each Asymetrix
Ancillary Agreement to which it is a party has been duly and validly taken.
2. No consents, approvals, authorizations, registrations,
declarations or filings by or with the State of Washington are required to be
obtained by Asymetrix for the execution, delivery or performance by Asymetrix of
the Reorganization Agreement or the Asymetrix Ancillary Agreements to which it
is a party, except such as have been obtained or
3
<PAGE>
Oakes Interactive Corporation
TopShelf Multimedia, Inc.
Acorn Associates Corporation
September 30, 1997
Page 4
made, except for the filing of a Form D with respect to the issuance of the
Asymetrix Merger Stock in the Mergers and except for filings made under
applicable securities laws.
3. The Reorganization Agreement and each Asymetrix Ancillary
Agreement to which Asymetrix is a party have been duly authorized, executed and
delivered by Asymetrix, and are valid and binding obligations of Asymetrix,
enforceable against Asymetrix in accordance with their respective terms.
4. The authorized capital stock of Asymetrix consists of 40,000,000
shares of Asymetrix Common Stock, $0.01 par value, 8,078,172 of which are
outstanding, and 5,000,000 shares of Class B Stock, $0.01 par value, of which
50,000 shares are designated as Series 1 Class B Stock, 37,500 shares of which
are outstanding, of which 388,395 shares are designated as Series A Stock, all
of which are outstanding, of which 388,395 shares are designated as Series B
Stock, all of which are outstanding, of which 2,500,000 shares are designated as
Series 4 Class B Stock, 2,383,894 shares of which are outstanding, and of which
1,512,500 shares are designated as Series 5 Class B Stock, none of which are
outstanding.
5. The shares of Asymetrix Series 5 Class B Stock that are issuable
upon, and in exchange for, the outstanding shares of Common Stock of each of the
Oakes Companies in the Mergers, when so issued in accordance with the terms and
conditions of the Reorganization Agreement, will be duly and validly issued,
fully paid and non-assessable.
6. Neither the execution nor the delivery by Asymetrix of the
Reorganization Agreement or any Asymetrix Ancillary Agreement to which it is a
party, nor the consummation of the transactions provided for therein, are in
conflict with any provision of: (a) the Articles of Incorporation or Bylaws of
Asymetrix, as applicable, as currently in effect or (b) to my knowledge, any
judgment, order or decree of any court or arbitrator to which Asymetrix is a
party or is subject.
In rendering the opinions above, I am opining only as to the specific legal
issues expressly set forth herein, and no opinion shall be inferred as to other
matters. This opinion is intended solely for the use of the Oakes Companies
pursuant to Section 8.5 of the Reorganization Agreement, and is not to be made
available to, or relied upon for any other purpose, or by any other person or
entity, without my prior written consent. I assume no obligation to advise you
of any fact, circumstance, event or change in the law or the facts that may
hereafter be brought to my attention whether or not they would affect or modify
the opinions expressed herein.
Very truly yours,
Steven Esau
General Counsel
4
<PAGE>
ATTACHMENT A
DOCUMENTS REVIEWED
(1) The Reorganization Agreement.
(2) Registration Rights Agreement dated as of the date hereof between
Asymetrix, Gordon Oakes, Kevin Oakes and Doug Foster.
(3) The Voting and Co-Sale Agreement dated as of the date hereof between
Asymetrix, Gordon Oakes, Kevin Oakes, Doug Foster and Paul Allen.
(4) Employment Agreement made effective as of September 30, 1997 between
Asymetrix and Kevin Oakes.
(5) Employment Agreement made effective as of September 30, 1997 between
Asymetrix and Doug Foster.
(6) A copy of Asymetrix's Articles of Incorporation.
(7) A copy of each of the Acquisition Companies' Certificates of Organization,
certified by the Secretary of the Commonwealth of the Commonwealth of
Massachusetts on September 29, 1997.
(8) A copy of the Bylaws of each of Asymetrix and the Acquisition Companies.
(9) Action by Unanimous Written Consent of the Board of Directors of Asymetrix
dated as of September 30, 1997.
(10) Action by Unanimous Written Consent of the Board of Directors and of the
sole stockholder of each of the Acquisition Companies dated as of September
30, 1997.
<PAGE>
EXHIBIT 8.7
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of September 30, 1997, by and between ASYMETRIX CORPORATION, a
Washington corporation (the "COMPANY"), and GORDON OAKES, KEVIN OAKES and DOUG
FOSTER (collectively, the "SHAREHOLDERS" and each individually, a "SHAREHOLDER")
who immediately prior to the Effective Time of the Mergers (as defined below)
are all of the stockholders of Oakes Interactive, Inc., a Massachusetts
corporation ("OAKES"), TopShelf Multimedia, Inc., a Massachusetts corporation
("TOPSHELF") and Acorn Associates Incorporated, a Massachusetts corporation
("ACORN" and, collectively with Oakes and TopShelf, the "OAKES COMPANIES").
A. Each of the Oakes Businesses and the Company, Oakes Interactive
Acquisition Corp., TopShelf Acquisition Corp., and Acorn Acquisition Corp. have
entered into an Agreement and Plan of Merger dated as of September 30, 1997 (the
"PLAN"), pursuant to which a wholly owned subsidiary of Asymetrix will merge
with and into each of the Oakes Companies in reverse triangular mergers, with
each of the Oakes Companies to be the surviving corporation of each merger (the
"MERGERS").
B. As a condition precedent to the consummation of the Mergers, Section
8.7 of the Plan provides that the Shareholders shall be granted certain
registration rights with respect to the shares of the Company's Common Stock
issuable upon conversion of the Asymetrix Series 5 Class B Stock that are issued
to the Shareholders in the Mergers, subject to the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. REGISTRATION RIGHTS
1.1 Certain Definitions. For purposes of this Agreement:
-------------------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Series 5 Class B Stock issued pursuant to the
Plan; and (2) any shares of Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (1) of
this subsection (b); excluding in all cases, however,
---------
<PAGE>
(i) any Registrable Securities sold by a person in a transaction in which rights
under this Section 1 are not assigned in accordance with this Agreement, (ii)
any Registrable Securities sold to the public or sold pursuant to Rule 144
promulgated under the Securities Act or (iii) any Registrable Securities which
may be sold in the public market in a three-month period without registration
under the Securities Act pursuant to Rule 144 under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of shares
---------------------------------------
of "Registrable Securities then outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 1 and Section 2 hereof,
------
the term "Holder" means any person owning of record Registrable Securities that
------
have not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any assignee of record of such Registrable Securities to whom
rights under this Section 1 have been duly assigned in accordance with this
Agreement; provided, however, a record holder of shares of Series 5 Class B
-------- -------
Stock convertible into such Registrable Securities shall be deemed to be the
Holder of such Registrable Securities; and provided, further, that the Company
-------- -------
shall in no event be obligated to register shares of Series 5 Class B Stock.
(e) SEC. The term "SEC" or "Commission" means the U.S. Securities
--- --- ----------
and Exchange Commission .
1.2 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any employee benefit
---------
plan or to any acquisition, merger, consolidation or other corporate
reorganization) and will afford each such Holder an opportunity to include in
such registration statement all or any part of the Registrable Securities then
held by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under which the
------------
Company gives notice under this Section 1.2 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any
2
<PAGE>
such Holder's Registrable Securities to be included in a registration pursuant
to this Section 1.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the managing underwriter
or underwriter(s) selected for such underwriting. Notwithstanding any other
provision of this Agreement, if the managing underwriter determine(s) in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares (including
Registrable Securities) from the registration and the underwriting, and the
number of shares that may be included in the registration and the underwriting
shall be allocated, first, to the Company, second to holders of the Company's
----- ------
Series A Preferred Stock and Series B Preferred Stock (or Registrable Securities
issuable upon conversion of such Series A Preferred Stock or Series B Preferred
Stock), third, to the holders of "registrable securities" as that term is
-----
defined in, and pursuant to, that certain Registration Rights Agreement, dated
as of September 11, 1997, by and among the Company and certain shareholders of
Aimtech Corporation, a Delaware corporation, and fourth, to the Holders
------
requesting inclusion of their Registrable Securities in such registration
statement pursuant to this Section 1.2 on a pro rata basis based on the total
number of Registrable Securities held by each such Holder. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "Holder", and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 1.2 (excluding underwriters' and brokers'
discounts and commissions and the fees and expenses of Holders' counsel),
including, without limitation all federal and "blue sky" registration,
qualification and filing fees, printers' and accounting fees, fees and
disbursements of counsel for the Company shall be borne by the Company.
1.3 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as commercially reasonable:
(a) Furnish to the Holders and to the underwriters, if any, such
number of copies of the registration statement, prospectus, and preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may
3
<PAGE>
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(b) Use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(c) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(d) Use its best efforts either to (i) cause all the Registrable
Securities covered by any Registration Statement to be listed on a national
securities exchange, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the quotation of the
Registrable Securities on the Nasdaq National Market.
1.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Section 1.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be reasonably required to timely effect
the registration of their Registrable Securities.
1.5 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 1.2:
(a) By the Company. To the extent permitted by law, the Company
--------------
will indemnify and hold harmless each Holder, the partners, officers, directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any expenses, losses, claims, damages, or
--------
liabilities (joint or several) (or actions in respect thereof) to which they may
become subject under the Securities Act, the 1934 Act or other federal or state
law, insofar as such expenses, losses, claims, damages, or liabilities (or
actions in respect thereof)
4
<PAGE>
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, preliminary
prospectus, final prospectus, offering circular or other document
contained therein or any amendments or supplements thereto;
(ii) the 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
(iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law or
any rule or regulation promulgated under the Securities Act, the 1934
Act or any federal or state securities law in connection with the
offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 1.6(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder or its agent, partner,
officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
------------------
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder or its agent expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any
5
<PAGE>
such director, officer, controlling person, underwriter or other Holder,
partner, officer, director or controlling person of such other Holder in
connection with investigating, defending or settling any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
-------- -------
contained in this subsection 1.6(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
-------- -------
payable in indemnity by a Holder under this Section 1.6(b) in respect of any
Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under
------
this Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.6.
(d) Defect Eliminated in Final Prospectus. The foregoing
-------------------------------------
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but which Violation is eliminated or remedied in the amended prospectus on file
with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus), such indemnity agreement shall not inure to the
----------------
benefit of any person if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 1.6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification
6
<PAGE>
may not be enforced in such case notwithstanding the fact that this Section 1.6
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling Holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 1.6; then, and in each such case, the Company and such Holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions that resulted in such expense, loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of each such
party in connection with such statements or omissions as well as any other
relevant considerations; provided, however, that, in any such case, (A) the
-------- -------
total amounts payable in contribution by any Holder under this Section 1.6(e)
shall not exceed the net proceeds received by such Holder in the registered
offering out of which such responsibility arises; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under
--------
this Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
1.7 "Market Stand-Off" Agreement. Each Holder hereby agrees that
---------------------------
it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or any shares of capital stock of the Company then owned
by such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of any registration statement (other than a registration statement relating
to any employee benefit plan or to any acquisition, merger, consolidation or
other corporate reorganization) of the Company filed under the Securities Act
(whether filed pursuant to the provisions of this Agreement or otherwise);
provided, however, that:
- -------- -------
(a) such agreement shall not apply to shares of capital stock of
the Company sold pursuant to such registration statement;
(b) all executive officers and directors of the Company then
holding Common Stock of the Company enter into a similar agreement, and any
other stockholder of the Company owning at least as many shares of the Company's
Common Stock as such Holder is also requested by the Company or the underwriter
to enter into a similar agreement; and
(c) in an offering other than the Company's initial public
offering, such agreement shall apply only for a period of 90 days from the
effective date of the registration statement filed under the Securities Act with
respect thereto.
7
<PAGE>
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the shares of stock of each Holder (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such period.
1.8 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements);
and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
of the Securities Act and the 1934 Act (at any time after it has become subject
to the reporting requirements of the 1934 Act), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
2. ASSIGNMENT
Notwithstanding anything herein to any the contrary, the registration
rights of a Holder under Section 1 hereof may be assigned by a Holder only to a
party who acquires at least 75,000 shares of Series 5 Class B Stock issued under
the Plan, and/or an equivalent number (on an as-converted basis) of Registrable
Securities issued upon conversion thereof; provided, however that no party may
-------- -------
be assigned any of the foregoing rights unless the Company is given written
notice by the assigning party at the time of such assignment stating the name
and address of the assignee and identifying the securities of the Company as to
which the rights in question are being assigned; and provided further that any
-------- -------
such assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 2.
8
<PAGE>
3. GENERAL PROVISIONS
3.1 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders of a majority of all Registrable
Securities then outstanding. Any amendment or waiver effected in accordance with
this Section 3.1 shall be binding upon each Holder, each permitted successor or
assignee of such Holder and the Company
3.2 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
3.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such void
or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
3.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
3.5 Notices. Any notice or other communication required or permitted
-------
to be given under this Agreement will be in writing, will be delivered
personally, by registered or certified mail, postage prepaid, by confirmed
facsimile or by nationally recognized courier service, and will be deemed given
upon delivery, if delivered personally, or five days after deposit in the mails,
if mailed, or upon receipt if delivered by confirmed facsimile or nationally
recognized courier service to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
9
<PAGE>
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 494-1417
(ii) If to Shareholder:
-----------------
To the address set forth on Exhibit A hereto
---------
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 3.5.
3.6 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
3.7 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date and year first above written.
ASYMETRIX CORPORATION THE SHAREHOLDERS
By:__________________________ _______________________________
Gordon Oakes
Print Name:__________________ _______________________________
Kevin Oakes
Title:_______________________ _______________________________
Doug Foster
[SIGNATURE PAGE FOR REGISTRATION RIGHTS AGREEMENT]
11
<PAGE>
EXHIBIT A
---------
LIST OF SHAREHOLDERS
NUMBER OF SHARES OF
ASYMETRIX CORPORATION
NAME AND ADDRESS SERIES 5 CLASS B STOCK HELD
- ---------------- ---------------------------
Gordon Oakes
[ADDRESS]
Kevin Oakes
[ADDRESS]
Doug Foster
[ADDRESS]
12
<PAGE>
EXHIBIT 8.8
VOTING AND CO-SALE AGREEMENT
THIS VOTING AND CO-SALE AGREEMENT (this "AGREEMENT") is made and entered
into as of September 30, 1997 (the "EFFECTIVE DATE") by and among ASYMETRIX
CORPORATION, a Washington corporation, (the "COMPANY"), KEVIN OAKES (the
"DESIGNEE"), GORDON OAKES, DOUG FOSTER and PAUL ALLEN (the "SHAREHOLDER").
R E C I T A L S
- - - - - - - -
A. The Company, Oakes Interactive Acquisition Corp., a Massachusetts
corporation, TopShelf Acquisition Corp., a Massachusetts corporation, Acorn
Acquisition Corp., a Massachusetts corporation, Oakes Interactive Incorporated,
a Massachusetts corporation ("OAKES"), TopShelf Multimedia, Inc., a
Massachusetts corporation ("TOPSHELF"), Acorn Associates Incorporated, a
Massachusetts corporation ("ACORN" and, collectively with Oakes and TopShelf,
the "OAKES COMPANIES"), Gordon Oakes and the Designee have entered into that
certain Agreement and Plan of Reorganization (the "PLAN") dated as of September
__, 1997 pursuant to which a wholly owned subsidiary of Asymetrix will merge
with and into each of the Oakes Companies in a reverse triangular merger.
B. As an inducement to the Oakes Companies, Gordon Oakes and the
Designee to enter into the Plan, the Company and the Shareholder desire to enter
into this Agreement to set forth their agreement and understanding with respect
to the voting of shares of the Company's capital stock held by Shareholder on
certain matters.
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants made herein, the parties hereby agree as follows:
1. ELECTION OF DESIGNEE TO BOARD OF DIRECTORS. During the term of
------------------------------------------
this Agreement, Shareholder agrees to vote all shares of capital stock of the
Company now or hereafter directly or indirectly owned (of record or
beneficially) by Shareholder, in such manner as may be necessary to elect (and
maintain in office), as a member of the Company's Board of Directors, the
Designee
2. FURTHER ASSURANCES. The Shareholder and the Company agree not to
------------------
vote any shares of Company stock, or to take any other actions, that would in
any manner defeat, impair, be inconsistent with or adversely affect the stated
intentions of the parties under Section 1 of this Agreement, and each party
agrees to cooperate fully with the other parties and execute such further
instruments, documents and agreements and to give such further written
assurances as may be reasonably requested by any other party to evidence and
reflect the transactions described herein and contemplated hereby and to carry
into effect the intents and purposes of this Agreement.
3. ENFORCEMENT OF AGREEMENT. The Shareholder acknowledges and agrees
------------------------
that any breach by him of this Agreement shall cause the Designee irreparable
harm which may
<PAGE>
not be adequately compensable by money damages. Accordingly, in the event of a
breach or threatened breach by Shareholder of any provision of this Agreement,
the Company and the Designee shall each be entitled to the remedies of specific
performance, injunction or other preliminary or equitable relief, including the
right to compel Shareholder, as appropriate, to vote Shareholder's shares of
capital stock of the Company in accordance with the provisions of this
Agreement, in addition to such other rights remedies as may be available to the
Designee for any such breach or threatened breach, including but not limited to
the recovery of money damages.
4. TERM. This Agreement shall commence on the Effective Date and
----
shall terminate upon the first to occur of the following:
(a) The execution by the Shareholder, the Company and the
Designee of a written agreement to terminate this Agreement;
(b) The consummation of the first sale of securities of the
Company to the public pursuant to an effective registration statement filed by
the Company under the Securities Act of 1933, as amended;
(c) The first date on which the outstanding capital stock of
the Company owned by the Designee, Gordon Oakes and Doug Foster (calculated on
an as-converted-into-Common Stock basis) constitutes less than thirty percent
(30%) of the number of shares of the Company's Series 5 Class B Stock issued to
such persons pursuant to the Plan; or
(d) Immediately prior to the closing of (i) any consolidation
or merger of the Company with or into any other corporation or corporations in
which the holders of the Company's outstanding shares immediately before such
consolidation or merger do not, immediately after such consolidation or merger,
retain stock representing a majority of the voting power of the surviving
corporation of such consolidation or merger or stock representing a majority of
the voting power of a corporation that wholly owns, directly or indirectly, the
surviving corporation of such consolidation or merger; (ii) the sale, transfer
or assignment of securities of the Company representing a majority of the voting
power of all the Company's outstanding voting securities by the holders thereof
to an acquiring party in a single transaction or series of related transactions;
(iii) any other sale, transfer or assignment of securities of the Company
representing over fifty percent (50%) of the voting power of the Company's then
outstanding voting securities by the holders thereof to an acquiring party; or
(iv) the sale of all or substantially all the Company's assets.
5. CO-SALE RIGHT.
-------------
5.1 Notice of Sales; Assignment of Company Right of First
-----------------------------------------------------
Refusal. Should Shareholder propose to sell, dispose of or otherwise transfer in
- -------
any one or series of transactions, an aggregate of 500,000 shares or more of the
Company's Common Stock to any person or entity other than to an entity who is
not controlled by, undercommon control with or otherwise affiliated with
Shareholder (a "Disposition"), then Shareholder shall promptly deliver a notice
-----------
(the "Notice") to Designee, Doug Foster and Gordon Oakes stating the terms and
------
conditions of such Disposition including, without limitation, the number of
shares of the
2
<PAGE>
Company's capital stock to be sold or transferred, the nature of such sale or
transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee.
5.2 Co-Sale Right. Each of the Designee, Doug Foster and Gordon
-------------
Oakes shall have the right (the "Co-Sale Right"), exercisable upon written
-------------
notice to the Shareholder within ten (10) days of receipt of the Notice, to
participate in Shareholder's sale of Shares pursuant to the specified terms and
conditions of such proposed Disposition. To the extent Designee, Doug Foster or
Gordon Oakes exercises such Co-Sale right in accordance with the terms and
conditions set forth below, the number of Shares which Shareholder may sell in
such Disposition shall, if necessary, be correspondingly reduced if the proposed
transferee of Shareholder is unwilling to purchase any shares in addition to
those specified in the Notice. In the event of such a reduction, the Co-Sale
Right of each of Gordon Oakes, Doug Foster and Designee and the proposed
Disposition by Shareholder shall be subject to the following terms and
conditions:
(a) Calculation of Shares. Gordon Oakes, Doug Foster and
---------------------
Designee may collectively sell their Pro Rata Share of the shares to be sold in
the proposed Disposition. For purposes of this Section 5.2(a), "Pro Rata Share"
--------------
shall be defined as a fraction, the numerator of which is the aggregate number
of shares of the Company's capital stock then owned by Gordon Oakes, Doug Foster
and Designee, and the denominator of which is the number of shares of the
Company's capital stock then owned by Gordon Oakes and Designee plus the number
of shares of the Company's capital stock then owned by Shareholder (including
entities which are controlled by, under common control with or otherwise
affiliated with Shareholder).
(b) Delivery of Certificates. Each of Gordon Oakes, Doug
------------------------
Foster and Designee may effect his participation in the sale by delivering to
the Shareholder for transfer one or more certificates, properly endorsed for
transfer, which represent the number of shares of which such person elects to
sell.
6. MISCELLANEOUS.
-------------
6.1 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
6.2 Assignment; Binding Upon Successors and Assigns. Neither
-----------------------------------------------
party hereto may assign any of its rights or obligations hereunder without the
prior written consent of the other party hereto and any attempt to do so will be
void. This Agreement will be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns and shall
be binding upon any transferee of capital stock of the Company held by
Shareholder and, upon such transfer, Shareholder shall cause such transferee to
assume Shareholder's obligations under this Agreement.
3
<PAGE>
6.3 Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
6.4 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
6.5 Amendments and Waivers. Any terms of this Agreement may be
----------------------
amended and the observance of any term of the Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Shareholder, the Company, Gordon
Oakes, Doug Foster and the Designee. Any amendment or waiver effected in
accordance with this Section shall be binding upon all parties hereto and their
permitted transferees and assignees.
4
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
COMPANY: DESIGNEE:
- ------- --------
By:____________________________ _________________________
Kevin Oakes
Printed Name: _________________
Title: ________________________
SHAREHOLDER:
- -----------
_______________________________ _________________________
Paul Allen Gordon Oakes
_________________________
Doug Foster
5
[SIGNATURE PAGE TO VOTING AND CO-SALE AGREEMENT]
<PAGE>
September 30, 1997
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Re: Agreement and Plan of Reorganization dated as of September 30, 1997
(the "Agreement") by and among Asymetrix, the Merger Subs, the Oakes
Companies and the Principals (each as identified in the Agreement)
Ladies and Gentlemen:
I have acted as counsel to the Oakes Companies and the Principals in
connection with this transaction.
This opinion is delivered to you in connection with the Agreement and the
transactions identified therein. In connection with the opinions rendered
herein, I have examined the following documents, each of which is of even date
herewith unless otherwise specified (collectively the "Transaction Documents"):
1. the Agreement;
2. Articles of Merger between Oakes Interactive Incorporated ("Oakes
Interactive") and Oakes Acquisition Corp.;
3. Articles of Merger between TopShelf Multimedia, Inc. ("TopShelf") and
TopShelf Acquisition Corp.;
4. Articles of Merger between Acorn Associates Incorporated ("Acorn") and
Acorn Acquisition Corp.;
5. Voting and Co-Sale Agreement by and among Asymetrix Corporation, Kevin
Oakes, Gordon Oakes, Douglas A. Foster and Paul Allen; and
6. Registration Rights Agreement by and among Asymetrix Corporation,
Gordon Oakes, Kevin Oakes and Douglas A. Foster.
I have also examined and relied upon the following:
A. Articles of Organization of Oakes Interactive as filed with the
Massachusetts Secretary of State (the "Secretary of State") on June 19, 1995.
B. Articles of Organization of TopShelf as filed with the Secretary of
State on March 1, 1996.
<PAGE>
Asymetrix Corporation
September 30, 1997
Page 2
C. Articles of Organization of Acorn Associates, Incorporated as filed
with the Secretary of State on April 11, 1997.
D. The By-Laws of Oakes Interactive.
E. The By-Laws of TopShelf.
F. The By-Laws of Acorn.
G. Certificate of Corporate Good Standing of Oakes Interactive issued by
the Secretary of State on September 22, 1997.
H. Certificate of Corporate Good Standing issued by the Secretary of
State on September 22, 1997.
I. Certificate of Corporate Good Standing of Acorn issued by the
Secretary of State on September 22, 1997.
(The Certificates of Corporate Good Standing of each of Oakes
Interactive, TopShelf and Acorn are collectively referred to as the "Good
Standing Certificates").
J. The Definitive Agreements as defined in the Agreement.
K. Such other certificates, documents and materials as I have deemed
necessary in connection with this opinion.
Based upon the foregoing, and subject to the qualifications set forth
herein, I am of the opinion that:
1. Each of the Oakes Companies is a corporation validly existing under
the laws of the Commonwealth of Massachusetts (the "Commonwealth") and, based on
the Good Standing Certificates, is in good standing as defined in Massachusetts
General Laws, Chapter 156B, Section 116, with full power to (i) own, lease and
operate its properties; (ii) carry on its business as now conducted and (iii) to
execute deliver and perform its obligations under each of the Transaction
Documents to which it is a party.
2. The execution and delivery of each of the Transaction Documents
requiring execution by the Oakes Companies and the Principals (a) have been duly
authorized by the Oakes Companies; (b) will not conflict with any provisions of
the Articles of Organization or By-Laws of any of the Oakes Companies; and (c)
except as set forth in the Oakes Companies Schedule of Exceptions to the
Agreement, are not in violation of any Definitive Agreement nor to the best of
my knowledge and except as set forth in the Oakes Companies Schedule of
Exceptions, any permit, decree, ordinance or applicable governmental regulation
presently in effect.
2
<PAGE>
Asymetrix Corporation
September 30, 1997
Page 3
3. Each of the Transaction Documents requiring execution by any of the
Oakes Companies or the Principals has been duly executed and delivered by Oakes
Interactive, TopShelf, Acorn and the Principals; is the legal, valid and binding
obligation of Oakes Interactive, TopShelf, Acorn and the Principals; and is
enforceable against the Oakes Companies and the Principals in accordance with
its terms.
4. No government consents, approvals, authorization, registrations,
declarations or filings are required to be obtained by the Principals or any of
the Oakes Companies for the execution, delivery or performance by or on behalf
of the Oakes Companies of the Transaction Documents to which each such
corporation or Principal is a party, except such as have been obtained or made.
5. The authorized capital stock of each of the Oakes Companies consists
of 200,000 shares of Common Stock, without par value, of which in each case, 200
shares are issued, outstanding and owned of record solely by those persons
listed on Schedule 3.3 of the Agreement in the respective amounts shown on
Schedule 3.3 of the Agreement. All presently issued and outstanding shares of
the Oakes Companies capital stock have been duly authorized and validly issued
and are fully paid and nonassessable. There are, to my knowledge, (a) no
outstanding subscriptions, warrants, options, calls, claims, commitments,
convertible securities or other agreements or arrangements under which any of
the Oakes Companies may be obligated to issue any shares of its capital stock,
(b) no preemptive rights to subscribe for or to purchase capital stock of any of
the Oakes Companies, and (c) no outstanding rights to cause shares of any of the
Oakes Companies to be registered under the Securities Act of 1933, as amended,
or under the laws of the Commonwealth of Massachusetts. The Principals and
Douglas A. Foster are the only shareholders of record of Oakes Interactive and
the Principals are the only shareholders of record of TopShelf and Acorn. To my
knowledge, no other party has any right to, or has made any claim of, ownership
of shares of any of the Oakes Companies, and no other party has any right to, or
has made any claim to, receive shares of any of the Oakes Companies.
6. To the best of my knowledge, and without having made any independent
investigation and except as otherwise set forth on Schedule 3.6 of the
Agreement, there is no action, suit, proceeding or investigation pending or
threatened against any of the Oakes Companies which if adversely determined
would have a material adverse effect on the financial condition business or
properties of the Oakes Companies or would impair the enforceability of the
Transaction Documents and none of the Oakes Companies is subject to any order,
writ, judgment, decree or injunction.
The opinions expressed herein are subject to the following assumptions,
limitations and qualifications:
A. In my examination and in rendering this opinion, I have assumed the
genuineness of all signatures, the legal capacity of natural persons, the power
and authority of all persons, other than the Oakes Companies and the Principals,
the authenticity and completeness of all documents submitted to me as originals,
the conformity to original documents of all documents
3
<PAGE>
Asymetrix Corporation
September 30, 1997
Page 4
submitted to me as certified or photostatic copies and the authenticity of the
originals of such latter documents. I have assumed the due issuance and
validity of all governmental approvals, licenses, permits, consents,
authorizations and certificates.
B. As to matters of fact material to my opinions expressed herein, I have
relied upon: (i) the representations and warranties made by the Oakes Companies
and the Principals in the Transaction Documents; (ii) the certifications
contained in the Good Standing Certificates and (iii) with respect to matters
set forth in paragraph 5 hereof, the minute books of each Oakes Company.
C. I have assumed that Asymetrix and the Merger Subs have all requisite
power and authority and have taken all necessary corporate action to enter into
the Agreement and to effect the transactions contemplated thereby.
D. My opinions set forth herein as to the validity, binding effect and
enforceability of the Transaction Documents are specifically qualified to the
extent that the validity, binding effect or enforceability of any obligations of
Oakes Companies under any of the Transaction Documents may be subject to or
affected by (i) applicable bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium or other statutory or decisional laws, heretofore or
hereafter enacted or in effect, affecting the rights of creditors generally or
(ii) the exercise of judicial or administrative discretion in accordance with
general equitable principles.
E. I express no opinion as to liens arising under state or federal laws
or regulations pertaining to hazardous waste.
F. I am a member of the Bar of the Commonwealth of Massachusetts and
opinions expressed herein are based upon and limited to the laws of the
Commonwealth of Massachusetts, and the federal laws of the United States. I
express no opinion herein concerning the laws of any other jurisdictions.
This opinion is limited to the matters set forth herein and no opinion is
implied or may be inferred beyond the matters expressly stated. No person or
entity other than you may rely or claim reliance upon this opinion. This
opinion is given to you as of the date hereof and I assume no obligation to
advise you of changes that may hereafter be brought to my attention.
Very truly yours
Donald J. Allison
DJA/lmw
4
<PAGE>
EXHIBIT 9.11
September 30, 1997
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
INVESTMENT REPRESENTATION LETTER
The undersigned holder ("STOCKHOLDER") of Common Stock (the "OAKES
COMPANIES STOCK") of Oakes Interactive Incorporated, a Massachusetts corporation
("OAKES"), TopShelf Multimedia, Inc., a Massachusetts corporation ("TOPSHELF")
and/or Acorn Associates Incorporated, a Massachusetts corporation ("ACORN" and,
together with Oakes and TopShelf, the "OAKES COMPANIES"), is acquiring shares of
the capital stock of Asymetrix Corporation, a Washington corporation
("ASYMETRIX") pursuant to that certain Agreement and Plan of Reorganization (the
"PLAN") dated as of September 30, 1997 among Asymetrix, Oakes Interactive
Acquisition Corp., a Massachusetts corporation, TopShelf Acquisition Corp., a
Massachusetts corporation, Acorn Acquisition Corp., a Massachusetts corporation,
Gordon Oakes, Kevin Oakes and each of the Oakes Companies, pursuant to which a
wholly owned subsidiary of Asymetrix will merge with and into an Oakes Company
in a reverse triangular merger, with the applicable Oakes Company to be the
surviving corporation of each merger (the "MERGERS"), and all of the outstanding
capital stock of each Oakes Company will be converted into shares of Asymetrix
Series 5, Class B Stock (the "RESTRICTED SECURITIES") pursuant to a private
placement effected pursuant to Section 4(2) of the U.S. Securities Act of 1933,
as amended (the "SECURITIES ACT") and/or Regulation D promulgated thereunder.
Unless otherwise defined herein, all capitalized terms used herein shall have
the meanings given to such terms in the Plan.
In connection with the Merger, Stockholder hereby represents and warrants
to Asymetrix as follows:
(1) Status of Stockholder. Stockholder is an "accredited investor" within
---------------------
the meaning of Regulation D promulgated under the Securities Act. Stockholder
has the knowledge and experience in financial and business matters necessary to
evaluate and make an informed decision regarding the exchange of Stockholder's
shares of Oakes Companies Stock for the Restricted Securities and to make the
investment in the Restricted Securities pursuant to the
<PAGE>
Mergers. Stockholder has the capacity to protect its own interests in connection
with the Mergers.
(2) Plan. Stockholder acknowledges that Stockholder has received, read and
----
understood the Plan.
(3) Access to Other Information. Stockholder acknowledges that Asymetrix
---------------------------
has made available to Stockholder the opportunity to examine such additional
documents and to ask questions of, and receive answers from, Asymetrix and its
management concerning, among other things, Asymetrix, its business, financial
condition, management, activities and any other information which Stockholder
considers relevant, important or material in making the decision to participate
in the Mergers and to invest in the Restricted Securities.
(4) Risks of Investment. Stockholder acknowledges that the Restricted
-------------------
Securities involve a degree of risk and is aware of the lack of liquidity of the
Restricted Securities. Stockholder appreciates the financial hazards involved
in making the investment and understands the tax consequences of investing in
the Restricted Securities. Stockholder has not relied on Asymetrix or its
counsel for any advice regarding the tax consequences of the Mergers and/or
Stockholder's investment in the Restricted Securities.
(5) Investment Intent. Stockholder is acquiring the Restricted Securities
-----------------
in the Mergers for investment purposes for Stockholder's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act. Stockholder has no present intention
of disposing of the Restricted Securities and no one other than the
beneficiaries of Stockholder has any beneficial interest in the Restricted
Securities.
(6) Restricted Securities; Registration Rights. Stockholder acknowledges
------------------------------------------
and understands that the terms of the Mergers have not been reviewed by the
Securities and Exchange Commission (the "SEC") or by any state securities
authorities, that the Restricted Securities to be received by Stockholder
pursuant to the Mergers have not been registered under the Securities Act and
constitute "restricted securities" within the meaning of Rule 144 promulgated
under the Securities Act ("RULE 144"), and have been issued in reliance on the
exemptions for non-public offerings provided by Section 4(2) of the Securities
Act and/or Regulation D promulgated thereunder, which exemptions depend upon,
among other things, the representations made and information furnished by
Stockholder herein, including but not limited to the bona fide nature of
Stockholder's investment intent as expressed above. Stockholder and Asymetrix
acknowledge that Stockholder has certain "piggyback" registration rights to
cause Asymetrix to include such Restricted Securities in a registration
statement under the Securities Act, if any such registration statement is filed
by Asymetrix and subject to the limitations set forth in the Registration Rights
Agreement being entered into by and among the Aimtech Stockholders and Asymetrix
pursuant to the Plan and that Asymetrix is not otherwise obligated to register
the Restricted Securities to be issued to Stockholder.
(7) Rule 144. Stockholder acknowledges that, absent such registration of
--------
the Restricted Securities, Stockholder will not be able to publicly sell the
Restricted Securities until one year after the Effective Time of the Merger.
After that date, Stockholder may sell the Restricted Securities in compliance
with Rule 144. Stockholder is familiar with the provisions of Rule 144 which
permit limited public resales of "restricted securities," subject to the
satisfaction
2
<PAGE>
of certain conditions regarding the restrictions on the transfer of the
Restricted Securities imposed by Rule 144. Stockholder understands that in the
event all of the applicable requirements of Rule 144 are not satisfied,
registration under the Securities Act or some other exemption from the
registration requirements of the Securities Act will be required in order to
enable Stockholder to dispose of the Restricted Securities, and that Stockholder
may be required to hold the Restricted Securities for a significant period of
time prior to reselling them. Stockholder acknowledges that if it is or becomes
an "affiliate" of Asymetrix, then certain restrictions, including volume limits,
imposed by Rule 144 will continue to apply to Stockholder beyond the second
anniversary of the date on which Stockholder acquires the Restricted Securities.
(8) Procedures for Transfer. Stockholder will not sell, transfer,
-----------------------
exchange, pledge or otherwise dispose of, or make any offer or agreement
relating to any of the foregoing with respect to, any Restricted Securities, or
any option, right or other interest with respect to any Restricted Securities,
unless: (i) such transaction is permitted pursuant to Rule 144; (ii) counsel
representing Stockholder shall have advised Asymetrix in a written opinion
letter reasonably satisfactory to Asymetrix and Asymetrix's legal counsel, and
upon which Asymetrix and its legal counsel may reasonably rely, that no
registration under the Securities Act would be required in connection with the
proposed sale, transfer or other disposition of Restricted Securities; or (iii)
a registration statement under the Securities Act covering the Restricted
Securities proposed to be sold, transferred or otherwise disposed of, describing
the manner and terms of the proposed sale, transfer or other disposition, and
containing a current prospectus, shall have been filed with the SEC and be
effective under the Securities Act.
(9) Legends. Stockholder also understands and agrees that there will be
-------
placed on the certificates evidencing the ownership of the Restricted
Securities, the following legend (in addition to any legends required by
applicable state laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THE SECURITIES MAY NOT BE OFFERED, SOLD,
PLEDGED, OR TRANSFERRED UNLESS (1) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT (AND CURRENT PROSPECTUS) IS IN EFFECT AS TO
THE SECURITIES, (2) AN EXEMPTION THEREFROM IS AVAILABLE, OR (3)
THE SECURITIES ARE SOLD PURSUANT TO RULE 144 OF THE SECURITIES
ACT. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH
THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS.
(10) Stop Transfer Instructions; No Requirement to Transfer. Stockholder
------------------------------------------------------
agrees that, in order to ensure compliance with the restrictions referred to
herein, Asymetrix may issue appropriate "stop transfer" instructions to its
transfer agent, if any. Asymetrix shall not be required (i) to transfer or have
transferred on its books any Restricted Securities that have been sold or
otherwise transferred in violation of any of the provisions of this letter or
the Plan or (ii) to treat as owner of such Restricted Securities or to accord
the right to vote or pay dividends to
3
<PAGE>
any purchaser or other transferee to whom such Restricted Securities shall have
been so transferred in violation of any provision of this letter or the Plan.
(11) Ability to Bear Economic Risk. Stockholder represents that it (i) is
-----------------------------
able to bear the economic risk of its investment in the Restricted Securities,
(ii) is able to hold the Restricted Securities for an indefinite period of time,
(iii) can afford a complete loss of its investment in the Restricted Securities
and (iv) has adequate means of providing for its current needs and possible
contingencies and has no need for liquidity in this investment.
(12) No Public Solicitation. Stockholder represents that at no time was
----------------------
such Stockholder presented with or solicited by any general mailing, leaflet,
public promotional meeting, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or general solicitation
in connection with the Mergers.
Sincerely,
_______________________________
Name of Stockholder
By:____________________________
Name:__________________________
Title:_________________________
[SIGNATURE PAGE TO INVESTMENT REPRESENTATION LETTER]
4
<PAGE>
EXHIBIT 2.03
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered
---------
into as of December 22, 1997, by and among Asymetrix Learning Systems, Inc., a
Washington corporation ("Asymetrix"), Asymetrix Acquisition Corp., a Texas
---------
corporation and a wholly-owned subsidiary of Asymetrix ("Merger Sub"),
----------
Communication Strategies, Incorporated, a Texas corporation ("CSI"), and Cynthia
---
Boyd and James Boyd (each of whom is a stockholder of CSI, and are collectively
referred to herein as the "Principals" and each individual referred to as a
----------
"Principal").
---------
RECITALS
The parties intend that, subject to the terms and conditions of this
Agreement:
Merger Sub will merge with and into CSI in a statutory merger, with
CSI to be the corporation surviving the Merger (as defined below), all pursuant
to the terms and conditions of this Agreement and a Plan of Merger in the form
of Exhibit A attached hereto (the "Certificate of Merger") and the applicable
--------- ---------------------
provisions of the law of the State of Texas and the State of Delaware.
Upon the effectiveness of the Merger, all of the outstanding capital
stock of CSI will be converted into shares of Asymetrix Common Stock, as
provided in this Agreement and the Certificate of Merger. The Merger is
intended to be treated as a tax-free reorganization pursuant to the provisions
of Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") by virtue of the provisions of Section 368(a)(2)(E) of the Code and will
----
be treated as a "purchase" for accounting purposes.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the meanings set forth below:
1.1 "Asymetrix Common Stock" means the Common Stock of Asymetrix,
----------------------
$0.01 par value per share.
1.2 "Asymetrix Options" means options exercisable for Asymetrix
-----------------
Common Stock to be granted to employees of CSI as provided in Section 11.3.
1.3 "CSI Common Stock" means the Common Stock of CSI, $1.00 par value
----------------
per share.
1.4 "Effective Time" means the time and date on which the Articles of
--------------
Merger has been filed with the Texas Secretary of State, and the Merger becomes
effective under Texas law.
1.5 "Merger" means the statutory merger of Merger Sub with and into
------
CSI in a reverse triangular merger pursuant to this Agreement and the Plan of
Merger.
<PAGE>
Other capitalized terms defined elsewhere in this Agreement and not
defined in this Section 1 have the meanings assigned to such terms in this
Agreement.
2. PLAN OF REORGANIZATION
2.1 The Merger. At the Effective Time, Merger Sub will be merged
----------
with and into CSI pursuant to this Agreement and the Plan of Merger and in
accordance with applicable provisions of the laws of the State of Texas. Each
share of CSI Common Stock issued and outstanding immediately prior to the
Effective Time will, by virtue of the Merger and at the Effective Time, and
without further action on the part of any holder thereof, be converted into such
number of shares (the "Applicable Fraction") of Asymetrix Common Stock as is
-------------------
equal to 733,591 shares divided by the total number of shares of CSI Common
Stock issued and outstanding immediately prior to the Effective Time.
2.2 Adjustments for Capital Changes. If, prior to the Effective
-------------------------------
Time, Asymetrix or CSI recapitalizes through a split-up of its outstanding
shares into a greater number, or a combination of its outstanding shares into a
lesser number, reorganizes, reclassifies or otherwise changes its outstanding
shares into the same or a different number of shares of other classes (other
than through a split-up or combination of shares provided for in the previous
clause), or declares a dividend on its outstanding shares payable in shares,
securities convertible into shares or other property, then the Applicable
Fraction will be adjusted appropriately.
2.3 Fractional Shares. No fractional shares of Asymetrix Common
-----------------
Stock will be issued in connection with the Merger, but in lieu thereof, the
holders of CSI Common Stock who would otherwise be entitled to receive a
fraction of a share of Asymetrix Common Stock will receive an additional share
of Asymetrix Common Stock.
2.4 Options; Other Securities. No shares of Asymetrix Common Stock
-------------------------
(or any other securities of Asymetrix) shall be issued or issuable with respect
to options to purchase CSI Common Stock or with respect to any other equity
securities of CSI (including warrants), other than CSI Common Stock and all such
options or other equity securities shall be canceled at the Effective Time.
2.5 Effects of the Merger. At the Effective Time: (a) the separate
---------------------
existence of the Merger Sub will cease and Merger Sub will be merged with and
into CSI, and CSI will be the surviving corporation of the Merger, pursuant to
the terms of the Certificate of Merger; (b) the Articles of Incorporation and
Bylaws of CSI will continue unchanged to be the Articles of Incorporation and
Bylaws of the surviving corporation of the Merger; (c) each share of capital
stock of Merger Sub outstanding immediately prior to the Effective Time will
continue to be an identical outstanding share of the respective surviving
corporation; (d) the directors and officers of Asymetrix shall become the
directors and officers of the surviving corporation; (e) each share of CSI
Common Stock outstanding immediately prior to the Effective Time will be
converted into the right to receive that number of shares of Asymetrix Common
Stock as provided in Section 2.1; and (f) the Merger will, from and after the
Effective Time, have all of the effects provided by applicable law.
-2-
<PAGE>
2.6 Further Assurances. Each of CSI and the Principals agree that
------------------
if, at any time after the Effective Time, Asymetrix considers or is advised that
any further deeds, assignments or assurances are reasonably necessary or
desirable to vest, perfect or confirm in Asymetrix title to any property or
rights of CSI, Asymetrix and its officers and directors may execute and deliver
all such proper deeds, assignments and assurances and do all other things
necessary or desirable to vest, perfect or confirm title to such property or
rights in Asymetrix and otherwise carry out the purpose of this Agreement, in
the name of CSI or otherwise.
2.7 Securities Law Compliance. Asymetrix will issue the shares of
-------------------------
Asymetrix Common Stock in the Merger pursuant to the "private placement"
exemption from registration under Section 4(2) of, and Rule 506 of Regulation D
promulgated under, the Securities Act of 1933, as amended (the "Securities
Act"), and the shares received by the Principals in the Merger will therefore be
restricted securities within the meaning of Rule 144 of the Securities Act, and
certificates evidencing such shares will bear a restrictive legend evidencing
that fact. Asymetrix shall also take any action that is required to be taken
under any applicable state securities or Blue Sky laws in connection with the
issuance of Asymetrix Common Stock in the Merger. CSI and the Principals shall
furnish to Asymetrix all information known to CSI or the Principals (or
reasonably ascertainable by CSI or the Principals) concerning each of CSI and
the Principals, as may be reasonably requested in connection with any action
contemplated by this Section.
2.8 Purchase Accounting. The parties intend that the Merger be
-------------------
treated as a purchase for accounting purposes.
2.9 Tax-Free Reorganization. The parties intend to adopt this
-----------------------
Agreement as a tax-free plan of reorganization and to consummate the Merger in
accordance with the provisions of Section 368(a)(1)(A) of the Code. The parties
believe that the value of the Asymetrix Common Stock to be received in the
Merger is equal, in each instance, to the value of the CSI Common Stock, to be
surrendered in exchange therefor. The Asymetrix Common Stock issued in the
Merger will be issued solely in exchange for CSI Common Stock and no other
transaction other than the Merger represents, provides for or is intended to be
an adjustment to the consideration paid for the CSI Common Stock. Unless advised
by tax counsel that doing so is required under applicable law, the parties shall
not take a position on any tax returns inconsistent with this Section 2.9. In
addition, Asymetrix represents now, and as of the Effective Time, that it
presently intends to continue CSI's historic business or use a significant
portion of CSI's business assets in a business. At the Effective Time, officers
of each of Asymetrix and CSI shall execute and deliver officers' certificates in
the forms of Exhibits 2.9A and 2.9B attached hereto. The provisions and
----------------------
representations contained or referred to in this Section 2.9 shall survive until
the expiration of the applicable statute of limitations.
3. REPRESENTATIONS AND WARRANTIES OF CSI AND PRINCIPALS
Each of the Principals and CSI, jointly and severally, hereby
represents and warrants as follows, except as set forth in the CSI Schedule of
Exceptions (in numbered paragraphs that correspond to the Section numbers below)
simultaneously delivered to Asymetrix with the execution of this Agreement:
-3-
<PAGE>
3.1 Organization, Good Standing and Qualification. CSI is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas, has the corporate power and authority to own, operate and
lease its properties and to carry on its business as now conducted and as
proposed to be conducted, and is qualified as a foreign corporation in the
jurisdictions listed in Schedule 3.1 of the CSI Schedule of Exceptions. CSI is
------------
qualified as a foreign corporation in each jurisdiction in which a failure to be
so qualified could reasonably be expected to have a material adverse effect on
the business, operations, financial condition or prospects of CSI (for purposes
of this Section 3 and Section 5, a "Material Adverse Effect").
-----------------------
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 CSI and each Principal has the corporate or other right,
power, legal capacity and authority to enter into and perform his, her or its
obligations under this Agreement and all agreements to which CSI or such
Principal is or will be a party that are required to be executed at the Closing
(defined below) pursuant to this Agreement (the "CSI Ancillary Agreements"). The
------------------------
execution, delivery and performance of this Agreement and the CSI Ancillary
Agreements to which CSI is a party have been duly and validly approved and
authorized by the Board of Directors of CSI. The Merger has been approved by all
of the stockholders of CSI.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable CSI and the Principals to enter into, and to
perform his, her or its obligations under, this Agreement and the CSI Ancillary
Agreements, except for (a) the filing of the Certificate of Merger with the
Texas Secretary of State, and the filing of appropriate documents with the
relevant authorities of other states in which CSI is qualified to do business,
if any, and (b) such filings as may be required to comply with federal and state
securities laws.
3.2.3 This Agreement and the CSI Ancillary Agreements are, or
when executed by CSI and/or the Principals, as applicable, will be, valid and
binding obligations of CSI and/or the Principals, as applicable, enforceable in
accordance with their respective terms, except as to the effect, if any, of (a)
applicable bankruptcy and other similar laws affecting the rights of creditors
generally and (b) rules of law governing specific performance, injunctive relief
and other equitable remedies; provided, however, that the Certificate of Merger
will not be effective until the Effective Time.
3.3 Capitalization. As of the date hereof, the authorized capital
--------------
stock of CSI consists of 10,000 shares of CSI Common Stock, of which 1,000
shares are issued and outstanding. All issued and outstanding shares of CSI
Common Stock have been duly authorized and validly issued, are fully paid and
nonassessable, are not subject to any right of rescission, and have been
offered, issued, sold and delivered by CSI, in compliance with all registration
or qualification requirements (or applicable exemptions therefrom) of applicable
federal and state securities laws. Schedule 3.3 of the CSI Schedule of
------------
Exceptions sets forth a true, correct and complete list of all holders of CSI
Common Stock. There are no options, warrants, calls, commitments, conversion
privileges or preemptive or other rights or agreements outstanding to purchase
or otherwise acquire any of CSI's authorized but unissued capital stock or any
securities convertible into or
-4-
<PAGE>
exchangeable for shares of CSI capital stock or obligating CSI to grant, extend,
or enter into any such option, warrant, call, commitment, conversion privilege
or other right or agreement, and there is no liability for dividends accrued but
unpaid. There are no voting agreements, rights of first refusal or other
restrictions (other than normal restrictions on transfer under applicable
federal and state securities laws) applicable to any of CSI's outstanding
securities. CSI is not under any obligation to register under the Securities Act
any of its presently outstanding securities or any securities that may be
subsequently issued. All holders of CSI Common Stock reside in the State of
Texas.
3.4 Subsidiaries. CSI does not presently own or control, directly or
------------
indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
3.5 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any CSI Ancillary Agreement, nor the consummation
of the transactions contemplated hereby or thereby, will conflict with, or (with
or without notice or lapse of time, or both) result in a termination, breach or
violation of, or cause an acceleration or amendment of any obligation under, (a)
any provision of the Articles of Incorporation or Bylaws of CSI, as currently in
effect, (b) any Material Agreement (as defined in Section 3.11) to which CSI is
a party or by which CSI or the Principals or his, her or its assets or
properties are bound, or (c) to the knowledge of CSI and the Principals, any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to CSI or the Principals, or their respective assets or
properties, in each case, such that the conflict, termination, breach,
acceleration or amendment would have a Material Adverse Effect.
3.6 Litigation. There is no action, proceeding, claim or
----------
investigation pending against CSI or any Principal before any federal, state,
municipal, foreign or other court or administrative agency, department, board or
instrumentality that, if concluded adversely to CSI or a Principal, would have a
Material Adverse Effect, and, to the best of CSI's and the Principals'
knowledge, no such action, proceeding, claim or investigation has been
threatened. There is, to the best of CSI's and the Principals' knowledge, no
reasonable basis for any stockholder or former stockholder of CSI, or any other
person, firm, corporation or entity, to assert a claim against CSI, any
Principal or Asymetrix based upon: (a) ownership or rights to ownership of any
shares of CSI Common Stock, (b) any rights as or to become a holder of
securities of CSI, including any option or preemptive rights or rights to notice
or to vote, or (c) any rights under any agreement among CSI and any of its
stockholders or former stockholders or option holders or former option holders.
3.7 Taxes. For purposes of this Section 3.7, the terms "tax" and
----- ---
"taxes" include all federal, state, local and foreign income, gains, franchise,
-----
excise, property, sales, use, employment, license, payroll, occupation,
recording, value-added or transfer taxes, governmental charges, fees, levies or
assessments (whether payable directly or by withholding), and, with respect to
such taxes, any estimated taxes, interest, penalties, additions to tax and
interest on any such penalties and additions to tax. For purposes of this
Section 3.7, the terms "Return" and "Returns" include all federal, state, local
------ -------
and foreign tax returns, estimates, information statements and reports required
to be filed by CSI with respect to its income, assets or operations.
-5-
<PAGE>
3.7.1 CSI has or will have filed all Returns for tax periods ending
before the Effective Time, other than where a failure to file a return did not
or would not have a Material Adverse Effect. All such Returns that have been
filed were (as filed or after timely amendment) true, correct and complete in
all material respects. CSI and the Principals have provided or made available to
Asymetrix copies of all material Returns actually filed by CSI during the three-
year period ending on the date hereof.
3.7.2 CSI has paid or deposited in full all taxes due and owing or
shown to be due on the Returns filed by CSI (including required estimated tax
payments with respect thereto), except where a failure to pay a tax in full did
not or would not have a Material Adverse Effect. CSI has established a proper
and adequate accrual or reserve on the CSI Financial Statements (as defined in
below) for all taxes not yet due and owing, whether or not shown or required to
be shown on any Return, except where a failure to establish such an accrual or
reserve did not or would not have a Material Adverse Effect.
3.7.3 Neither CSI nor any of the Principals is aware of any pending
or threatened claim or assessment in writing with respect to any deficiencies
for any tax against CSI by any taxing authority. CSI has not executed any
waiver of any statute of limitations relating to taxes or any extension of the
period for the assessment or collection of any tax (other than extensions which
have expired by the Effective Time). Neither CSI nor any of the Principals has
received any written notification, or is otherwise aware, that any material
issues are currently under audit, examination or review by any taxing authority
regarding CSI.
3.7.4 There are no material liens, pledges, charges, claims, security
interests or other encumbrances covering the assets of CSI or the Principals and
relating or attributable to taxes, other than for taxes not yet due and payable
and others that do not have a Material Adverse Effect.
3.7.5 There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any current or
former employee of CSI that, individually or collectively, could give rise to
the payment of any amount with respect to which a deduction would be disallowed
under Sections 280G or 162(m) of the Internal Revenue Code of 1986, as amended
(the "Code").
3.7.6 CSI is not party to a tax sharing or tax allocation agreement,
and CSI does not owe any amount under any such agreement.
3.7.7 CSI is not or has not at any time been a "United States real
property holding corporation" within the meaning of Section 897(c) of the Code.
3.7.8 CSI has not filed any consent agreement under Section 341(f) of
the Code or has agreed to have Section 341(f)(2) of the Code apply to any
disposition of a "subsection (f) asset" (as defined in Section 341(f)(4) of the
Code) owned by CSI.
3.7.9 None of CSI's assets constitute "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
-6-
<PAGE>
3.8 Financial Statements. CSI has delivered to Asymetrix as Schedule
-------------------- --------
3.8 of the CSI Schedule of Exceptions CSI's (a) balance sheet as of December 31,
- ---
1996 (the "1996 Balance Sheet") and income statement and statement of cash flows
------------------
for the 12 month period then ended (collectively, the "1996 Financial
--------------
Statements"), and (b) balance sheet as of September 30, 1997 (the "September 30
- ---------- ------------
Balance Sheet") and income statement for the nine month period then ended
- -------------
(collectively, the "CSI September Financial Statements") (the 1996 Financial
----------------------------------
Statements and the CSI September Financial Statements are collectively referred
to herein as the "CSI Financial Statements"). The CSI Financial Statements (a)
------------------------
are in accordance with the books and records of CSI, (b) fairly present the
financial condition of CSI at the dates therein indicated and the results of
operations for the periods therein specified, and (c) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis, subject, in the case of the CSI September Financial Statements, to normal
recurring year-end adjustments and the absence of any notes thereto. CSI does
not have any debt, liability or obligation of any nature, whether accrued,
absolute, contingent or otherwise, and whether due or to become due, that is not
reflected or reserved against or disclosed in the CSI Financial Statements,
except for those that may have been incurred after the date of the CSI Financial
Statements in the ordinary course of its business, consistent with past practice
and that are not material in amount either individually or collectively.
3.9 Title to Properties. CSI has good and marketable title to all of
-------------------
its tangible assets as shown on the September 30 Balance Sheets, free and clear
of all liens, charges, restrictions or encumbrances, other than for taxes not
yet due and payable and others that do not have a Material Adverse Effect. All
machinery and equipment included in such properties is in good condition and
repair, normal wear and tear excepted, and all leases of real or personal
property to which CSI is a party are fully effective. To the knowledge of CSI
and each of the Principals, CSI is not in violation of any zoning, building,
safety or environmental ordinance, regulation or requirement or other law or
regulation applicable to the operation of owned or leased properties (the
violation of which would have a Material Adverse Effect), or has received any
notice of such violation with which it has not complied or had waived.
3.10 Absence of Certain Changes. Except as set forth on Schedule
-------------------------- --------
3.10, since September 30, 1997, other than actions required by this Agreement
- ----
(including, without limitation, the incurrence of legal and accounting fees and
expenses in connection therewith), there has not been with respect to CSI:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of CSI which change by itself or in
conjunction with all other such changes, whether or not arising in the ordinary
course of business, has had or, to the knowledge of CSI and the Principals, will
have a Material Adverse Effect;
(b) any contingent liability incurred by CSI as guarantor, surety
or otherwise with respect to the obligations of others, which contingent
liability is in excess of $10,000 individually or $25,000 in the aggregate;
-7-
<PAGE>
(c) any mortgage, encumbrance or lien placed on any of the properties
of CSI, which mortgage, encumbrance or lien is in excess of $10,000 individually
or $25,000 in the aggregate;
(d) any obligation or liability incurred thereby other than
obligations and liabilities incurred in the ordinary course of business, which
obligation or liability is in excess of $10,000 individually or $25,000 in the
aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, other than in the
ordinary course, of any of the properties or assets of CSI, which purchase,
sale, other disposition or other arrangement is in excess of $10,000
individually or $25,000 in the aggregate;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any other distribution in respect of, the capital stock of CSI,
any split, combination or recapitalization of the capital stock of CSI or any
direct or indirect redemption, purchase or other acquisition of the capital
stock of CSI;
(h) any labor dispute or claim of unfair labor practices or, other
than changes in the ordinary course of business, consistent with past practice,
any change in the compensation payable or to become payable to CSI's officers,
employees or agents, any bonus payment or arrangement made to or with any of
such officers, employees or agents or any employee terminations or resignations;
(i) any declaration or payment of an extraordinary dividend, within
the meaning of Section 1059(c) of the Code;
(j) any payment or discharge of a lien or liability thereof which lien
was not either shown on the September 30 Balance Sheets or incurred in the
ordinary course of business thereafter; or
(k) any material transaction with any of its officers, directors,
employees or stockholders or any entity controlled by any of such individuals.
3.11 Material Agreements, Contracts and Commitments. Except as set forth on
----------------------------------------------
Schedule 3.11 of the CSI Schedule of Exceptions and other than this Agreement
- -------------
and the CSI Ancillary Agreements, neither CSI nor any Principal is on the date
hereof a party or subject to any oral or written contracts, obligations,
commitments, plans, leases, instruments, arrangements or licenses which are
material to the business of CSI (each a "Material Agreement"), including, but
------------------
not limited to any:
(a) Contract, commitment, letter contract or purchase order providing
for payments by or to CSI in an aggregate amount of (1) $50,000 or more in the
ordinary course of
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<PAGE>
business to any one vendor or customer; or (2) $25,000 or more not in the
ordinary course of business to any one vendor or customer;
(b) License agreement as licensor or licensee, including site licenses
for products with initial year fees in excess of $50,000 and each agreement that
provides for either the delivery of source code to the licensee or escrow of
such source code for the benefit of such licensee and including any CSI IP
Rights Agreement (as defined in Section 3.12);
(c) Consulting, development or similar agreement under which CSI
currently provides or will provide any training, documentation, personnel
placements, advice, consulting services or other products or services to a
customer of CSI (collectively, the "Current Service Agreements");
--------------------------
(d) Contract for the current or future sale, provision or manufacture
of products (including computer software), material or supplies from CSI or in
which CSI has granted or received distribution rights, most favored customer
pricing provisions or exclusive marketing rights relating to any product or
services, group of products or services or territory (collectively, "Current
-------
Sales Agreements," together with the Current Service Agreements, the "Customer
- ---------------- --------
Agreements");
- ----------
(e) Contract providing for the development of software by or for CSI,
or license of software to CSI, which software is used or incorporated in any
products distributed or services provided by CSI or is contemplated to be used
or incorporated in any products to be distributed or services to be provided by
CSI (other than software generally available to the public at a per copy license
fee of less than $1,000 per copy);
(f) Contract or commitment for the employment of any officer, employee
or consultant of CSI or any other type of contract or understanding with any
officer, employee or consultant of CSI which is not immediately terminable by
CSI without cost or other liability;
(g) Agreement for the lease of real or personal property involving
payments by or to CSI in an aggregate amount of $25,000 or more;
(h) Joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons;
(i) Written dealer, distributor, sales representative, original
equipment manufacturer, value added remarketer or other agreement for the
ongoing distribution of any products or services of CSI;
(j) Instrument evidencing or related in any way to indebtedness for
borrowed money by way of direct loan, sale of debt securities, purchase money
obligation, conditional sale, guarantee, or otherwise, except for trade
indebtedness incurred in the ordinary course of business, and except as
disclosed in the CSI Financial Statements;
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<PAGE>
(k) Contract containing covenants purporting to limit CSI's freedom to
compete in any line of business in any geographic area; or
(l) Stock redemption or purchase agreement yet to be performed.
All Material Agreements constitute valid and enforceable obligations
of the parties thereto (except as to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (iii) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of
securities), and are and will, immediately after the Effective Time, be in full
force and effect. Neither CSI nor the Principals is, nor, to the best knowledge
of CSI and the Principals, is any other party thereto, in breach or default in
any material respect under the terms of any such Material Agreement. A copy of
each Material Agreement has been delivered or made available to Asymetrix's
counsel. Neither CSI nor the Principals is a party to any contract, agreement
or arrangement which has had, or could reasonably be expected to have, a
Material Adverse Effect. CSI has no material liability for renegotiation of
government contracts or subcontracts, if any.
3.12 Intellectual Property. CSI owns all right, title or interest in, or
---------------------
has the rights to use, sell or license, all Intellectual Property Rights (as
defined below) necessary or required for the conduct of, or used in, its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "CSI IP Rights") and such rights to
-------------
use, sell or license are reasonably sufficient for the conduct of its business
as presently conducted. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
cause the forfeiture or termination or give rise to a right of forfeiture or
termination of any CSI IP Right or materially impair the right of CSI to use,
sell or license any CSI IP Right or portion thereof. There are no royalties,
honoraria, fees or other payments payable by CSI to any person by reason of the
ownership, use, license, sale or disposition of any CSI IP Rights. Except for
matters which would not have a Material Adverse Effect, neither the manufacture,
marketing, license, sale or intended use of any product currently licensed or
sold by CSI (whether on a stand-alone basis or as part of services offered by
CSI) or currently under development by CSI violates any license or agreement
between CSI and any third party or infringes any Intellectual Property Right of
any other party; and, except for matters which would not have a Material Adverse
Effect, there is no pending or, to the best knowledge of CSI and the Principals,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any CSI IP Right; nor, to the best knowledge of
CSI and the Principals without any independent investigation thereof, is there
any basis for any such claim; nor has CSI received any notice asserting that any
CSI IP Right or the proposed use, sale, license or disposition thereof conflicts
or will conflict with the rights of any other party, nor, to the best knowledge
of CSI and the Principals, is there any basis for any such assertion. CSI has
taken all steps that it believes are reasonable and practicable to safeguard and
maintain the secrecy and confidentiality of, and its proprietary rights in, all
material CSI IP Rights. CSI is not using any Intellectual Property Rights of any
past or present officers, employees or consultants. Schedule 3.12 of the CSI
-------------
Schedule of Exceptions contains a list of all applications, registrations,
filings and other formal actions made or taken pursuant to federal, state and
foreign laws by CSI to
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perfect or protect its interest in CSI IP Rights, including, without limitation,
all patents, patent applications, copyrights, copyright registrations,
trademarks, trademark applications and service marks and all CSI IP Rights
Agreements (except for object code end-user licenses granted to end-users in the
ordinary course of business that permit use of software products without a right
to modify, distribute or sublicense the same). As used herein, the term
"Intellectual Property Rights" shall mean all intellectual property rights in
----------------------------
any jurisdiction in the world, including, without limitation, patents, patent
applications, patent rights, trademarks, trademark applications, trade names,
service marks, service mark applications, copyright, copyright registrations,
licenses, know-how, trade secrets, customer lists, proprietary processes,
formulae and other rights to Software. The term "Software" shall mean all source
--------
and object code, algorithms, architecture, structure, display screens, layouts,
inventions, development tools and all documentation and media constituting,
describing or relating to the above, including, without limitation, manuals,
memoranda and records. The term "CSI IP Rights Agreement" shall mean any
-----------------------
instrument or agreement governing any CSI IP Right.
3.13 Compliance with Laws. CSI has complied, or prior to the Closing
--------------------
Date will have complied, and is or will be at the Closing Date in full
compliance, in all material respects, with all applicable laws, ordinances and
regulations, and rules, and all orders, writs, injunctions, awards, judgments
and decrees, applicable to it or to its assets, properties, and business (the
violation of which would have a Material Adverse Effect), including, without
limitation: (a) all applicable federal and state securities laws and
regulations, (b) all applicable federal, state and local laws, ordinances and
regulations, and all orders, writs, injunctions, awards, judgments and decrees,
pertaining to (i) the sale, licensing, leasing, ownership or management of CSI's
owned, leased or licensed real or personal property, products and technical
data, and (ii) employment and employment practices, terms and conditions of
employment, and wages and hours, (c) the Export Administration Act and
regulations promulgated thereunder and all other laws, regulations, rules,
orders, writs, injunctions, judgments and decrees applicable to the export or
re-export of controlled commodities or technical data and (d) the Immigration
Reform and Control Act; provided, however, that this Section 3.13 shall not be
deemed to apply to any matters within the general scope of any other
representation in this Section 3. CSI has received all permits and approvals
from, and has made all filings with, third parties, including government
agencies and authorities, that are necessary in connection with its present
business and which, if not received or filed, would have a Material Adverse
Effect. There are no legal or administrative proceedings or investigations
pending or threatened, that, if enacted or determined adversely to CSI or any
Principal, would result in any Material Adverse Effect.
3.14 Certain Transactions and Agreements. None of the executive
-----------------------------------
officers, directors or affiliates (as that term is defined in Rule 405 under the
Securities Act) of CSI (each, a "Insider") nor any member of their immediate
-------
families is or has been directly or indirectly interested in any contract or
informal arrangement with CSI within the last three years, except for
compensation as an officer, director or employee of CSI. None of the Insiders
nor any member of their immediate families has any interest in any property,
real or personal, tangible or intangible, including inventions, patents,
copyrights, trademarks or trade names or trade secrets, used in or pertaining to
the business of CSI, except for the normal rights of a stockholder.
-11-
<PAGE>
3.15 Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 CSI has no employment contracts or consulting agreements
currently in effect that are not terminable at will (other than agreements with
the sole purpose of providing for the confidentiality of proprietary information
or assignment of inventions).
3.15.2 CSI (i) has never been and is not now subject to a union
organizing effort, (ii) is not subject to any collective bargaining agreement
with respect to any of its employees, (iii) is not subject to any other
contract, written or oral, with any trade or labor union, employees' association
or similar organization, or (iv) has no current labor dispute. CSI and the
Principals have no knowledge that a material number of employees intend to leave
the employ of CSI or that any employees intend to leave the employ of CSI and
which departures would prevent CSI from fully performing on schedule any
Customer Agreement.
3.15.3 Schedule 3.15.3 of the CSI Schedule of Exceptions
---------------
identifies each "employee benefit plan," as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), but
-----
excluding workers' compensation, unemployment compensation and other government-
mandated programs currently or previously maintained, contributed to or entered
into by CSI under which CSI or any ERISA Affiliate (as defined below) thereof
has any present or future obligation or liability (collectively, the "CSI
---
Employee Plans"). For purposes of this Section 3.15.3, "ERISA Affiliate" shall
- -------------- ---------------
mean any entity which is a member of (A) a "controlled group of corporations,"
as defined in Section 414(b) of the Code, (B) a group of entities under "common
control," as defined in Section 414(c) of the Code, or (C) an "affiliated
service group," as defined in Section 414(m) of the Code, or treasury
regulations promulgated under Section 414(o) of the Code, any of which includes
CSI. Copies of all CSI Employee Plans (and, if applicable, related trust
agreements) and all amendments thereto and summary plan descriptions thereof
(including summary plan descriptions) have been delivered or made available to
Asymetrix or its counsel, together with the three most recent annual reports
(Form 5500, including, if applicable, Schedule B thereto) prepared in connection
with any such CSI Employee Plan. All CSI Employee Plans which individually or
collectively would constitute an "employee pension benefit plan," as defined in
Section 3(2) of ERISA (collectively, the "CSI Pension Plans"), are identified as
-----------------
such in Schedule 3.15.3 of the CSI Schedule of Exceptions. As of the date
---------------
hereof, all contributions due and previously required to be made on or before
the date hereof from CSI with respect to any of the CSI Employee Plans have been
made as required under ERISA or have been accrued on the CSI Financial
Statements. To the knowledge of CSI and the Principals, each CSI Employee Plan
has been maintained substantially in compliance with its terms and with the
requirements prescribed by any and all statutes, orders, rules and regulations,
including, without limitation, ERISA and the Code, which are applicable to such
CSI Employee Plans.
3.15.4 No "prohibited transaction," as defined in Section 406
of ERISA or Section 4975 of the Code, has occurred with respect to any CSI
Employee Plan which is covered by Title I of ERISA which would result in a
material liability to CSI taken as a whole, excluding transactions effected
pursuant to a statutory or administrative exemption. Nothing done or omitted to
be done and no transaction or holding of any asset under or in connection with
any
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<PAGE>
CSI Employee Plan has made or will make CSI or any officer or director of CSI
subject to any material liability under Title I of ERISA or liable for any
material tax (as defined in Section 2.7) or penalty pursuant to Sections 4972,
4975, 4976 or 4979 of the Code or Section 502 of ERISA.
3.15.5 Any CSI Pension Plan which is intended to be qualified
under Section 401(a) of the Code (a "CSI 401(a) Plan") has received a favorable
---------------
determination from the Internal Revenue Service as to its qualifications, and
CSI and the Principals are not aware of any reason why such determination may
not be relied upon by such plan. CSI and the Principals have delivered or made
available to Asymetrix or its counsel a true, correct and complete copy of the
most recent Internal Revenue Service determination letter with respect to each
CSI 401(a) Plan.
3.15.6 Schedule 3.15.6 of the CSI Schedule of Exceptions lists
---------------
each employment, severance or other similar contract (written or oral),
arrangement or policy and each plan or arrangement providing for insurance
coverage (including any self-insured arrangements), workers' benefits, vacation
benefits, severance benefits, disability benefits, death benefits,
hospitalization benefits, retirement benefits, deferred compensation, profit-
sharing, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
insurance, compensation or benefits for employees, consultants or directors, but
excluding workers' compensation, unemployment compensation and other government-
mandated programs currently or previously maintained, which (A) is not a CSI
Employee Plan, (B) is entered into, maintained or contributed to, as the case
may be, by CSI and (C) covers any employee or former employee of CSI. Such
contracts, plans and arrangements as are described in this Section 3.15.6 are
herein referred to collectively as the "CSI Benefit Arrangements." Each CSI
------------------------
Benefit Arrangement has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all statutes, orders, rules and
regulations which are applicable to such CSI Benefit Arrangement. CSI has
delivered or made available to Asymetrix or its counsel a complete and correct
copy or description of each CSI Benefit Arrangement.
3.15.7 CSI has timely provided to individuals entitled
thereto all required notices and coverage pursuant to Section 4980B of the Code
and the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended
("COBRA"), with respect to any "qualifying event" (as defined in Section
-----
4980B(f)(3) of the Code) under any CSI Employee Plan occurring prior to and
including the Closing Date, and no material Tax payable on account of Section
4980B of the Code has been incurred with respect to any current or former
employees (or their beneficiaries) of CSI.
3.15.8 No benefit payable or which may become payable by CSI
pursuant to any CSI Employee Plan or any CSI Benefit Arrangement or as a result
of or arising under this Agreement shall constitute an "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) which is subject to the
imposition of an excise Tax under Section 4999 of the Code or which would not be
deductible by reason of Section 280G of the Code.
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<PAGE>
3.15.9 To the knowledge of CSI and the Principals and except
for matters which would not have a Material Adverse Effect, no employee of CSI
is in violation of any term of any employment contract, patent disclosure
agreement, noncompetition agreement, or any other contract or written agreement,
or any restrictive covenant contained in any such agreement relating to the
right of any such employee to be employed thereby, or to use trade secrets or
proprietary information of others, and the employment of such employees does not
subject CSI to any material liability.
3.15.10 A list of all employees, officers and consultants of
CSI and their current compensation, bonus plans, commission plans, vacation
rights and severance rights is set forth on Schedule 3.15.10 of the CSI Schedule
----------------
of Exceptions. CSI is currently paying all amounts that are currently required
to be paid to such parties shown in such Schedule.
3.15.11 CSI is not a party to any (a) agreement with any
executive officer or other key employee of CSI (i) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving CSI in the nature of any of the transactions
contemplated by this Agreement and the Certificate of Merger, (ii) providing any
term of employment or compensation guarantee, or (iii) providing severance
benefits or other benefits after the termination of employment of such employee
regardless of the reason for such termination of employment, or (b) agreement or
plan, including, without limitation, any stock option plan, stock appreciation
rights plan or stock purchase plan, any of the benefits of which will be
materially increased, or the vesting of benefits of which will be materially
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement and the Certificate of Merger or the value of any of the benefits of
which will be calculated on the basis of any of the transactions contemplated by
this Agreement and the Certificate of Merger. CSI is not obligated to make any
"excess parachute payment" (as defined in Section 280G(b)(1) of the Code), nor
will any excess parachute payment be deemed to have occurred as a result of or
arising out of the Merger.
3.16 Corporate Documents. CSI has made available to Asymetrix for
-------------------
examination all documents and information listed in the CSI Schedule of
Exceptions or other exhibits called for by this Agreement or which have been
requested by Asymetrix's counsel, including, without limitation, the following:
(a) copies of the Articles of Incorporation and Bylaws of CSI as currently in
effect; (b) the Minute Book containing all records of all proceedings, consents,
actions and meetings of the stockholders, the board of directors and any
committees thereof of CSI; (c) the stock ledger and journal reflecting all stock
issuances and transfers of CSI; (d) all material permits, orders, and consents
issued by any regulatory agency with respect to CSI, or any securities of CSI,
and all applications for such permits, orders, and consents; and (e) copies or
forms of all stock purchase agreements, warrants, option plans, grants and
exercise agreements and, where forms of agreements are provided rather than
copies of the signed documents, a true and complete list showing the names of
the security holder, numbers of shares, exercise or purchase prices, grant
dates, vesting dates, exercise dates, expiration dates and all other relevant
data necessary for Asymetrix to issue the Asymetrix Common Stock.
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<PAGE>
3.17 No Brokers. Neither CSI nor any of the Principals is obligated
----------
for the payment of fees or expenses of any investment banker, broker or finder
in connection with the origin, negotiation or execution of this Agreement or the
CSI Ancillary Agreements or in connection with any transaction contemplated
hereby or thereby. Except as otherwise provided in this Agreement, CSI and each
Principal will pay only its own expenses, if any, incurred in connection with
this Agreement and the transactions contemplated herein.
3.18 Disclosure. To the knowledge of CSI and the Principals, neither
----------
this Agreement, its exhibits and schedules, nor any of the certificates or
documents to be delivered by CSI or the Principals to Asymetrix under this
Agreement, taken together, contains any untrue statement of a material fact or
omits to state any material fact necessary in order to make the statements
contained herein and therein, in light of the circumstances under which such
statements were made, not misleading.
3.19 Insurance. CSI maintains and at all times during the prior three
---------
years has maintained fire and casualty, general liability, business interruption
and product liability insurance which it believes to be reasonably prudent for
similarly sized and similarly situated businesses. A list of all such insurance
is set forth on Schedule 3.19 of the CSI Schedule of Exceptions.
-------------
3.20 Environmental Matters.
---------------------
3.20.1 During the period that CSI has leased or owned its
properties or owned or operated any facilities, there have been no disposals or
releases of Hazardous Materials (as defined below) by CSI, or to CSI's and the
Principals' knowledge, by others, on, from or under such properties or
facilities, the liability for which would have a Material Adverse Effect. CSI
and the Principals have no knowledge of any presence, generation, manufacturing,
disposals or releases of Hazardous Materials on, from or under any of such
properties or facilities, which may have occurred prior to CSI having taken
possession of any of such properties or facilities, the liability for which
would have a Material Adverse Effect. For the purposes of this Agreement, the
terms "disposal" and "release" shall have the definitions assigned thereto by
-------- -------
the Comprehensive Environmental Response, Compensation and Liability Act of
1980, 42 U.S.C. (S) 9601 et seq., as amended ("CERCLA"). For the purposes of
------
this Agreement, "Hazardous Materials" shall mean any hazardous or toxic
-------------------
substance, material or waste which is or becomes prior to the Closing Date
regulated under, or defined as a "hazardous substance," "pollutant,"
"contaminant," "toxic chemical," "hazardous material," "toxic substance" or
"hazardous chemical" under (i) CERCLA; (ii) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. (S) 1801 et seq.; (iii) the Toxic Substance Control
Act, 15 U.S.C. (S) 2601 et seq.; (iv) the Occupational Safety and Health Act of
1970, 29 U.S.C. (S) 651 et seq.; (v) any applicable federal, state or local
statute or ordinance that has a scope or purpose similar to those identified
above; or (vi) regulations promulgated under any of the laws or statutes
identified above.
3.20.2 None of the properties or facilities of CSI is in
material violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions on,
under or about such properties or facilities, including, but not
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<PAGE>
limited to, soil and ground water condition. During the time that CSI has owned
or leased its properties and facilities, neither CSI nor, to CSI's and the
Principals' knowledge, any third party, has used, generated, manufactured or
stored on, under or about such properties or facilities or transported to or
from such properties or facilities any Hazardous Materials except in substantial
accordance with applicable environmental laws.
3.20.3 During the time that CSI has owned or leased its
respective properties and facilities, there has been no litigation brought or,
to the knowledge of CSI and the Principals, threatened against CSI by, or any
settlement reached by CSI with, any party or parties alleging the presence,
disposal, release or threatened release of any Hazardous Materials on, from or
under any of such properties or facilities.
3.21 Books and Records. The books, records and accounts of CSI (a)
-----------------
are in all material respects true, complete and correct, (b) have been
maintained in accordance with good business practices on a basis consistent with
prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the material transactions and dispositions of the assets of CSI, and (d)
accurately and fairly reflect the basis for the CSI Financial Statements.
3.22 Certain Dispositions After Effective Time. None of the
-----------------------------------------
Principals has any present plan or intention, or any binding commitment, to
dispose, after the Effective Time, of an amount of Asymetrix Common Stock that
would cause the Principals, in the aggregate, to have disposed of such stock in
an amount equal in value to 50% or more of the value of CSI Common Stock
outstanding immediately prior to the Effective Time.
4. REPRESENTATIONS AND WARRANTIES OF ASYMETRIX AND MERGER SUB
Asymetrix and Merger Sub hereby jointly and severally represent and
warrant as follows, except as set forth on the Asymetrix Schedule of Exceptions
(in numbered paragraphs that correspond to the Section numbers below)
simultaneously delivered to CSI and the Principals with the execution of this
Agreement:
4.1 Organization, Good Standing and Qualification. Asymetrix is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington and has the corporate power and authority to own,
operate and lease its properties and to carry on its business as now conducted
and as proposed to be conducted. Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the State of Texas and
has the corporate power and authority to own, operate and lease its properties
and carry on its business as now conducted and as proposed to be conducted.
Merger Sub was formed in December 1997 and has conducted no business or
operations prior to the date hereof. Asymetrix is qualified to do business as a
foreign corporation in each jurisdiction where failure to be so qualified could
reasonably be expected to have a material adverse effect on the business,
operations, financial condition or prospects of Asymetrix and its subsidiaries
taken as a whole (for purposes of this Section 4 and 6, a "Material Adverse
----------------
Effect").
- ------
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<PAGE>
4.2 Power, Authorization and Validity.
---------------------------------
4.2.1 Each of Asymetrix and Merger Sub has the corporate right,
power, legal capacity and authority to enter into and perform its respective
obligations under this Agreement, and all agreements to which Asymetrix and
Merger Sub are or will be a party that are required to be executed pursuant to
this Agreement (the "Asymetrix Ancillary Agreements"). The execution, delivery
------------------------------
and performance of this Agreement and the Asymetrix Ancillary Agreements have
been duly and validly approved and authorized by all necessary corporate action
on the part of each of Asymetrix and Merger Sub.
4.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable each of Asymetrix and Merger Sub to enter
into, and to perform its respective obligations under, this Agreement and the
Asymetrix Ancillary Agreements, except for (a) the filing of the Articles of
Merger with the Texas Secretary of State, and the filing of appropriate
documents with the relevant authorities of other states in which Asymetrix is
qualified to do business, if any, and (b) such filings as may be required to
comply with federal and state securities laws.
4.2.3 This Agreement and the Asymetrix Ancillary Agreements
are, or when executed by Asymetrix and Merger Sub will be, valid and binding
obligations of each of Asymetrix and Merger Sub enforceable in accordance with
their respective terms, except as to the effect, if any, of (a) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(b) rules of law governing specific performance, injunctive relief and other
equitable remedies, and (c) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of securities;
provided, however, that the Certificate of Merger will not be effective until
the Effective Time.
4.3 Capitalization. The capitalization of Asymetrix and Merger Sub
--------------
consist of the following:
4.3.1 Asymetrix Capital Stock. A total of 5,000,000 authorized
-----------------------
shares of Class B Stock, $0.01 par value per share (the "Class B Stock"), of
-------------
which 50,000 shares are designated as Series 1 Class B Stock (the "Series 1
--------
Stock"), and of which 37,500 shares are outstanding, and 388,395 are designated
- -----
as Series A Preferred Stock (the "Series A Stock"), all of which are
--------------
outstanding, 388,395 are designated as Series B Preferred Stock (the "Series B
--------
Stock"), none of which are outstanding, 2,500,000 are designated as Series 4
- -----
Class B Stock (the "Series 4 Stock") of which 2,372,851 shares are outstanding
--------------
and 1,512,500 shares are designated as Series 5 Class B Stock (the "Series 5
--------
Stock") of which 1,512,500 shares are outstanding. A total of 40,000,000
- -----
authorized shares of Asymetrix Common Stock, of which 8,334,137 shares are
outstanding as of December 15, 1997. The rights, preferences and privileges of
the Class B Stock, including the Series 1 Stock, the Series A Stock, the Series
B Stock, the Series 4 Stock and the Series 5 Stock, and the Asymetrix Common
Stock, are as stated in Asymetrix's Articles of Incorporation, as amended, and
as provided by law. All issued and outstanding shares of Asymetrix capital
stock have been duly authorized and validly issued, are fully paid and
nonassessable, and have been offered, issued, sold and delivered by Asymetrix in
compliance with all registration or
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<PAGE>
qualification requirements (or applicable exemptions therefrom) of applicable
federal and state securities laws.
4.3.2 Asymetrix Options, Warrants, Reserved Shares. Except
--------------------------------------------
for: (i) conversion privileges of the Series A Stock, the Series 1 Stock, the
Series 4 Stock and the Series 5 Stock, (ii) options to purchase 4,307,353 shares
of Asymetrix Common Stock (as of December 15, 1997) and a like number of shares
of Asymetrix Common Stock reserved for issuance upon the exercise thereof, (iii)
813,115 additional shares of Asymetrix Common Stock (as of December 15, 1997)
reserved for future issuance under the Asymetrix's 1995 Combined Incentive and
Nonqualified Stock Option Plan (the "Asymetrix Option Plan"), (iv) an option to
---------------------
purchase 19,431 shares of Series 4 Stock, and (v) the proposed issuance of up to
50,000 shares of Series 1 Stock (of which shares, 37,500 are validly issued,
outstanding, fully paid and nonassessable) to certain of Asymetrix's vendors,
there are not outstanding any options, warrants, calls, commitments, rights
(including conversion or preemptive rights) or agreements for the purchase or
acquisition from Asymetrix of any shares of its capital stock or any securities
convertible into or ultimately exchangeable or exercisable for any shares of
Asymetrix's capital stock or obligating Asymetrix to grant, extend, or enter
into any such option, warrant, call, commitment, conversion privilege or other
right or agreement, and there is no liability for dividends accrued but unpaid.
Apart from the exceptions noted in this Section 4.3.2, and except for (i) rights
of first refusal and rights of repurchase held by Asymetrix to repurchase shares
of Asymetrix Common Stock issued under Stock Issuance and Restriction Agreements
relating to the issuance of 8,100 shares of Common Stock and to 37,500 shares of
Series 1 Stock (the "Stock Issuance and Restriction Agreements"), (ii) rights of
-----------------------------------------
first refusal and repurchase rights held by Asymetrix to purchase shares of its
capital stock issued under the Asymetrix Option Plan, (iii) the rights granted
in that certain Stock Issuance and Restriction Agreements dated as of September
27, 1996 by and between Asymetrix and EnCompass Group, Inc. (iv) the rights
granted in that certain Amended and Restated Investor's Rights Agreement dated
as of December 20, 1996 by and among Asymetrix, SOFTVEN No. 2 Investment
Enterprise Partnership and former shareholder Multimedia Asia Pacific Pty Ltd
(the "Investor's Rights Agreement"), (v) the rights granted in that certain
---------------------------
Acquisition Agreement, dated as of July 17, 1997 by and among the Company, Socha
Computing, Inc., Asymocha Merger Corporation and John Socha, (vi) a Voting
Agreement and Registration Rights Agreement dated as of September 11, 1997
entered into in connection with the acquisition of Aimtech Corporation and (vii)
a Voting and Co-Sale Agreement and Registration Rights Agreement dated as of
September 30, 1997 among the Company, Gordon Oakes, Kevin Oakes and Doug Foster,
there are no voting agreements, rights of first refusal or other restrictions
(other than normal restrictions on transfer under applicable federal and state
securities laws) or registration rights applicable to any of Asymetrix's
outstanding securities.
4.3.3 Merger Sub. A total of one authorized share of Common
----------
Stock, $0.01 par value per share for Merger Sub, which is validly issued,
outstanding, fully paid and nonassessable. There are not outstanding any
options, warrants, rights (including conversion of preemptive rights) or
agreements for the purchase or acquisition from Merger Sub of any shares of its
capital stock or any securities convertible into or ultimately exchangeable or
exercisable for any shares of Merger Sub's capital stock.
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<PAGE>
4.4 Subsidiaries. Asymetrix does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity, other than Socha Computing,
Inc., Aimtech Corporation, SuperCede, Inc., Infomodelers, Inc., Oakes
Interactive Incorporated, Top Shelf Multimedia, Inc., Acorn Associates
Incorporated, sales subsidiaries located in France, Germany and the United
Kingdom and Merger Sub. Merger Sub does not presently own or control, directly
or indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
4.5 No Violation of Existing Agreements. Neither the execution and
-----------------------------------
delivery of this Agreement or any Asymetrix Ancillary Agreement, nor the
consummation of the transactions contemplated hereby or thereby, will conflict
with, or (with or without notice or lapse of time, or both) result in a
termination, breach, impairment or violation of, or cause an acceleration or
amendment of any obligation under, (a) any provision of the Articles of
Incorporation or Bylaws of Asymetrix and Merger Sub, as currently in effect, (b)
in any material respect, any material instrument or contract to which Asymetrix
and Merger Sub is a party or by which any of their assets or properties are
bound, or (c) any federal, state, local or foreign judgment, writ, decree,
order, statute, rule or regulation applicable to Asymetrix and Merger Sub or
their assets or properties, in each case, such that the conflict, termination,
breach, acceleration or amendment would have a Material Adverse Effect.
4.6 Litigation. There is no action, proceeding, claim or
----------
investigation pending against Asymetrix before any federal, state, municipal,
foreign or other court or administrative agency, department, board or
instrumentality that, if concluded adversely to Asymetrix, would have a Material
Adverse Effect, and, to the best of Asymetrix's knowledge, no such action,
proceeding, claim or investigation has been threatened. There is, to the best
of Asymetrix's knowledge, no reasonable basis for any shareholder or former
shareholder of Asymetrix, or any other person, firm, corporation or entity, to
assert a claim against Asymetrix based upon: (a) ownership or rights to
ownership of any shares of Asymetrix capital stock, (b) any rights as or to
become a holder of securities of Asymetrix, including any option or preemptive
rights or rights to notice or to vote, or (c) any rights under any agreement
among Asymetrix and any of its shareholders or former shareholders or option
holders or former option holders.
4.7 Taxes. Asymetrix has timely filed all tax returns and reports
-----
required by law, other than where a failure to file a return did not or would
not have a Material Adverse Effect, and has never been audited by any state or
federal taxing authority. All tax returns and reports of Asymetrix are true and
correct in all material respects. Asymetrix has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith (for which it has established a proper reserve). Asymetrix is not aware
of any pending or threatened claim or assessment with respect to any
deficiencies for any tax in writing against Asymetrix by any taxing authority.
Asymetrix has not executed any waiver of any statute of limitations relating to
taxes or any extension of the period for the assessment or collection of any tax
(other than extensions which have expired by the Effective Time). Asymetrix has
not received any written notification, and is not otherwise aware, that any
material issues are currently under audit, examination or review by any taxing
authority regarding Asymetrix. There are no material liens, pledges, charges,
claims, security interests or other encumbrances covering the assets of
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<PAGE>
Asymetrix and relating or attributable to taxes, other than for taxes not yet
due and payable and others that do no have a Material Adverse Effect. Asymetrix
is not a party to a tax sharing or tax allocation agreement, and Asymetrix does
not owe any amount under any such agreement.
4.8 Financial Statements. Asymetrix has delivered to CSI and the
--------------------
Principals as Schedule 4.8 of the Asymetrix Schedule of Exceptions Asymetrix's
------------
(a) audited balance sheet as of December 31, 1996 (the "Asymetrix 1996 Balance
----------------------
Sheet") and income statement and statement of cash flows for the 12 month period
- -----
then ended (collectively, the "Asymetrix 1996 Financial Statements"), and (b)
-----------------------------------
balance sheet as of September 30, 1997 (the "Asymetrix September 30 Balance
------------------------------
Sheet") and income statement for the nine month period then ended (collectively,
- -----
the "Asymetrix September Financial Statements") (the Asymetrix 1996 Financial
----------------------------------------
Statements and Asymetrix September Financial Statements are collectively
referred to herein as the "Asymetrix Financial Statements"). The Asymetrix
------------------------------
Financial Statements (a) are in accordance with the books and records of
Asymetrix, (b) fairly present the financial condition of Asymetrix at the dates
therein indicated and the results of operations for the periods therein
specified, and (c) have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis, subject, in the case of the
Asymetrix September Financial Statements, to normal recurring year-end
adjustments and the absence of any notes thereto. Asymetrix has no debt,
liability or obligation of any nature, whether accrued, absolute, contingent or
otherwise, and whether due or to become due, that is not reflected or reserved
against or disclosed in the Asymetrix Financial Statements, except for those
that may have been incurred after the date of the Asymetrix Financial Statements
in the ordinary course of its business, consistent with past practice and that
are not material in amount either individually or collectively.
4.9 Title to Properties.
-------------------
4.9.1 Asymetrix has good and marketable title to all of its
tangible assets as shown on the Asymetrix September 30 Balance Sheet, free and
clear of all liens, charges, restrictions or encumbrances, other than for taxes
not yet due and payable and others that do not have a Material Adverse Effect.
With respect to the property and assets it leases, Asymetrix is in material
compliance with such leases.
4.9.2 Merger Sub has been newly formed for the sole and express
purpose of participating in the Merger and has at no time engaged in any
activities or owned any assets except as necessary for such purpose.
4.10 Absence of Certain Changes. Since the September 30, 1997, other
--------------------------
than actions required by this Agreement (including, without limitation, the
incurrence of legal and accounting fees and expenses in connection therewith),
there has not been with respect to Asymetrix and Merger Sub.
(a) any change in its financial condition, properties, assets,
liabilities, business or operations from that reflected in the Asymetrix
Financial Statements, other than those that do not have a Material Adverse
Effect;
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<PAGE>
(b) any contingent liability incurred by it as guarantor, surety or
otherwise with respect to the obligations of others, which contingent liability
is in excess of $50,000 individually or in excess of $100,000 in the aggregate;
(c) any mortgage, encumbrance or lien placed on any of its
properties, which mortgage, encumbrance or lien is in excess of $100,000
individually or in excess of $250,000 in the aggregate;
(d) any obligation or liability incurred by it other than
obligations and liabilities incurred in the ordinary course of business, which
obligation or liability is in excess of $100,000 individually or in excess of
$250,000 in the aggregate;
(e) any purchase or sale or other disposition, or any agreement or
other arrangement for the purchase, sale or other disposition, of any of its
properties or assets, which purchase, sale, other disposition or other
arrangement is in excess of $100,000 individually or $250,000 in the aggregate;
(f) any damage, destruction or loss, whether or not covered by
insurance, which has a Material Adverse Effect;
(g) any declaration, setting aside or payment of any dividend on, or
the making of any distribution in respect of, its capital stock, or any split,
combination or recapitalization of its capital stock or any direct or indirect
redemption, purchase or other acquisition of its capital stock, including,
without limitation, any extraordinary dividend within the meaning of Section
1059(c) of the Code;
(h) any labor dispute or claim of unfair labor practices;
(i) any payment or discharge of a lien or liability thereof which
lien was not either shown on the Asymetrix September 30 Balance Sheet or
incurred in the ordinary course of business thereafter; or
(j) entered into any material transactions with any of its officers,
directors, employees or stockholders or any entity controlled by any of such
individuals.
4.11 Material Agreements, Contracts and Commitments. All oral or written
----------------------------------------------
contracts, obligations, commitments, plans, leases, instruments, arrangements or
licenses which are material to the business of Asymetrix and its subsidiaries
taken as a whole (for purposes of this Section 4.11, a "Material Agreement")
------------------
constitute valid and enforceable obligations of the parties thereto (except as
to the effect, if any, of (i) applicable bankruptcy and other similar laws
affecting the rights of creditors generally, (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies, and (iii)
the enforceability of provisions requiring indemnification in connection with
the offering, issuance or sale of securities); and are in full force and effect.
Asymetrix is not, nor, to the best knowledge of Asymetrix, is any other party
thereto, in breach or default in any material respect under the terms of any
such Material Agreement. A copy of each Material Agreement has been delivered or
made available to counsel
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<PAGE>
for CSI and the Principals. Asymetrix is not a party to any contract or
arrangement which, in the absence of a breach by the other party or parties
thereto, has had or could reasonably be expected to have a Material Adverse
Effect. Asymetrix does not have any material liability for renegotiation of
government contracts or subcontracts, if any.
4.12 Status of Proprietary Assets. Asymetrix owns all right, title or
----------------------------
interest in, or has the rights to use, sell or license, all Intellectual
Property Rights necessary or required for the conduct of, or used in, its
business as presently conducted (such Intellectual Property Rights being
hereinafter collectively referred to as the "Asymetrix IP Rights") and such
-------------------
rights to use, sell or license are reasonably sufficient for the conduct of its
business as presently conducted. Except for matters which would not have a
Material Adverse Effect, neither the manufacture, marketing, license, sale or
intended use of any product currently licensed or sold by Asymetrix or currently
under development by Asymetrix violates any license or agreement between
Asymetrix and any third party or infringes any Intellectual Property Right of
any other party; and, except for matters which would not have a Material Adverse
Effect, there is no pending or, to the best knowledge of Asymetrix, threatened
claim or litigation contesting the validity, ownership or right to use, sell,
license or dispose of any Asymetrix IP Right; nor, to the best knowledge of
Asymetrix without any independent investigation thereof, is there any basis for
any such claim; nor has Asymetrix received any notice asserting that any
Asymetrix IP Right or the proposed use, sale, license or disposition thereof
conflicts or will conflict with the rights of any other party, nor, to the best
knowledge of Asymetrix, is there any basis for any such assertion.
4.13 Compliance with Laws. Asymetrix and Merger Sub have complied, or
--------------------
prior to the Closing Date will have complied, andare or will be at the Closing
Date in full compliance, in all material respects, with all applicable laws,
ordinances and regulations, and rules, and all orders, writs, injunctions,
awards, judgments and decrees, applicable to it or to its assets, properties,
and business (the violation of which would have a Material Adverse Effect),
including, without limitation: (a) all applicable federal and state securities
laws and regulations, (b) all applicable federal, state and local laws,
ordinances and regulations, and all orders, writs, injunctions, awards,
judgments and decrees, pertaining to (i) the sale, licensing, leasing, ownership
or management of Asymetrix's owned, leased or licensed real or personal
property, products and technical data, and (ii) employment and employment
practices, terms and conditions of employment, and wages and hours, (c) the
Export Administration Act and regulations promulgated thereunder and all other
laws, regulations, rules, orders, writs, injunctions, judgments and decrees
applicable to the export or re-export of controlled commodities or technical
data and (d) the Immigration Reform and Control Act. Asymetrix has received all
permits and approvals from, and has made all filings with, third parties,
including government agencies and authorities, that are necessary in connection
with its present business and which, if not received or filed, would have a
Material Adverse Effect. There are no legal or administrative proceedings or
investigations pending or threatened, that, if enacted or determined adversely
to Asymetrix, would result in any Material Adverse Effect.
4.14 Certain Transactions and Agreements. None of the executive officers,
-----------------------------------
directors or affiliates (other than SOFTVEN No. 2 Investment Enterprises
Partnership, or its designated director, the designated director of the former
stockholders of Aimtech corporation or Kevin
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<PAGE>
Oakes) of Asymetrix (each, an "Asymetrix Insider") nor any member of their
-----------------
immediate families is or has been directly or indirectly interested in any
contract or informal arrangement with Asymetrix within the last twelve (12)
months, except for compensation as an officer, director or employee of
Asymetrix. None of the Asymetrix Insiders nor any member of their immediate
families has any interest in any property, real or personal, tangible or
intangible, including inventions, patents, copyrights, trademarks or trade names
or trade secrets, used in or pertaining to the business of Asymetrix, except for
the normal rights of a shareholder.
4.15 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of Asymetrix or
Merger Sub is required in connection with the consummation of the transactions
contemplated by this Agreement, except for such qualifications or filings under
------ ---
the Securities Act and the regulations thereunder and all other applicable
securities laws as may be required in connection with the transactions
contemplated by this Agreement. All such qualifications and filings will, in the
case of qualifications, be effective on the Closing and will, in the case of
filings, be made within the time prescribed by law.
4.16 ERISA and Labor Issues.
----------------------
4.16.1 Asymetrix does not have any Employee Pension Benefit Plan as
defined in Section 3 of ERISA.
4.16.2 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, Asymetrix is in compliance in all
material respects with all applicable laws, agreements and contracts relating to
employment, employment practices, wages, employee benefit plans as defined in
Section 3(3) of ERISA, hours, and terms and conditions of employment, including,
but not limited to, employee compensation matters, ERISA and the Code.
4.16.3 To the knowledge of Asymetrix and except for matters which
would not have a Material Adverse Effect, no employee of Asymetrix is in
violation of any term of any employment contract, patent disclosure agreement,
noncompetition agreement, or any other contract or written agreement, or any
restrictive covenant contained in any such agreement relating to the right of
any such employee to be employed thereby, or to use trade secrets or proprietary
information of others, and the employment of such employees does not subject
Asymetrix to any material liability.
4.16.4 Asymetrix is not bound by or subject to any contract,
commitment or arrangement with any labor union, employees association or similar
organization, and to Asymetrix's best knowledge, no labor union, employees
association or similar organization has requested, sought or attempted to
represent any employees, representatives or agents of Asymetrix. There is no
strike or other labor dispute involving Asymetrix pending nor, to Asymetrix's
best knowledge, threatened, nor is Asymetrix aware of any labor organization
activity involving its employees.
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<PAGE>
4.17 Corporate Documents. Asymetrix has made available to CSI and the
-------------------
Principals for examination all documents and information listed in the Asymetrix
Schedule of Exceptions or other exhibits called for by this Agreement or which
have been requested by CSI and the Principals' counsel, including, without
limitation, the following: (a) copies of Asymetrix's and its subsidiaries'
Articles or Certificate of Incorporation and Bylaws as currently in effect; (b)
Asymetrix's Minute Book containing all records that Asymetrix has of all
proceedings, consents, actions and meetings of the stockholders, the board of
directors and any committees thereof; (c) Asymetrix's and its subsidiaries'
stock ledger or stockholder lists and journal reflecting stock issuances and
transfers; (d) all material permits, orders, and consents issued by any
regulatory agency with respect to Asymetrix, or any securities of Asymetrix, and
all applications for such permits, orders, and consents; and (e) copies or forms
of all stock purchase agreements, warrants, option plans, grants and exercise
agreements and, where forms of agreements are provided rather than copies of the
signed documents, a true and complete list showing the names of the security
holder, numbers of shares, exercise or purchase prices, grant dates, vesting
dates, exercise dates, expiration dates and all other relevant data necessary
for Asymetrix to issue the Asymetrix Common Stock.
4.18 No Brokers. Neither Asymetrix nor Merger Sub is obligated for the
----------
payment of fees or expenses of any investment banker, broker or finder in
connection with the origin, negotiation or execution of this Agreement or the
Asymetrix Ancillary Agreements or in connection with any transaction
contemplated hereby or thereby.
4.19 Disclosure. To the best knowledge of Asymetrix and Merger Sub,
----------
neither this Agreement, its exhibits and schedules, nor any of the certificates
or documents to be delivered by Asymetrix or Merger Sub to CSI and the
Principals under this Agreement, taken together, contains any untrue statement
of a material fact or omits to state any material fact necessary in order to
make the statements contained herein and therein, in light of the circumstances
under which such statements were made, not misleading.
4.20 Insurance. Asymetrix maintains and at all times during the prior
---------
three years has maintained fire and casualty, general liability, business
interruption and product liability insurance which it believes to be reasonably
prudent for similarly sized and similarly situated businesses.
4.21 Environmental Matters.
---------------------
4.22.1 During the period that Asymetrix has leased or owned its
properties or owned or operated any facilities, there have been no disposals or
releases of Hazardous Materials (as defined below) by Asymetrix, or to
Asymetrix's knowledge, by others, on, from or under such properties or
facilities, the liability for which would have a Material Adverse Effect.
Asymetrix has no knowledge of any presence, generation, manufacturing, disposals
or releases of Hazardous Materials on, from or under any of such properties or
facilities, which may have occurred prior to Asymetrix having taken possession
of any of such properties or facilities, the liability for which would have a
Material Adverse Effect
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<PAGE>
4.22.2 None of the properties or facilities of Asymetrix is in
material violation of any federal, state or local law, ordinance, regulation or
order relating to industrial hygiene or to the environmental conditions on,
under or about such properties or facilities, including, but not limited to,
soil and ground water condition. During the time that Asymetrix has owned or
leased its properties and facilities, neither Asymetrix nor, to Asymetrix's
knowledge, any third party, has used, generated, manufactured or stored on,
under or about such properties or facilities or transported to or from such
properties or facilities any Hazardous Materials except in substantial
accordance with applicable environmental laws.
4.22.3 During the time that Asymetrix has owned or leased its
properties and facilities, there has been no litigation brought or, to the
knowledge of Asymetrix, threatened against Asymetrix by, or any settlement
reached by Asymetrix with, any party or parties alleging the presence, disposal,
release or threatened release of any Hazardous Materials on, from or under any
of such properties or facilities.
4.23 Real Property Holding Corporation Status. Asymetrix and each Merger
----------------------------------------
Sub is not and has at no time been a "United States real property holding
corporation" within the meaning of Section 897(c) of the Code.
4.24 Shares Issued in Merger. The Asymetrix Common Stock to be issued to
-----------------------
the stockholders of CSI in the Merger, when issued by Asymetrix pursuant to the
terms of this Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, free and clear of all liens, claims, pledges, options, adverse
claims, assessments or charges of any nature whatsoever, and will have been
issued materially in compliance with all registration or qualification
requirements (or applicable exemptions therefrom) of applicable federal and
state securities laws.
4.25 Books and Records. The books, records and accounts of Asymetrix (a)
-----------------
are in all material respects true, complete and correct, (b) have been
maintained in accordance with good business practices on a basis consistent with
prior years, (c) are stated in reasonable detail and accurately and fairly
reflect the material transactions and dispositions of the assets of Asymetrix,
and (d) accurately and fairly reflect the basis for the Asymetrix Financial
Statements.
4.26 Certain Dispositions. Asymetrix has no present plan or intention, or
--------------------
any binding commitment, to dispose, subsequent to the Effective Time, of a
quantity of Common Stock of CSI that would cause Asymetrix to lose "control" of
Merger Sub within the meaning of Section 368(c) of the Code.
4.27 Control of Merger Sub. At all times prior to and as of the Effective
---------------------
Time, Asymetrix will be in "control" of Merger Sub, as such term is defined in
Section 368(c) of the Code.
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<PAGE>
5. CSI PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 10
hereof, each of CSI and the Principals covenants and agrees as follows:
5.1 Advice of Changes. CSI will, and the Principals will cause CSI to,
-----------------
promptly advise Asymetrix in writing (a) of any event occurring subsequent to
the date of this Agreement that would render any representation or warranty of
CSI or the Principals contained in this Agreement, if made on or as of the date
of such event or the Closing Date, untrue or inaccurate in any material respect
and (b) of any change in the business, results of operations or financial
condition of CSI that could reasonably be expected to have a Material Adverse
Effect.
5.2 Conduct of Business. CSI will, and the Principals will cause CSI to,
-------------------
continue to conduct its business and use commercially reasonable efforts to
maintain its business relationships in the ordinary and usual course and will
not, and each of the Principals will cause CSI not to, without the prior written
consent of Asymetrix (other than actions required by this Agreement, as required
by law or in connection with the performance of agreements disclosed in the CSI
Schedule of Exceptions):
(a) borrow any money;
(b) enter into any transaction not in the ordinary course of business
or which involves an expense or capital commitment by CSI in excess of $25,000,
or which obligates CSI for a period exceeding six months;
(c) encumber or permit to be encumbered any of its assets or grant
liens therein;
(d) dispose of any portion of any of the assets of CSI with a value
exceeding $10,000 (other than in the ordinary course of business);
(e) enter into any lease or contract for the purchase or sale of any
property, real or personal, except in the ordinary course of business consistent
with past practice;
(f) fail to maintain any of the equipment and other assets of CSI in
good working condition and repair according to the standards CSI has maintained
to the date of this Agreement, subject only to ordinary wear and tear;
(g) pay any bonus, royalty, increased salary or special remuneration
to any officer, employee or consultant or agree to same or enter into any new
employment, severance, "golden parachute" or consulting agreement with any such
person;
(h) change accounting methods;
(i) declare, set aside or pay any cash or stock dividend or other
distribution in respect of capital stock, or redeem or otherwise acquire any of
its capital stock;
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<PAGE>
(j) amend or terminate any contract, agreement or license to which
CSI is a party except those amended or terminated in the ordinary course of
business consistent with past practice, and which are not material in amount or
effect;
(k) lend any amount to any person or entity, other than advances for
travel and expenses which are incurred in the ordinary course of business
consistent with past practice;
(l) guarantee or act as a surety for any obligation except for the
endorsement of checks and other negotiable instruments in the ordinary course of
business consistent with past practice;
(m) waive or release any material right or claim except in the
ordinary course of business consistent with past practice;
(n) split or combine the outstanding shares of its capital stock of
any class or enter into any recapitalization affecting the number of outstanding
shares of its capital stock of any class or affecting any other of its
securities;
(o) merge, consolidate or reorganize with, or acquire any entity;
(p) amend its Certificate of Incorporation or Bylaws;
(q) issue or sell any shares of its capital stock of any class;
(r) license any of its technology or intellectual property except in
the ordinary course of business consistent with past practice;
(s) agree to any audit assessment by any tax authority (unless the
amount thereof is not material or has been adequately accrued or reserved on the
CSI Financial Statements) or file any federal or state income or franchise tax
return unless (i) the amount payable with respect thereto is not material or has
been adequately accrued or reserved on the CSI Financial Statements or (ii)
copies of such returns have been delivered to Asymetrix for its review and
approved by Asymetrix prior to filing;
(t) change any insurance coverage or issue any certificates of
insurance except as is routinely done in the ordinary course of business of CSI;
(u) hire any employee or consultant;
(v) adopt or amend any employee benefit plan;
(w) enter into any contracts for the sale of advertising in an amount
exceeding $10,000 or for longer than 30 days; or
(x) agree to do any of the things described in the preceding clauses
5.2(a) through (w).
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<PAGE>
5.3 Regulatory Approvals. CSI will, and the Principals will cause CSI to,
--------------------
execute and file, or join in the execution and filing, of any application or
other document that may be required to be filed by it in order to obtain the
authorization, approval or consent of any governmental body (federal, state,
local or foreign) which may be reasonably required, in connection with the
consummation of the transactions contemplated by this Agreement. CSI will, and
the Principals will cause CSI to, use its best efforts to obtain all such
authorizations, approvals and consents.
5.4 Necessary Consents. CSI will, and the Principals shall cause CSI to,
------------------
use commercially reasonable efforts to obtain such written consents and take
such other actions as may be necessary or appropriate in addition to those set
forth in Section 5.3 (including, without limitation those consents set forth on
Schedule 9.6) to allow the consummation of the transactions contemplated hereby
and to allow Asymetrix to carry on CSI's business after the Closing.
5.5 Litigation. CSI and the Principals will notify Asymetrix in writing
----------
promptly after learning of any actions, suits, proceedings or investigations by
or before any court, board or governmental agency, initiated by or against CSI,
or known by CSI or the Principals to be threatened against CSI.
5.6 No Other Negotiations. Unless required to do so by applicable law,
---------------------
from the date hereof until the earlier of the termination of this Agreement or
consummation of the Merger, CSI will not, and the Principals will not permit CSI
to, and will not authorize any officer or director of CSI or any other person on
its behalf to, directly or indirectly, solicit, encourage, negotiate or accept
any offer from any party concerning the possible disposition of all or any
substantial portion of CSI's business, assets or capital stock by merger, sale
or any other means or any other transaction that would involve a change in
control of CSI, or any transaction in which CSI contemplates issuing equity or
debt securities. CSI and the Principals will promptly notify Asymetrix in
writing of any third party inquiries or proposals.
5.7 Access to Information. Until the Closing, each of CSI and the
---------------------
Principals will allow Asymetrix and its agents reasonable access to the files,
books, records and offices of CSI, including, without limitation, any and all
information relating to CSI's taxes, commitments, contracts, leases, licenses,
and real, personal and intangible property (including its intellectual property)
and financial condition. CSI will and the Principals will cause CSI's
accountants to cooperate with Asymetrix and its agents in making available all
financial information reasonably requested, including, without limitation, the
right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
5.8 Satisfaction of Conditions Precedent. CSI and each of the Principals
------------------------------------
will use its or his or her commercially reasonable efforts to satisfy or cause
to be satisfied all the conditions precedent which are set forth in Section 9,
and each such person will use its or his commercially reasonable efforts to
cause the transactions contemplated by this Agreement to be consummated, and,
without limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties (including without limitation, those third
parties described in Section 9.6) and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably
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<PAGE>
required on their part in order to effect the transactions contemplated hereby.
CSI and the Principals will promptly notify Asymetrix in writing of any failure
or inability to comply fully with this Section.
5.9 Blue Sky Laws. CSI and the Principals will cooperate with Asymetrix in
-------------
connection with Asymetrix's efforts to comply with the securities and Blue Sky
laws of all jurisdictions which are applicable in connection with the Merger.
6. ASYMETRIX PRECLOSING COVENANTS
During the period from the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement pursuant to Section 10
hereof, Asymetrix and Merger Sub covenant and agree as follows:
6.1 Advice of Changes; Conduct of Business. Asymetrix and Merger Sub will
--------------------------------------
promptly advise CSI in writing (a) of any event occurring subsequent to the date
of this Agreement that would render any representation or warranty of Asymetrix
or Merger Sub contained in this Agreement, if made on or as of the date of such
event or the Closing Date, untrue or inaccurate in any material respect; or (b)
of any material adverse change in the business, results of operations or
financial condition of Asymetrix. Asymetrix will use commercially reasonable
efforts to continue to conduct its business and maintain its business
relationships in the ordinary and usual course and will not, without the prior
written consent of CSI (other than action required by this Agreement, as
required by law or in connection with the performance of agreements,
arrangements or pending transactions disclosed in the Asymetrix Schedule of
Exceptions);
(a) enter into any material transaction not in the ordinary course of
business other than as otherwise permitted elsewhere in this Section 6.1;
(b) declare, set aside or pay any material cash or stock dividend or
other material distribution in respect of capital stock, or redeem or otherwise
acquire any material portion of its capital stock other than in connection with
a possible reverse stock split or share combination;
(c) dispose of (including by license), whether to a third party, a
partially or wholly-owned subsidiary or otherwise, any substantial portion of
its assets (other than in the ordinary course of business);
(d) encumber or permit to be encumbered in any material respect a
substantial portion of its assets or grant liens thereon;
(e) issue or sell a material number of shares of its capital stock of
any class (except upon the exercise of an option to purchase Asymetrix held by
Asymetrix employees or upon conversion of outstanding Class B Stock) or any
other of its securities, or issue or create any material warrants, obligations,
subscriptions, options, convertible securities or other
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<PAGE>
commitments to issue shares of capital stock other than employee stock options
or in connection with an acquisition of another entity or an underwritten public
offering of its capital stock; or
(f) except in connection with a possible reincorporation in Delaware,
merge, consolidate or reorganize with any entity if Asymetrix does not survive
such merger, consolidation or reorganization.
6.2 Regulatory Approvals. Asymetrix and Merger Sub will execute and file,
--------------------
or join in the execution and filing, of any application or other document that
may be necessary in order to obtain the authorization, approval or consent of
any governmental body, federal, state, local or foreign, which may be reasonably
required, in connection with the consummation of the transactions contemplated
by this Agreement. Asymetrix will use its best efforts to obtain all such
authorizations, approvals and consents.
6.3 Satisfaction of Conditions Precedent. Each of Asymetrix and Merger Sub
------------------------------------
will use its commercially reasonable efforts to satisfy or cause to be satisfied
all the conditions precedent which are set forth in Section 8, and each of
Asymetrix and Merger Sub will use its commercially reasonable efforts to cause
the transactions contemplated by this Agreement to be consummated and, without
limiting the generality of the foregoing, to obtain all consents and
authorizations of third parties and to make all filings with, and give all
notices to, third parties that may be necessary or reasonably required on its
part in order to effect the transactions contemplated hereby.
6.4 Blue Sky Laws. Asymetrix shall take such steps as may be necessary to
-------------
comply with the securities and Blue Sky laws of all jurisdictions which are
applicable in connection with the Merger.
6.5 Access to Information. Until the Closing, Asymetrix will allow CSI and
---------------------
their respective agents reasonable access to the files, books, records and
offices of Asymetrix, including, without limitation, any and all information
relating to Asymetrix's taxes, commitments, contracts, leases, licenses, and
real, personal and intangible property (including its intellectual property) and
financial condition. Asymetrix will cause its accountants to cooperate with CSI
and its agents in making available all financial information reasonably
requested, including, without limitation, the right to examine all working
papers pertaining to all financial statements prepared or audited by such
accountants.
7. CLOSING MATTERS
7.1 The Closing. Subject to termination of this Agreement as provided in
-----------
Section 10 below, the Closing will take place at the offices of Asymetrix in
Bellevue, Washington on or before December 31, 1997, or, if all conditions to
closing have not been satisfied or waived by such date, such other place, time
and date as CSI and Asymetrix may mutually select (the "Closing Date").
------------
Concurrently with the Closing, the Articles of Merger will be filed in the
office of the Texas Secretary of State.
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7.2 Exchange of Certificates.
------------------------
7.2.1 As of the Effective Time, all shares of CSI Common Stock that
are outstanding immediately prior thereto will, by virtue of the Merger and
without further action, cease to exist and will be converted into the right to
receive from Asymetrix the number of shares of Asymetrix Common Stock determined
as set forth in Section 2.1, subject to Section 2.2.
7.2.2 As soon as practicable after the Effective Time, each holder of
shares of CSI Common Stock will surrender the certificate(s) for such shares
(the "Certificates"), duly endorsed as requested by Asymetrix, to Asymetrix for
------------
cancellation. Promptly after the Effective Time and receipt of such
Certificates, Asymetrix will issue to each tendering holder a certificate for
the number of shares of Asymetrix Common Stock to which such holder is entitled
pursuant to Section 2.1.
7.2.3 No dividends or distributions payable to holders of record of
Asymetrix Common Stock after the Effective Time will be paid to the holder of
any unsurrendered Certificate(s) until the holder of the Certificate(s)
surrenders such Certificate(s), or if such certificates are lost, stolen or
destroyed, provides an indemnity reasonably acceptable to Asymetrix. Subject to
the effect, if any, of applicable escheat and other laws, following surrender of
any Certificate, there will be delivered to the person entitled thereto, without
interest, the amount of any dividends and distributions therefor paid with
respect to Asymetrix Common Stock so withheld as of any date subsequent to the
Effective Time and prior to such date of delivery.
7.2.4 All Asymetrix Common Stock delivered upon the surrender of CSI
Common Stock in accordance with the terms hereof will be deemed to have been
delivered in full satisfaction of all rights pertaining to such CSI Common
Stock. There will be no further registration of transfers on the stock transfer
books of CSI or the transfer agent of such CSI Common Stock . If, after the
Effective Time, Certificates are presented for any reason, they will be canceled
and exchanged as provided in this Section.
7.2.5 Until certificates representing CSI Common Stock outstanding
prior to the Merger are surrendered pursuant to Section 7.2.2 above, such
certificates will be deemed, for all purposes, to evidence ownership of the
number of shares of Asymetrix Common Stock into which CSI Common Stock will have
been converted pursuant to Sections 2.1 hereof.
7.2.6 Certificates which are not presented to Asymetrix within three
years after the Closing shall be canceled and the holder thereof will no longer
be entitled to receive any Asymetrix securities in consideration thereof.
8. CONDITIONS TO OBLIGATIONS OF CSI AND THE PRINCIPALS
CSI's and the Principals' obligations hereunder are subject to the
fulfillment or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of
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<PAGE>
which may be waived by CSI and the Principals, but only in a writing signed by
CSI and the Principals):
8.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of Asymetrix and Merger Sub set forth in Section 4 that are not
made as of a specific date shall be true and accurate in all material respects
on and as of the date of this Agreement.
8.2 Covenants. Each of Asymetrix and Merger Sub shall have performed
---------
and complied in all material respects with all of its covenants contained in
Section 6 on or before the Closing, and CSI shall receive a certificate to such
effect signed by Asymetrix's Chief Executive Officer and Chief Financial
Officer.
8.3 Compliance with Law. There shall be no order, decree, or ruling
-------------------
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
8.4 Government Consents. There shall have been obtained at or prior
-------------------
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to, requirements under
applicable federal and state securities laws.
8.5 Opinion of Asymetrix's Counsel. CSI shall have received an
------------------------------
opinion, as to matters described in Exhibit 8.5, from the General Counsel of
-----------
Asymetrix.
8.6 Registration Rights Agreement. Asymetrix shall have executed and
-----------------------------
delivered a registration rights agreement substantially in the form of Exhibit
-------
8.6.
- ---
8.7 Put Option Agreement. Asymetrix shall have executed and
--------------------
delivered a put option agreement in the form of Exhibit 8.7.
-----------
8.8 Employment Agreements. Asymetrix shall have executed and
---------------------
delivered (i) an employment agreement with Cynthia Boyd in the form of Exhibit
-------
8.8A (the "Cynthia Boyd Employment Agreement"), (ii) an employment agreement
- ---- ---------------------------------
with James Boyd in the form of Exhibit 8.8B (the "James Boyd Employment
------------ ---------------------
Agreement").
- ---------
9. CONDITIONS TO OBLIGATIONS OF ASYMETRIX AND MERGER SUB
The obligations of Asymetrix and Merger Sub hereunder are subject to
the fulfillment or satisfaction on, and as of the Closing, of each of the
following conditions (any one or more of which may be waived by Asymetrix, but
only in a writing signed by Asymetrix):
9.1 Accuracy of Representations and Warranties. The representations
------------------------------------------
and warranties of CSI and the Principals set forth in Section 3 that are not
made as of a specific date shall be true and accurate in all material respects
on and as of the date of this Agreement.
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<PAGE>
9.2 Covenants. CSI and the Principals shall have performed and
---------
complied in all material respects with all of its covenants contained in Section
5 on or before the Closing, and Asymetrix shall receive certificates to such
effect executed by the Chief Executive Officer and Chief Financial Officer of
CSI and by the Principals.
9.3 Compliance with Law. There shall be no order, decree, or ruling
-------------------
by any court or governmental agency or threat thereof, or any other fact or
circumstance, which would prohibit or render illegal the transactions
contemplated by this Agreement.
9.4 Government Consents. There shall have been obtained at or prior
-------------------
to the Closing Date such permits or authorizations, and there shall have been
taken such other action, as may be required to consummate the Merger by any
regulatory authority having jurisdiction over the parties and the actions herein
proposed to be taken, including but not limited to, requirements under
applicable federal and state securities laws.
9.5 Opinion of Counsel. Asymetrix shall have received from counsel
------------------
to CSI and the Principals, an opinion as to the matters described in Exhibit
-------
9.5.
- ---
9.6 Consents. CSI shall have received duly executed copies of all
--------
material third party consents, approvals, assignments, waivers, authorizations
or other certificates contemplated by this Agreement or CSI Schedule of
Exceptions or reasonably deemed necessary by Asymetrix's counsel to provide for
the continuation in full force and effect of any and all material contracts and
leases of CSI (including without limitation, the consents as to Material
Contracts hereto and the Customer Agreements) and for CSI and the Principals to
consummate the transactions contemplated hereby in form and substance reasonably
satisfactory to Asymetrix, except for such consents and approvals thereof as
Asymetrix and CSI and the Principals shall have agreed shall not be obtained.
9.7 No Litigation. No litigation or proceeding shall be overtly
-------------
threatened or pending to enjoin or prevent the consummation of any of the
transactions contemplated by this Agreement, or which could be reasonably
expected to have a Material Adverse Effect.
9.8 Requisite Approvals. The principal terms of this Agreement and
-------------------
the Certificate of Merger shall have been approved and adopted by the holders of
all of the CSI Common Stock outstanding, and by a majority of the Board of
Directors of CSI.
9.9 Resignation of Directors. The directors of CSI in office
------------------------
immediately prior to the Effective Time shall have resigned as directors of CSI
effective as of the Effective Time.
9.10 Investment Representation Letter. Asymetrix shall have received
--------------------------------
from all of the holders of CSI Common Stock an executed Investment
Representation Letter substantially in the form of Exhibit 9.10 hereto.
------------
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<PAGE>
9.11 Employment Agreements. Asymetrix shall have received the
---------------------
Cynthia Boyd Employment Agreement executed by Cynthia Boyd, the James Boyd
Employment Agreement executed by James Boyd.
9.12 Employees. CSI shall have still employed, without any currently
---------
expressed intent to resign, the number of employees with the job
responsibilities as indicated on Schedule 9.13.
-------------
9.13 Material Agreements. All of the Material Agreements shall be in
-------------------
full force and effect and will not be subject to termination as a result of the
consummation of the Merger.
9.14 Absence of Material Adverse Changes. There shall not have been
-----------------------------------
any material adverse change in the financial conditions, properties, assets,
liabilities, business, prospectus or results of operations of CSI.
10. TERMINATION OF AGREEMENT
10.1 Termination of Agreement. Asymetrix on the one hand and CSI and
------------------------
the Principals on the other may terminate this Agreement prior to the Effective
Time (whether before or after stockholder approval has been obtained) solely as
provided below:
10.1.1 Asymetrix may terminate this Agreement by giving written
notice to CSI and the Principals in the event CSI or the Principals is in
breach, and CSI and the Principals may terminate this Agreement by giving
written notice to Asymetrix in the event Asymetrix is in breach, of any material
representation, warranty, or covenant contained in this Agreement, and such
breach is not remedied within 10 days of delivery of written notice thereof;
10.1.2 Asymetrix may terminate this Agreement by giving written
notice to CSI and the Principals if the Closing shall not have occurred on or
before December 31, 1997 by reason of the failure of any condition precedent
under Section 9 hereof (unless the failure results primarily for a breach by
Asymetrix of any representation, warranty or covenant contained in this
Agreement); or
10.1.3 CSI and the Principals may terminate this Agreement by giving
written notice to Asymetrix if the Closing shall not have occurred on or before
December 31, 1997 by reason of the failure of any condition precedent under
Section 8 hereof (unless the failure results primarily from a breach by CSI or
the Principals of any representation, warranty or covenant contained in this
Agreement made by him or it).
10.2 No Liability. Any termination of this Agreement pursuant to
------------
this Section 10 will be without further obligation or liability upon any party
in favor of the other party hereto other than the obligations provided in
Sections 11.2, 12.8 and 12.16 and in the Letter of Intent between Asymetrix and
CSI dated December 10, 1997, other than any liability of any party for breaches
of this Agreement, which will survive termination of this Agreement. CSI and the
Principals on the one hand and Asymetrix on the other will use their best
efforts to cause the Merger to be consummated.
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<PAGE>
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of CSI, the Principals and Asymetrix contained in this Agreement will
survive the Effective Time and remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the parties to this
Agreement, until the earlier of (a) the termination of this Agreement or (b)
three (3) years after the Closing Date, whereupon such representations,
warranties and covenants will expire (except for covenants that by their terms
survive for a longer period); provided, however, that representations,
warranties and covenants involving intentional fraud or willful misconduct shall
survive the Closing without the limitations of subsections (a) or (b) above.
The period of such survival shall be referred to herein as the "Survival
--------
Period."
- ------
11.2 Agreement to Indemnify.
----------------------
11.2.1 Subject to the limitations set forth in this Section 11, the
Principals (during the time period specified below) indemnify Asymetrix and the
surviving corporations of the Merger (the "Asymetrix Indemnified Persons") in
-----------------------------
respect of, and hold the Asymetrix Indemnified Persons harmless against, any and
all claims, demands, actions, causes of actions, losses, costs, damages,
liabilities and expenses including, without limitation, reasonable legal fees
(hereinafter referred to as "Damages"):
-------
(a) arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties and covenants
given or made by CSI or the Principals in this Agreement (including any Schedule
or Exhibit hereto) which indemnity shall survive for the time period specified
in Section 11.1;
(b) resulting from any failure of any of the Principals to
have good, valid and marketable title to the issued and outstanding CSI Common
Stock held by such stockholders, free and clear of all liens, claims, pledges,
options, adverse claims, assessments or charges of any nature whatsoever, which
indemnity shall survive for a three year period; or
(c) arising out of, related to, in connection with or
otherwise resulting from any Prior Agreement whatsoever, which indemnity shall
survive for a three year period. For purposes of the foregoing, "Prior
-------------------------------------
Agreements" means (i) all consulting, development or similar agreement under
- -----------------
which CSI has provided any training, documentation, placements, advice,
consulting services or other products and services to a customer of CSI (which
agreements are not Current Service Agreements), and (ii) all contracts for the
sale, provision or manufacture of products (including computer software),
material or supplies (which agreements are not Current Sales Agreements).
The Principals' maximum aggregate liability under paragraphs (a), (b)
and (c) of this subsection 11.2.1 shall be $3,000,000 (the "Cap"), provided,
---
however, that any indemnification obligations arising under this subsection
11.2.1 which result from intentional fraud or willful miscount shall be excluded
from the calculation of the Cap and the Cap shall not
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<PAGE>
otherwise apply to any indemnification obligations arising under this subsection
11.2.1 which result from intentional fraud or willful misconduct.
11.2.2 The indemnification provided for in paragraphs (a), (b) and
(c) of subsection 11.2.1 shall not apply unless and until the aggregate Damages
for which one or more Asymetrix Indemnified Persons seeks indemnification under
such paragraphs (a), (b) and (c), exclusive of legal fees, exceeds $150,000 (the
"Basket") and then only to the extent that aggregate Damages exceed the Basket.
------
Asymetrix will use its best efforts to obtain recoveries under all applicable
insurance policies for all Damages. Except for intentional fraud or willful
misconduct, the remedies set forth in this Section shall be the exclusive
remedies of the Asymetrix Indemnified Persons against any of the Principals.
11.2.3 Subject to the limitations set forth in this Section 11,
Asymetrix will indemnify and hold harmless the Principals (collectively, the
"CSI Indemnified Persons") from and against any and all Damages:
- ------------------------
(a) arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties and covenants given or
made by Asymetrix in this Agreement or in any certificate, document or
instrument delivered by or on behalf of Asymetrix pursuant hereto; or
(b) resulting from any failure on the part of Asymetrix to issue to
the Principals good, valid and marketable title to the Asymetrix Common Stock as
provided in this Agreement, free and clear of all liens, claims, pledges,
options, adverse claims, assessments or charges of any nature whatsoever.
Asymetrix's maximum aggregate liability under paragraphs (a) and
(b) of this subsection 11.2.3 shall be $3,000,000.
11.2.4 Any Asymetrix Indemnified Person or any CSI Indemnified Person
seeking indemnification hereunder shall give prompt written notification to the
Principals (in the case of indemnification sought by the Asymetrix Indemnified
Person) or to Asymetrix (in the case of indemnification sought by a CSI
Indemnified Person) (as applicable, the "Indemnification Representative") of the
------------------------------
commencement of any action, suit or proceeding relating to a third party claim
for which indemnification pursuant to this Section 11 may be sought; provided,
however, that no delay on the part of the Indemnified Person in providing such
notice shall relieve the Principals or Asymetrix, as the case may be, of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnification Representative may, upon
written notice thereof to the Indemnified Person, assume control of the defense
of such action, suit or proceeding with counsel reasonably satisfactory to the
Indemnified Person, provided that the Indemnification Representative
acknowledges in writing to the Indemnified Person that any damages, fines, costs
or other liabilities that may be assessed against the Indemnified Person in
connection with such action, suit or proceeding constitute Damages for which the
Indemnified Person shall be entitled to indemnification pursuant to this Section
11. If the Indemnification Representative does not so assume control of such
defense, the Indemnified Person shall control
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<PAGE>
such defense. The party not controlling such defense may participate therein at
its own expense; provided that if the Indemnification Representative assumes
control of such defense and the Indemnified Person reasonably concludes that the
indemnifying parties and the Indemnified Person have conflicting interests or
different defenses available with respect to such action, suit or proceeding,
the reasonable fees and expenses of counsel to the Indemnified Person shall be
considered "Damage" for purposes of this Agreement. The party controlling such
defense shall keep the other party advised of the status of such action, suit or
proceeding and the defense thereof and shall consider in good faith
recommendations made by the other party with respect thereto. The Indemnified
Person shall not agree to any settlement of such action, suit or proceeding
without the prior written consent of the Indemnification Representative.
11.2.5 Treatment of Indemnity Payments. Any payment made to an
-------------------------------
Indemnified Person pursuant to this Section 11 shall be treated as a reduction
in the merger consideration.
11.3 Employee Stock Options. Asymetrix shall take all action necessary to
----------------------
reserve for issuance under the Asymetrix Option Plan, and as soon as reasonably
practicable following the Closing, grant Asymetrix Options to purchase the
number of shares of Asymetrix Common Stock as set forth on Schedule 11.3 to
-------------
employees of CSI who become Asymetrix employees, with the vesting schedule for
awards as set forth on such Schedule. The recipients of options and the number
of options received by each such recipient with respect to the options
designated "as specified by CSI management" shall be determined in the sole
discretion of the Principals.
12. MISCELLANEOUS
12.1 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
12.2 Assignment; Binding Upon Successors and Assigns. Neither party hereto
-----------------------------------------------
may assign any of its rights or obligations hereunder without the prior written
consent of the other party hereto and any attempt to do so will be void. This
Agreement will be binding upon and inure to the benefit of the parties hereto
and their respective successors and permitted assigns.
12.3 Severability. If any provision of this Agreement, or the application
------------
thereof, will for any reason and to any extent be invalid or unenforceable, the
remainder of this Agreement and application of such provision to other persons
or circumstances will be interpreted so as reasonably to effect the intent of
the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of the void or unenforceable provision.
12.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the
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<PAGE>
signatures of all parties reflected hereon as signatories. Facsimile copies of
such counterparts are acceptable.
12.5 Other Remedies. Except as otherwise provided herein, any and all
--------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby or by law on such party,
and the exercise of any one remedy will not preclude the exercise of any other.
12.6 Amendment and Waivers. Any term or provision of this Agreement may be
---------------------
amended, and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or prospectively)
only by a writing signed by the party to be bound thereby. The waiver by a
party of any breach hereof or default in the performance hereof will not be
deemed to constitute a waiver of any other default or any succeeding breach or
default. The Agreement may be amended by the parties hereto at any time before
or after approval of the stockholders of CSI but, after such approval, no
amendment will be made which by applicable law requires the further approval of
the stockholders of CSI obtaining such further approval.
12.7 No Waiver. The failure of any party to enforce any of the provisions
---------
hereof will not be construed to be a waiver of the right of such party
thereafter to enforce such provisions.
12.8 Expenses. Each party will bear its respective expenses and fees of
--------
its own accountants, attorneys and other professionals incurred with respect to
this Agreement and the transactions contemplated hereby.
12.9 Attorneys' Fees. Should suit be brought to enforce or interpret any
---------------
part of this Agreement, the prevailing party will be entitled to recover, as an
element of the costs of suit, reasonable attorneys' fees to be fixed by the
court (including without limitation, costs, expenses and fees on any appeal).
The prevailing party will be entitled to recover its costs of suit, regardless
of whether such suit proceeds to final judgment.
12.10 Notices. Any notice or other communication required or permitted to
-------
be given under this Agreement will be in writing, will be delivered personally,
by registered or certified mail, postage prepaid, by confirmed facsimile or by
nationally recognized courier service, and will be deemed given upon delivery,
if delivered personally, or five days after deposit in the mails, if mailed, or
upon receipt if delivered by confirmed facsimile or by nationally recognized
courier service, to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Learning Systems, Inc.
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
-38-
<PAGE>
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (650) 494-1417
(ii) If to CSI or the Principals:
---------------------------
1300 Summit
Suite 516
Fort Worth, Texas 76102
With a copy to:
--------------
Cassell & Stone LLP
5956 Sherry Lane
Suite 1400
Dallas, Texas 75225
Facsimile: 214-696-0377
Attention: Bill Stone, Esq.
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 12.10.
12.11 Construction of Agreement. This Agreement has been negotiated by
-------------------------
the respective parties hereto and their attorneys and the language hereof will
not be construed for or against either party. A reference to a Section or an
exhibit will mean a Section in, or exhibit to, this Agreement unless otherwise
explicitly set forth. The titles and headings herein are for reference purposes
only and will not in any manner limit the construction of this Agreement which
will be considered as a whole.
12.12 No Joint Venture. Nothing contained in this Agreement will be
----------------
deemed or construed as creating a joint venture or partnership between any of
the parties hereto. No party is by virtue of this Agreement authorized as an
agent, employee or legal representative of any other party. No party will have
the power to control the activities and operations of any other and their status
is, and at all times, will continue to be, that of independent contractors with
respect to each other. No party will have any power or authority to bind or
commit any other. No party will hold itself out as having any authority or
relationship in contravention of this Section.
12.13 Further Assurances. Each party agrees to cooperate fully with the
------------------
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances as may be reasonably requested by
any other party to evidence and reflect the
-39-
<PAGE>
transactions described herein and contemplated hereby and to carry into effect
the intents and purposes of this Agreement.
12.14 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
12.15 Public Announcement. Upon execution of the Agreement by all
-------------------
parties, and until the consummation of the Merger, all press releases and other
public communications shall be made by the parties only with the mutual consent
of the Principals, CSI and Asymetrix.
12.16 Confidentiality. Asymetrix, CSI and the Principals each recognize
---------------
that they have received and will receive confidential information concerning the
other during the course of the negotiations and preparations for the Merger.
Accordingly, each party agrees (a) to use its respective best efforts to prevent
the unauthorized disclosure of any confidential information concerning the other
that was or is disclosed during the course of such negotiations and
preparations, and is clearly designated in writing as confidential at the time
of disclosure, and (b) to not make use of or permit to be used any such
confidential information other than for the purpose of effectuating the Merger
and related transactions. The obligations of this Section will not apply to
information that (i) is or becomes part of the public domain, (ii) is disclosed
by the disclosing party to third parties without restrictions on disclosure,
(iii) is received by the receiving party from a third party without breach of a
nondisclosure obligation to the other party or (iv) is required to be disclosed
by law. If this Agreement is terminated, all copies of documents containing
confidential information shall be returned by the receiving party to the
disclosing party. Notwithstanding Section 12.17, this provision does not
supersede or replace any other confidentiality or non-disclosure agreement
between the parties, all of which shall remain in full force an effect in
accordance with their terms.
12.17 Entire Agreement. This Agreement and the exhibits hereto constitute
----------------
the entire understanding and agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied, written or oral,
between the parties. The express terms hereof control and supersede any course
of performance or usage of the trade inconsistent with any of the terms hereof.
-40-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"Asymetrix" "CSI"
Asymetrix Learning Systems, Inc. Communication Strategies, Incorporated
By: /s/ J. Billmaier By: /s/ Cynthia Q. Boyd
------------------------------ ---------------------------------
Name: J. Billmaier Name: Cynthia Q. Boyd
---------------------------- -------------------------------
Its: CEO Its: President
----------------------------- --------------------------------
"Merger Sub" "Principals"
Asymetrix Acquisition Corp.
By: /s/ J. Billmaier /s/ Cynthia Q. Boyd
------------------------------ ------------------------------------
Cynthia Boyd
Name: J. Billmaier
---------------------------- /s/ James Boyd
Its: President ------------------------------------
----------------------------- James Boyd
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
-41-
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
- ------------------------------
Exhibit A Certificate of Merger
Exhibit 2.9A Asymetrix Officers' Certificate
Exhibit 2.9B CSI Officers' Certificate
Exhibit 3.0 CSI Schedule of Exceptions
Exhibit 4.0 Asymetrix Schedule of Exceptions
Exhibit 8.5 Form of Opinion of General Counsel of Asymetrix
Exhibit 8.6 Registration Rights Agreement
Exhibit 8.7 Put Option Agreement
Exhibit 8.8A Cynthia Boyd Employment Agreement
Exhibit 8.8B James Boyd Employment Agreement
Exhibit 9.5 Form of Opinion of Counsel to CSI and Principals
Exhibit 9.10 Investment Representation Letter
Schedule 9.12 CSI Employees
Schedule 11.3 Stock Options
-42-
<PAGE>
Schedule 11.3
Asymetrix Option Grants
-----------------------
<TABLE>
<CAPTION>
Exercise
Grantee Number of Shares Price Vesting
------- ---------------- -------- -------
<S> <C> <C> <C>
Cynthia Boyd 15,000 5.75 standard Asymetrix vesting schedule*
James Boyd 15,000 5.75 standard Asymetrix vesting schedule*
Scott Engle 21,300 5.75 immediately exercisable
Scott Engle 25,000 8.75 standard Asymetrix vesting schedule*
as specified by CSI 33,333 5.75 immediately exercisable
management
as specified by CSI 125,000 11.75 standard Asymetrix vesting schedule*
management
</TABLE>
*Vesting beginning on the Closing Date
<PAGE>
Form of Opinion of General Counsel of Asymetrix
1. Asymetrix was incorporated, exists and is good standing under the
laws of the State of Washington. For purposes of rendering the opinion set
forth in this Section 1 I have relied solely on the Certificate of
Existence/Authorization from the Washington Secretary of State described in
Attachment 1.
2. Asymetrix has the corporate right, power and authority to execute
and deliver the Reorganization Agreement and each Asymetrix Ancillary Agreement
to which it is a party and to carry out the transactions contemplated
thereunder.
3. The Reorganization Agreement and each Asymetrix Ancillary
Agreement to which Asymetrix is a party have been duly authorized, executed and
delivered by Asymetrix, and constitute the enforceable obligations of Asymetrix.
4. To my knowledge, no consents, permits, licenses or authorizations
by, or registrations or filings with, the State of Washington are required to be
obtained by Asymetrix for the execution, delivery or performance by Asymetrix of
the Reorganization Agreement or the Asymetrix Ancillary Agreements to which it
is a party, except such as have been obtained or made, except for the filing of
a Form D with respect to the issuance of the Asymetrix Merger Stock in the
Mergers and except for filings made under applicable securities laws.
5. The authorized capital stock of Asymetrix consists of 40,000,000
shares of Asymetrix Common Stock, $0.01 par value, 8,335,118 of which are
outstanding, and 5,000,000 shares of Class B Stock, $0.01 par value, of which
50,000 shares are designated as Series 1 Class B Stock, 37,500 shares of which
are outstanding, of which 388,395 shares are designated as Series A Stock, all
of which are outstanding, of which 388,395 shares are designated as Series B
Stock, all of which are outstanding, of which 2,500,000 shares are designated as
Series 4 Class B Stock, 2,383,894 shares of which are outstanding, and of which
1,512,500 shares are designated as Series 5 Class B Stock, none of which are
outstanding.
6. The shares of Asymetrix Common Stock that are issuable upon, and
in exchange for, the outstanding shares of Common Stock of CSI in the Mergers,
when so issued in accordance with the terms and conditions of the Reorganization
Agreement, will be duly and validly issued, fully paid and non-assessable.
7. Neither the execution nor the delivery by Asymetrix of the
Reorganization Agreement or any Asymetrix Ancillary Agreement to which it is a
party, nor the consummation of the transactions provided for therein, are in
conflict with any provision of: (a) the Articles of Incorporation or Bylaws of
Asymetrix, as applicable, as currently in effect or (b) to my knowledge, any
judgment, order or decree of any court or arbitrator to which Asymetrix is a
party or is subject.
<PAGE>
PUT OPTION AGREEMENT
This Put Option Agreement (this "Agreement") is made as of December 22,
---------
1997 (the "Effective Date"), between Asymetix Learning Systems, Inc., a
--------------
Washington corporation ("Asymetrix"), and each of Cynthia Boyd and James Boyd
---------
(collectively the "Optionees" and each individually an "Optionee").
--------- --------
RECITALS
A. On the date hereof, pursuant to that certain Agreement and Plan of
Reorganization dated of even date herewith (the "Reorganization Agreement") by
------------------------
and among Asymetrix, Asymetrix Acquisition Corp., a Texas corporation and
wholly-owned subsidiary of Asymetrix, Communication Strategies, Inc., a Texas
corporation, and Cynthia Boyd and James Boyd, Asymetrix has issued 733,591
shares of Common Stock of Asymetrix, $0.01 par value ("Common Stock").
------------
B. Asymetrix has agreed to grant each Optionee an option to require
Asymetrix to repurchase a portion of such Optionee's Common Stock upon the
terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. PUT OPTION.
1.1 Grant of Put Option; Exercise Price. Subject to the terms and
-----------------------------------
conditions herein set forth, each Optionee is hereby granted the right (the "Put
---
Option") to require Asymetrix to repurchase up to an aggregate of the number of
- ------
shares of such Optionee's Common Stock set forth next to the name of the
Optionee on Exhibit A (the "Option Shares") at an exercise price equal to $11.75
--------- -------------
per share (the "Put Exercise Price"), without interest, upon exercise of such
------------------
Put Option, payable by Asymetrix in cash, wire transfers, cancellation of
indebtedness or a combination of the foregoing. The number of Option Shares and
the per share Put Exercise Price shall be subject to adjustment as provided in
Section 2.
1.2 Exercise of Put Option.
----------------------
(a) The Put Option shall be exercisable if and only if Asymetrix
fails to close the initial public offering of Common Stock of Asymetrix at an
aggregate offering price to the public of not less than $10,000,000 pursuant to
an effective registration statement filed under the Securities Act of 1933, as
amended, on or prior to June 30, 1998.
-1-
<PAGE>
(b) The Put Option shall be exercisable by an Optionee only by
delivery to Asymetrix of a completed and fully executed Put Option Subscription
Form (in the form attached hereto as Exhibit B
---------
(c) The closing of the repurchase shall take place at the offices
of Asymetrix (or such other location as the parties shall mutually agree) on
such date as the parties shall mutually agree that is no later than the 30/th/
days after the date notice is given pursuant to the Put Option Subscription
Form; provided, however, that if the parties cannot agree regarding the date of
closing, the closing shall occur on such 30th day (or if such 30/th/ day is a
Saturday , Sunday or legal holiday the closing shall take place on the next day
that is not a Saturday , Sunday or legal holiday). At the closing, the
exercising Optionee shall deliver to Asymetrix and a certificate representing
the Option Shares for cancellation, duly endorsed in blank by such Optionee, or
having attached thereto an assignment separate from certificate (in the form
attached hereto as Exhibit C) duly executed by such Optionee, and upon receipt
---------
thereof Asymetrix shall effect payment to the Optionee. The Put Option shall be
deemed to have been exercised immediately prior to the close of business on the
date of surrender of the Put Option Subscription Form for exercise as provided
in Section1.2(b). To the extent that the certificates surrendered by an Optionee
represent a greater number of shares than the Option Shares with respect to
which the Put Option was exercised, Asymetrix shall issue to such Optionee a
certificate representing the shares represented by the original certificate that
were not Option Shares with respect to which the Put Option was exercised.
1.3 No Assignment. This Put Option shall not be assignable or
-------------
transferable by the Optionees, except by testamentary bequest or otherwise in
connection with the Optionees' estate planning. Except as provided herein,
Optionees may not sell, assign, transfer, hypothecate, pledge or otherwise
encumber, in any manner, the Put Option or their rights under this Agreement.
Any attempt to sell, assign, transfer, hypothecate, pledge or otherwise encumber
this Agreement or any interest therein and any levy of execution, attachment, or
similar process on such securities or property shall be null and void. Subject
to the foregoing, this Agreement shall be binding on and inure to the benefit of
the heirs, executors, and personal representatives of the Optionees.
1.4 Termination. The Put Option shall terminate in full with respect
-----------
to any Optionee, to the extent not previously exercised, upon the earlier of (i)
the date such Optionee (or a transferee pursuant to Section 1.3) no longer holds
any shares of Asymetrix Common Stock, (ii) the closing of the initial public
offering of Common Stock of Asymetrix at an aggregate offering price to the
public of not less than $10,000,000 pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended, or (iii) failure
to deliver to Asymetrix the fully executed Put Option Subscription Form by July
31, 1998.
1.5 Rescission Right on Merger if Put Option not Honored.
----------------------------------------------------
(a) If (i) the Put Option becomes exercisable in accordance with
this Agreement, (ii) all Optionees exercise the Put Option with respect to all
of such Optionees'
-2-
<PAGE>
Option Shares and (iii) Asymetrix fails for any reason to repurchase such Option
Shares in accordance with this Agreement, then the Optionees shall have the
right to rescind the merger transactions accomplished pursuant to the
Reorganization Agreement (the "Rescission"). The parties intend that the
Rescission will be accomplished in a tax-free share exchange, merger or other
similar transaction pursuant to which Asymetrix would receive all of the shares
of Asymetrix Common Stock held by the Optionees and the Optionees would receive
all of the shares of CSI Common Stock held by Asymetrix. At the time of the
Rescission, all unexercised options to purchase shares of Asymetrix Common Stock
held by employees of CSI shall terminate. Following the Rescission, CSI will
have no liability for the business or conduct of Asymetrix occurring before or
after the Rescission and Asymetrix will have no liability for the business or
conduct of CSI occurring before or after the Rescission. Nothing contained
herein shall relieve Asymetrix of its obligation to repurchase the Option Shares
upon proper exercise of the Put Option.
(b) To enable the Rescission to be accomplished in an efficient
manner, Asymetrix agrees that, until termination of the Put Option pursuant to
Section 1.4, (i) Asymetrix will continue to maintain CSI as a separate
corporate entity and shall continue to conduct the business of CSI as a separate
business unit, (ii) all contracts for work to be performed by CSI shall be
executed in the name of CSI, (iii) except as otherwise contemplated by the
Reorganization Agreement, no assets of CSI, including new receivables, will be
distributed from CSI without the prior consent of the Optionees, and (iv)
Asymetrix will not sell, transfer, encumber or otherwise assign any interest in
the CSI Common Stock.
(c) The parties acknowledge that the foregoing is a statement of
their intentions, and that all of the details of the Rescission and the conduct
of CSI's business prior to the termination of the Put Option cannot be specified
with particularity. Accordingly, prior to the termination of the Put Option,
each party will act in good faith in a manner consistent with intentions set
forth in this Section 1.5, and each will cooperate with the other and use all
commercially reasonable efforts to maintain CSI as a separate business unit and
to effectuate the Rescission in accordance with this Section 1.5.
2. CHANGE IN CAPITAL STRUCTURE.
The number and type of shares transferable by an Optionee upon exercise of
the Put Option and the per share Put Exercise Price shall be equitably adjusted
in the event of any stock split, combination, stock dividend or
recapitalization, or conversion or exchange for other securities or property as
a result of a merger, sale, liquidation or reorganization of Asymetrix, or other
similar change in capital structure of Asymetrix. Nothing in this Section, or
elsewhere in this Agreement, however, shall have the effect of altering the
aggregate Put Exercise Price payable to an Optionee upon exercise of the Put
Option.
3. SECURITIES LAWS.
The Optionees will fully cooperate with Asymetrix in obtaining the benefit
of such exemptions from state and federal securities laws as Asymetrix or its
counsel shall determine are
-3-
<PAGE>
appropriate in order to effectuate the repurchase of the Option Shares pursuant
to the exercise of the Put Option.
4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE OPTIONEE.
4.1 Ownership of Option Shares; No Conflicts. Each of Optionees
----------------------------------------
represents and warrants as of this date, and covenants for the period beginning
on this date and ending on the termination of this Agreement pursuant to Section
1.4, that (i) the Optionee has and will have the right to enter into this
Agreement, to transfer to Asymetrix all or any part of such Optionee's Option
Shares free and clear of any lien, claim, encumbrance or restriction of any type
or nature whatsoever (other than restrictions on resale that may arise under
applicable federal and state securities laws); (ii) such Optionee's Option
Shares are not and will not be subject to any right of first refusal, right of
repurchase or any similar right granted to, or retained by, any shareholder of
Asymetrix or any other person; and (iii) there is no provision of any existing
agreement, and the Optionee will not enter into an agreement, by which the
Optionee is or would be bound (or to which the Optionee is or would become
subject) that conflicts or would conflict with this Agreement or the performance
of the Optionee's obligations under this Agreement.
4.2 Further Assurances. Upon the reasonable request of Asymetrix,
------------------
the Optionee will prepare, execute and deliver any further instruments and do
any further acts that may be necessary to carry out more effectively the purpose
of this Agreement.
4A. REPRESENTATIONS, WARRANTIES AND COVENANTS OF ASYMETRIX.
4A.1 Authorization. Asymetrix has the corporate right, power, legal
-------------
capacity and authority to enter into and perform its obligations under this
Agreement. The execution, delivery and performance of this Agreement has been
duly and validly approved and authorized by all necessary corporate action on
the part of Asymetrix.
4A.2 Solvency. As of the date hereof, Asymetrix's repurchase of all
--------
of the Option Shares from the Optionees and the payment to the Optionees of the
aggregate Option Exercise Price would not cause Asymetrix to become insolvent.
5. GENERAL PROVISIONS
5.1 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended only with the written consent of the Company and the Optionees. Any
amendment or waiver effected in accordance with this Section 5.1 shall be
binding upon each Optionee, any permitted successor or assignee of the Optionees
and the Company
5.2 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the
-4-
<PAGE>
parties hereto. The parties agree that the venue of any action to enforce this
Agreement shall be in the state or federal courts located in King County,
Washington.
5.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
5.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
5.5 Notices. Any notice or other communication required or permitted
-------
to be given under this Agreement will be in writing, will be delivered
personally, by registered or certified mail, postage prepaid, by confirmed
facsimile or by nationally recognized courier service, and will be deemed given
upon delivery, if delivered personally, or five days after deposit in the mails,
if mailed, or upon receipt if delivered by confirmed facsimile or nationally
recognized courier service to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Learning Systems, Inc.
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (425) 637-1540
Attention: General Counsel
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 494-1417
(ii) If to Shareholders:
------------------
To the addresses set forth on Exhibit A hereto
---------
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 5.5.
-5-
<PAGE>
5.6 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
5.7 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
IN WITNESS WHEREOF, the undersigned have executed this Put Option Agreement
the day and year first above written.
ASYMETRIX LEARNING SYSTEMS, INC. OPTIONEES
Signature:
-------------------------- ---------------------------
Cynthia Boyd
Name:
-------------------------------
Title:
------------------------------ ---------------------------
James Boyd
[SIGNATURE PAGE TO PUT OPTION AGREEMENT]
-6-
<PAGE>
EXHIBIT A
---------
LIST OF SHAREHOLDERS
<TABLE>
<CAPTION>
Number of Shares of
Asymetrix Common Stock Held
Name and Address ---------------------------
- ----------------
Total Shares Option Shares
------------ -------------
<S> <C> <C>
Cynthia Boyd 550,194 191,490
1300 Summit, Suite 516
Fort Worth, TX 76102
James Boyd 183,398 63,830
1300 Summit, Suite 516
Fort Worth, TX 76102
</TABLE>
-7-
<PAGE>
EXHIBIT B
---------
PUT OPTION SUBSCRIPTION FORM
(To be signed only upon exercise of Put Option)
To: Asymetrix Learning Systems, Inc.
The undersigned (the "Optionee"), hereby irrevocably elects to exercise the
--------
right represented by that Put Option to sell to Asymetrix Learning Systems,
Inc., a Washington corporation ("Asymetrix"), _______ shares of Common Stock of
---------
Asymetrix at an aggregate exercise price of $______ for such shares.
------------------------------------
Signature
------------------------------------
Printed Name
------------------------------------
Date
-8-
<PAGE>
EXHIBIT C
---------
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED, I, __________________, hereby sell, assign and transfer
unto Asymetrix Learning Systems, Inc., a Washington corporation (the "Company"),
________ shares of Common Stock of the Company, standing in my name on the books
of the Company represented by Certificate(s) No(s). _____ herewith and do hereby
irrevocably constitute and appoint _______________ to transfer said stock on the
books of the Company with full power of substitution in the premises.
------------------------------------
Signature
------------------------------------
Printed Name
------------------------------------
Date
This Assignment Separate from Certificate was executed in conjunction with
the terms of a Put Option Agreement dated December __, 1997, and shall not be
used in any manner except as provided in such Agreement.
-9-
<PAGE>
December 22, 1997
Asymetrix Learning Systems, Inc.
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Re: Agreement and Plan of Reorganization entered into as of December 22,
1997, by and among Asymetrix Learning Systems, Inc., CSI Acquisition
Corp., Communication Strategies, Incorporated, and Cynthia Q. Boyd and
James P. Boyd
Ladies and Gentlemen:
This firm has acted as counsel to Communication Strategies, Incorporated, a
Texas corporation ("CSI"), and its stockholders, Cynthia Q. Boyd and James P.
Boyd (Cynthia Q. Boyd and James P. Boyd are collectively referred to herein as
the "Principals") (CSI and the Principals are collectively referred to herein as
the "Sellers"), solely in connection with an Agreement and Plan of
Reorganization entered into as of December 22, 1997, by and among Asymetrix
Learning Systems, Inc., a Washington corporation ("Asymetrix"), Asymetrix
Acquisition Corp., a Texas corporation and a wholly-owned subsidiary of
Asymetrix ("Merger Sub"), CSI, and the Principals (the "Agreement"). This
opinion is delivered to you pursuant to Section 9.5 of the Agreement.
Capitalized terms used but not otherwise defined herein shall have the
definitions assigned to such terms in the Agreement, unless the context requires
otherwise.
In connection with this opinion, we have examined such matters of law and
such certificates, documents, and records of public officials and of officials
of CSI as we have deemed necessary for purposes of rendering this opinion,
including, but not limited to, the following: the Articles of Merger, the
Certificate of Merger, the Registration Rights Agreement in the form of Exhibit
8.6 to the Agreement, and the Put Option Agreement in the form of Exhibit 8.7 to
the Agreement (collectively, the "Transaction Documents").
In rendering this opinion, we have made the following assumptions:
(a) All documents submitted to or reviewed by us are accurate and complete
and, if not originals, are true and correct copies of the originals. The
signatures on each of such documents by the parties thereto are genuine. Each
individual who signed such documents had the legal capacity to do so. All
persons who signed such documents on behalf of a corporation were duly
authorized to do so, provided that this assumption does not apply to the Sellers
with respect to the Transaction Documents.
<PAGE>
Asymetrix Learning Systems, Inc.
December 22, 1997
Page 2
(b) Asymetrix and Merger Sub each has the corporate power and authority to
execute and deliver the Transaction Documents and to perform its respective
obligations under the Transaction Documents.
(c) The execution by each of Asymetrix and Merger Sub of the Transaction
Documents has been duly authorized by all requisite corporate action, and each
of the Transaction Documents has been duly executed and delivered by each of
Asymetrix and Merger Sub.
(d) Each of Transaction Documents constitutes the binding obligation of
each of Asymetrix and Merger Sub, enforceable against each of Asymetrix and
Merger Sub in accordance with its terms.
Based upon the foregoing and subject to the limitations and qualifications
set forth herein, we are of the opinion that:
1. CSI was incorporated, exists, and is in good standing under the laws of
the State of Texas. For purposes of rendering the opinions set forth in this
paragraph 1, we have relied solely upon certificates of the Secretary of State
of the State of Texas and the Comptroller of Public Accounts of the State of
Texas, each dated December 19, 1997.
2. CSI has the corporate power and authority to execute and deliver the
Transaction Documents to which CSI is a party and to carry out the transactions
contemplated under the Transaction Documents.
3. Each of the Transaction Documents has been authorized, executed, and
delivered by each Seller that is a party thereto, and constitutes the
enforceable obligation of each Seller that is a party thereto.
4. The execution and delivery of each of the Transaction Documents by each
Seller that is a party thereto does not, and the performance of such Transaction
Document by such Seller will not, violate any statute or regulation by which
such Seller is bound, or the Certificate of Incorporation or Bylaws of CSI.
5. To our knowledge, the execution and delivery of each of the Transaction
Documents by each Seller that is a party thereto does not, and the performance
by such Seller of such Transaction Document will not, require the consent or
approval of any person that has not been obtained.
6. To our knowledge, no registration or filing with, or consent, permit,
license, or authorization of, any government or agency thereof is required as a
result of the execution, delivery, or performance of the Transaction Documents
except for those matters that have been registered or filed and except for those
consents, permits, licenses, or authorizations that have been obtained.
<PAGE>
Asymetrix Learning Systems, Inc.
December 22, 1997
Page 3
7. The authorized capital stock of CSI consists of 10,000 shares of common
stock, par value $1.00 per share. Of such common stock, 1,000 shares are issued
and outstanding. To our knowledge, all such outstanding shares are fully paid
and nonassessable. To our knowledge, there are no agreements, subscriptions,
warrants, calls, or options to which CSI is a party that bind it to issue or
sell any capital stock or any securities convertible into or exchangeable for
any capital stock. Of such shares, the Principals collectively hold 1,000
shares which are, to our knowledge, free and clear of all claims, liens,
pledges, or encumbrances. For purposes of rendering the opinions set forth in
the first two sentences of this paragraph 7, we have relied solely upon an
officer's certificate of CSI, dated December 22, 1997, a copy of which is
attached to this opinion as Exhibit A.
---------
This opinion is further limited and qualified in all respects as follows:
1. This opinion is specifically limited to matters of the existing laws of
the State of Texas and of the United States of America. We express no opinion
as to the applicability of the laws of any other particular jurisdiction to the
transactions described in this opinion.
2. The opinions expressed herein are limited to the extent that (i)
general equitable principles limit the availability of equitable remedies,
including, but not limited to, the remedies of specific performance, injunctive
relief, the appointment of a receiver, and rights of acceleration and (ii) the
enforceability of the Credit Documents is limited by applicable bankruptcy,
insolvency, fraudulent conveyance, and other debtor relief laws of general
applicability; by the rights of the United States under federal tax lien laws,
including, without limitation, the Federal Tax Lien Act of 1966, as amended; and
by the rights under state commercial law of holders of security interests in
goods that become fixtures. We express no opinion as to the availability of
certain provisions or remedies set forth in the Credit Documents, if any,
relating to (i) self-help remedies, (ii) provisions that purport to establish
evidentiary standards for suits or proceedings, (iii) provisions relating to
waivers, or (iv) the perfection or priority of any security interest.
3. This opinion is limited to the legal matters stated herein, and no
opinion is implied or may be inferred beyond the legal matters expressly stated
herein. Without limiting the foregoing, in rendering the opinions expressed
herein, we express no opinion regarding the applicability or effect of or
compliance with any federal and state securities laws and regulations; Federal
Reserve Board margin regulations; pension and employee benefit laws and
regulations; federal and state antitrust and unfair competition laws and
regulations, federal and state laws and regulations concerning filing
requirements (other than requirements applicable to charter-related documents);
compliance with fiduciary duty requirements; the statutes, administrative
decisions and rules and regulations of county, municipal and special political
subdivisions (whether state-level, regional or otherwise); federal and state
tax laws and regulations; federal and state laws and regulations concerning the
creation, attachment, perfection, priority or enforcement of a lien or security
interest in real or personal property; fraudulent transfer laws; federal and
state
<PAGE>
Asymetrix Learning Systems, Inc.
December 22, 1997
Page 4
environmental laws and regulations; and federal and state land use and
subdivision laws and regulations.
4. We express no opinion as to the enforceability of any provision in the
Transaction Documents allowing Asymetrix, Merger Sub, or both to exercise any
rights thereunder without notice to the Sellers.
5. We note that some of the Transaction Documents provide that they are to
be governed by and interpreted in accordance with the law of the State of
Washington. For purposes of rendering this opinion only, we have nonetheless
assumed that such Transaction Documents will be governed by and interpreted in
accordance with the law of the State of Texas, notwithstanding such choice of
law provision. We have not undertaken to compare the law of the State of
Washington to that of the State of Texas and we express no opinion whatsoever
with respect to the law of the State of Washington. Furthermore, we express no
opinion whatsoever as to any choice of law or as to any internal substantive
rules of law that any court or tribunal may apply to the Transaction Documents
or the transactions referred to therein, and we express no opinion whatsoever as
to the applicability of the law of any particular jurisdiction to the
Transaction Documents or the transactions referred to therein.
As used herein, the phrases "to our knowledge" or "known to us" or any
similar phrase means that the knowledge of this firm is limited to the present
personal recollection of our attorneys who have prepared this opinion and who
have had actual involvement in the transaction that is the subject of this
opinion; and, further, you cannot rely on such attorneys having made any
independent verification of, or inquiry with respect to, the facts relevant to
this opinion, whether in the general course of our representation of the Sellers
or for purposes of rendering this opinion to you.
This opinion is intended solely for your benefit. It is not to be quoted
in whole or in part, disclosed, made available to or relied upon by any other
person, firm or entity without our express prior written consent.
This opinion is based upon our knowledge of the law and the facts as of the
date hereof. We assume no duty to update or supplement this opinion to reflect
any facts or circumstances that may hereafter come to our attention or to
reflect any changes in any law that may hereafter occur or become effective.
Respectfully submitted,
CASSELL & STONE, L.L.P.
<PAGE>
December 22, 1997
Asymetrix Learning Systems, Inc.
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
INVESTMENT REPRESENTATION LETTER
The undersigned holder ("Shareholder") of Common Stock (the "CSI Common
Stock") of Communication Strategies Incorporated, a Texas corporation ("CSI"),
is acquiring shares of Common Stock of Asymetrix Learning Systems, Inc., a
Washington corporation ("Asymetrix") pursuant to that certain Agreement and Plan
of Reorganization (the "Plan") dated as of December 22, 1997 by and among
Asymetrix, Asymetrix Acquisition Corp., a Texas corporation and a wholly-owned
subsidiary of Asymetrix ("Merger Sub"), CSI, and Cynthia Boyd and James Boyd,
pursuant to which Merger Sub will merge with and into CSI in a reverse
triangular merger, with CSI to be the surviving corporation of the merger (the
"Merger"), and all of the outstanding Common Stock of CSI will be converted into
shares of Asymetrix Common Stock (the "Restricted Securities") pursuant to a
private placement effected pursuant to Section 4(2) of the U.S. Securities Act
of 1933, as amended (the "Securities Act") and/or Regulation D promulgated
thereunder. Unless otherwise defined herein, all capitalized terms used herein
shall have the meanings given to such terms in the Plan.
In connection with the Merger, Shareholder hereby represents and warrants
to Asymetrix as follows:
(1) Status of Shareholder. Shareholder is an "accredited investor" within
---------------------
the meaning of Regulation D promulgated under the Securities Act. Shareholder
has the knowledge and experience in financial and business matters necessary to
evaluate and make an informed decision regarding the exchange of Shareholder's
shares of CSI Common Stock for the Restricted Securities and to make the
investment in the Restricted Securities pursuant to the Merger. Shareholder has
the capacity to protect its own interests in connection with the Mergers.
(2) Plan. Shareholder acknowledges that Shareholder has received, read and
----
understood the Plan.
(3) Access to Other Information. Shareholder acknowledges that Asymetrix
---------------------------
has made available to Shareholder the opportunity to examine such additional
documents and to ask questions of, and receive answers from, Asymetrix and its
management concerning, among other things, Asymetrix, its business, financial
condition, management, activities and any other
<PAGE>
information which Shareholder considers relevant, important or material in
making the decision to participate in the Mergers and to invest in the
Restricted Securities.
(4) Risks of Investment. Shareholder acknowledges that the Restricted
-------------------
Securities involve a degree of risk and is aware of the lack of liquidity of the
Restricted Securities. Shareholder appreciates the financial hazards involved
in making the investment and understands the tax consequences of investing in
the Restricted Securities. Shareholder has not relied on Asymetrix or its
counsel for any advice regarding the tax consequences of the Mergers and/or
Shareholder's investment in the Restricted Securities.
(5) Investment Intent. Shareholder is acquiring the Restricted Securities
-----------------
in the Mergers for investment purposes for Shareholder's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act. Shareholder has no present intention
of disposing of the Restricted Securities and no one other than the
beneficiaries of Shareholder has any beneficial interest in the Restricted
Securities.
(6) Restricted Securities; Registration Rights. Shareholder acknowledges
------------------------------------------
and understands that the terms of the Mergers have not been reviewed by the
Securities and Exchange Commission (the "SEC") or by any state securities
authorities, that the Restricted Securities to be received by Shareholder
pursuant to the Mergers have not been registered under the Securities Act and
constitute "restricted securities" within the meaning of Rule 144 promulgated
under the Securities Act ("Rule 144"), and have been issued in reliance on the
exemptions for non-public offerings provided by Section 4(2) of the Securities
Act and/or Regulation D promulgated thereunder, which exemptions depend upon,
among other things, the representations made and information furnished by
Shareholder herein, including but not limited to the bona fide nature of
Shareholder's investment intent as expressed above. Shareholder and Asymetrix
acknowledge that Shareholder has certain "piggyback" registration rights to
cause Asymetrix to include such Restricted Securities in a registration
statement under the Securities Act, if any such registration statement is filed
by Asymetrix and subject to the limitations set forth in the Registration Rights
Agreement being entered into by and among the Aimtech Shareholders and Asymetrix
pursuant to the Plan and that Asymetrix is not otherwise obligated to register
the Restricted Securities to be issued to Shareholder.
(7) Rule 144. Shareholder acknowledges that, absent such registration of
--------
the Restricted Securities, Shareholder will not be able to publicly sell the
Restricted Securities until one year after the Effective Time of the Merger.
After that date, Shareholder may sell the Restricted Securities in compliance
with Rule 144. Shareholder is familiar with the provisions of Rule 144 which
permit limited public resales of "restricted securities," subject to the
satisfaction of certain conditions regarding the restrictions on the transfer of
the Restricted Securities imposed by Rule 144. Shareholder understands that in
the event all of the applicable requirements of Rule 144 are not satisfied,
registration under the Securities Act or some other exemption from the
registration requirements of the Securities Act will be required in order to
enable Shareholder to dispose of the Restricted Securities, and that Shareholder
may be required to hold the Restricted Securities for a significant period of
time prior to reselling them. Shareholder acknowledges that if it is or becomes
an "affiliate" of Asymetrix, then certain restrictions, including volume limits,
imposed by Rule 144 will continue to apply to Shareholder
2
<PAGE>
beyond the second anniversary of the date on which Shareholder acquires the
Restricted Securities.
(8) Procedures for Transfer. Shareholder will not sell, transfer,
-----------------------
exchange, pledge or otherwise dispose of, or make any offer or agreement
relating to any of the foregoing with respect to, any Restricted Securities, or
any option, right or other interest with respect to any Restricted Securities,
unless: (i) such transaction is permitted pursuant to Rule 144; (ii) counsel
representing Shareholder shall have advised Asymetrix in a written opinion
letter reasonably satisfactory to Asymetrix and Asymetrix's legal counsel, and
upon which Asymetrix and its legal counsel may reasonably rely, that no
registration under the Securities Act would be required in connection with the
proposed sale, transfer or other disposition of Restricted Securities; or (iii)
a registration statement under the Securities Act covering the Restricted
Securities proposed to be sold, transferred or otherwise disposed of, describing
the manner and terms of the proposed sale, transfer or other disposition, and
containing a current prospectus, shall have been filed with the SEC and be
effective under the Securities Act.
(9) Legends. Shareholder also understands and agrees that there will be
-------
placed on the certificates evidencing the ownership of the Restricted
Securities, the following legend (in addition to any legends required by
applicable state laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT").
THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED UNLESS (1)
A REGISTRATION STATEMENT UNDER THE SECURITIES ACT (AND CURRENT PROSPECTUS)
IS IN EFFECT AS TO THE SECURITIES, (2) AN EXEMPTION THEREFROM IS AVAILABLE,
OR (3) THE SECURITIES ARE SOLD PURSUANT TO RULE 144 OF THE SECURITIES ACT.
THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM
AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED
TRANSFER OR RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.
(10) Stop Transfer Instructions; No Requirement to Transfer. Shareholder
------------------------------------------------------
agrees that, in order to ensure compliance with the restrictions referred to
herein, Asymetrix may issue appropriate "stop transfer" instructions to its
transfer agent, if any. Asymetrix shall not be required (i) to transfer or have
transferred on its books any Restricted Securities that have been sold or
otherwise transferred in violation of any of the provisions of this letter or
the Plan or (ii) to treat as owner of such Restricted Securities or to accord
the right to vote or pay dividends to any purchaser or other transferee to whom
such Restricted Securities shall have been so transferred in violation of any
provision of this letter or the Plan.
(11) Ability to Bear Economic Risk. Shareholder represents that it (i) is
-----------------------------
able to bear the economic risk of its investment in the Restricted Securities,
(ii) is able to hold the Restricted Securities for an indefinite period of time,
(iii) can afford a complete loss of its investment in the Restricted Securities
and (iv) has adequate means of providing for its current needs and possible
contingencies and has no need for liquidity in this investment.
3
<PAGE>
(12) No Public Solicitation. Shareholder represents that at no time was
----------------------
such Shareholder presented with or solicited by any general mailing, leaflet,
public promotional meeting, newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or general solicitation
in connection with the Mergers.
Sincerely,
----------------------------------
Name of Shareholder
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
[SIGNATURE PAGE TO INVESTMENT REPRESENTATION LETTER]
4
<PAGE>
EXHIBIT 2.04
PLAN OF MERGER
OF
ASX R&D CORPORATION
INTO
ASYMETRIX CORPORATION
THIS PLAN OF MERGER is made by and between ASYMETRIX CORPORATION, a
Washington corporation, ("Asymetrix") and ASX R&D CORPORATION, a Washington
corporation, ("ASX").
ASX shall merge with and into Asymetrix, with Asymetrix being the surviving
corporation, as follows:
1. Merger. Upon the terms and subject to the conditions of this Plan of
------
Merger, at the Effective Date (as defined below) in accordance with the
Washington Business Corporation Act (the "Act"), ASX will merge with and
into Asymetrix (the "Merger") and the separate existence of ASX will
thereupon cease. Asymetrix will be the surviving corporation in the
Merger.
2. Effective Date. The Merger will become effective as of the date and at
--------------
such time (the "Effective Date") as a copy of this Plan of Merger, and any
other documents necessary to effect the Merger are filed with the Secretary
of State of the State of Washington and become effective.
3. Terms and Conditions of Merger. At the Effective Date of the Merger:
------------------------------
(a) Each share of ASX common stock that is issued and outstanding
immediately prior to the Effective Date will be canceled.
(b) Paul G. Allen ("Allen"), the sole shareholder of ASX, will receive
in consideration of the Merger and for cancellation of his shares of
ASX common stock, 15,000 shares of common stock of Asymetrix.
(c) Each share of Asymetrix common stock which is issued and
outstanding immediately prior to the Effective Date, other than shares
owned by Allen, will be canceled and returned to the status of
authorized but unissued. The holder of each canceled share, other
than shares, if any, held by any "Dissenter," as that term is defined
in RCW 23B.13, shall be paid $0.50 per share, as follows:
(i) Each holder of Asymetrix common stock entitled to payment
therfor (a "Payee") shall deliver his or her stock certificate(s)
to the Secretary of Asymetrix during regular business hours on
any business day within 180 days of the Effective Date. Shares
shall be surrendered for cancellation by delivering them in
person or by mail to:
-1-
<PAGE>
John D. Atherly, Secretary
ASYMETRIX CORPORATION
Suite 700
110-110th Ave. N.E.
Bellevue, Washington 98004
The certificate need not be endorsed in any manner. The Payee
should include with the surrendered certificate the address at
which he or she wishes the monetary payment to be mailed;
(ii) The Secretary is authorized, but not required, to accept as
proof of ownership in lieu of a stock certificate a duly executed
lost certificate affidavit and indemnity in form acceptable to
the Secretary;
(iii) The Secretary will deliver payment for the shares so
evidenced by forwarding a check in the appropriate amount via
first class mail to such mailing address as may be specified by
the Payee, or, if no such address is specified by the Payee, to
the last known address of the Payee. Payment for such
surrendered shares shall be mailed within 30 days of the later of
the Effective Date of the Merger or the date upon which the
certificate other acceptable proof of share ownership is received
by Asymetrix;
(iv) Asymetrix shall not be obligated to make payment for shares
where neither a stock certificate nor other acceptable proof of
ownership is received within 180 days from the Effective Date.
The holder of each canceled share held by any Dissenter shall be dealt with
as provided under Section 23B.13 of the Washington Business Corporation
Act.
(d) Each issued and outstanding share of Asymetrix common stock owned
by Allen immediately prior to the Effective Date shall remain issued
and outstanding.
4. Name. The name of the surviving corporation will remain "Asymetrix
----
Corporation."
5. Directors and Principal Officers. The directors and the executive
--------------------------------
officers of Asymetrix immediately prior to the Effective Date will continue
to serve as the directors and executive officers of Asymetrix after the
Effective Date.
6. Articles of Incorporation and Bylaws. At and after the Effective Date,
------------------------------------
the Articles of Incorporation and the Bylaws of Asymetrix in effect
immediately prior to the Effective Date will continue to be the Articles of
Incorporation and the Bylaws of Asymetrix.
7. Conditions Precedent. This Plan of Merger is subject to the approval
--------------------
of the directors and shareholders of both Asymetrix and ASX.
-2-
<PAGE>
8. Amendment. This Plan of Merger may be amended by the agreement of the
---------
parties hereto either before or after approval by their respective
shareholders, provided that any such amendment does not materially affect
the rights of any shareholder who does not consent to such amendment.
9. Execution. This Plan of Merger may be executed in any number of
---------
counterparts each of which will be deemed an original and all counterparts
will constitute one and the same instrument.
DATED as of this 14th day of February, 1995.
ASYMETRIX CORPORATION
/s/ Vern L. Raburn
------------------------------
Vern L. Raburn
President
ASX R&D CORPORATION
/s/ Bert E. Kolde
------------------------------
Bert E. Kolde
President
-3-
<PAGE>
EXHIBIT 3.01
CERTIFICATE
OF
RESTATED ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of RCW 23B.10.070 of the Washington Business
Corporation Act, ASYMETRIX CORPORATION, a Washington corporation, hereby
certifies as follows with respect to the Articles of Restatement which are
attached hereto: The Restated Articles of Incorporation contain amendments to
the articles of incorporation requiring shareholder approval. Accordingly, the
information required by RCW 23B.10.060 is as follows:
FIRST: The name of the corporation is: ASYMETRIX CORPORATION
SECOND: Articles I through XII of the Articles of Incorporation are
amended to read in their entirety as set forth in the Amended and Restated
Articles of Incorporation, attached hereto.
THIRD: The amendments do not provide for an exchange, reclassification or
cancellation of any issued shares.
FOURTH: The date of each amendment's adoption was July 12, 1995.
FIFTH: The foregoing amendments to the Articles of Incorporation were duly
approved and adopted by the board of directors and shareholders of
ASYMETRIX CORPORATION in accordance with the provisions of RCW 23B.10.030
and RCW 23B.10.040.
DATED this 12th day of July, 1995.
ASYMETRIX CORPORATION
/s/ James Billmaier
-------------------
James Billmaier
President
<PAGE>
ASYMETRIX CORPORATION
ARTICLES OF RESTATEMENT
Pursuant to the provisions of RCW 23B.10.070 of the Washington Business
Corporation Act, ASYMETRIX CORPORATION, a Washington corporation, hereby
restates its Articles of Incorporation as now and heretofore amended:
FIRST: The name of the corporation is:
ASYMETRIX CORPORATION
SECOND: The Amended and Restated Articles of Incorporation are as follows:
ARTICLE I
The name of this corporation is: ASYMETRIX CORPORATION
ARTICLE II
This corporation has the authority to issue 42,000,000 shares, the par
value of each of which is $0.01.
The shares consist of 40,000,000 shares designated as "Common Stock" and
2,000,000 shares designated as "Class B Stock."
Except to the extent such rights are granted to Class B Stock or one or
more series thereof, Common Stock has unlimited voting rights and is entitled
to receive the net assets of the corporation upon dissolution.
The preferences, limitations and relative rights of Class B Stock are
undesignated. The Board of Directors may designate one or more series within
Class B Stock, and the designation and number of shares within each series, and
shall determine the preferences, limitations, and relative rights of any shares
of Class B Stock, or of any series of Class B Stock, before issuance of any
shares of that class or series. Class B Stock, or any series thereof, may be
designated as common or preferred, and may have rights which are identical to
those of Common Stock.
Shares of one class or series may be issued as a share dividend in
respect to shares of another class or series.
The transfer of any share of this corporation shall be subject to
restrictions, if any, contained in the corporation bylaws or shareholder
agreements.
ARTICLE III
The shareholders of this corporation have no preemptive rights to acquire
additional shares of this corporation.
<PAGE>
ARTICLE IV
The shareholders of this corporation shall not be entitled to cumulative
voting at any election of directors.
ARTICLE V
Transactions involving interested shareholders shall not be subject to the
requirements of RCW 23B.17.020 of the Washington Business Corporation Act.
ARTICLE VI
The board of directors has the power to adopt, amend or repeal the
bylaws of this corporation, subject to the concurrent power of the shareholders
to adopt, amend or repeal the bylaws. Any bylaw adopted, amended or repealed by
the directors may be repealed, amended or reinstated by an affirmative vote of
the holders of a majority of the shares entitled to vote and present, in person
or by proxy, at the next meeting of shareholders following such action without
further notice other than this Article.
ARTICLE VII
A director of this corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for conduct as a director,
except for liability of the director (i) for acts or omissions that involve
intentional misconduct by the director or a knowing violation of law by the
director, (ii) for conduct violating RCW 23B.08.310 of the Washington Business
Corporation Act, or (iii) for any transaction from which the director will
personally receive a benefit in money, property or services to which the
director is not legally entitled. If the Washington Business Corporation Act is
amended in the future to authorize corporate action further eliminating or
limiting the personal liability of directors, then the liability of a director
of this corporation shall be eliminated or limited to the full extent permitted
by the Washington Business Corporation Act, as so amended, without any
requirement of further action by the shareholders.
ARTICLE VIII
The corporation shall indemnify any individual made a party to a
proceeding because that individual is or was a director of the corporation and
shall advance or reimburse the reasonable expenses incurred by such individual
in advance of final disposition of the proceeding, without regard to the
limitations in RCW 23B.08.510 through 23B.08.550 of the Washington Business
Corporation Act, or any other limitation which may hereafter be enacted to the
extent such limitation may be disregarded if authorized by the articles of
incorporation, to the full extent and under all circumstances permitted by
applicable law.
Any repeal or modification of this Article by the shareholders of this
corporation shall not adversely affect any right of any individual who is or was
a director of the corporation which existed at the time of such repeal or
modification.
<PAGE>
DATED this 12th day of July, 1995
ASYMETRIX CORPORATION
/s/ James Billmaier
-------------------------------
James Billmaier
President
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of Sections 23B.06.020 and 23B.10 of the Washington
Business Corporation Act, ASYMETRIX CORPORATION, a Washington corporation,
hereby adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is:
ASYMETRIX CORPORATION
SECOND: Article II of the Articles of Incorporation is hereby amended as
follows:
A total of 388,395 shares of the $0.01 par value Class B Stock are
hereby designated as SERIES A PREFERRED STOCK, with the rights,
preferences and limitations set forth in the STATEMENT OF DESIGNATION
------------------------
OF RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES A PREFERRED STOCK
------------------------------------------------------------------
attached hereto.
THIRD: The foregoing amendment was adopted on October 11, 1996.
FOURTH: The foregoing amendment was duly adopted by the Board of Directors of
the corporation.
EXECUTED this 14th day of October, 1996.
ASYMETRIX CORPORATION
By: /s/ JAMES BILLMAIER
--------------------------
James Billmaier, President
<PAGE>
ASYMETRIX CORPORATION
STATEMENT OF DESIGNATION OF RIGHTS, PREFERENCES
AND LIMITATIONS OF SERIES A PREFERRED STOCK
Series A Preferred Stock, $0.01 par value
- -----------------------------------------
Definitions. For purposes hereof the following definitions shall
-----------
apply:
1.1 "Board" shall mean the Board of Directors of the Company.
-----
1.2 "Series 1 Class B Stock" shall mean the Series 1 Class B Stock,
----------------------
par value $0.01 per share, of the Company.
1.2 "Company" shall mean this corporation.
-------
1.3 "Common Stock" shall mean the Common Stock, par value $0.01 per
------------
share, of the Company.
1.4 "Common Stock Dividend" shall mean a stock dividend declared and
---------------------
paid on the Common Stock that is payable in shares of Common Stock.
1.5. "Original Issue Date" shall mean, with respect to the Series A
-------------------
Preferred Stock, the date on which the first share of Series A Preferred Stock
is issued by the Company.
1.6. "Original Issue Price" shall mean $12.88 per share for the Series
--------------------
A Preferred Stock.
1.7. "Permitted Repurchases" shall mean the repurchase by the Company
---------------------
of shares of Common Stock held by employees, officers, directors, consultants,
independent contractors, advisors, or other persons performing services for the
Company or a subsidiary that are subject to restricted stock purchase agreements
or stock option exercise agreements under which the Company has the option to
repurchase such shares: (i) at cost, upon the occurrence of certain events,
such as the termination of employment or services; or (ii) at any price pursuant
to the Company's exercise of a right of first refusal to repurchase such shares;
provided, that the Board approves such repurchase.
1.8. "Series A Preferred Stock" shall mean the Series A Preferred
------------------------
Stock, par value $0.01 per share, of the Company.
1.9. "Subsidiary" shall mean any corporation of which at least fifty
----------
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
-2-
<PAGE>
2. Dividend Rights
---------------
2.1 Dividend Preference.
--------------------
No dividends (other than a Common Stock Dividend) shall be paid with
respect to the Common Stock or Series 1 Class B Stock during any calendar year
unless a dividend in the total amount of any dividend proposed to be paid with
respect to the Common Stock or Series 1 Class B Stock shall have first been paid
or declared and set apart for payment to the holders of the Series A Preferred
Stock (on an as-converted to Common Stock basis); provided, however, that this
-------- -------
restriction shall not apply to Permitted Repurchases. Dividends on the Series A
Preferred Stock shall not be mandatory or cumulative, and no rights or interest
shall accrue to the holders of the Series A Preferred Stock by reason of the
fact that the Company shall fail to declare or pay dividends on the Series A
Preferred Stock in any calendar year or any fiscal year of the Company, whether
or not the earnings of the Company in any calendar year or fiscal year were
sufficient to pay such dividends in whole or in part.
2.2 Non-Cash Dividends. Whenever a dividend provided for in this
------------------
Section 2 shall be payable in property other than cash, the value of such
dividend shall be deemed to be the fair market value of such property as
determined in good faith by the Board.
2.3 No Payment on Conversion. If the Company shall have declared but
------------------------
unpaid dividends with respect to any Series A Preferred Stock upon its
conversion as provided in Section 5, then all such declared but unpaid dividends
on such converted shares shall be canceled.
3. Liquidation Rights. In the event of any liquidation, dissolution or
------------------
winding up of the Company, whether voluntary or involuntary, the funds and
assets of the Company that may be legally distributed to the Company's
shareholders (the "Available Funds and Assets") shall be distributed to
--------------------------
shareholders in the following manner:
3.1 Liquidation Preferences. The holders of each share of Series A
-----------------------
Preferred Stock then outstanding shall be entitled to be paid, out of the
Available Funds and Assets, and prior and in preference to any payment or
distribution (or any setting apart of any payment or distribution) of any
Available Funds and Assets on any shares of Common Stock or Series 1 Class B
Stock, an amount per share equal to the Original Issue Price for each such share
plus all declared but unpaid dividends thereon. If upon any liquidation,
dissolution or winding up of the Company, the Available Funds and Assets shall
be insufficient to permit the payment to holders of the Series A Preferred Stock
of their full preferential amounts described in this subsection, then all of the
remaining Available Funds and Assets shall be distributed among the holders of
the then outstanding Series A Preferred Stock pro rata, on an equal priority,
pari passu basis. Except as provided in this Section 3.1, holders of Series A
Preferred Stock shall not be entitled to any distribution upon any liquidation,
dissolution or winding up of the Company.
3.2 Merger or Sale of Assets. A (i) consolidation or merger of the
------------------------
Company with or into any other corporation or corporations in which the holders
of the Company's
-3-
<PAGE>
outstanding shares immediately before such consolidation or merger do not,
immediately after such consolidation or merger, retain stock representing a
majority of the voting power of the surviving corporation of such consolidation
or merger; or (ii) sale of all or substantially all of the assets of the
Company, shall each be deemed to be a liquidation, dissolution or winding up of
the Company as those terms are used in this Section 3.
3.3 Non-Cash Consideration. If any assets of the Company distributed
----------------------
to shareholders in connection with any liquidation, dissolution, or winding up
of the Company are other than cash, then the value of such assets shall be their
fair market value as determined by the Board, except that any securities to be
------ ----
distributed to shareholders in a liquidation, dissolution, or winding up of the
Company shall be valued as follows:
(a) The method of valuation of securities not subject to
investment letter or other similar restrictions on free marketability shall be
as follows:
(i) if the securities are then traded on a national
securities exchange or the NASDAQ National Market (or a similar national
quotation system), then the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and
(ii) if actively traded over-the-counter, then the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the closing of such merger, consolidation
or sale; and
(iii) if there is no active public market, then the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the Company.
(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
(a)(i), (ii) or (iii) of this subsection to reflect the approximate fair market
value thereof, as determined in good faith by the Board.
4. Voting Rights
-------------
4.1. Series A Preferred Stock. Each holder of shares of Series A
------------------------
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of Common Stock into which such shares of Series A Preferred Stock
could be converted pursuant to the provisions of Section 5 below at the record
date for the determination of the shareholders entitled to vote on such matters
or, if no such record date is established, the date such vote is taken or any
written consent of shareholders is solicited.
4.2. General. Subject to the foregoing provisions of this Section 4,
-------
each holder of Series A Preferred Stock shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock and Series
1 Class B Stock, and shall be entitled to
-4-
<PAGE>
notice of any shareholders' meeting in accordance with the bylaws of the Company
(as in effect at the time in question) and applicable law, and shall be entitled
to vote, together with the holders of Common Stock and Series 1 Class B Stock,
with respect to any question upon which holders of Common Stock and Series 1
Class B Stock have the right to vote, except as may be otherwise provided by
applicable law. Except as otherwise expressly provided herein or as required by
law, the holders of Series A Preferred Stock and the holders of Common Stock and
Series 1 Class B Stock shall vote together and not as separate classes.
4.5. Board of Directors Election and Removal
---------------------------------------
(a) Election. (i) The holders of the Series A Preferred Stock,
--------
voting as a separate class shall be entitled to elect one (1) director of the
Company (the "Series A Director"), which director shall, upon his or her
-----------------
nomination as a board member be subject to the reasonable approval of the
Company, and (ii) the holders of the Series 1 Class B Stock and the Common
Stock, voting together as a single class shall be entitled to elect the
remaining directors of the Company.
(b) Quorum; Required Vote
---------------------
(i) Quorum. At any meeting held for the purpose of
------
electing the Series A Director, the presence in person or by proxy of the
holders of a majority of the shares of the Series A Preferred Stock then
outstanding shall constitute a quorum of the Series A Preferred Stock for the
election of the Series A Director.
(ii) Required Vote. With respect to the election of the
-------------
Series A Director pursuant to subsection 4.5(a) above, that candidate shall be
elected who is reasonably approved by the Company and who either: (i) in the
case of any such vote conducted at a meeting of the holders of the Series A
Preferred Stock, receives the highest number of affirmative votes of the
outstanding shares of the Series A Preferred Stock; or (ii) in the case of any
such vote taken by written consent without a meeting, are elected by the
unanimous written consent of the holders of shares of the Series A Preferred
Stock.
(c) Vacancy. If there shall be any vacancy in the office of the
-------
Series A Director, then a successor to hold office for the unexpired term of the
Series A Director shall be elected by the affirmative vote of holders of the
shares of the Series A Preferred Stock that are entitled to elect such director
under subsection 4.5(a).
(d) Removal. Subject to RCW 23B.08.080 and 23B.08.090 the Series
-------
A Director may be removed during his or her term of office, either with or
without cause, by, and only by, the affirmative vote of shares representing a
majority of the voting power of all the outstanding shares of the Series A
Preferred Stock entitled to vote, given either at a meeting of such shareholders
duly called for that purpose or pursuant to a written consent of shareholders
without a meeting, and any vacancy created by such removal may be filled only in
the manner provided in subsection 4.5(c).
-5-
<PAGE>
(e) Procedures. Any meeting of the holders of the Series A
----------
Preferred Stock, and any action taken by the holders of the Series A Preferred
Stock by written consent without a meeting, in order to elect or remove the
Series A Director under this subsection 4.5, shall be held in accordance with
the procedures and provisions of the Company's Bylaws, the Washington Business
Corporation Act and applicable law regarding shareholder meetings and
shareholder actions by written consent, as such are then in effect (including
but not limited to procedures and provisions for determining the record date for
shares entitled to vote).
(f) Termination. Notwithstanding anything in this subsection 4.5
-----------
to the contrary, the provisions of this subsection 4.5 shall cease to be of any
further force or effect upon the first date that either: (i) the total number of
outstanding shares of Series A Preferred Stock is less than two hundred thousand
(200,000) shares (such number of shares being subject to proportional adjustment
to reflect combination or subdivisions of such Series A Preferred Stock or
dividends declared in shares of such stock); or (ii) upon the merger or
consolidation of the Company with or into any other corporation or corporations
if such consolidation or merger is approved by the shareholders of the Company
in compliance with applicable law and the Articles of Incorporation and Bylaws
of the Company; or (iii) a sale of all or substantially all of the Company's
assets.
5. Conversion Rights. The outstanding shares of Series A Preferred Stock
-----------------
and Class B, Series 1 Stock shall be convertible into Common Stock as follows:
5.1 Optional Conversion
-------------------
(a) At the option of the holder thereof, each share of Series A
Preferred Stock shall be convertible, at any time or from time to time prior to
the close of business on the business day before any date fixed for redemption
of such share, into fully paid and nonassessable shares of Common Stock as
provided herein.
(b) Each holder of Series A Preferred Stock who elects to convert
the same into shares of Common Stock shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Company or any
transfer agent for the Series A Preferred Stock or Common Stock, or notify the
Company that such certificate(s) have been lost, stolen or destroyed and execute
an agreement satisfactory to the Company to indemnify the Company from any loss
incurred by the Company in connection with such certificate(s), and shall give
written notice to the Company at such office that such holder elects to convert
the same and shall state therein the number of shares of Series A Preferred
Stock being converted. Thereupon the Company shall promptly issue and deliver at
such office to such holder a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled upon such conversion.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the certificate or certificates
representing the shares of Series A Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
-6-
<PAGE>
5.2 Automatic Conversion
--------------------
(a) Each share of Series A Preferred Stock shall automatically be
converted into fully paid and nonassessable shares of Common Stock, as provided
herein: (i) immediately prior to the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company; or (ii) upon the Company's receipt of the
written consent of the holders of not less than a majority of the then
outstanding shares of Series A Preferred Stock to the conversion of all then
outstanding Series A Preferred Stock under this Section 5. This subsection (ii)
shall not be amended except by a vote of the majority of the then outstanding
Series A Preferred Stock.
(b) Upon the occurrence of any event specified in subparagraph
5.2(a) (i) or (ii) above, the outstanding shares of Series A Preferred Stock
shall be converted into Common Stock automatically without the need for any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
- -------- -------
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series A Preferred Stock are either
delivered to the Company or its transfer agent as provided below, or the holder
notifies the Company or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of the Series A
Preferred Stock, the holders of Series A Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series A Preferred Stock or Common Stock. Thereupon,
there shall be issued and delivered to such holder promptly at such office and
in its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into which
the shares of Series A Preferred Stock surrendered were convertible on the date
on which such automatic conversion occurred.
5.3. Conversion Price. Each share of Series A Preferred Stock shall
----------------
be convertible in accordance with subsection 5.1 or subsection 5.2 above into
the number of shares of Common Stock which results from dividing the Original
Issue Price by the conversion price for the Series A Preferred Stock that is in
effect at the time of conversion (the "Conversion Price"). The initial
----------------
Conversion Price for the Series A Preferred Stock shall be the Original Issue
Price. The Conversion Price shall be subject to adjustment from time to time as
provided below.
5.4. Adjustment Upon Common Stock Event. Upon the happening of a
----------------------------------
Common Stock Event (as hereinafter defined), the Conversion Price of the Series
A Preferred Stock shall, simultaneously with the happening of such Common Stock
Event, be adjusted by multiplying the Conversion Price, in effect immediately
prior to such Common Stock Event by a fraction, (i) the numerator of which shall
be the number of shares of Common Stock issued and
-7-
<PAGE>
outstanding immediately prior to such Common Stock Event, and (ii) the
denominator of which shall be the number of shares of Common Stock issued and
outstanding immediately after such Common Stock Event, and the product so
obtained shall thereafter be the Conversion Price. The Conversion Price shall be
readjusted in the same manner upon the happening of each subsequent Common Stock
Event. As used herein, the term "Common Stock Event" shall mean (i) the issue by
------------------
the Company of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock, or (iii)
a combination of the outstanding shares of Common Stock into a smaller number of
shares of Common Stock.
5.5. Adjustments for Other Dividends and Distributions. If at any
-------------------------------------------------
time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Company other than shares of Common Stock, then in
each such event provision shall be made so that the holders of the Series A
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable upon conversion thereof, the amount of
securities of the Company which they would have received had their Series A
Preferred Stock converted into Common Stock on the date of such event (or such
record date, as applicable) and had they thereafter, during the period from the
date of such event (or such record date, as applicable) to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 5 with respect to the rights of the holders of the Series A
Preferred Stock or with respect to such other securities by their terms.
5.6. Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
at any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock is changed into the
same or a different number of shares of any class or classes of stock, whether
by recapitalization, reclassification or otherwise (other than by a Common Stock
----- ----
Event or a stock dividend, reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 5), then in any such event each
holder of Series A Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of Series
A Preferred Stock could have been converted immediately prior to such
recapitalization, reclassification or change, all subject to further adjustment
as provided herein or with respect to such other securities or property by the
terms thereof.
5.7. Sale of Shares Below Conversion Price
-------------------------------------
(a) Adjustment Formula. If at any time or from time to time
after the Original Issue Date the Company issues or sells, or is deemed by the
provisions of this subsection 5.7 to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in subsection 5.4, a dividend or distribution as
provided in subsection 5.5 or a recapitalization, reclassification,
-8-
<PAGE>
other change as provided in subsection 5.6, for an Effective Price (as
hereinafter defined) that is less than the Conversion Price for the Series A
Preferred Stock in effect immediately prior to such issue or sale, then, and in
each such case, the Conversion Price for the Series A Preferred Stock shall be
reduced, as of the close of business on the date of such issue or sale, to the
price obtained by multiplying such Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Company for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for the Series A Preferred Stock in effect immediately prior to
such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5.7:
(i) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock issued by the Company, whether or not subsequently
reacquired or retired by the Company, other than: (A) shares of Common Stock
issued or issuable upon conversion of the Series A Preferred Stock; (B) shares
of Common Stock (or options, warrants or rights therefor) issued to employees,
officers, or directors of, or contractors, consultants or advisers to, the
Company or any Subsidiary pursuant to stock purchase or stock option plans,
stock bonuses or awards, warrants, contracts or other arrangements that are
approved by the Board; (C) up to 50,000 shares in the aggregate of the Company's
Series 1 Class B Stock (and the shares of Common Stock issued or issuable upon
conversion of such Series 1 Class B Stock) issued or issuable in connection with
a written agreement concerning a business relationship between the Company and
the holder of such Series 1 Class B Stock; (D) any shares of Common Stock,
Preferred Stock or Class B Stock issued to parties providing the Company with
equipment leases, real property leases, loans, credit lines, guaranties of
indebtedness, cash price reductions or similar financing under arrangements
approved by the Board; and (E) shares of Common Stock issued pursuant to the
acquisition of another corporation or entity by the Company by consolidation,
merger, purchase of all or substantially all of the assets, or other
reorganization in which the Company acquires, in a single transaction or series
of related transactions, all or substantially all of the assets of such other
corporation or entity or fifty percent (50%) or more of the voting power of such
other corporation or entity or fifty percent (50%) or more of the equity
ownership of such other entity; provided that such transaction or series of
transactions has been approved by the Company's Board of Directors.
-9-
<PAGE>
(ii) The "Aggregate Consideration Received" by the Company
--------------------------------
for any issue or sale (or deemed issue or sale) of securities shall (A) to the
extent it consists of cash, be computed at the gross amount of cash received by
the Company before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the Company;
(B) to the extent it consists of property other than cash, be computed at the
fair value of that property as determined in good faith by the Board using the
method of valuation set forth in Section 3.4 hereof; and (C) if Additional
Shares of Common Stock, Convertible Securities or Rights or Options to purchase
either Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the Company for
a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or Rights or Options.
(iii) "Common Stock Equivalents Outstanding" shall mean the
------------------------------------
number of shares of Common Stock that is equal to the sum of (A) all shares of
Common Stock of the Company that are outstanding at the time in question, plus
(B) all shares of Common Stock of the Company issuable upon conversion of all
shares of Series A Preferred Stock or other Convertible Securities that are
outstanding at the time in question, plus (C) all shares of Common Stock of the
Company that are issuable upon the exercise of Rights or Options that are
outstanding at the time in question assuming the full conversion or exchange
into Common Stock of all such Rights or Options that are Rights or Options to
purchase or acquire Convertible Securities into or for Common Stock.
(iv) "Convertible Securities" shall mean stock or other
----------------------
securities convertible into or exchangeable for shares of Common Stock.
(v) The "Effective Price" of Additional Shares of Common
---------------
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Company under this subsection 5.7, into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this subsection 5.7, for the issue of such Additional Shares of Common Stock.
(vi) "Rights or Options" shall mean warrants, options or
-----------------
other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
(c) Deemed Issuances. For the purpose of making any adjustment to
----------------
the Conversion Price of the Series A Preferred Stock required under this
subsection 5.7, if the Company issues or sells any Rights or Options or
Convertible Securities and if the Effective Price of the shares of Common Stock
issuable upon exercise of such Rights or Options and/or the conversion or
exchange of Convertible Securities (computed without reference to any additional
or similar protective or antidilution clauses) is less than the Conversion Price
then in
-10-
<PAGE>
effect for the Series A Preferred Stock, then the Company shall be deemed to
have issued, at the time of the issuance of such Rights, Options or Convertible
Securities, that number of Additional Shares of Common Stock that is equal to
the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the Company for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise in
full of such Rights or Options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced; and
(iii) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible Securities.
No further adjustment of the Conversion Price, adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities shall be readjusted to the
Conversion Price which would have been in effect had an adjustment been made on
the basis that the only shares of Common Stock so issued were the shares of
Common Stock, if any, that there actually issued or sold on the exercise of such
Rights or Options or rights of conversion or exchange of such Convertible
Securities, and such shares of Common Stock, if any, were issued or sold for the
consideration actually received by the Company upon such exercise, plus the
consideration, if any, actually received by the
-11-
<PAGE>
Company for the granting of all such Rights or Options, whether or not
exercised, plus the consideration received for issuing or selling all such
Convertible Securities actually converted or exchanged, plus the consideration,
if any, actually received by the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) on the
conversion or exchange of such Convertible Securities, provided that such
readjustment shall not apply to prior conversions of Series A Preferred Stock.
5.8 Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for the Series A Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Preferred Stock at the holder's address as shown in the Company's books.
5.9 Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon any conversion of Series A Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the Company
shall pay the holder cash equal to the product of such fraction multiplied by
the Common Stock's fair market value as determined in good faith by the Board as
of the date of conversion.
5.10 Reservation of Stock Issuable Upon Conversion. The Company
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series A Preferred Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
5.11 Notices. Any notice required by the provisions of this Section
-------
5 to be given to the holders of shares of the Series A Preferred Stock shall be
deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
5.12 No Impairment. The Company shall not avoid or seek to avoid the
-------------
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred
Stock against impairment.
6. Miscellaneous
-------------
-12-
<PAGE>
6.1 No Reissuance of Series A Preferred Stock. No share or shares of
-----------------------------------------
Series A Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue.
7. Restrictions and Limitations.
----------------------------
7.1 Protective Provisions. So long as any shares of Series A
---------------------
Preferred Stock remain outstanding, the Company shall not, without the approval,
by vote or written consent, of the holders of a majority of the Series A
Preferred Stock then outstanding:
(1) amend its Articles of Incorporation to increase the
authorized number of shares of Class B Stock:
(2) reclassify or recapitalize any outstanding shares of Class B
Stock of the Company into shares having rights, preferences or privileges senior
to or on a parity with the Series A Preferred Stock;
(3) authorize or issue any other Class B Stock having rights or preferences
senior to or on a parity with the Series A Preferred Stock as to voting,
conversion or dividend rights or liquidation preferences.
-13-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of Sections 23B.06.020 and 23B.10 of the
Washington Business Corporation Act, ASYMETRIX CORPORATION, a Washington
corporation, hereby adopts the following Articles of Amendment to its Articles
of Incorporation:
FIRST: The name of the corporation is:
ASYMETRIX CORPORATION
SECOND: Article II of the Articles of Incorporation is hereby amended as
follows:
A total of 50,000 shares of $0.01 par value Class B Stock are hereby
designated as SERIES 1 CLASS B STOCK, with the rights, preferences and
limitations set forth in EXHIBIT A attached hereto.
---------
THIRD: The foregoing amendment was adopted on September 5, 1996.
FOURTH: The foregoing amendment was duly adopted by the Board of Directors
of the corporation.
EXECUTED this 23rd day of September, 1996.
------
ASYMETRIX CORPORATION
By: /S/ JAMES BILLMAIER
---------------------------
James Billmaier, President
<PAGE>
EXHIBIT A
---------
STATEMENT OF DESIGNATION OF RIGHTS,
PREFERENCES AND LIMITATIONS
OF
SERIES 1 CLASS B STOCK
Series 1 Class B Stock, $0.01 par value
- ---------------------------------------
1. Preference on Liquidation, etc. In the event of any voluntary or
-------------------------------
involuntary liquidation, dissolution or winding-up of the Company, before any
payment or distribution of the assets of the Company (whether capital, surplus
or earnings) shall be made to or set apart for the holders of any shares of the
common stock of Asymetrix corporation (the "Company"), the holders of shares of
Series 1 Class B Stock shall be entitled to receive payment of $8.00 per share
of Series 1 Class B Stock held by them (as appropriately adjusted for any stock
dividend, stock split, recapitalization, combination of shares or other similar
event involving the Series 1 Class B Stock). Future series of Class B Stock may
be entitled to priority over the Series 1 Class B Stock in the payment or
distribution of the assets of the Company in the event of any such dissolution
or winding-up.
If, upon any liquidation, dissolution or winding-up of the Company, the
assets of the Company, or proceeds thereof, distributable among the holders of
shares of Series 1 Class B Stock, shall be insufficient to pay in full the
respective preferential amounts on the shares of Series 1 Class B Stock, then
such assets, or the proceeds thereof, shall be distributed among such holders
ratably in accordance with the respective amounts which would be payable on such
shares if all amounts payable thereon were paid in full.
Whenever the distribution provided for in this section shall be payable in
securities or property other than cash, the value of such distribution shall be
the fair market value of such securities or other property as determined in good
faith by the Company's Board of Directors.
2. Voting. The holders of shares of Series 1 Class B Stock shall be
------
entitled to vote upon all matters upon which holders of the Common Stock have
the right to vote, and each share of Series 1 Class B Stock shall be entitled to
the number of votes equal to the largest number of full shares of Common Stock
into which such shares of Series 1 Class B Stock could be converted pursuant to
the applicable provisions of Section 3 below, at the record date established by
the Board of Directors of the Company for the determination of the stockholders
entitled to vote on such matters, or, if no such record date is so established,
at the record date provided by law, such votes to be counted together with all
other shares of capital stock having general voting powers and not separately as
a class. Except as otherwise expressly required by law, in no event shall the
holders of shares of Series 1 Class B Stock have the right to vote separately as
a class.
-2-
<PAGE>
3. Conversion Rights. The Series 1 Class B Stock shall be convertible
-----------------
into Common Stock as follows:
(a) Optional Conversion. Subject to and upon compliance with the
-------------------
provisions of this Section 3, the holder of any shares of Series 1 Class B
Stock shall have the right at such holder's option, at any time or from
time to time, to convert any of such shares of Series 1 Class B Stock into
fully paid and nonassessable shares of Common Stock at the Series 1
Conversion Ratio (as hereinafter defined) in effect on the Series 1
Conversion Date (as hereinafter defined) upon the terms hereinafter set
forth.
(b) Automatic Conversion. Each outstanding share of Series 1 Class
--------------------
B Stock shall automatically be converted, without any further act of the
Company or its shareholders, into fully paid and nonassessable shares of
Common Stock pursuant to the formula as set forth in subsection 3(c) below:
(i) upon the "effective date" of a registration statement under the
Securities Act of 1933 for a primary public offering by the Company of
shares of Common Stock; or (ii) upon the conversion of a simple majority of
the shares originally issued of Series 1 Class B Stock to Common Stock
pursuant to this Section 3; or (iii) upon acquisition of the Company by
another entity by means of merger, consolidation or otherwise, resulting in
the exchange of the outstanding shares of the Company for securities or
consideration issued or caused to be issued by the acquiring entity or any
of its affiliates, but not resulting in a liquidation, dissolution or
winding-up of the Company.
(c) Series 1 Conversion Ratio. Each share of Series 1 Class B Stock
-------------------------
shall be converted into one share of Common Stock. The Series 1 Conversion
Ratio shall be subject to adjustment as set forth in subsection 3(f).
(d) Mechanics of Conversion. Upon the occurrence of the events
-----------------------
specified in subsection 3(b), the outstanding shares of Series 1 Class B
Stock shall be converted automatically without any further action by the
holders of such shares and whether or not the certificates representing
such shares are surrendered to the Company or its transfer agent; provided
that the Company shall not be obligated to issue to any such holder
certificates evidencing the shares of Common Stock issuable upon such
conversion unless certificates evidencing the shares of Series 1 Class B
Stock are delivered to the Company or any transfer agent of the Company.
The holder of any shares of Series 1 Class B Stock may exercise the
conversion right specified in subsection 3(a) as to any part thereof by
surrendering to the Company or any transfer agent of the Company the
certificate or certificates for the shares to be converted, accompanied by
written notice stating that the holder elects to convert all or a specified
portion of the shares represented thereby. Conversion of the Series 1 Class
B Stock shall be deemed to have been effected on the date on which the
event specified with respect to such Series 1 Class B Stock in subsection
3(b) shall have occurred or on the date when delivery of notice of an
election to convert and certificates for shares is made, as the case may
be, and such date is referred to herein with respect to the Series 1 Class
B Stock as the "Series 1 Conversion Date." Subject to the provisions of
subsection 3(f)(v), as promptly as
-3-
<PAGE>
practicable thereafter (and after surrender of the certificate or
certificates representing such holder's shares of Series 1 Class B Stock to
the Company or any transfer agent of the Company in the case of conversions
pursuant to subsection 3(b)) the Company shall issue and deliver to such
holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash with
respect to any fractional interest in a share of Common Stock as provided
in subsection 3(e) and any dividends on the Series 1 Class B Stock which
such holder is entitled to receive, but has not yet received. Subject to
the provisions of subsection 3(f)(v), the Person in whose name the
certificate or certificates for Common Stock are to be issued shall be
deemed to have become a holder of record of such Common Stock on the
applicable Series 1 Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares of Series
1 Class B Stock surrendered for conversion (in the case of conversion
pursuant to subsection 3(a)), the Company shall issue and deliver to the
holder of the certificate so surrendered for conversion, at the expense of
the Company, a new certificate covering the number of shares of Series 1
Class B Stock representing the unconverted portion of the certificate so
surrendered.
(e) Fractional Shares. No fractional shares of Common Stock or
-----------------
issued upon conversion of shares of Series 1 Class B Stock. If more than
one share of Series 1 Class B Stock shall be surrendered for conversion at
any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Series 1 Class B Stock so surrendered.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of any shares of Series 1 Class B Stock, the
Company shall pay a cash adjustment in respect of such fractional interest
in an amount equal to that fractional interest of the then fair value per
share of Common Stock, as determined by the Board of Directors.
(f) Conversion Ratio Adjustments for the Series 1 Class B Stock. The
-----------------------------------------------------------
Conversion Ratio for the Series 1 Class B Stock shall be subject to
adjustment from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 1 Class B
Stock is increased by a stock dividend or other distribution on Common
Stock payable in shares of Common Stock or by a subdivision, split-up or
reclassification of outstanding shares of Common Stock, then immediately
after the record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend or the effective date of such
subdivision, split-up or reclassification, as the case may be, the Series 1
Conversion Ratio shall be appropriately increased so that the holder of any
shares of Series 1 Class B Stock thereafter converted shall be entitled to
receive the number of shares of Common Stock of the Company which the
holder would have owned immediately following such action had such shares
of Series 1 Class B Stock been converted immediately prior thereto.
-4-
<PAGE>
(ii) Combination of Stock. If the number of shares of Common
--------------------
Stock outstanding at any time after the date of issuance of the Series 1
Class B Stock is decreased by a combination or reclassification of the
outstanding shares of Common Stock, then, immediately after the effective
date of such combination or reclassification, the Series 1 Conversion Ratio
shall be appropriately decreased so that the holder of any shares of Series
1 Class B Stock thereafter converted shall be entitled to receive the
number of shares of Common Stock of the Company which the holder would have
owned immediately following such action had such shares of Series 1 Class B
Stock been converted immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the
------------------------------------------
Common Stock issuable upon the conversion of the Series 1 Class B Stock
shall be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for elsewhere in this subsection 3(f)), then and in each
such event the holder of each share of Series 1 Class B Stock shall have
the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by the holders of the
number of shares of Common Stock into which such share of Series 1 Class B
Stock might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(iv) Rounding of Calculations; Minimum Adjustment. All
--------------------------------------------
calculations under this subsection (f) shall be made to the nearest one
hundredth (1/100th) of a share. Any provision of this Section 3 to the
contrary notwithstanding, no adjustment in the Series 1 Conversion Ratio
shall be made if the amount of such adjustment would be less than 1% of the
Series 1 Conversion Ratio then in effect, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the
time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall
aggregate 1% or more of the Series 1 Conversion Ratio then in effect.
(v) Timing of Issuance of Additional Common Stock Upon Certain
----------------------------------------------------------
Adjustments. In any case in which the provisions of this subsection (f)
-----------
shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of
such event (A) issuing to the holder of any share of Series 1 Class B Stock
converted after such record date and before the occurrence of such event
the additional shares of Common Stock issuable upon such conversion by
reason of the adjustment required by such event over and above the shares
of Common Stock issuable upon such conversion before giving effect to such
adjustment and (B) paying to such holder any amount of cash in lieu of a
fractional share of Common Stock pursuant to subsection (e) of this Section
3;
-5-
<PAGE>
provided that the Company upon request shall deliver to such holder a
--------
due bill or other appropriate instrument evidencing such holder's right to
receive such additional shares, and such cash, upon the occurrence of the
event requiring such adjustment.
(g) Statement Regarding Adjustments. Whenever the Series 1
-------------------------------
Conversion Ratio shall be adjusted as provided in subsection 3(f), the
Company shall forthwith file, at the office of any transfer agent for the
Series 1 Class B Stock and at the principal office of the Company, a
statement showing in detail the facts requiring such adjustment and the
Series 1 Conversion Ratio that shall be in effect after such adjustment,
and the Company shall also cause a copy of such statement to be sent by
mail, first-class postage prepaid, to each holder of shares of Series 1
Class B Stock at its address appearing on the Company's records.
(h) Costs. The Company shall pay all documentary, stamp, transfer
-----
or other transactional taxes attributable to the issuance or delivery of
shares of Common Stock of the Company upon conversion of any shares of
Series 1 Class B Stock; provided that the Company shall not be required to
--------
pay any taxes which may be payable in respect of any transfer involved in
the issuance or delivery of any certificate for such shares in a name other
than that of the holder of the shares of Series 1 Class B Stock in respect
of which such shares are being issued.
(i) Reservation of Shares. So long as any shares of Series 1 Class
---------------------
B Stock remain outstanding, the Company shall reserve out of its authorized
but unissued shares of Common Stock, free from preemptive rights,
sufficient shares of Common Stock to provide for the conversion of all
shares of Series 1 Class B Stock outstanding, solely for the purpose of
effecting such conversion.
(j) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 1 Class B Stock will upon issuance
by the Company be duly and validly issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issuance thereof
and the Company shall take no action which will cause a contrary result
(including without limitation, any action which would cause the Series 1
Conversion Ratio to be less than the par value, if any, of the Common
Stock).
4. Dividends. Dividends shall be declared and set aside for any shares of
---------
the Series 1 Class B Stock only upon resolution of the Board of Directors of the
Company.
-6-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of Sections 23B.06.020 and 23B.10 of the Washington
Business Corporation Act, ASYMETRIX CORPORATION, a Washington corporation,
hereby adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is:
ASYMETRIX CORPORATION
SECOND: There are two amendments, the text of each of which follows:
FIRST AMENDMENT: The first two paragraphs of Article I are hereby amended to
read in their entirety as follows, with no change to the remaining paragraphs of
Article I:
This corporation has the authority to issue 45,000,000 shares, the par
value of each of which is $0.01.
The shares consist of 40,000,000 shares designated as "Common Stock"
and 5,000,000 shares designated as "Class B Stock.
SECOND AMENDMENT: Article II of the Articles of Incorporation is hereby
amended as follows:
A total of 388,395 shares of the $0.01 par value Class B Stock are
hereby designated as SERIES B PREFERRED STOCK, with the rights,
preferences and limitations set forth in the STATEMENT OF DESIGNATION
------------------------
OF RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES B PREFERRED STOCK
------------------------------------------------------------------
attached hereto.
THIRD: Neither amendment provides for an exchange, reclassification or
cancellation of issued shares.
FOURTH: The First Amendment was adopted on December 3, 1996. The Second
Amendment was adopted on December 13, 1996.
FIFTH: The Second Amendment was duly adopted by the Board of Directors of the
corporation without shareholder action, and shareholder action was not required
to adopt the Second Amendment.
<PAGE>
SIXTH: The First Amendment was duly approved by the shareholders of the
Corporation in accordance with the provisions of RCW 23B.10.030 and RCW
23B.10.040.
EXECUTED this 13th day of December, 1996.
----
ASYMETRIX CORPORATION
By: /s/ JAMES BILLMAIER
James Billmaier, President
-2-
<PAGE>
ASYMETRIX CORPORATION
STATEMENT OF DESIGNATION OF RIGHTS, PREFERENCES
AND LIMITATIONS OF SERIES B PREFERRED STOCK
Series B Preferred Stock, $0.01 par value
- -----------------------------------------
Definitions. For purposes hereof the following definitions shall
-----------
apply:
1.1 "Board" shall mean the Board of Directors of the Company.
-----
1.2 "Company" shall mean this corporation.
-------
1.3 "Common Stock" shall mean the Common Stock, par value $0.01 per
------------
share, of the Company.
1.4 "Common Stock Dividend" shall mean a stock dividend declared and
---------------------
paid on the Common Stock that is payable in shares of Common Stock.
1.5. "Original Issue Date" shall mean, with respect to the Series B
-------------------
Preferred Stock, the date on which the first share of Series B Preferred Stock
is issued by the Company.
1.6. "Original Issue Price" shall mean $12.88 per share for the Series
--------------------
B Preferred Stock.
1.7. "Permitted Repurchases" shall mean the repurchase by the Company
---------------------
of shares of Common Stock held by employees, officers, directors, consultants,
independent contractors, advisors, or other persons performing services for the
Company or a subsidiary that are subject to stock issuance and restriction
agreements, restricted stock purchase agreements, or other similar agreements,
or stock option exercise agreements under which the Company has the option to
repurchase such shares: (i) at cost, upon the occurrence of certain events,
such as the termination of employment or services; or (ii) at any price pursuant
to the Company's exercise of a right of first refusal to repurchase such shares;
provided, that the Board approves such repurchase.
1.8. "Series 1 Class B Stock" shall mean the Series 1 Class B Stock,
----------------------
par value $0.01 per share, of the Company.
1.9. "Series A Preferred Stock" shall mean the Series A Preferred
------------------------
Stock, par value $0.01 per share, of the Company.
1.10. "Series B Preferred Stock" shall mean the Series B Preferred
------------------------
Stock, par value $0.01 per share, of the Company.
-3-
<PAGE>
1.11. "Subsidiary" shall mean any corporation of which at least fifty
----------
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
2. Dividend Rights
---------------
2.1 Dividend Preference.
--------------------
No dividends (other than a Common Stock Dividend) shall be paid with
respect to the Common Stock or Series 1 Class B Stock during any calendar year
unless a dividend in the total amount of any dividend proposed to be paid with
respect to the Common Stock or Series 1 Class B Stock shall have first been paid
or declared and set apart for payment to the holders of the Series B Preferred
Stock (on an as-converted to Common Stock basis); provided, however, that this
-------- -------
restriction shall not apply to Permitted Repurchases. Dividends on the Series B
Preferred Stock shall not be mandatory or cumulative, and no rights or interest
shall accrue to the holders of the Series B Preferred Stock by reason of the
fact that the Company shall fail to declare or pay dividends on the Series B
Preferred Stock in any calendar year or any fiscal year of the Company, whether
or not the earnings of the Company in any calendar year or fiscal year were
sufficient to pay such dividends in whole or in part.
2.2 Non-Cash Dividends. Whenever a dividend provided for in this
------------------
Section 2 shall be payable in property other than cash, the value of such
dividend shall be deemed to be the fair market value of such property as
determined in good faith by the Board.
2.3 No Payment on Conversion. If the Company shall have declared but
------------------------
unpaid dividends with respect to any Series B Preferred Stock upon its
conversion as provided in Section 5, then all such declared but unpaid dividends
on such converted shares shall be canceled.
3. Liquidation Rights. In the event of any liquidation, dissolution or
------------------
winding up of the Company, whether voluntary or involuntary, the funds and
assets of the Company that may be legally distributed to the Company's
shareholders (the "Available Funds and Assets") shall be distributed to
--------------------------
shareholders in the following manner:
3.1 Liquidation Preferences. The holders of each share of Series B
-----------------------
Preferred Stock then outstanding shall be entitled to be paid, out of the
Available Funds and Assets, and prior and in preference to any payment or
distribution (or any setting apart of any payment or distribution) of any
Available Funds and Assets on any shares of Common Stock or Series 1 Class B
Stock, an amount per share equal to the Original Issue Price for each such share
plus all declared but unpaid dividends thereon which payment shall be made pari
passu with any such payment to be made to holders of Series A Preferred Stock.
If upon any liquidation, dissolution or winding up of the Company, the Available
Funds and Assets shall be insufficient to permit the payment to holders of the
Series A Preferred Stock and the Series B Preferred Stock of their full
preferential amounts described in this subsection, then all of the remaining
Available Funds and Assets shall be distributed among the holders of the then
outstanding Series A Preferred
-4-
<PAGE>
Stock and Series B Preferred Stock pro rata, on an equal priority, pari passu
basis based upon the aggregate full amounts to which the shares of Series B
Preferred Stock and Series A Preferred Stock would otherwise be entitled. Except
as provided in this Section 3.1, holders of Series B Preferred Stock shall not
be entitled to any distribution upon any liquidation, dissolution or winding up
of the Company.
3.2 Merger or Sale of Assets. A (i) consolidation or merger of the
------------------------
Company with or into any other corporation or corporations in which the holders
of the Company's outstanding shares immediately before such consolidation or
merger do not, immediately after such consolidation or merger, retain stock
representing a majority of the voting power of the surviving corporation of such
consolidation or merger; or (ii) sale of all or substantially all of the assets
of the Company, shall each be deemed to be a liquidation, dissolution or winding
up of the Company as those terms are used in this Section 3.
3.3 Non-Cash Consideration. If any assets of the Company distributed
----------------------
to shareholders in connection with any liquidation, dissolution, or winding up
of the Company are other than cash, then the value of such assets shall be their
fair market value as determined in good faith by the Board, except that any
------ ----
securities to be distributed to shareholders in a liquidation, dissolution, or
winding up of the Company shall be valued as follows:
(a) The method of valuation of securities not subject to investment
letter or other similar restrictions on free marketability shall be as follows:
(i) if the securities are then traded on a national securities
exchange or the NASDAQ National Market (or a similar national quotation system),
then the value shall be deemed to be the average of the closing prices of the
securities on such exchange or system over the 30-day period ending three (3)
days prior to the distribution; and
(ii) if actively traded over-the-counter, then the value shall be
deemed to be the average of the closing bid prices over the 30-day period ending
three (3) days prior to the closing of such merger, consolidation or sale; and
(iii) if there is no active public market, then the value shall
be the fair market value thereof, as determined in good faith by the Board of
Directors of the Company.
(b) The method of valuation of securities subject to investment letter
or other restrictions on free marketability shall be to make an appropriate
discount from the market value determined as above in subparagraphs (a)(i), (ii)
or (iii) of this subsection to reflect the approximate fair market value
thereof, as determined in good faith by the Board.
4. Voting Rights
-------------
4.1. Series B Preferred Stock. Except as may be otherwise agreed to
------------------------
in writing between the holders of Series B Preferred Stock and the Company, each
holder of shares of
-5-
<PAGE>
Series B Preferred Stock shall be entitled to the number of votes equal to the
number of whole shares of Common Stock into which such shares of Series B
Preferred Stock could be converted pursuant to the provisions of Section 5 below
at the record date for the determination of the shareholders entitled to vote on
such matters or, if no such record date is established, the date such vote is
taken or any written consent of shareholders is solicited.
4.2. General. Subject to the foregoing provisions of this Section 4,
-------
each holder of Series B Preferred Stock shall have full voting rights and powers
equal to the voting rights and powers of the holders of Common Stock and Series
1 Class B Stock, and shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Company (as in effect at the time in question)
and applicable law, and shall be entitled to vote, together with the holders of
Common Stock and Series 1 Class B Stock, with respect to any question upon which
holders of Common Stock and Series 1 Class B Stock have the right to vote,
except as may be otherwise provided by applicable law. Except as otherwise
expressly provided herein, the Statement of Designation of Rights, Preferences
on Limitations of Series A Preferred Stock or as required by law, the holders of
Series B Preferred Stock, Series A Preferred Stock and the holders of Common
Stock and Series 1 Class B Stock shall vote together as one class and not as
separate classes.
4.5. Board of Directors Election and Removal
---------------------------------------
(a) Election. Provided that any promissory note executed by a holder
--------
of Series B Preferred Stock in favor of the Company, and which promissory note
was executed as part of the purchase price of Series B Preferred Stock from the
Company, has been paid in full, (i) the holders of the Series B Preferred Stock,
voting as a separate class in accordance with paragraph (b) below, shall be
entitled to elect one (1) director of the Company (the "Series B Director"),
-----------------
which director shall, upon his or her nomination as a board member be subject to
the reasonable approval of the Company, and (ii) the holders of the Series A
Preferred Stock, voting as a separate class, shall be entitled to elect one (1)
director of the Company, and (iii) the holders of the Series 1 Class B Stock and
the Common Stock, voting together as a single class shall be entitled to elect
the remaining directors of the Company.
(b) Quorum; Required Vote
---------------------
(i) Quorum. At any meeting held for the purpose of electing
------
the Series B Director, the presence in person or by proxy of the holders of a
majority of the shares of the Series B Preferred Stock then outstanding shall
constitute a quorum of the Series B Preferred Stock for the election of the
Series B Director.
(ii) Required Vote. With respect to the election of the
-------------
Series B Director pursuant to subsection 4.5(a) above, that candidate shall be
elected and who either: (i) in the case of any such vote conducted at a meeting
of the holders of the Series B Preferred Stock, receives the highest number of
affirmative votes of the outstanding shares of the Series B Preferred Stock; or
(ii) in the case of any such vote taken by written consent without a meeting,
-6-
<PAGE>
are elected by the unanimous written consent of the holders of shares of the
Series B Preferred Stock.
(c) Vacancy. If there shall be any vacancy in the office of the
-------
Series B Director, then a successor to hold office for the unexpired term of the
Series B Director shall be elected by the affirmative vote of holders of the
shares of the Series B Preferred Stock that are entitled to elect such director
under subsection 4.5(a).
(d) Removal. Subject to RCW 23B.08.080 and 23B.08.090 the Series
-------
B Director may be removed during his or her term of office, either with or
without cause, by, and only by, the affirmative vote of shares representing a
majority of the voting power of all the outstanding shares of the Series B
Preferred Stock entitled to vote, given either at a meeting of such shareholders
duly called for that purpose or pursuant to a written consent of shareholders
without a meeting, and any vacancy created by such removal may be filled only in
the manner provided in subsection 4.5(c).
(e) Procedures. Any meeting of the holders of the Series B
Preferred Stock, and any action taken by the holders of the Series B Preferred
Stock by written consent without a meeting, in order to elect or remove the
Series B Director under this subsection 4.5, shall be held in accordance with
the procedures and provisions of the Company's Bylaws, the Washington Business
Corporation Act and applicable law regarding shareholder meetings and
shareholder actions by written consent, as such are then in effect (including
but not limited to procedures and provisions for determining the record date for
shares entitled to vote).
(f) Termination. Notwithstanding anything in this subsection 4.5
-----------
to the contrary, the provisions of this subsection 4.5 shall cease to be of any
further force or effect upon the first date that either: (i) the total number of
outstanding shares of Series B Preferred Stock is less than two hundred thousand
(200,000) shares (such number of shares being subject to proportional adjustment
to reflect combination or subdivisions of such Series B Preferred Stock or
dividends declared in shares of such stock); or (ii) upon the merger or
consolidation of the Company with or into any other corporation or corporations
if such consolidation or merger is approved by the shareholders of the Company
in compliance with applicable law and the Articles of Incorporation and Bylaws
of the Company; or (iii) a sale of all or substantially all of the Company's
assets.
5. Conversion Rights. The outstanding shares of Series B Preferred Stock
-----------------
shall be convertible into Common Stock as follows:
5.1 Optional Conversion
-------------------
(a) At the option of the holder thereof, each share of Series B
Preferred Stock shall be convertible, at any time or from time to time prior to
the close of business on the business day before any date fixed for redemption
of such share, into fully paid and nonassessable shares of Common Stock at the
Conversion Price (as defined in subsection 5.3 below) as provided herein.
-7-
<PAGE>
(b) Each holder of Series B Preferred Stock who elects to convert the
same into shares of Common Stock shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Company or any transfer agent for
the Series B Preferred Stock or Common Stock, or notify the Company that such
certificate(s) have been lost, stolen or destroyed and execute an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
the Company in connection with such certificate(s), and shall give written
notice to the Company at such office that such holder elects to convert the same
and shall state therein the number of shares of Series B Preferred Stock being
converted. Thereupon the Company shall promptly issue and deliver at such
office to such holder a certificate or certificates for the number of shares of
Common Stock to which such holder is entitled upon such conversion. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the certificate or certificates
representing the shares of Series B Preferred Stock to be converted, and the
person entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder of such shares
of Common Stock on such date.
5.2 Automatic Conversion
--------------------
(a) Each share of Series B Preferred Stock shall automatically be
converted into fully paid and nonassessable shares of Common Stock at the
Conversion Price (as defined in subsection 5.3 below), as provided herein: (i)
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company at an aggregate offering price to the public of
not less than $10,000,000; or (ii) upon the Company's receipt of the written
consent of the holders of not less than a majority of the then outstanding
shares of Series B Preferred Stock to the conversion of all then outstanding
Series B Preferred Stock under this Section 5. This subsection (ii) shall not
be amended except by a vote of the majority of the then outstanding Series B
Preferred Stock.
(b) Upon the occurrence of any event specified in subparagraph 5.2(a)
(i) or (ii) above, the outstanding shares of Series B Preferred Stock shall be
converted into Common Stock automatically without the need for any further
action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
- -------- -------
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series B Preferred Stock are either
delivered to the Company or its transfer agent as provided below, or the holder
notifies the Company or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of the Series B
Preferred Stock, the holders of Series B Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series B Preferred Stock or Common Stock. Thereupon,
there shall be issued and delivered to such holder promptly at such office and
in its name as shown on such surrendered certificate or
-8-
<PAGE>
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series B Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
5.3. Conversion Price. Each share of Series B Preferred Stock shall
----------------
be convertible in accordance with subsection 5.1 or subsection 5.2 above into
the number of shares of Common Stock which results from dividing the Original
Issue Price by the conversion price for the Series B Preferred Stock that is in
effect at the time of conversion (the "Conversion Price"). The initial
----------------
Conversion Price for the Series B Preferred Stock shall be the Original Issue
Price. The Conversion Price shall be subject to adjustment from time to time as
provided below.
5.4. Adjustment Upon Common Stock Event. Upon the happening of a
----------------------------------
Common Stock Event (as hereinafter defined), the Conversion Price of the Series
B Preferred Stock shall, simultaneously with the happening of such Common Stock
Event, be adjusted by multiplying the Conversion Price, in effect immediately
prior to such Common Stock Event by a fraction, (i) the numerator of which shall
be the number of shares of Common Stock issued and outstanding immediately prior
to such Common Stock Event, and (ii) the denominator of which shall be the
number of shares of Common Stock issued and outstanding immediately after such
Common Stock Event, and the product so obtained shall thereafter be the
Conversion Price. The Conversion Price shall be readjusted in the same manner
upon the happening of each subsequent Common Stock Event. As used herein, the
term "Common Stock Event" shall mean (i) the issue by the Company of additional
------------------
shares of Common Stock as a dividend or other distribution on outstanding Common
Stock, (ii) a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock, or (iii) a combination of the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock.
5.5. Adjustments for Other Dividends and Distributions. If at any
-------------------------------------------------
time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Company other than shares of Common Stock, then in
each such event provision shall be made so that the holders of the Series B
Preferred Stock shall receive upon conversion thereof, in addition to the number
of shares of Common Stock receivable upon conversion thereof, the amount of
securities of the Company which they would have received had their Series B
Preferred Stock converted into Common Stock on the date of such event (or such
record date, as applicable) and had they thereafter, during the period from the
date of such event (or such record date, as applicable) to and including the
conversion date, retained such securities receivable by them as aforesaid during
such period, subject to all other adjustments called for during such period
under this Section 5 with respect to the rights of the holders of the Series B
Preferred Stock or with respect to such other securities by their terms.
5.6. Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
at any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series B Preferred Stock is changed into the
same or a different number of
-9-
<PAGE>
shares of any class or classes of stock, whether by recapitalization,
reclassification or otherwise (other than by a Common Stock Event or a
----- ----
stock dividend, reorganization, merger, consolidation or sale of assets provided
for elsewhere in this Section 5), then in any such event each holder of Series B
Preferred Stock shall have the right thereafter to convert such stock into the
kind and amount of stock and other securities and property receivable upon such
recapitalization, reclassification or other change by holders of the number of
shares of Common Stock into which such shares of Series B Preferred Stock could
have been converted immediately prior to such recapitalization, reclassification
or change, all subject to further adjustment as provided herein or with respect
to such other securities or property by the terms thereof.
5.7. Sale of Shares Below Conversion Price
-------------------------------------
(a) Adjustment Formula. If at any time or from time to time after the
------------------
Original Issue Date the Company issues or sells, or is deemed by the provisions
of this subsection 5.7 to have issued or sold, Additional Shares of Common Stock
(as hereinafter defined), otherwise than in connection with a Common Stock Event
as provided in subsection 5.4, a dividend or distribution as provided in
subsection 5.5 or a recapitalization, reclassification, other change as provided
in subsection 5.6, for an Effective Price (as hereinafter defined) that is less
than the Conversion Price for the Series B Preferred Stock in effect immediately
prior to such issue or sale, then, and in each such case, the Conversion Price
for the Series B Preferred Stock shall be reduced, as of the close of business
on the date of such issue or sale, to the price obtained by multiplying such
Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the number of
Common Stock Equivalents Outstanding (as hereinafter defined) immediately prior
to such issue or sale of Additional Shares of Common Stock plus (B) the quotient
obtained by dividing the Aggregate Consideration Received (as hereinafter
defined) by the Company for the total number of Additional Shares of Common
Stock so issued or sold (or deemed so issued and sold) by the Conversion Price
for the Series B Preferred Stock in effect immediately prior to such issue or
sale; and
(ii) The denominator of which shall be the sum of (A) the number of
Common Stock Equivalents Outstanding immediately prior to such issue or sale
plus (B) the number of Additional Shares of Common Stock so issued or sold (or
deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5.7:
(i) "Additional Shares of Common Stock" shall mean all shares of
---------------------------------
Common Stock issued by the Company, whether or not subsequently reacquired or
retired by the Company, other than: (A) shares of Common Stock issued or
issuable upon conversion of the Series A Preferred Stock or the Series B
Preferred Stock; (B) shares of Common Stock (or options, warrants or rights
therefor) issued to employees, officers, or
-10-
<PAGE>
directors of, or contractors, consultants or advisers to, the Company or any
Subsidiary pursuant to stock purchase or stock option plans, stock bonuses or
awards, warrants, contracts or other arrangements that are approved by the Board
of Directors; (C) up to 50,000 shares in the aggregate of the Company's Series 1
Class B Stock (and the shares of Common Stock issued or issuable upon conversion
of such Series 1 Class B Stock) issued or issuable in connection with a written
agreement concerning a business relationship between the Company and the holder
of such Series 1 Class B Stock; (D) any shares of Common Stock, Preferred Stock
or Class B Stock issued to parties providing the Company with equipment leases,
real property leases, loans, credit lines, guaranties of indebtedness, cash
price reductions or similar financing under arrangements approved by the Board
of Directors; and (E) shares of Common Stock issued pursuant to the acquisition
of another corporation or entity by the Company by consolidation, merger,
purchase of all or substantially all of the assets, or other reorganization in
which the Company acquires, in a single transaction or series of related
transactions, all or substantially all of the assets of such other corporation
or entity or fifty percent (50%) or more of the voting power of such other
corporation or entity or fifty percent (50%) or more of the equity ownership of
such other entity; provided that such transaction or series of transactions has
been approved by the Company's Board of Directors.
(ii) The "Aggregate Consideration Received" by the Company for any
--------------------------------
issue or sale (or deemed issue or sale) of securities shall (A) to the extent it
consists of cash, be computed at the gross amount of cash received by the
Company before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the Company;
(B) to the extent it consists of property other than cash, be computed at the
fair value of that property as determined in good faith by the Board using the
method of valuation set forth in Section 3.4 hereof; and (C) if Additional
Shares of Common Stock, Convertible Securities or Rights or Options to purchase
either Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the Company for
a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or Rights or Options.
(iii) "Common Stock Equivalents Outstanding" shall mean the number of
------------------------------------
shares of Common Stock that is equal to the sum of (A) all shares of Common
Stock of the Company that are outstanding at the time in question, plus (B) all
shares of Common Stock of the Company issuable upon conversion of all shares of
Series B Preferred Stock or other Convertible Securities that are outstanding at
the time in question, plus (C) all shares of Common Stock of the Company that
are issuable upon the exercise of Rights or Options that are outstanding at the
time in question assuming the full conversion or exchange into Common Stock of
all such Rights or Options that are Rights or Options to purchase or acquire
Convertible Securities into or for Common Stock.
-11-
<PAGE>
(iv) "Convertible Securities" shall mean stock or other securities
----------------------
convertible into or exchangeable for shares of Common Stock.
(v) The "Effective Price" of Additional Shares of Common Stock shall
---------------
mean the quotient determined by dividing the total number of Additional Shares
of Common Stock issued or sold, or deemed to have been issued or sold, by the
Company under this subsection 5.7, into the Aggregate Consideration Received, or
deemed to have been received, by the Company under this subsection 5.7, for the
issue of such Additional Shares of Common Stock.
(vi) "Rights or Options" shall mean warrants, options or other rights
-----------------
to purchase or acquire shares of Common Stock or Convertible Securities.
(c) Deemed Issuances. For the purpose of making any adjustment to the
----------------
Conversion Price of the Series B Preferred Stock required under this subsection
5.7, if the Company issues or sells any Rights or Options or Convertible
Securities and if the Effective Price of the shares of Common Stock issuable
upon exercise of such Rights or Options and/or the conversion or exchange of
Convertible Securities (computed without reference to any additional or similar
protective or antidilution clauses) is less than the Conversion Price then in
effect for the Series B Preferred Stock, then the Company shall be deemed to
have issued, at the time of the issuance of such Rights, Options or Convertible
Securities, that number of Additional Shares of Common Stock that is equal to
the maximum number of shares of Common Stock issuable upon exercise or
conversion of such Rights, Options or Convertible Securities upon their issuance
and to have received, as the Aggregate Consideration Received for the issuance
of such shares, an amount equal to the total amount of the consideration, if
any, received by the Company for the issuance of such Rights or Options or
Convertible Securities, plus, in the case of such Rights or Options, the minimum
amounts of consideration, if any, payable to the Company upon the exercise in
full of such Rights or Options, plus, in the case of Convertible Securities, the
minimum amounts of consideration, if any, payable to the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) upon the conversion or exchange thereof; provided that:
-------- ----
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the Company
upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced upon such
reduction becoming effective; and
-12-
<PAGE>
(iii) if the minimum amount of consideration payable to the Company
upon the exercise of such Rights or Options or the conversion or exchange of
Convertible Securities is subsequently increased, then the Effective Price shall
again be recalculated using the increased minimum amount of consideration
payable to the Company upon the exercise of such Rights or Options or the
conversion or exchange of such Convertible Securities upon such increase
becoming effective.
No further adjustment of the Conversion Price, adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities (or upon the effectiveness of
further adjustments as set forth in subparagraphs 5.7(c) (ii) and (iii) above)
shall be readjusted to the Conversion Price which would have been in effect had
an adjustment been made on the basis that the only shares of Common Stock so
issued were the shares of Common Stock, if any, that there actually issued or
sold on the partial exercise of such Rights or Options or rights of conversion
or exchange of such Convertible Securities, and such shares of Common Stock, if
any, were issued or sold for the consideration actually received by the Company
upon such exercise, plus the consideration, if any, actually received by the
Company for the granting of all such Rights or Options, whether or not
exercised, plus the consideration received for issuing or selling all such
Convertible Securities actually converted or exchanged, plus the consideration,
if any, actually received by the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) on the
conversion or exchange of such Convertible Securities, as the case may be,
provided that such readjustment shall not apply to prior conversions of Series B
Preferred Stock.
5.8 Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for the Series B Preferred Stock as
provided herein, the Company, at its expense, shall cause its Chief Financial
Officer to compute such adjustment or readjustment in accordance with the
provisions hereof and prepare a certificate showing such adjustment or
readjustment, and shall promptly mail such certificate, by first class mail,
postage prepaid, to each registered holder of the Preferred Stock at the
holder's address as shown in the Company's books.
5.9 Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon any conversion of Series B Preferred Stock. In lieu of any
fractional share to which the holder would otherwise be entitled, the Company
shall pay the holder cash equal to the product of such fraction multiplied by
the Common Stock's fair market value as determined in good faith by the Board as
of the date of conversion.
5.10 Reservation of Stock Issuable Upon Conversion. The Company
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock,
-13-
<PAGE>
solely for the purpose of effecting the conversion of the shares of the Series B
Preferred Stock, such number of its shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all outstanding shares of the
Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series B Preferred Stock, the Company will
take such corporate action as may, in the opinion of its counsel, be necessary
to increase its authorized but unissued shares of Common Stock to such number of
shares as shall be sufficient for such purpose.
5.11 Notices. Any notice required by the provisions of this Section
-------
5 to be given to the holders of shares of the Series B Preferred Stock shall be
deemed given upon the earlier of actual receipt or five business days after
deposit in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
5.12 No Impairment. The Company shall not avoid or seek to avoid the
-------------
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series B Preferred
Stock against impairment.
6. Miscellaneous
-------------
6.1 No Reissuance of Series B Preferred Stock. No share or shares of
-----------------------------------------
Series B Preferred Stock acquired by the Company by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all such shares shall
be canceled, retired and eliminated from the shares which the Company shall be
authorized to issue.
7. Restrictions and Limitations.
----------------------------
7.1 Protective Provisions. So long as any shares of Series B
---------------------
Preferred Stock remain outstanding, the Company shall not, without the approval,
by vote or written consent, of the holders of a majority of the Series B
Preferred Stock then outstanding, voting together as a separate class:
(1) amend its Articles of Incorporation to increase the
authorized number of shares of Class B Stock:
(2) reclassify or recapitalize any outstanding shares of Class B
Stock of the Company into shares having rights, preferences or privileges senior
to or on a parity with the Series B Preferred Stock;
(3) authorize or issue any other Class B Stock or any other capital
stock having rights, preferences or privileges senior to or on a parity with the
Series B Preferred Stock;
-14-
<PAGE>
(4) authorize any amendment or change of the rights, preferences or
powers of the Series A Preferred Stock or the Series B Preferred Stock;
(5) authorize an amendment of the Company's Articles of Incorporation
that adversely affects the rights of the Series B Preferred Stock; or
(6) approve a sale, merger, liquidation or other transaction which
would be treated as a liquidation, dissolution or winding up of the Company
pursuant to the provisions of subsection 3.2 hereof, pursuant to which the
holders of Series B Preferred Stock would receive less than the full per share
amount to which such holders are entitled pursuant to subsection 3.1 hereof.
-15-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of Sections 23B.06.020 and 23B.10 of the Washington
Business Corporation Act, ASYMETRIX CORPORATION, a Washington corporation,
hereby adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is:
ASYMETRIX CORPORATION
SECOND: Article II of the Articles of Incorporation is hereby amended as
follows:
A total of 2,250,000 shares of $0.01 par value Class B Stock are
hereby designated as SERIES 4 CLASS B STOCK, with the rights,
preferences and limitations set forth in the STATEMENT OF DESIGNATION
OF RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES 4 CLASS B STOCK
attached hereto as EXHIBIT A.
---------
THIRD: The amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
FOURTH: The foregoing amendment was adopted on June 24, 1997.
FIFTH: The foregoing amendment was duly adopted by the Board of Directors of
the corporation without shareholder action, which was not required for the
adoption of the amendment.
EXECUTED this 25th day of June, 1997.
----
ASYMETRIX CORPORATION
By: /s/ JAMES BILLMAIER
---------------------------
James Billmaier, President
<PAGE>
EXHIBIT A
---------
STATEMENT OF DESIGNATION OF RIGHTS,
PREFERENCES AND LIMITATIONS
OF
SERIES 4 CLASS B STOCK
Series 4 Class B Stock, $0.01 par value
- ---------------------------------------
1. Equivalent to Common Stock. Except as otherwise set forth in this
--------------------------
Statement of Designation of Rights, Preferences and Limitations of Series 4
Class B Stock, the Series 4 Class B Stock of Asymetrix Corporation (the
"Company") shall have rights, preferences and limitations identical with those
of the Company's $.01 par value common stock ("Common Stock"). In the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the holders of any shares of the Series 4 Class B Stock and of the
Common Stock shall be entitled to receive pro rata on an equal priority, pari
passu basis, any payment or distribution of the assets of the Company (whether
capital, surplus or earnings), but not until payment in full of any amounts due
the holders of the Series 1 Class B Stock, the Series A Preferred Stock, the
Series B Preferred Stock and any future series of Class B Stock that may be
entitled to priority over the Common Stock in the payment or distribution of the
assets of the Company in the event of any such dissolution or winding-up.
2. Voting. Except as may otherwise be agreed in writing, the holders of
------
shares of Series 4 Class B Stock shall be entitled to vote upon all matters upon
which holders of the Common Stock have the right to vote, and each share of
Series 4 Class B Stock shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of Series 4
Class B Stock could be converted pursuant to the applicable provisions of
Section 3 below, at the record date established by the Board of Directors of the
Company for the determination of the shareholders entitled to vote on such
matters, or, if no such record date is so established, at the record date
provided by law, such votes to be counted together with all other shares of
capital stock having general voting powers and not separately as a class. The
holders of the Series 4 Class B Stock shall be entitled to receive notice of any
meeting of the shareholders in accordance with applicable law and with the
bylaws of the Company as in effect at the time of such notice. Except as
otherwise expressly required by law, in no event shall the holders of shares of
Series 4 Class B Stock have the right to vote separately as a class.
3. Conversion. The Series 4 Class B Stock shall be converted into Common
----------
Stock as follows:
(a) Conversion Events. Each outstanding share of Series 4 Class B Stock
-----------------
shall automatically be converted, without any further act of the Company or its
shareholders, into fully paid and nonassessable shares of Common Stock pursuant
to the formula as set forth in
-2-
<PAGE>
subsection 3(c) below upon the earliest to occur of: (i) the distribution by the
Company to holders of its securities (other than the holders of Series 4 Class B
Stock) of a controlling interest in SuperCede, Inc., a wholly-owned subsidiary
of the Company, in a spin-off transaction; (ii) the distribution by the Company
to holders of its securities (other than the holders of Series 4 Class B Stock)
of the consideration received by the Company in one of the following
transactions with respect to SuperCede, Inc: (1) the sale of all or
substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; (iii) immediately prior to the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Company at an
aggregate offering price to the Company of not less than $10,000,000; or (iv)
upon acquisition of the Company by another entity by means of merger,
consolidation or otherwise, in which the holders of the Company's shares
outstanding immediately before such merger, consolidation or other transaction
do not, immediately after such merger, consolidation or other transaction,
retain stock representing a majority of the voting power of the surviving
corporation of such merger, consolidation or other transaction.
(b) Series 4 Conversion Ratio. Each share of Series 4 Class B Stock shall
-------------------------
be converted into one share of Common Stock. The Series 4 Conversion Ratio shall
be subject to adjustment as set forth in subsection 3(e).
(c) Mechanics of Conversion. Upon the occurrence of one of the events
-----------------------
specified in subsection 3(a), the outstanding shares of Series 4 Class B Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
--------
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 4 Class B Stock are delivered to the Company or
any transfer agent of the Company. Conversion of the Series 4 Class B Stock
shall be deemed to have been effected on the date on which the event specified
with respect to such Series 4 Class B Stock in subsection 3(a) shall have
occurred, and such date is referred to herein with respect to the Series 4 Class
B Stock as the "Series 4 Conversion Date." The holder in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of record of such Common Stock on the applicable Series 4
Conversion Date. Following the Conversion Date, upon the request of any holder
of Series 4 Class B Stock so converted and after surrender of the certificate or
certificates representing such holder's shares of Series 4 Class B Stock to the
Company or any transfer agent of the Company (except in the case of conversions
pursuant to subsection 3(a)(iv)), the Company shall issue and deliver to such
holder a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in subsection 3(d).
-3-
<PAGE>
(d) Fractional Shares. No fractional shares of Common Stock or scrip shall
-----------------
be issued upon conversion of shares of Series 4 Class B Stock, but the number of
full shares of Common Stock issuable upon conversion thereof shall be computed
on the basis of the aggregate number of shares of Series 4 Class B Stock so
converted. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of Series 4 Class B Stock,
the Company shall pay a cash adjustment in respect of such fractional interest
in an amount equal to that fractional interest of the then fair value per share
of Common Stock, as determined by the Board of Directors.
(e) Conversion Ratio Adjustments for the Series 4 Class B Stock. The
-----------------------------------------------------------
Conversion Ratio for the Series 4 Class B Stock shall be subject to adjustment
from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 4 Class B
Stock is increased by a stock dividend or other distribution on Common
Stock payable in shares of Common Stock or by a subdivision, split-up or
reclassification of outstanding shares of Common Stock, then immediately
after the record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend or the effective date of such
subdivision, split-up or reclassification, as the case may be, the Series 4
Conversion Ratio shall be appropriately adjusted so that the holder of any
shares of Series 4 Class B Stock thereafter converted shall be entitled to
receive the number of shares of Common Stock of the Company which the
holder would have owned immediately following such action had such shares
of Series 4 Class B Stock been converted immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common Stock
--------------------
outstanding at any time after the date of issuance of the Series 4 Class B
Stock is decreased by a combination or reclassification of the outstanding
shares of Common Stock, then, immediately after the effective date of such
combination or reclassification, the Series 4 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 4 Class B
Stock thereafter converted shall be entitled to receive the number of
shares of Common Stock of the Company which the holder would have owned
immediately following such action had such shares of Series 4 Class B Stock
been converted immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the Common Stock
------------------------------------------
issuable upon the conversion of the Series 4 Class B Stock shall be changed
into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend
provided for elsewhere in this subsection 3(e)), then and in each such
event the holder of each share of Series 4 Class B Stock shall have the
right thereafter to convert such share into the kind and
-4-
<PAGE>
amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification or other change by the holders of the
number of shares of Common Stock into which such share of Series 4 Class B
Stock might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(iv) Rounding of Calculations; Minimum Adjustment. All calculations
--------------------------------------------
under this subsection (e) shall be made to the nearest one hundredth
(1/100th) of a share. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Series 4 Conversion Ratio shall be
made if the amount of such adjustment would be less than 1% of the Series 4
Conversion Ratio then in effect, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of
and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate
1% or more of the Series 4 Conversion Ratio then in effect.
(f) Statement Regarding Adjustments. In each case of an adjustment or
-------------------------------
readjustment of the Conversion Ratio for the Series 4 Class B Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series 4 Class B Stock at the holder's address as shown in the Company's
books.
(g) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 4 Class B
Stock; provided that the Company shall not be required to pay any taxes
--------
which may be payable in respect of any transfer involved in the issuance or
delivery of any certificate for such shares in a name other than that of the
holder of the shares of Series 4 Class B Stock in respect of which such shares
are being issued.
(h) Reservation of Shares. So long as any shares of Series 4 Class B
---------------------
Stock remain outstanding, the Company shall reserve out of its authorized but
unissued shares of Common Stock, free from preemptive rights, sufficient shares
of Common Stock to provide for the conversion of all shares of Series 4 Class B
Stock outstanding, solely for the purpose of effecting such conversion.
(i) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 4 Class B Stock will upon issuance by
the Company be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 4 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
-5-
<PAGE>
(j) Notices. Any notice required by the provisions of this Section
-------
34 to be given to the holders of shares of the Series 4 Class B Stock shall be
deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
4. Dividends. Dividends shall be declared and set aside for
---------
any shares of the Series 4 Class B Stock only upon resolution of the Board of
Directors of the Company. Except as otherwise set forth in this Section 4, no
dividends (other than Common Stock dividends in a transaction described in
Section 3(e)(i)) shall be paid to the holders of the Common Stock unless an
equivalent dividend is concurrently paid to the holders of the Series 4 Class B
Stock (on an as-converted to Common Stock basis); provided, that this
--------
restriction shall not apply to Permitted Repurchases. Notwithstanding the
foregoing, no holder of Series 4 Class B Stock shall be entitled to receive in
any distribution thereof to the holders of any other securities of the Company,
including Common Stock: (i) any shares of SuperCede, Inc. or (ii) any
consideration received by the Company in any of the following transactions with
respect to SuperCede, Inc: (1) the sale of all or substantially all of the
assets of SuperCede, Inc., (2) the sale of a controlling interest in SuperCede,
Inc. to a third party, or (3) the acquisition of SuperCede, Inc. by another
entity by means of merger, consolidation or otherwise, in which the Company does
not, immediately after such merger, consolidation or other transaction, retain
stock representing a majority of the voting power of SuperCede, Inc.;
"Permitted Repurchases" means the repurchase by the Company of shares of Common
Stock held by employees, officers, directors, consultants, independent
contractors, advisors, or other persons performing services for the Company or a
subsidiary that are subject to restricted stock purchase agreements or stock
option exercise agreements under which the Company has the option to repurchase
such shares.
-6-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of Sections 23B.06.020 and 23B.10 of the Washington
Business Corporation Act, ASYMETRIX CORPORATION, a Washington corporation,
hereby adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is:
ASYMETRIX CORPORATION
SECOND: Article II of the Articles of Incorporation is hereby amended as
follows:
250,000 shares of $0.01 par value Class B Stock are hereby designated
as SERIES 4 CLASS B STOCK, with the rights, preferences and
limitations set forth in the STATEMENT OF DESIGNATION OF RIGHTS,
PREFERENCES AND LIMITATIONS OF SERIES 4 CLASS B STOCK attached hereto
as EXHIBIT A, which shares shall be in addition to the 2,250,000
---------
shares of the Series 4 Class B Stock previously designated by Articles
of Amendment filed on July 1, 1997 for a total of 2,500,000 shares of
Series 4 Class B Stock.
THIRD: The amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
FOURTH: The foregoing amendment was adopted on June 24, 1997.
FIFTH: The foregoing amendment was duly adopted by the Board of Directors of
the corporation without shareholder action, which was not required
for the adoption of the amendment.
EXECUTED this 9th day of July, 1997.
ASYMETRIX CORPORATION
By: /s/ JAMES BILLMAIER, PRESIDENT
------------------------------
James Billmaier, President
<PAGE>
EXHIBIT A
---------
STATEMENT OF DESIGNATION OF RIGHTS,
PREFERENCES AND LIMITATIONS
OF
SERIES 4 CLASS B STOCK
Series 4 Class B Stock, $0.01 par value
- ---------------------------------------
1. Equivalent to Common Stock. Except as otherwise set forth in this
--------------------------
Statement of Designation of Rights, Preferences and Limitations of Series 4
Class B Stock, the Series 4 Class B Stock of Asymetrix Corporation (the
"Company") shall have rights, preferences and limitations identical with those
of the Company's $.01 par value common stock ("Common Stock"). In the event of
any voluntary or involuntary liquidation, dissolution or winding-up of the
Company, the holders of any shares of the Series 4 Class B Stock and of the
Common Stock shall be entitled to receive pro rata on an equal priority, pari
passu basis, any payment or distribution of the assets of the Company (whether
capital, surplus or earnings), but not until payment in full of any amounts due
the holders of the Series 1 Class B Stock, the Series A Preferred Stock, the
Series B Preferred Stock and any future series of Class B Stock that may be
entitled to priority over the Common Stock in the payment or distribution of the
assets of the Company in the event of any such dissolution or winding-up.
2. Voting. Except as may otherwise be agreed in writing, the holders of
------
shares of Series 4 Class B Stock shall be entitled to vote upon all matters upon
which holders of the Common Stock have the right to vote, and each share of
Series 4 Class B Stock shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of Series 4
Class B Stock could be converted pursuant to the applicable provisions of
Section 3 below, at the record date established by the Board of Directors of the
Company for the determination of the shareholders entitled to vote on such
matters, or, if no such record date is so established, at the record date
provided by law, such votes to be counted together with all other shares of
capital stock having general voting powers and not separately as a class. The
holders of the Series 4 Class B Stock shall be entitled to receive notice of any
meeting of the shareholders in accordance with applicable law and with the
bylaws of the Company as in effect at the time of such notice. Except as
otherwise expressly required by law, in no event shall the holders of shares of
Series 4 Class B Stock have the right to vote separately as a class.
3. Conversion. The Series 4 Class B Stock shall be converted into Common
----------
Stock as follows:
(a) Conversion Events. Each outstanding share of Series 4 Class B Stock
-----------------
shall automatically be converted, without any further act of the Company or its
shareholders, into fully paid and nonassessable shares of Common Stock pursuant
to the formula as set forth in
-2-
<PAGE>
subsection 3(c) below upon the earliest to occur of: (i) the distribution by the
Company to holders of its securities (other than the holders of Series 4 Class B
Stock) of a controlling interest in SuperCede, Inc., a wholly-owned subsidiary
of the Company, in a spin-off transaction; (ii) the distribution by the Company
to holders of its securities (other than the holders of Series 4 Class B Stock)
of the consideration received by the Company in one of the following
transactions with respect to SuperCede, Inc: (1) the sale of all or
substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; (iii) immediately prior to the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Company at an
aggregate offering price to the Company of not less than $10,000,000; or (iv)
upon acquisition of the Company by another entity by means of merger,
consolidation or otherwise, in which the holders of the Company's shares
outstanding immediately before such merger, consolidation or other transaction
do not, immediately after such merger, consolidation or other transaction,
retain stock representing a majority of the voting power of the surviving
corporation of such merger, consolidation or other transaction.
(b) Series 4 Conversion Ratio. Each share of Series 4 Class B Stock shall
-------------------------
be converted into one share of Common Stock. The Series 4 Conversion Ratio shall
be subject to adjustment as set forth in subsection 3(e).
(c) Mechanics of Conversion. Upon the occurrence of one of the events
-----------------------
specified in subsection 3(a), the outstanding shares of Series 4 Class B Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
--------
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 4 Class B Stock are delivered to the Company or
any transfer agent of the Company. Conversion of the Series 4 Class B Stock
shall be deemed to have been effected on the date on which the event specified
with respect to such Series 4 Class B Stock in subsection 3(a) shall have
occurred, and such date is referred to herein with respect to the Series 4 Class
B Stock as the "Series 4 Conversion Date." The holder in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of record of such Common Stock on the applicable Series 4
Conversion Date. Following the Conversion Date, upon the request of any holder
of Series 4 Class B Stock so converted and after surrender of the certificate or
certificates representing such holder's shares of Series 4 Class B Stock to the
Company or any transfer agent of the Company (except in the case of conversions
pursuant to subsection 3(a)(iv)), the Company shall issue and deliver to such
holder a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in subsection 3(d).
-3-
<PAGE>
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series 4 Class B Stock, but the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series 4 Class B
Stock so converted. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of Series 4 Class B Stock,
the Company shall pay a cash adjustment in respect of such fractional interest
in an amount equal to that fractional interest of the then fair value per share
of Common Stock, as determined by the Board of Directors.
(e) Conversion Ratio Adjustments for the Series 4 Class B Stock. The
-----------------------------------------------------------
Conversion Ratio for the Series 4 Class B Stock shall be subject to
adjustment from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 4 Class B
Stock is increased by a stock dividend or other distribution on Common
Stock payable in shares of Common Stock or by a subdivision, split-up or
reclassification of outstanding shares of Common Stock, then immediately
after the record date fixed for the determination of holders of Common
Stock entitled to receive such stock dividend or the effective date of such
subdivision, split-up or reclassification, as the case may be, the Series 4
Conversion Ratio shall be appropriately adjusted so that the holder of any
shares of Series 4 Class B Stock thereafter converted shall be entitled to
receive the number of shares of Common Stock of the Company which the
holder would have owned immediately following such action had such shares
of Series 4 Class B Stock been converted immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common Stock
--------------------
outstanding at any time after the date of issuance of the Series 4 Class B
Stock is decreased by a combination or reclassification of the outstanding
shares of Common Stock, then, immediately after the effective date of such
combination or reclassification, the Series 4 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 4 Class B
Stock thereafter converted shall be entitled to receive the number of
shares of Common Stock of the Company which the holder would have owned
immediately following such action had such shares of Series 4 Class B Stock
been converted immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the
------------------------------------------
Common Stock issuable upon the conversion of the Series 4 Class B Stock
shall be changed into the same or a different number of shares of any class
or classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for elsewhere in this subsection 3(e)), then and in each
such event the holder of each share of Series 4 Class B Stock shall have
the right thereafter to convert such share into the kind and
-4-
<PAGE>
amount of shares of stock and other securities and property receivable upon
such reorganization, reclassification or other change by the holders of the
number of shares of Common Stock into which such share of Series 4 Class B
Stock might have been converted immediately prior to such reorganization,
reclassification or change, all subject to further adjustment as provided
herein.
(iv) Rounding of Calculations; Minimum Adjustment. All calculations
--------------------------------------------
under this subsection (e) shall be made to the nearest one hundredth
(1/100th) of a share. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Series 4 Conversion Ratio shall be
made if the amount of such adjustment would be less than 1% of the Series 4
Conversion Ratio then in effect, but any such amount shall be carried
forward and an adjustment with respect thereto shall be made at the time of
and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate
1% or more of the Series 4 Conversion Ratio then in effect.
(f) Statement Regarding Adjustments. In each case of an adjustment or
-------------------------------
readjustment of the Conversion Ratio for the Series 4 Class B Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series 4 Class B Stock at the holder's address as shown in the Company's
books.
(g) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 4 Class B
Stock; provided that the Company shall not be required to pay any taxes which
--------
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series 4 Class B Stock in respect of which such shares are being
issued.
(h) Reservation of Shares. So long as any shares of Series 4 Class B
---------------------
Stock remain outstanding, the Company shall reserve out of its authorized but
unissued shares of Common Stock, free from preemptive rights, sufficient shares
of Common Stock to provide for the conversion of all shares of Series 4 Class B
Stock outstanding, solely for the purpose of effecting such conversion.
(i) Valid Issuance. All shares of Common Stock which may be issued upon
--------------
conversion of the shares of Series 4 Class B Stock will upon issuance by the
Company be duly and validly issued, fully paid and nonassessable and free from
all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 4 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
-5-
<PAGE>
(j) Notices. Any notice required by the provisions of this Section 34
-------
to be given to the holders of shares of the Series 4 Class B Stock shall be
deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified or registered mail, return
receipt requested, postage prepaid, addressed to each holder of record at the
address of such holder appearing on the books of the Company.
4. Dividends. Dividends shall be declared and set aside for
---------
any shares of the Series 4 Class B Stock only upon resolution of the Board of
Directors of the Company. Except as otherwise set forth in this Section 4, no
dividends (other than Common Stock dividends in a transaction described in
Section 3(e)(i)) shall be paid to the holders of the Common Stock unless an
equivalent dividend is concurrently paid to the holders of the Series 4 Class B
Stock (on an as-converted to Common Stock basis); provided, that this
--------
restriction shall not apply to Permitted Repurchases. Notwithstanding the
foregoing, no holder of Series 4 Class B Stock shall be entitled to receive in
any distribution thereof to the holders of any other securities of the Company,
including Common Stock: (i) any shares of SuperCede, Inc. or (ii) any
consideration received by the Company in any of the following transactions with
respect to SuperCede, Inc: (1) the sale of all or substantially all of the
assets of SuperCede, Inc., (2) the sale of a controlling interest in SuperCede,
Inc. to a third party, or (3) the acquisition of SuperCede, Inc. by another
entity by means of merger, consolidation or otherwise, in which the Company does
not, immediately after such merger, consolidation or other transaction, retain
stock representing a majority of the voting power of SuperCede, Inc.;
"Permitted Repurchases" means the repurchase by the Company of shares of Common
Stock held by employees, officers, directors, consultants, independent
contractors, advisors, or other persons performing services for the Company or a
subsidiary that are subject to restricted stock purchase agreements or stock
option exercise agreements under which the Company has the option to repurchase
such shares.
-6-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of Sections 23B.06.020 and 23B.10 of the Washington
Business Corporation Act, ASYMETRIX CORPORATION, a Washington corporation,
hereby adopts the following Articles of Amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is:
ASYMETRIX CORPORATION
SECOND: Article II of the Articles of Incorporation is hereby amended as
follows:
1,512,500 shares of $0.01 par value Class B Stock are hereby
designated as SERIES 5 CLASS B STOCK, with the rights, preferences and
limitations set forth in the STATEMENT OF DESIGNATION OF RIGHTS,
PREFERENCES AND LIMITATIONS OF SERIES 5 CLASS B STOCK attached hereto
as EXHIBIT A.
---------
THIRD: The amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
FOURTH: The foregoing amendment was adopted on September 26, 1997.
FIFTH: The foregoing amendment was duly adopted by the Board of Directors of
the corporation without shareholder action, which was not required for the
adoption of the amendment.
EXECUTED this 29th day of September, 1997.
ASYMETRIX CORPORATION
By: /s/ JAMES BILLMAIER
---------------------------
James Billmaier, President
<PAGE>
EXHIBIT A
---------
DESIGNATION OF RIGHTS PREFERENCES AND LIMITATIONS OF
ASYMETRIX SERIES 5 CLASS B STOCK
SERIES 5 CLASS B STOCK, $0.01 PAR VALUE
1. Equivalent to Common Stock. Except as otherwise set forth in this
--------------------------
Statement of Designation of Rights, Preferences and Limitations of Series 5
Class B Stock, the Series 5 Class B Stock of Asymetrix Corporation (the
"Company") shall have rights, preferences and limitations identical with those
of the Company's $.01 par value common stock ("Common Stock") and the Company's
Series 4 Class B Stock, $0.01 par value ("Series 4 Class B Stock"). In the
event of any voluntary or involuntary liquidation, dissolution or winding-up of
the Company, the holders of any shares of the Series 5 Class B Stock, of the
Series 4 Class B Stock and of the Common Stock shall be entitled to receive pro
rata on an equal priority, pari passu basis, any payment or distribution of the
assets of the Company (whether capital, surplus or earnings), but not until
payment in full of any amounts due the holders of the Series 1 Class B Stock,
the Series A Preferred Stock, the Series B Preferred Stock and any future series
of Class B Stock that may be entitled to priority over the Common Stock in the
payment or distribution of the assets of the Company in the event of any such
dissolution or winding-up.
2. Voting. Except as may otherwise be agreed in writing, the holders of
------
shares of Series 5 Class B Stock shall be entitled to vote upon all matters upon
which holders of the Common Stock have the right to vote, and each share of
Series 5 Class B Stock shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of Series 5
Class B Stock could be converted pursuant to the applicable provisions of
Section 3 below, at the record date established by the Board of Directors of the
Company for the determination of the shareholders entitled to vote on such
matters, or, if no such record date is so established, at the record date
provided by law, such votes to be counted together with all other shares of
capital stock having general voting powers and not separately as a class. The
holders of the Series 5 Class B Stock shall be entitled to receive notice of any
meeting of the shareholders in accordance with applicable law and with the
bylaws of the Company as in effect at the time of such notice. Except as
otherwise expressly required by law, in no event shall the holders of shares of
Series 5 Class B Stock have the right to vote separately as a class.
3. Conversion. The Series 5 Class B Stock shall be converted into Common
----------
Stock as follows:
(a) Conversion Events. Each outstanding share of Series 5 Class B
-----------------
Stock shall automatically be converted, without any further act of the Company
or its shareholders, into fully paid and nonassessable shares of Common Stock
pursuant to the formula as set forth in subsection 3(c) below upon the earliest
to occur of: (i) the distribution by the Company to holders of its securities
(other than the holders of Series 5 Class B Stock and Series 4 Class B
-2-
<PAGE>
Stock) of a controlling interest in SuperCede, Inc., a wholly-owned subsidiary
of the Company, in a spin-off transaction; (ii) the distribution by the Company
to holders of its securities (other than the holders of Series 5 Class B Stock
and Series 4 Class B Stock) of the consideration received by the Company in one
of the following transactions with respect to SuperCede, Inc.: (1) the sale of
all or substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; (iii) immediately prior to the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Company at an
aggregate offering price to the Company of not less than $10,000,000; or (iv)
upon acquisition of the Company by another entity by means of merger,
consolidation or otherwise, in which the holders of the Company's shares
outstanding immediately before such merger, consolidation or other transaction
do not, immediately after such merger, consolidation or other transaction,
retain stock representing a majority of the voting power of the surviving
corporation of such merger, consolidation or other transaction.
(b) Series 5 Conversion Ratio. Each share of Series 5 Class B Stock
-------------------------
shall be converted into one share of Common Stock. The Series 5 Conversion
Ratio shall be subject to adjustment as set forth in subsection 3(e).
(c) Mechanics of Conversion. Upon the occurrence of one of the events
-----------------------
specified in subsection 3(a), the outstanding shares of Series 5 Class B Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
--------
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 5 Class B Stock are delivered to the Company or
any transfer agent of the Company. Conversion of the Series 5 Class B Stock
shall be deemed to have been effected on the date on which the event specified
with respect to such Series 5 Class B Stock in subsection 3(a) shall have
occurred, and such date is referred to herein with respect to the Series 5 Class
B Stock as the "Series 5 Conversion Date." The holder in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of record of such Common Stock on the applicable Series 5
Conversion Date. Following the Conversion Date, upon the request of any holder
of Series 5 Class B Stock so converted and after surrender of the certificate or
certificates representing such holder's shares of Series 5 Class B Stock to the
Company or any transfer agent of the Company (except in the case of conversions
pursuant to subsection 3(a)(iv)), the Company shall issue and deliver to such
holder a certificate or certificates for the number of full shares of Common
Stock to which such holder is entitled and a check or cash with respect to any
fractional interest in a share of Common Stock as provided in subsection 3(d).
-3-
<PAGE>
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series 5 Class B Stock, but the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series 5 Class B
Stock so converted. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of Series 5 Class B Stock,
the Company shall pay a cash adjustment in respect of such fractional interest
in an amount equal to that fractional interest of the then fair value per share
of Common Stock, as determined by the Board of Directors.
(e) Conversion Ratio Adjustments for the Series 5 Class B Stock. The
-----------------------------------------------------------
Conversion Ratio for the Series 5 Class B Stock shall be subject to adjustment
from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 5 Class B Stock
is increased by a stock dividend or other distribution on Common Stock payable
in shares of Common Stock or by a subdivision, split-up or reclassification of
outstanding shares of Common Stock, then immediately after the record date fixed
for the determination of holders of Common Stock entitled to receive such stock
dividend or the effective date of such subdivision, split-up or
reclassification, as the case may be, the Series 5 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 5 Class B
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 5 Class B Stock been converted
immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common
--------------------
Stock outstanding at any time after the date of issuance of the Series 5 Class B
Stock is decreased by a combination or reclassification of the outstanding
shares of Common Stock, then, immediately after the effective date of such
combination or reclassification, the Series 5 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 5 Class B
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 5 Class B Stock been converted
immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the Common
------------------------------------------
Stock issuable upon the conversion of the Series 5 Class B Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this subsection 3(e)), then and in each such event the holder of
each share of Series 5 Class B Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by the holders of the number of shares of Common Stock into which such share of
Series 5 Class Stock might have been converted
-4-
<PAGE>
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(iv) Rounding of Calculations; Minimum Adjustment. All
--------------------------------------------
calculations under this subsection (e) shall be made to the nearest one
hundredth (1/100th) of a share. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Series 5 Conversion Ratio shall be made if
the amount of such adjustment would be less than 1% of the Series 5 Conversion
Ratio then in effect, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with
any subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate 1% or more of the Series 5
Conversion Ratio then in effect.
(f) Statement Regarding Adjustments. In each case of an adjustment or
-------------------------------
readjustment of the Conversion Ratio for the Series 5 Class B Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series 5 Class B Stock at the holder's address as shown in the Company's
books.
(g) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 5 Class B
Stock; provided that the Company shall not be required to pay any taxes which
--------
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series 5 Class B Stock in respect of which such shares are being
issued.
(h) Reservation of Shares. So long as any shares of Series 5 Class B
---------------------
Stock remain outstanding, the Company shall reserve out of its authorized but
unissued shares of Common Stock, free from preemptive rights, sufficient shares
of Common Stock to provide for the conversion of all shares of Series 5 Class B
Stock outstanding, solely for the purpose of effecting such conversion.
(i) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 5 Class B Stock will upon issuance by
the Company be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 5 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
(j) Notices. Any notice required by the provisions of this Section 3
-------
to be given to the holders of shares of the Series 5 Class B Stock shall be
deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified
-5-
<PAGE>
or registered mail, return receipt requested, postage prepaid, addressed to each
holder of record at the address of such holder appearing on the books of the
Company.
4. Dividends. Dividends shall be declared and set aside for any shares of
---------
the Series 5 Class B Stock only upon resolution of the Board of Directors of the
Company. Except as otherwise set forth in this Section 4, no dividends (other
than Common Stock dividends in a transaction described in Section 3(e)(i)) shall
be paid to the holders of the Common Stock or the Series 4 Class B Stock unless
an equivalent dividend is concurrently paid to the holders of the Series 5 Class
B Stock (on a as-converted to Common Stock basis); provided, that this
--------
restriction shall not apply to Permitted Repurchases. Notwithstanding the
foregoing, no holder of Series 5 Class B Stock shall be entitled to receive in
any distribution thereof to the holders of any other securities of the Company,
including Common Stock: (i) any shares of SuperCede, Inc. or (ii) any
consideration received by the Company in any of the following transactions with
respect to SuperCede, Inc.; (1) the sale of all or substantially all of the
assets of SuperCede, Inc., (2) the sale of a controlling interest in SuperCede,
Inc. to a third party, or (3) the acquisition of SuperCede, Inc. by another
entity by means of merger, consolidation or otherwise, in which the Company does
not, immediately after such merger, consolidation or other transaction, retain
stock representing a majority of the voting power of SuperCede, Inc.;
"Permitted Repurchases" means the repurchase by the Company of shares of Common
Stock held by employees, officers, directors, consultants, independent
contractors, advisors, or other persons performing services for the Company or a
subsidiary that are subject to restricted stock purchase agreements or stock
option exercise agreements under which the Company has the option to repurchase
such shares.
-6-
<PAGE>
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ASYMETRIX CORPORATION
Pursuant to the provisions of Sections 23B.06.020 and 23B.10.060 of the
Washington Business Corporation Act, ASYMETRIX CORPORATION, a Washington
corporation, hereby adopts the following Articles of Amendment to its Articles
of Incorporation:
FIRST: The name of the corporation is hereby amended as follows:
ASYMETRIX LEARNING SYSTEMS, INC.
SECOND: These amendments do not provide for an exchange, reclassification
or cancellation of issued shares.
THIRD: The foregoing amendment was adopted on October 20, 1997.
FOURTH: The foregoing amendment was duly adopted by the Board of Directors
of the corporation without shareholder action, which was not required for
the adoption of the amendment.
FIFTH: These amendments shall be effective upon filing this document with
the Washington State Secretary.
EXECUTED this 20th day of October, 1997.
ASYMETRIX CORPORATION
By: /s/ James Billmaier
---------------------------------
James Billmaier, Chief Executive Officer
<PAGE>
CERTIFICATE OF INCORPORATION
OF
ASYMETRIX LEARNING SYSTEMS, INC.
ARTICLE I
The name of the corporation is Asymetrix Learning Systems, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
name of its registered agent at that address is The Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
A. Authorized Stock. The corporation is authorized to issue two classes
----------------
of stock to be designated respectively, "Common Stock" and "Preferred Stock".
The total number of shares which the corporation is authorized to issue is Forty
Five Million (45,000,000) shares. The number of shares of Preferred Stock
authorized to be issued is Five Million (5,000,000) shares, par value $0.01 per
share, of which 50,000 shares shall be designated as Series 1 Preferred Stock,
388,395 shares shall be designated Series A Preferred Stock, 388,395 shares
shall be designated Series B Preferred Stock, 2,500,000 shall be designated
Series 4 Preferred Stock and 1,512,500 shall be designated Series 5 Preferred
Stock. The number of shares of Common Stock authorized to be issued is Forty
Million (40,000,000) shares, par value $0.01 per share.
B. Series 1 Preferred Stock. The rights, preferences, privileges and
------------------------
restrictions granted to and imposed on Series 1 Preferred Stock are as follows.
1. Preference on Liquidation, etc. In the event of any voluntary or
-------------------------------
involuntary liquidation, dissolution or winding-up of the Company, before any
payment or distribution of the assets of the Company (whether capital, surplus
or earnings) shall be made to or set apart for the holders of any shares of the
Common Stock of the Company, the holders of shares of Series 1 Preferred Stock
shall be entitled to receive payment of $8.00 per share of Series 1 Preferred
<PAGE>
Stock held by them (as appropriately adjusted for any stock dividend, stock
split, recapitalization, combination of shares or other similar event involving
the Series 1 Preferred Stock). Future series of Preferred Stock may be entitled
to priority over the Series 1 Preferred Stock in the payment or distribution of
the assets of the Company in the event of any such dissolution or winding-up.
If, upon any liquidation, dissolution or winding-up of the Company, the
assets of the Company, or proceeds thereof, distributable among the holders of
shares of Series 1 Preferred Stock shall be insufficient to pay in full the
respective preferential amounts on the shares of Series 1 Preferred Stock then
such assets, or the proceeds thereof, shall be distributed among such holders
ratably in accordance with the respective amounts which would be payable on such
shares if all amounts payable thereon were paid in full.
Whenever the distribution provided for in this section shall be payable in
securities or property other than cash, the value of such distribution shall be
the fair market value of such securities or other property as determined in good
faith by the Company's Board of Directors.
2. Voting. The holders of shares of Series 1 Preferred Stock shall be
------
entitled to vote upon all matters upon which holders of the Common Stock have
the right to vote, and each share of Series 1 Preferred Stock shall be entitled
to the number of votes equal to the largest number of full shares of Common
Stock into which such shares of Series 1 Preferred Stock could be converted
pursuant to the applicable provisions of Section B.3 below, at the record date
established by the Board of Directors of the Company for the determination of
the stockholders entitled to vote on such matters, or, if no such record date is
so established, at the record date provided by law, such votes to be counted
together with all other shares of capital stock having general voting powers and
not separately as a class. Except as otherwise expressly required by law, in no
event shall the holders of shares of Series 1 Preferred Stock have the right to
vote separately as a class.
3. Conversion Rights. The Series 1 Preferred Stock shall be convertible
-----------------
into Common Stock as follows:
(a) Optional Conversion. Subject to and upon compliance with the
-------------------
provisions of this Section 3, the holder of any shares of Series 1 Preferred
Stock shall have the right at such holder's option, at any time or from time to
time, to convert any of such shares of Series 1 Preferred Stock into fully paid
and nonassessable shares of Common Stock at the Series 1 Conversion Ratio (as
hereinafter defined) in effect on the Series 1 Conversion Date (as hereinafter
defined) upon the terms hereinafter set forth.
(b) Automatic Conversion. Each outstanding share of Series 1
--------------------
Preferred Stock shall automatically be converted, without any further act of the
Company or its stockholders, into fully paid and nonassessable shares of Common
Stock pursuant to the formula as set forth in subsection 3(c) below: (i) upon
the "effective date" of a registration statement under the Securities Act of
1933 for a primary public offering by the Company of shares of Common Stock; or
(ii) upon the conversion of a simple majority of the shares originally issued of
Series 1 Preferred Stock to Common Stock pursuant to this Section B.3; or (iii)
upon acquisition of the Company by another entity by means of merger,
consolidation or otherwise, resulting in the exchange of the outstanding shares
of the Company for securities or
2
<PAGE>
consideration issued or caused to be issued by the acquiring entity or any of
its affiliates, but not resulting in a liquidation, dissolution or winding-up of
the Company.
(c) Series 1 Conversion Ratio. Each share of Series 1 Preferred Stock
-------------------------
shall be converted into one share of Common Stock. The Series 1 Conversion
Ratio shall be subject to adjustment as set forth in subsection 3(f).
(d) Mechanics of Conversion. Upon the occurrence of the events
-----------------------
specified in subsection 3(b), the outstanding shares of Series 1 Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 1 Preferred Stock are delivered to the Company
or any transfer agent of the Company. The holder of any shares of Series 1
Preferred Stock may exercise the conversion right specified in subsection 3(a)
as to any part thereof by surrendering to the Company or any transfer agent of
the Company the certificate or certificates for the shares to be converted,
accompanied by written notice stating that the holder elects to convert all or a
specified portion of the shares represented thereby. Conversion of the Series 1
Preferred Stock shall be deemed to have been effected on the date on which the
event specified with respect to such Series 1 Preferred Stock in subsection 3(b)
shall have occurred or on the date when delivery of notice of an election to
convert and certificates for shares is made, as the case may be, and such date
is referred to herein with respect to the Series 1 Preferred Stock as the
"Series 1 Conversion Date." Subject to the provisions of subsection 3(f)(v), as
promptly as practicable thereafter (and after surrender of the certificate or
certificates representing such holder's shares of Series 1 Preferred Stock to
the Company or any transfer agent of the Company in the case of conversions
pursuant to subsection 3(b)) the Company shall issue and deliver to such holder
a certificate or certificates for the number of full shares of Common Stock to
which such holder is entitled and a check or cash with respect to any fractional
interest in a share of Common Stock as provided in subsection 3(e) and any
dividends on the Series 1 Preferred Stock which such holder is entitled to
receive, but has not yet received. Subject to the provisions of subsection
3(f)(v), the Person in whose name the certificate or certificates for Common
Stock are to be issued shall be deemed to have become a holder of record of such
Common Stock on the applicable Series 1 Conversion Date. Upon conversion of
only a portion of the number of shares covered by a certificate representing
shares of Series 1 Preferred Stock surrendered for conversion (in the case of
conversion pursuant to subsection 3(a)), the Company shall issue and deliver to
the holder of the certificate so surrendered for conversion, at the expense of
the Company, a new certificate covering the number of shares of Series 1
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
(e) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series 1 Preferred Stock. If more
than one share of Series 1 Preferred Stock shall be surrendered for conversion
at any one time by the same holder, the number of full shares of Common Stock
issuable upon conversion thereof shall be computed on the basis of the aggregate
number of shares of Series 1 Preferred Stock so surrendered. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of any shares of Series 1 Preferred Stock, the Company shall pay a
cash adjustment in respect of
3
<PAGE>
such fractional interest in an amount equal to that fractional interest of the
then fair value per share of Common Stock, as determined by the Board of
Directors.
(f) Conversion Ratio Adjustments for the Series 1 Preferred Stock.
-------------------------------------------------------------
The Conversion Ratio for the Series 1 Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 1 Preferred
Stock is increased by a stock dividend or other distribution on Common Stock
payable in shares of Common Stock or by a subdivision, split-up or
reclassification of outstanding shares of Common Stock, then immediately after
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend or the effective date of such subdivision, split-
up or reclassification, as the case may be, the Series 1 Conversion Ratio shall
be appropriately increased so that the holder of any shares of Series 1
Preferred Stock thereafter converted shall be entitled to receive the number of
shares of Common Stock of the Company which the holder would have owned
immediately following such action had such shares of Series 1 Preferred Stock
been converted immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common
--------------------
Stock outstanding at any time after the date of issuance of the Series 1
Preferred Stock is decreased by a combination or reclassification of the
outstanding shares of Common Stock, then, immediately after the effective date
of such combination or reclassification, the Series 1 Conversion Ratio shall be
appropriately decreased so that the holder of any shares of Series 1 Preferred
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 1 Preferred Stock been converted
immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the Common
------------------------------------------
Stock issuable upon the conversion of the Series 1 Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this subsection 3(f)), then and in each such event the holder of
each share of Series 1 Preferred Stock shall have the right thereafter to
convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by the holders of the number of shares of Common Stock into which
such share of Series 1 Preferred Stock might have been converted immediately
prior to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(iv) Rounding of Calculations; Minimum Adjustment. All
--------------------------------------------
calculations under this subsection (f) shall be made to the nearest one
hundredth (1/100th) of a share. Any provision of this Section B.3 to the
contrary notwithstanding, no adjustment in the Series 1 Conversion Ratio shall
be made if the amount of such adjustment would be less than 1% of the Series 1
Conversion Ratio then in effect, but any such amount shall be carried forward
and an adjustment with respect thereto shall be made at the time of and together
with any subsequent
4
<PAGE>
adjustment which, together with such amount and any other amount or amounts so
carried forward, shall aggregate 1% or more of the Series 1 Conversion Ratio
then in effect.
(v) Timing of Issuance of Additional Common Stock Upon Certain
----------------------------------------------------------
Adjustments. In any case in which the provisions of this subsection (f) shall
- -----------
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event (A)
issuing to the holder of any share of Series 1 Preferred Stock converted after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying to such
holder any amount of cash in lieu of a fractional share of Common Stock pursuant
to subsection (e) of this Section B.3; provided that the Company upon request
--------
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and such cash,
upon the occurrence of the event requiring such adjustment.
(g) Statement Regarding Adjustments. Whenever the Series 1 Conversion
-------------------------------
Ratio shall be adjusted as provided in subsection 3(f), the Company shall
forthwith file, at the office of any transfer agent for the Series 1 Preferred
Stock and at the principal office of the Company, a statement showing in detail
the facts requiring such adjustment and the Series 1 Conversion Ratio that shall
be in effect after such adjustment, and the Company shall also cause a copy of
such statement to be sent by mail, first-class postage prepaid, to each holder
of shares of Series 1 Preferred Stock at its address appearing on the Company's
records.
(h) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 1 Preferred
Stock; provided that the Company shall not be required to pay any taxes which
--------
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series 1 Preferred Stock in respect of which such shares are being
issued.
(i) Reservation of Shares. So long as any shares of Series 1
---------------------
Preferred Stock remain outstanding, the Company shall reserve out of its
authorized but unissued shares of Common Stock, free from preemptive rights,
.sufficient shares of Common Stock to provide for the conversion of all shares
of Series 1 Preferred Stock outstanding, solely for the purpose of effecting
such conversion.
(j) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 1 Preferred Stock will upon issuance by
the Company be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 1 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
4. Dividends. Dividends shall be declared and set aside for any shares of
---------
the Series 1 Preferred Stock only upon resolution of the Board of Directors of
the Company.
5
<PAGE>
C. Series A Preferred Stock and Series B Preferred Stock.. The rights,
-----------------------------------------------------
preferences, privileges and restrictions granted to and imposed on Series A
Preferred Stock and Series B Preferred Stock are as follows:
Definitions. For purposes of this Section C the following definitions
-----------
shall apply:
1.1 "Board" shall mean the Board of Directors of the Company.
-----
1.2 "Series 1 Preferred Stock" shall mean the Series 1 Preferred
------------------------
Stock, par value $0.01 per share, of the Company.
1.2 "Company" shall mean this corporation.
-------
1.3 "Common Stock" shall mean the Common Stock, par value $0.01 per
------------
share, of the Company.
1.4 "Common Stock Dividend" shall mean a stock dividend declared and
---------------------
paid on the Common Stock that is payable in shares of Common Stock.
1.5. "Original Issue Date" shall mean, with respect to the Series A
-------------------
Preferred Stock and Series B Preferred Stock, the date on which the first share
of Series A Preferred Stock or Series B Preferred Stock, respectively, is issued
by the Company.
1.6. "Original Issue Price" shall mean $12.88 per share for the Series
--------------------
A Preferred Stock and Series B Preferred Stock.
1.7. "Permitted Repurchases" shall mean the repurchase by the Company
---------------------
of shares of Common Stock held by employees, officers, directors, consultants,
independent contractors, advisors, or other persons performing services for the
Company or a subsidiary that are subject to stock issuance and restriction
agreements, restricted stock purchase agreements, or other similar agreements,
or stock option exercise agreements under which the Company has the option to
repurchase such shares: (i) at cost, upon the occurrence of certain events,
such as the termination of employment or services; or (ii) at any price pursuant
to the Company's exercise of a right of first refusal to repurchase such shares;
provided, that the Board approves such repurchase.
1.8. "Series A Preferred Stock and Series B Preferred Stock" shall
-----------------------------------------------------
mean the Series A Preferred Stock and Series B Preferred Stock, par value $0.01
per share, of the Company.
1.9. "Subsidiary" shall mean any corporation of which at least fifty
----------
percent (50%) of the outstanding voting stock is at the time owned directly or
indirectly by the Company or by one or more of such subsidiary corporations.
6
<PAGE>
2. Dividend Rights
---------------
2.1 Dividend Preference.
--------------------
No dividends (other than a Common Stock Dividend) shall be paid with
respect to the Common Stock or Series 1 Preferred Stock during any calendar year
unless a dividend in the total amount of any dividend proposed to be paid with
respect to the Common Stock or Series 1 Preferred Stock shall have first been
paid or declared and set apart for payment to the holders of the Series A
Preferred Stock and Series B Preferred Stock (on an as-converted to Common Stock
basis); provided, however, that this restriction shall not apply to Permitted
-------- -------
Repurchases. Dividends on the Series A Preferred Stock and Series B Preferred
Stock shall not be mandatory or cumulative, and no rights or interest shall
accrue to the holders of the Series A Preferred Stock and Series B Preferred
Stock by reason of the fact that the Company shall fail to declare or pay
dividends on the Series A Preferred Stock or Series B Preferred Stock in any
calendar year or any fiscal year of the Company, whether or not the earnings of
the Company in any calendar year or fiscal year were sufficient to pay such
dividends in whole or in part.
2.2 Non-Cash Dividends. Whenever a dividend provided for in this
------------------
Section 2 shall be payable in property other than cash, the value of such
dividend shall be deemed to be the fair market value of such property as
determined in good faith by the Board.
2.3 No Payment on Conversion. If the Company shall have declared but
------------------------
unpaid dividends with respect to any Series A Preferred Stock or Series B
Preferred Stock upon its conversion as provided in Section C.5, then all such
declared but unpaid dividends on such converted shares shall be canceled.
3. Liquidation Rights. In the event of any liquidation, dissolution or
------------------
winding up of the Company, whether voluntary or involuntary, the funds and
assets of the Company that may be legally distributed to the Company's
stockholders (the "Available Funds and Assets") shall be distributed to
--------------------------
stockholders in the following manner:
3.1 Liquidation Preferences. The holders of each share of Series A
-----------------------
Preferred Stock and Series B Preferred Stock then outstanding shall be entitled
to be paid, out of the Available Funds and Assets, and prior and in preference
to any payment or distribution (or any setting apart of any payment or
distribution) of any Available Funds and Assets on any shares of Common Stock or
Series 1 Preferred Stock, an amount per share equal to the Original Issue Price
for each such share plus all declared but unpaid dividends thereon. If upon any
liquidation, dissolution or winding up of the Company, the Available Funds and
Assets shall be insufficient to permit the payment to holders of the Series A
Preferred Stock and Series B Preferred Stock of their full preferential amounts
described in this subsection, then all of the remaining Available Funds and
Assets shall be distributed among the holders of the then outstanding Series A
Preferred Stock and Series B Preferred Stock pro rata, on an equal priority,
pari passu basis based upon the aggregate full amounts to which the shares of
Series A Preferred Stock and Series B Preferred Stock would otherwise be
entitled. Except as provided in this Section C.3.1, holders of Series A
Preferred Stock and Series B Preferred Stock shall not be entitled to any
distribution upon any liquidation, dissolution or winding up of the Company.
7
<PAGE>
3.2 Merger or Sale of Assets. A (i) consolidation or merger of the
------------------------
Company with or into any other corporation or corporations in which the holders
of the Company's outstanding shares immediately before such consolidation or
merger do not, immediately after such consolidation or merger, retain stock
representing a majority of the voting power of the surviving corporation of such
consolidation or merger; or (ii) sale of all or substantially all of the assets
of the Company, shall each be deemed to be a liquidation, dissolution or winding
up of the Company as those terms are used in this Section C.3.
3.3 Non-Cash Consideration. If any assets of the Company distributed
----------------------
to stockholders in connection with any liquidation, dissolution, or winding up
of the Company are other than cash, then the value of such assets shall be their
fair market value as determined in good faith by the Board, except that any
------ ----
securities to be distributed to stockholders in a liquidation, dissolution, or
winding up of the Company shall be valued as follows:
(a) The method of valuation of securities not subject to
investment letter or other similar restrictions on free marketability
shall be as follows:
(i) if the securities are then traded on a national
securities exchange or the NASDAQ National Market (or a similar national
quotation system), then the value shall be deemed to be the average of the
closing prices of the securities on such exchange or system over the 30-day
period ending three (3) days prior to the distribution; and
(ii) if actively traded over-the-counter, then the value
shall be deemed to be the average of the closing bid prices over the 30-day
period ending three (3) days prior to the closing of such merger, consolidation
or sale; and
(iii) if there is no active public market, then the value
shall be the fair market value thereof, as determined in good faith by the Board
of Directors of the Company.
(b) The method of valuation of securities subject to investment
letter or other restrictions on free marketability shall be to make an
appropriate discount from the market value determined as above in subparagraphs
(a)(i), (ii) or (iii) of this subsection to reflect the approximate fair market
value thereof, as determined in good faith by the Board.
4. Voting Rights
-------------
4.1. Series A Preferred Stock and Series B Preferred Stock. Except as
-----------------------------------------------------
may be otherwise agreed to in writing between the holders of Series B Preferred
Stock and the Company, each holder of shares of Series A Preferred Stock and
Series B Preferred Stock shall be entitled to the number of votes equal to the
number of whole shares of Common Stock into which such shares of Series A
Preferred Stock and Series B Preferred Stock could be converted pursuant to the
provisions of Section C.5 below at the record date for the determination of the
stockholders entitled to vote on such matters or, if no such record date is
established, the date such vote is taken or any written consent of stockholders
is solicited.
4.2. General. Subject to the foregoing provisions of this Section
-------
C.4, each holder of Series A Preferred Stock and Series B Preferred Stock shall
have full voting rights and
8
<PAGE>
powers equal to the voting rights and powers of the holders of Common Stock and
Series 1 Preferred Stock, and shall be entitled to notice of any stockholders'
meeting in accordance with the bylaws of the Company (as in effect at the time
in question) and applicable law, and shall be entitled to vote, together with
the holders of Common Stock and Series 1 Preferred Stock, with respect to any
question upon which holders of Common Stock and Series 1 Preferred Stock have
the right to vote, except as may be otherwise provided by applicable law. Except
as otherwise expressly provided herein or as required by law, the holders of
Series A Preferred Stock and Series B Preferred Stock and the holders of Common
Stock and Series 1 Preferred Stock shall vote together as one class and not as
separate classes.
4.5. Board of Directors Election and Removal
---------------------------------------
(a) Election. (i) The holders of the Series A Preferred Stock,
--------
voting as a separate class in accordance with paragraph (b) below, shall be
entitled to elect one (1) director of the Company (the "Series A Director"),
-----------------
which director shall, upon his or her nomination as a board member be subject to
the reasonable approval of the Company, and (ii) the holders of the Series 1
Preferred Stock and the Common Stock, voting together as a single class shall be
entitled to elect the remaining directors of the Company. Provided that any
promissory note executed by a holder of Series B Preferred Stock in favor of the
Company, and which promissory note was executed as part of the purchase price of
Series B Preferred Stock from the Company, has been paid in full, (i) the
holders of the Series B Preferred Stock, voting as a separate class in
accordance with paragraph (b) below, shall be entitled to elect one (1) director
of the Company (the "Series B Director"), which director shall, upon his or her
-----------------
nomination as a board member be subject to the reasonable approval of the
Company, (ii) the holders of the Series A Preferred Stock, voting as a separate
class, shall be entitled to elect one (1) director of the Company, and (iii) the
holders of the Series 1 Preferred Stock and the Common Stock, voting together as
a single class shall be entitled to elect the remaining directors of the
Company.
(b) Quorum; Required Vote
---------------------
(i) Quorum. At any meeting held for the purpose of
------
electing the Series A Director, the presence in person or by proxy of the
holders of a majority of the shares of the Series A Preferred Stock then
outstanding shall constitute a quorum of the Series A Preferred Stock for the
election of the Series A Director. At any meeting held for the purpose of
electing the Series B Director, the presence in person or by proxy of the
holders of a majority of the shares of the Series B Preferred Stock then
outstanding shall constitute a quorum of the Series B Preferred Stock for the
election of the Series B Director
(ii) Required Vote. With respect to the election of the
-------------
Series A Director pursuant to subsection 4.5(a) above, that candidate shall be
elected and who either: (i) in the case of any such vote conducted at a meeting
of the holders of the Series A Preferred Stock, receives the highest number of
affirmative votes of the outstanding shares of the Series A Preferred Stock; or
(ii) in the case of any such vote taken by written consent without a meeting,
are elected by the unanimous written consent of the holders of shares of the
Series A Preferred Stock. With respect to the election of the Series B Director
pursuant to subsection 4.5(a) above, that candidate shall be elected and who
either: (i) in the case of any such vote conducted at a meeting of the holders
of the Series B Preferred Stock, receives the highest number of
9
<PAGE>
affirmative votes of the outstanding shares of the Series B Preferred Stock; or
(ii) in the case of any such vote taken by written consent without a meeting,
are elected by the unanimous written consent of the holders of shares of the
Series B Preferred Stock.
(c) Vacancy. If there shall be any vacancy in the office of the
-------
Series A Director or Series B Director, then a successor to hold office for the
unexpired term of the Series A Director or Series B Director shall be elected by
the affirmative vote of holders of the shares of the Series A Preferred Stock or
Series B Preferred Stock, respectively, that are entitled to elect such director
under subsection 4.5(a).
(d) Removal. Subject to applicable law the Series A Director or Series
-------
B Director may be removed during his or her term of office, either with or
without cause, by, and only by, the affirmative vote of shares representing a
majority of the voting power of all the outstanding shares of the Series A
Preferred Stock or Series B Preferred Stock, respectively, entitled to vote,
given either at a meeting of such stockholders duly called for that purpose or
pursuant to a written consent of stockholders without a meeting, and any vacancy
created by such removal may be filled only in the manner provided in subsection
4.5(c).
(e) Procedures. Any meeting of the holders of the Series A Preferred
----------
Stock or Series B Preferred Stock, and any action taken by the holders of the
Series A Preferred Stock or Series B Preferred Stock, respectively, by written
consent without a meeting, in order to elect or remove the Series A Director or
Series B Director, respectively, under this subsection 4.5, shall be held in
accordance with the procedures and provisions of the Company's Bylaws and
applicable law regarding stockholder meetings and stockholder actions by written
consent, as such are then in effect (including but not limited to procedures and
provisions for determining the record date for shares entitled to vote).
(f) Termination. Notwithstanding anything in this subsection 4.5 to
-----------
the contrary, the provisions of this subsection 4.5 relating to the Series A
Director shall cease to be of any further force or effect upon the first date
that either: (i) the total number of outstanding shares of Series A Preferred
Stock is less than two hundred thousand (200,000) shares (such number of shares
being subject to proportional adjustment to reflect combination or subdivisions
of such Series A Preferred Stock or dividends declared in shares of such stock);
or (ii) upon the merger or consolidation of the Company with or into any other
corporation or corporations if such consolidation or merger is approved by the
stockholders of the Company in compliance with applicable law and the
Certificate of Incorporation and Bylaws of the Company; or (iii) a sale of all
or substantially all of the Company's assets. Notwithstanding anything in this
subsection 4.5 to the contrary, the provisions of this subsection 4.5 relating
to the Series B Director shall cease to be of any further force or effect upon
the first date that either: (i) the total number of outstanding shares of
Series B Preferred Stock is less than two hundred thousand (200,000) shares
(such number of shares being subject to proportional adjustment to reflect
combination or subdivisions of such Series B Preferred Stock or dividends
declared in shares of such stock); or (ii) upon the merger or consolidation of
the Company with or into any other corporation or corporations if such
consolidation or merger is approved by the stockholders of the Company in
compliance with applicable law and the Certificate of Incorporation and Bylaws
of the Company; or (iii) a sale of all or substantially all of the Company's
assets.
10
<PAGE>
5. Conversion Rights. The outstanding shares of Series A Preferred Stock
-----------------
and Series B Preferred Stock shall be convertible into Common Stock as follows:
5.1 Optional Conversion
-------------------
(a) At the option of the holder thereof, each share of Series A
Preferred Stock and Series B Preferred Stock shall be convertible, at any time
or from time to time prior to the close of business on the business day before
any date fixed for redemption of such share, into fully paid and nonassessable
shares of Common Stock at the Conversion Price (as defined in subsection 5.3
below) as provided herein.
(b) Each holder of Series A Preferred Stock and Series B
Preferred Stock who elects to convert the same into shares of Common Stock shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Company or any transfer agent for the Series A Preferred Stock or Series
B Preferred Stock, respectively, or Common Stock, or notify the Company that
such certificate(s) have been lost, stolen or destroyed and execute an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
the Company in connection with such certificate(s), and shall give written
notice to the Company at such office that such holder elects to convert the same
and shall state therein the number of shares of Series A Preferred Stock or
Series B Preferred Stock being converted. Thereupon the Company shall promptly
issue and deliver at such office to such holder a certificate or certificates
for the number of shares of Common Stock to which such holder is entitled upon
such conversion. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the certificate
or certificates representing the shares of Series A Preferred Stock or Series B
Preferred Stock to be converted, and the person entitled to receive the shares
of Common Stock issuable upon such conversion shall be treated for all purposes
as the record holder of such shares of Common Stock on such date.
5.2 Automatic Conversion
--------------------
(a) Each share of Series A Preferred Stock shall automatically be
converted into fully paid and nonassessable shares of Common Stock at the
Conversion Price (as defined in subsection 5.3 below), as provided herein: (i)
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company at an aggregate offering price to the public of
not less than $10,000,000; or (ii) upon the Company's receipt of the written
consent of the holders of not less than a majority of the then outstanding
shares of Series A Preferred Stock to the conversion of all then outstanding
Series A Preferred Stock under this Section C.5. This subsection (ii) shall not
be amended except by a vote of the majority of the then outstanding Series A
Preferred Stock.
(b) Upon the occurrence of any event specified in subparagraph
5.2(a) (i) or (ii) above, the outstanding shares of Series A Preferred Stock
shall be converted into Common Stock automatically without the need for any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to
- -------- -------
11
<PAGE>
issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless the certificates evidencing such shares of Series A Preferred
Stock are either delivered to the Company or its transfer agent as provided
below, or the holder notifies the Company or its transfer agent that such
certificates have been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such certificates. Upon the occurrence of such automatic
conversion of the Series A Preferred Stock, the holders of Series A Preferred
Stock shall surrender the certificates representing such shares at the office of
the Company or any transfer agent for the Series A Preferred Stock or Common
Stock. Thereupon, there shall be issued and delivered to such holder promptly at
such office and in its name as shown on such surrendered certificate or
certificates, a certificate or certificates for the number of shares of Common
Stock into which the shares of Series A Preferred Stock surrendered were
convertible on the date on which such automatic conversion occurred.
(c) Each share of Series B Preferred Stock shall automatically be
converted into fully paid and nonassessable shares of Common Stock at the
Conversion Price (as defined in subsection 5.3 below), as provided herein: (i)
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company at an aggregate offering price to the public of
not less than $10,000,000; or (ii) upon the Company's receipt of the written
consent of the holders of not less than a majority of the then outstanding
shares of Series B Preferred Stock to the conversion of all then outstanding
Series B Preferred Stock under this Section C.5. This subsection (ii) shall not
be amended except by a vote of the majority of the then outstanding Series B
Preferred Stock.
(d) Upon the occurrence of any event specified in subparagraph
5.2(c) (i) or (ii) above, the outstanding shares of Series B Preferred Stock
shall be converted into Common Stock automatically without the need for any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Company or its transfer agent;
provided, however, that the Company shall not be obligated to issue certificates
- -------- -------
evidencing the shares of Common Stock issuable upon such conversion unless the
certificates evidencing such shares of Series B Preferred Stock are either
delivered to the Company or its transfer agent as provided below, or the holder
notifies the Company or its transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection with such
certificates. Upon the occurrence of such automatic conversion of the Series B
Preferred Stock, the holders of Series B Preferred Stock shall surrender the
certificates representing such shares at the office of the Company or any
transfer agent for the Series B Preferred Stock or Common Stock. Thereupon,
there shall be issued and delivered to such holder promptly at such office and
in its name as shown on such surrendered certificate or certificates, a
certificate or certificates for the number of shares of Common Stock into which
the shares of Series B Preferred Stock surrendered were convertible on the date
on which such automatic conversion occurred.
5.3. Conversion Price. Each share of Series A Preferred Stock and
----------------
Series B Preferred Stock shall be convertible in accordance with subsection 5.1
or subsection 5.2 above into the number of shares of Common Stock which results
from dividing the Original Issue Price
12
<PAGE>
by the conversion price for the Series A Preferred Stock or Series B Preferred
Stock, respectively, that is in effect at the time of conversion (the
"Conversion Price"). The initial Conversion Price for the Series A Preferred
----------------
Stock and Series B Preferred Stock shall be the Original Issue Price. The
Conversion Price shall be subject to adjustment from time to time as provided
below.
5.4. Adjustment Upon Common Stock Event. Upon the happening of a
----------------------------------
Common Stock Event (as hereinafter defined), the Conversion Price of the Series
A Preferred Stock and Series B Preferred Stock shall, simultaneously with the
happening of such Common Stock Event, be adjusted by multiplying the Conversion
Price, in effect immediately prior to such Common Stock Event by a fraction, (i)
the numerator of which shall be the number of shares of Common Stock issued and
outstanding immediately prior to such Common Stock Event, and (ii) the
denominator of which shall be the number of shares of Common Stock issued and
outstanding immediately after such Common Stock Event, and the product so
obtained shall thereafter be the Conversion Price. The Conversion Price shall
be readjusted in the same manner upon the happening of each subsequent Common
Stock Event. As used herein, the term "Common Stock Event" shall mean (i) the
------------------
issue by the Company of additional shares of Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) a subdivision of the outstanding
shares of Common Stock into a greater number of shares of Common Stock, or (iii)
a combination of the outstanding shares of Common Stock into a smaller number of
shares of Common Stock.
5.5. Adjustments for Other Dividends and Distributions. If at any
-------------------------------------------------
time or from time to time after the Original Issue Date the Company pays a
dividend or makes another distribution to the holders of the Common Stock
payable in securities of the Company other than shares of Common Stock, then in
each such event provision shall be made so that the holders of the Series A
Preferred Stock and Series B Preferred Stock shall receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable upon
conversion thereof, the amount of securities of the Company which they would
have received had their Series A Preferred Stock and Series B Preferred Stock
converted into Common Stock on the date of such event (or such record date, as
applicable) and had they thereafter, during the period from the date of such
event (or such record date, as applicable) to and including the conversion date,
retained such securities receivable by them as aforesaid during such period,
subject to all other adjustments called for during such period under this
Section C.5 with respect to the rights of the holders of the Series A Preferred
Stock and Series B Preferred Stock or with respect to such other securities by
their terms.
5.6. Adjustment for Reclassification, Exchange and Substitution. If
----------------------------------------------------------
at any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred Stock and Series B
Preferred Stock is changed into the same or a different number of shares of any
class or classes of stock, whether by recapitalization, reclassification or
otherwise (other than by a Common Stock Event or a stock dividend,
----- ----
reorganization, merger, consolidation or sale of assets provided for elsewhere
in this Section C.5), then in any such event each holder of Series A Preferred
Stock and Series B Preferred Stock shall have the right thereafter to convert
such stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change by
holders of the number of shares of Common Stock into which such shares of Series
A
13
<PAGE>
Preferred Stock and Series B Preferred Stock could have been converted
immediately prior to such recapitalization, reclassification or change, all
subject to further adjustment as provided herein or with respect to such other
securities or property by the terms thereof.
5.7. Sale of Shares Below Conversion Price
-------------------------------------
(a) Adjustment Formula. If at any time or from time to time
------------------
after the Original Issue Date the Company issues or sells, or is deemed by the
provisions of this subsection 5.7 to have issued or sold, Additional Shares of
Common Stock (as hereinafter defined), otherwise than in connection with a
Common Stock Event as provided in subsection 5.4, a dividend or distribution as
provided in subsection 5.5 or a recapitalization, reclassification, other change
as provided in subsection 5.6, for an Effective Price (as hereinafter defined)
that is less than the Conversion Price for the Series A Preferred Stock and
Series B Preferred Stock in effect immediately prior to such issue or sale,
then, and in each such case, the Conversion Price for the Series A Preferred
Stock and Series B Preferred Stock shall be reduced, as of the close of business
on the date of such issue or sale, to the price obtained by multiplying such
Conversion Price by a fraction:
(i) The numerator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding (as hereinafter defined)
immediately prior to such issue or sale of Additional Shares of Common Stock
plus (B) the quotient obtained by dividing the Aggregate Consideration Received
(as hereinafter defined) by the Company for the total number of Additional
Shares of Common Stock so issued or sold (or deemed so issued and sold) by the
Conversion Price for the Series A Preferred Stock and Series B Preferred Stock
in effect immediately prior to such issue or sale; and
(ii) The denominator of which shall be the sum of (A) the
number of Common Stock Equivalents Outstanding immediately prior to such issue
or sale plus (B) the number of Additional Shares of Common Stock so issued or
sold (or deemed so issued and sold).
(b) Certain Definitions. For the purpose of making any
-------------------
adjustment required under this subsection 5.7:
(i) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock issued by the Company, whether or not subsequently
reacquired or retired by the Company, other than: (A) shares of Common Stock
issued or issuable upon conversion of the Series A Preferred Stock or Series B
Preferred Stock; (B) shares of Common Stock (or options, warrants or rights
therefor) issued to employees, officers, or directors of, or contractors,
consultants or advisers to, the Company or any Subsidiary pursuant to stock
purchase or stock option plans, stock bonuses or awards, warrants, contracts or
other arrangements that are approved by the Board of Directors; (C) up to 50,000
shares in the aggregate of the Company's Series 1 Preferred Stock (and the
shares of Common Stock issued or issuable upon conversion of such Series 1
Preferred Stock) issued or issuable in connection with a written agreement
concerning a business relationship between the Company and the holder of such
Series 1 Preferred Stock; (D) any shares of Common Stock or Preferred Stock
issued to parties providing the Company with equipment leases, real property
leases, loans,
14
<PAGE>
credit lines, guaranties of indebtedness, cash price reductions or similar
financing under arrangements approved by the Board of Directors; and (E) shares
of Common Stock issued pursuant to the acquisition of another corporation or
entity by the Company by consolidation, merger, purchase of all or substantially
all of the assets, or other reorganization in which the Company acquires, in a
single transaction or series of related transactions, all or substantially all
of the assets of such other corporation or entity or fifty percent (50%) or more
of the voting power of such other corporation or entity or fifty percent (50%)
or more of the equity ownership of such other entity; provided that such
transaction or series of transactions has been approved by the Company's Board
of Directors.
(ii) The "Aggregate Consideration Received" by the Company
--------------------------------
for any issue or sale (or deemed issue or sale) of securities shall (A) to the
extent it consists of cash, be computed at the gross amount of cash received by
the Company before deduction of any underwriting or similar commissions,
compensation or concessions paid or allowed by the Company in connection with
such issue or sale and without deduction of any expenses payable by the Company;
(B) to the extent it consists of property other than cash, be computed at the
fair value of that property as determined in good faith by the Board using the
method of valuation set forth in Section C.3.4 hereof; and (C) if Additional
Shares of Common Stock, Convertible Securities or Rights or Options to purchase
either Additional Shares of Common Stock or Convertible Securities are issued or
sold together with other stock or securities or other assets of the Company for
a consideration which covers both, be computed as the portion of the
consideration so received that may be reasonably determined in good faith by the
Board to be allocable to such Additional Shares of Common Stock, Convertible
Securities or Rights or Options.
(iii) "Common Stock Equivalents Outstanding" shall mean
------------------------------------
the number of shares of Common Stock that is equal to the sum of (A) all shares
of Common Stock of the Company that are outstanding at the time in question,
plus (B) all shares of Common Stock of the Company issuable upon conversion of
all shares of Series A Preferred Stock or other Convertible Securities that are
outstanding at the time in question, plus (C) all shares of Common Stock of the
Company that are issuable upon the exercise of Rights or Options that are
outstanding at the time in question assuming the full conversion or exchange
into Common Stock of all such Rights or Options that are Rights or Options to
purchase or acquire Convertible Securities into or for Common Stock.
(iv) "Convertible Securities" shall mean stock or other
----------------------
securities convertible into or exchangeable for shares of Common Stock.
(v) The "Effective Price" of Additional Shares of Common
---------------
Stock shall mean the quotient determined by dividing the total number of
Additional Shares of Common Stock issued or sold, or deemed to have been issued
or sold, by the Company under this subsection 5.7, into the Aggregate
Consideration Received, or deemed to have been received, by the Company under
this subsection 5.7, for the issue of such Additional Shares of Common Stock.
(vi) "Rights or Options" shall mean warrants, options or
-----------------
other rights to purchase or acquire shares of Common Stock or Convertible
Securities.
15
<PAGE>
(c) Deemed Issuances. For the purpose of making any adjustment to the
----------------
Conversion Price of the Series A Preferred Stock and Series B Preferred Stock
required under this subsection 5.7, if the Company issues or sells any Rights or
Options or Convertible Securities and if the Effective Price of the shares of
Common Stock issuable upon exercise of such Rights or Options and/or the
conversion or exchange of Convertible Securities (computed without reference to
any additional or similar protective or antidilution clauses) is less than the
Conversion Price then in effect for the Series A Preferred Stock and Series B
Preferred Stock, then the Company shall be deemed to have issued, at the time of
the issuance of such Rights, Options or Convertible Securities, that number of
Additional Shares of Common Stock that is equal to the maximum number of shares
of Common Stock issuable upon exercise or conversion of such Rights, Options or
Convertible Securities upon their issuance and to have received, as the
Aggregate Consideration Received for the issuance of such shares, an amount
equal to the total amount of the consideration, if any, received by the Company
for the issuance of such Rights or Options or Convertible Securities, plus, in
the case of such Rights or Options, the minimum amounts of consideration, if
any, payable to the Company upon the exercise in full of such Rights or Options,
plus, in the case of Convertible Securities, the minimum amounts of
consideration, if any, payable to the Company (other than by cancellation of
liabilities or obligations evidenced by such Convertible Securities) upon the
conversion or exchange thereof; provided that:
-------- ----
(i) if the minimum amounts of such consideration cannot be
ascertained, but are a function of antidilution or similar protective clauses,
then the Company shall be deemed to have received the minimum amounts of
consideration without reference to such clauses;
(ii) if the minimum amount of consideration payable to the
Company upon the exercise of Rights or Options or the conversion or exchange of
Convertible Securities is reduced over time or upon the occurrence or non-
occurrence of specified events other than by reason of antidilution or similar
protective adjustments, then the Effective Price shall be recalculated using the
figure to which such minimum amount of consideration is reduced upon such
reduction becoming effective; and
(iii) if the minimum amount of consideration payable to the
Company upon the exercise of such Rights or Options or the conversion or
exchange of Convertible Securities is subsequently increased, then the Effective
Price shall again be recalculated using the increased minimum amount of
consideration payable to the Company upon the exercise of such Rights or Options
or the conversion or exchange of such Convertible Securities upon such increase
becoming effective.
No further adjustment of the Conversion Price, adjusted upon the
issuance of such Rights or Options or Convertible Securities, shall be made as a
result of the actual issuance of shares of Common Stock on the exercise of any
such Rights or Options or the conversion or exchange of any such Convertible
Securities. If any such Rights or Options or the conversion rights represented
by any such Convertible Securities shall expire without having been fully
exercised, then the Conversion Price as adjusted upon the issuance of such
Rights or Options or Convertible Securities (or upon the effectiveness of
further adjustments as set forth in subparagraphs 5.7(c) (ii) and (iii) above)
shall be readjusted to the Conversion Price which
16
<PAGE>
would have been in effect had an adjustment been made on the basis that the only
shares of Common Stock so issued were the shares of Common Stock, if any, that
there actually issued or sold on the partial exercise of such Rights or Options
or rights of conversion or exchange of such Convertible Securities, and such
shares of Common Stock, if any, were issued or sold for the consideration
actually received by the Company upon such exercise, plus the consideration, if
any, actually received by the Company for the granting of all such Rights or
Options, whether or not exercised, plus the consideration received for issuing
or selling all such Convertible Securities actually converted or exchanged, plus
the consideration, if any, actually received by the Company (other than by
cancellation of liabilities or obligations evidenced by such Convertible
Securities) on the conversion or exchange of such Convertible Securities, as the
case may be, provided that such readjustment shall not apply to prior
conversions of Series A Preferred Stock and Series B Preferred Stock.
5.8 Certificate of Adjustment. In each case of an adjustment or
-------------------------
readjustment of the Conversion Price for the Series A Preferred Stock and Series
B Preferred Stock as provided herein, the Company, at its expense, shall cause
its Chief Financial Officer to compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall promptly mail such certificate, by first
class mail, postage prepaid, to each registered holder of the Preferred Stock at
the holder's address as shown in the Company's books.
5.9 Fractional Shares. No fractional shares of Common Stock shall be
-----------------
issued upon any conversion of Series A Preferred Stock or Series B Preferred
Stock. In lieu of any fractional share to which the holder would otherwise be
entitled, the Company shall pay the holder cash equal to the product of such
fraction multiplied by the Common Stock's fair market value as determined in
good faith by the Board as of the date of conversion.
5.10 Reservation of Stock Issuable Upon Conversion. The Company
---------------------------------------------
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the shares of the Series A Preferred Stock and Series B Preferred Stock, such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock
and Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series A Preferred Stock and Series B
Preferred Stock, the Company will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.
5.11 Notices. Any notice required by the provisions of this Section
-------
5 to be given to the holders of shares of the Series A Preferred Stock and
Series B Preferred Stock shall be deemed given upon the earlier of actual
receipt or five business days after deposit in the United States mail, by
certified or registered mail, return receipt requested, postage prepaid,
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
17
<PAGE>
5.12 No Impairment. The Company shall not avoid or seek to avoid the
-------------
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but shall at all times in good faith assist in
carrying out all such action as may be reasonably necessary or appropriate in
order to protect the conversion rights of the holders of the Series A Preferred
Stock and Series B Preferred Stock against impairment.
6. Miscellaneous
-------------
6.1 No Reissuance of Series A Preferred Stock and Series B Preferred
----------------------------------------------------------------
Stock. No share or shares of Series A Preferred Stock and Series B Preferred
- -----
Stock acquired by the Company by reason of redemption, purchase, conversion or
otherwise shall be reissued, and all such shares shall be canceled, retired and
eliminated from the shares which the Company shall be authorized to issue.
7. Restrictions and Limitations.
----------------------------
7.1 Protective Provisions for Holders of Series A Preferred Stock.
-------------------------------------------------------------
So long as any shares of Series A Preferred Stock remain outstanding, the
Company shall not, without the approval, by vote or written consent, of the
holders of a majority of the Series A Preferred Stock then outstanding, voting
together as a separate class:
(1) amend its Certificate of Incorporation to increase the
authorized number of shares of Preferred Stock:
(2) reclassify or recapitalize any outstanding shares of
Preferred Stock of the Company into shares having rights, preferences or
privileges senior to or on a parity with the Series A Preferred Stock;
(3) authorize or issue any other Preferred Stock or any other
capital stock having rights, preferences or privileges senior to or on a parity
with the Series A Preferred Stock;
(4) authorize any amendment or change of the rights, preferences
or powers of the Series A Preferred Stock;
(5) authorize an amendment of the Company's Certificate of
Incorporation that adversely affects the rights of the Series A Preferred Stock;
or
(6) approve a sale, merger, liquidation or other transaction
which would be treated as a liquidation, dissolution or winding up of the
Company pursuant to the provisions of subsection 3.2 hereof, pursuant to which
the holders of Series A Preferred Stock would receive less than the full per
share amount to which such holders are entitled pursuant to subsection 3.1
hereof.
7.2 Protective Provisions for Holders of Series B Preferred Stock.
-------------------------------------------------------------
So long as any shares of Series B Preferred Stock remain outstanding, the
Company shall not, without the approval, by vote or written consent, of the
holders of a majority of the Series B Preferred Stock then outstanding, voting
together as a separate class:
18
<PAGE>
(1) amend its Certificate of Incorporation to increase the
authorized number of shares of Preferred Stock:
(2) reclassify or recapitalize any outstanding shares of
Preferred Stock of the Company into shares having rights, preferences or
privileges senior to or on a parity with the Series B Preferred Stock;
(3) authorize or issue any other Preferred Stock or any other
capital stock having rights, preferences or privileges senior to or on a parity
with the Series B Preferred Stock;
(4) authorize any amendment or change of the rights, preferences
or powers of the Series A Preferred Stock or the Series B Preferred Stock;
(5) authorize an amendment of the Company's Certificate of
Incorporation that adversely affects the rights of the Series B Preferred Stock;
or
(6) approve a sale, merger, liquidation or other transaction
which would be treated as a liquidation, dissolution or winding up of the
Company pursuant to the provisions of subsection 3.2 hereof, pursuant to which
the holders of Series B Preferred Stock would receive less than the full per
share amount to which such holders are entitled pursuant to subsection 3.1
hereof.
D. Series 4 Preferred Stock. The rights, preferences, privileges and
------------------------
restrictions granted to and imposed on Series 4 Preferred Stock are as follows.
1. Equivalent to Common Stock. Except as otherwise set forth in this
--------------------------
Section D, the Series 4 Preferred Stock of the Company shall have rights,
preferences and limitations identical with those of the Company's Common Stock.
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of the Company, the holders of any shares of the Series 4 Preferred
Stock and of the Common Stock shall be entitled to receive pro rata on an equal
priority, pari passu basis, any payment or distribution of the assets of the
Company (whether capital, surplus or earnings), but not until payment in full of
any amounts due the holders of the Series 1 Preferred Stock, the Series A
Preferred Stock, the Series B Preferred Stock and any future series of Preferred
Stock that may be entitled to priority over the Common Stock in the payment or
distribution of the assets of the Company in the event of any such dissolution
or winding-up.
2. Voting. Except as may otherwise be agreed in writing, the holders of
------
shares of Series 4 Preferred Stock shall be entitled to vote upon all matters
upon which holders of the Common Stock have the right to vote, and each share of
Series 4 Preferred Stock shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of Series 4
Preferred Stock could be converted pursuant to the applicable provisions of
subsection 3 below, at the record date established by the Board of Directors of
the Company for the determination of the stockholders entitled to vote on such
matters, or, if no such record date is so established, at the record date
provided by law, such votes to be counted together with all other shares of
capital stock having general voting powers and not separately as a class. The
holders of the Series 4 Preferred Stock shall be entitled to receive notice of
any meeting of the
19
<PAGE>
stockholders in accordance with applicable law and with the bylaws of the
Company as in effect at the time of such notice. Except as otherwise expressly
required by law, in no event shall the holders of shares of Series 4 Preferred
Stock have the right to vote separately as a class.
3. Conversion. The Series 4 Preferred Stock shall be converted into
----------
Common Stock as follows:
(a) Conversion Events. Each outstanding share of Series 4 Preferred
-----------------
Stock shall automatically be converted, without any further act of the Company
or its stockholders, into fully paid and nonassessable shares of Common Stock
pursuant to the formula as set forth in subsection 3(c) below upon the earliest
to occur of: (i) the distribution by the Company to holders of its securities
(other than the holders of Series 4 Preferred Stock) of a controlling interest
in SuperCede, Inc., a wholly-owned subsidiary of the Company, in a spin-off
transaction; (ii) the distribution by the Company to holders of its securities
(other than the holders of Series 4 Preferred Stock) of the consideration
received by the Company in one of the following transactions with respect to
SuperCede, Inc.: (1) the sale of all or substantially all of the assets of
SuperCede, Inc., (2) the sale of a controlling interest in SuperCede, Inc. to a
third party, or (3) the acquisition of SuperCede, Inc. by another entity by
means of merger, consolidation or otherwise, in which the Company does not,
immediately after such merger, consolidation or other transaction, retain stock
representing a majority of the voting power of SuperCede, Inc.; (iii)
immediately prior to the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement filed under the
Securities Act of 1933, as amended, covering the offer and sale of Common Stock
for the account of the Company at an aggregate offering price to the Company of
not less than $10,000,000; or (iv) upon acquisition of the Company by another
entity by means of merger, consolidation or otherwise, in which the holders of
the Company's shares outstanding immediately before such merger, consolidation
or other transaction do not, immediately after such merger, consolidation or
other transaction, retain stock representing a majority of the voting power of
the surviving corporation of such merger, consolidation or other transaction.
(b) Series 4 Conversion Ratio. Each share of Series 4 Preferred Stock
-------------------------
shall be converted into one share of Common Stock. The Series 4 Conversion
Ratio shall be subject to adjustment as set forth in subsection 3(e).
(c) Mechanics of Conversion. Upon the occurrence of one of the events
-----------------------
specified in subsection 3(a), the outstanding shares of Series 4 Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
--------
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 4 Preferred Stock are delivered to the Company
or any transfer agent of the Company. Conversion of the Series 4 Preferred
Stock shall be deemed to have been effected on the date on which the event
specified with respect to such Series 4 Preferred Stock in subsection 3(a) shall
have occurred, and such date is referred to herein with respect to the Series 4
Preferred Stock as the "Series 4 Conversion Date." The holder in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of record of such Common Stock on the applicable Series 4
Conversion Date. Following the
20
<PAGE>
Conversion Date, upon the request of any holder of Series 4 Preferred Stock so
converted and after surrender of the certificate or certificates representing
such holder's shares of Series 4 Preferred Stock to the Company or any transfer
agent of the Company (except in the case of conversions pursuant to subsection
3(a)(iv)), the Company shall issue and deliver to such holder a certificate or
certificates for the number of full shares of Common Stock to which such holder
is entitled and a check or cash with respect to any fractional interest in a
share of Common Stock as provided in subsection 3(d).
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series 4 Preferred Stock, but the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series 4 Preferred
Stock so converted. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of any shares of Series 4 Preferred
Stock, the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to that fractional interest of the then fair value
per share of Common Stock, as determined by the Board of Directors.
(e) Conversion Ratio Adjustments for the Series 4 Preferred Stock.
-------------------------------------------------------------
The Conversion Ratio for the Series 4 Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 4 Preferred
Stock is increased by a stock dividend or other distribution on Common Stock
payable in shares of Common Stock or by a subdivision, split-up or
reclassification of outstanding shares of Common Stock, then immediately after
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend or the effective date of such subdivision, split-
up or reclassification, as the case may be, the Series 4 Conversion Ratio shall
be appropriately adjusted so that the holder of any shares of Series 4 Preferred
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 4 Preferred Stock been converted
immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common
--------------------
Stock outstanding at any time after the date of issuance of the Series 4
Preferred Stock is decreased by a combination or reclassification of the
outstanding shares of Common Stock, then, immediately after the effective date
of such combination or reclassification, the Series 4 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 4 Preferred
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 4 Preferred Stock been converted
immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the Common
------------------------------------------
Stock issuable upon the conversion of the Series 4 Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend provided for
elsewhere in this subsection 3(e)), then and in each such event the holder of
each
21
<PAGE>
share of Series 4 Preferred Stock shall have the right thereafter to convert
such share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by the holders of the number of shares of Common Stock into which such share of
Series 4 Preferred Stock might have been converted immediately prior to such
reorganization, reclassification or change, all subject to further adjustment as
provided herein.
(iv) Rounding of Calculations; Minimum Adjustment. All
--------------------------------------------
calculations under this subsection (e) shall be made to the nearest one
hundredth (1/100th) of a share. Any provision of this Section D.3 to the
contrary notwithstanding, no adjustment in the Series 4 Conversion Ratio shall
be made if the amount of such adjustment would be less than 1% of the Series 4
Conversion Ratio then in effect, but any such amount shall be carried forward
and an adjustment with respect thereto shall be made at the time of and together
with any subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate 1% or more of the Series 4
Conversion Ratio then in effect.
(f) Statement Regarding Adjustments. In each case of an adjustment or
-------------------------------
readjustment of the Conversion Ratio for the Series 4 Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series 4 Preferred Stock at the holder's address as shown in the Company's
books.
(g) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 4 Preferred
Stock; provided that the Company shall not be required to pay any taxes which
--------
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series 4 Preferred Stock in respect of which such shares are being
issued.
(h) Reservation of Shares. So long as any shares of Series 4
---------------------
Preferred Stock remain outstanding, the Company shall reserve out of its
authorized but unissued shares of Common Stock, free from preemptive rights,
sufficient shares of Common Stock to provide for the conversion of all shares of
Series 4 Preferred Stock outstanding, solely for the purpose of effecting such
conversion.
(i) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 4 Preferred Stock will upon issuance by
the Company be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 4 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
(j) Notices. Any notice required by the provisions of this Section 3
-------
to be given to the holders of shares of the Series 4 Preferred Stock shall be
deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified
22
<PAGE>
or registered mail, return receipt requested, postage prepaid, addressed to each
holder of record at the address of such holder appearing on the books of the
Company.
4. Dividends. Dividends shall be declared and set aside for any shares of
---------
the Series 4 Preferred Stock only upon resolution of the Board of Directors of
the Company. Except as otherwise set forth in this Section D.4, no dividends
(other than Common Stock dividends in a transaction described in Section
3(e)(i)) shall be paid to the holders of the Common Stock or the Series 4
Preferred Stock unless an equivalent dividend is concurrently paid to the
holders of the Series 4 Preferred Stock (on a as-converted to Common Stock
basis); provided, that this restriction shall not apply to Permitted
--------
Repurchases. Notwithstanding the foregoing, no holder of Series 4 Preferred
Stock shall be entitled to receive in any distribution thereof to the holders of
any other securities of the Company, including Common Stock: (i) any shares of
SuperCede, Inc. or (ii) any consideration received by the Company in any of the
following transactions with respect to SuperCede, Inc.; (1) the sale of all or
substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; "Permitted Repurchases" means the repurchase
by the Company of shares of Common Stock held by employees, officers, directors,
consultants, independent contractors, advisors, or other persons performing
services for the Company or a subsidiary that are subject to restricted stock
purchase agreements or stock option exercise agreements under which the Company
has the option to repurchase such shares.
E. Series 5 Preferred Stock. The rights, preferences, privileges and
------------------------
restrictions granted to and imposed on Series 5 Preferred Stock are as follows.
1. Equivalent to Common Stock. Except as otherwise set forth in this
--------------------------
Section E, the Series 5 Preferred Stock of Company shall have rights,
preferences and limitations identical with those of the Company's Common Stock
and the Company's Series 4 Preferred Stock. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Company, the holders
of any shares of the Series 5 Preferred Stock, of the Series 4 Preferred Stock
and of the Common Stock shall be entitled to receive pro rata on an equal
priority, pari passu basis, any payment or distribution of the assets of the
Company (whether capital, surplus or earnings), but not until payment in full of
any amounts due the holders of the Series 1 Preferred Stock, the Series A
Preferred Stock, the Series B Preferred Stock and any future series of Preferred
Stock that may be entitled to priority over the Common Stock in the payment or
distribution of the assets of the Company in the event of any such dissolution
or winding-up.
2. Voting. Except as may otherwise be agreed in writing, the holders of
------
shares of Series 5 Preferred Stock shall be entitled to vote upon all matters
upon which holders of the Common Stock have the right to vote, and each share of
Series 5 Preferred Stock shall be entitled to the number of votes equal to the
largest number of full shares of Common Stock into which such shares of Series 5
Preferred Stock could be converted pursuant to the applicable provisions of
Section E.3 below, at the record date established by the Board of Directors of
the Company for the determination of the stockholders entitled to vote on such
matters, or, if no such record date is so established, at the record date
provided by law, such votes to be counted together with all other shares of
capital stock having general voting powers and not separately as a class. The
23
<PAGE>
holders of the Series 5 Preferred Stock shall be entitled to receive notice of
any meeting of the stockholders in accordance with applicable law and with the
bylaws of the Company as in effect at the time of such notice. Except as
otherwise expressly required by law, in no event shall the holders of shares of
Series 5 Preferred Stock have the right to vote separately as a class.
3. Conversion. The Series 5 Preferred Stock shall be converted into
----------
Common Stock as follows:
(a) Conversion Events. Each outstanding share of Series 5 Preferred
-----------------
Stock shall automatically be converted, without any further act of the Company
or its stockholders, into fully paid and nonassessable shares of Common Stock
pursuant to the formula as set forth in subsection 3(c) below upon the earliest
to occur of: (i) the distribution by the Company to holders of its securities
(other than the holders of Series 5 Preferred Stock and Series 4 Preferred
Stock) of a controlling interest in SuperCede, Inc., a wholly-owned subsidiary
of the Company, in a spin-off transaction; (ii) the distribution by the Company
to holders of its securities (other than the holders of Series 5 Preferred Stock
and Series 4 Preferred Stock) of the consideration received by the Company in
one of the following transactions with respect to SuperCede, Inc.: (1) the sale
of all or substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; (iii) immediately prior to the closing of a
firm commitment underwritten public offering pursuant to an effective
registration statement filed under the Securities Act of 1933, as amended,
covering the offer and sale of Common Stock for the account of the Company at an
aggregate offering price to the Company of not less than $10,000,000; or (iv)
upon acquisition of the Company by another entity by means of merger,
consolidation or otherwise, in which the holders of the Company's shares
outstanding immediately before such merger, consolidation or other transaction
do not, immediately after such merger, consolidation or other transaction,
retain stock representing a majority of the voting power of the surviving
corporation of such merger, consolidation or other transaction.
(b) Series 5 Conversion Ratio. Each share of Series 5 Preferred Stock
-------------------------
shall be converted into one share of Common Stock. The Series 5 Conversion
Ratio shall be subject to adjustment as set forth in subsection 3(e).
(c) Mechanics of Conversion. Upon the occurrence of one of the events
-----------------------
specified in subsection 3(a), the outstanding shares of Series 5 Preferred Stock
shall be converted automatically without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent; provided that the Company
--------
shall not be obligated to issue to any such holder certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing the shares of Series 5 Preferred Stock are delivered to the Company
or any transfer agent of the Company. Conversion of the Series 5 Preferred
Stock shall be deemed to have been effected on the date on which the event
specified with respect to such Series 5 Preferred Stock in subsection 3(a) shall
have occurred, and such date is referred to herein with respect to the Series 5
Preferred Stock as the "Series 5 Conversion Date." The holder in whose name the
certificate or certificates for Common Stock are to be issued shall be deemed to
have become a holder of
24
<PAGE>
record of such Common Stock on the applicable Series 5 Conversion Date.
Following the Conversion Date, upon the request of any holder of Series 5
Preferred Stock so converted and after surrender of the certificate or
certificates representing such holder's shares of Series 5 Preferred Stock to
the Company or any transfer agent of the Company (except in the case of
conversions pursuant to subsection 3(a)(iv)), the Company shall issue and
deliver to such holder a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check or cash with
respect to any fractional interest in a share of Common Stock as provided in
subsection 3(d).
(d) Fractional Shares. No fractional shares of Common Stock or scrip
-----------------
shall be issued upon conversion of shares of Series 5 Preferred Stock, but the
number of full shares of Common Stock issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series 5 Preferred
Stock so converted. Instead of any fractional shares of Common Stock which
would otherwise be issuable upon conversion of any shares of Series 5 Preferred
Stock, the Company shall pay a cash adjustment in respect of such fractional
interest in an amount equal to that fractional interest of the then fair value
per share of Common Stock, as determined by the Board of Directors.
(e) Conversion Ratio Adjustments for the Series 5 Preferred Stock.
-------------------------------------------------------------
The Conversion Ratio for the Series 5 Preferred Stock shall be subject to
adjustment from time to time as follows:
(i) Stock Dividends. If the number of shares of Common Stock
---------------
outstanding at any time after the date of issuance of the Series 5 Preferred
Stock is increased by a stock dividend or other distribution on Common Stock
payable in shares of Common Stock or by a subdivision, split-up or
reclassification of outstanding shares of Common Stock, then immediately after
the record date fixed for the determination of holders of Common Stock entitled
to receive such stock dividend or the effective date of such subdivision, split-
up or reclassification, as the case may be, the Series 5 Conversion Ratio shall
be appropriately adjusted so that the holder of any shares of Series 5 Preferred
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 5 Preferred Stock been converted
immediately prior thereto.
(ii) Combination of Stock. If the number of shares of Common
--------------------
Stock outstanding at any time after the date of issuance of the Series 5
Preferred Stock is decreased by a combination or reclassification of the
outstanding shares of Common Stock, then, immediately after the effective date
of such combination or reclassification, the Series 5 Conversion Ratio shall be
appropriately adjusted so that the holder of any shares of Series 5 Preferred
Stock thereafter converted shall be entitled to receive the number of shares of
Common Stock of the Company which the holder would have owned immediately
following such action had such shares of Series 5 Preferred Stock been converted
immediately prior thereto.
(iii) Capital Reorganization or Reclassification. If the Common
------------------------------------------
Stock issuable upon the conversion of the Series 5 Preferred Stock shall be
changed into the same or a different number of shares of any class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than a subdivision or combination of shares or stock dividend
25
<PAGE>
provided for elsewhere in this subsection 3(e)), then and in each such event the
holder of each share of Series 5 Preferred Stock shall have the right thereafter
to convert such share into the kind and amount of shares of stock and other
securities and property receivable upon such reorganization, reclassification or
other change by the holders of the number of shares of Common Stock into which
such share of Series 5 Class Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
(iv) Rounding of Calculations; Minimum Adjustment. All
--------------------------------------------
calculations under this subsection (e) shall be made to the nearest one
hundredth (1/100th) of a share. Any provision of this Section 3 to the contrary
notwithstanding, no adjustment in the Series 5 Conversion Ratio shall be made if
the amount of such adjustment would be less than 1% of the Series 5 Conversion
Ratio then in effect, but any such amount shall be carried forward and an
adjustment with respect thereto shall be made at the time of and together with
any subsequent adjustment which, together with such amount and any other amount
or amounts so carried forward, shall aggregate 1% or more of the Series 5
Conversion Ratio then in effect.
(f) Statement Regarding Adjustments. In each case of an adjustment or
-------------------------------
readjustment of the Conversion Ratio for the Series 5 Preferred Stock, the
Company, at its expense, shall cause its Chief Financial Officer to compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate, by first class mail, postage prepaid, to each registered holder of
the Series 5 Preferred Stock at the holder's address as shown in the Company's
books.
(g) Costs. The Company shall pay all documentary, stamp, transfer or
-----
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock of the Company upon conversion of any shares of Series 5 Preferred
Stock; provided that the Company shall not be required to pay any taxes which
--------
may be payable in respect of any transfer involved in the issuance or delivery
of any certificate for such shares in a name other than that of the holder of
the shares of Series 5 Preferred Stock in respect of which such shares are being
issued.
(h) Reservation of Shares. So long as any shares of Series 5
---------------------
Preferred Stock remain outstanding, the Company shall reserve out of its
authorized but unissued shares of Common Stock, free from preemptive rights,
sufficient shares of Common Stock to provide for the conversion of all shares of
Series 5 Preferred Stock outstanding, solely for the purpose of effecting such
conversion.
(i) Valid Issuance. All shares of Common Stock which may be issued
--------------
upon conversion of the shares of Series 5 Preferred Stock will upon issuance by
the Company be duly and validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issuance thereof and the
Company shall take no action which will cause a contrary result (including
without limitation, any action which would cause the Series 5 Conversion Ratio
to be less than the par value, if any, of the Common Stock).
(j) Notices. Any notice required by the provisions of this Section
-------
E.3 to be given to the holders of shares of the Series 5 Preferred Stock shall
be deemed given upon the earlier of actual receipt or three business days after
deposit in the United States mail, by certified
26
<PAGE>
or registered mail, return receipt requested, postage prepaid, addressed to each
holder of record at the address of such holder appearing on the books of the
Company.
4. Dividends. Dividends shall be declared and set aside for any shares of
---------
the Series 5 Preferred Stock only upon resolution of the Board of Directors of
the Company. Except as otherwise set forth in this Section E.4, no dividends
(other than Common Stock dividends in a transaction described in Section
3(e)(i)) shall be paid to the holders of the Common Stock or the Series 4
Preferred Stock unless an equivalent dividend is concurrently paid to the
holders of the Series 5 Preferred Stock (on a as-converted to Common Stock
basis); provided, that this restriction shall not apply to Permitted
--------
Repurchases. Notwithstanding the foregoing, no holder of Series 5 Preferred
Stock shall be entitled to receive in any distribution thereof to the holders of
any other securities of the Company, including Common Stock: (i) any shares of
SuperCede, Inc. or (ii) any consideration received by the Company in any of the
following transactions with respect to SuperCede, Inc.; (1) the sale of all or
substantially all of the assets of SuperCede, Inc., (2) the sale of a
controlling interest in SuperCede, Inc. to a third party, or (3) the acquisition
of SuperCede, Inc. by another entity by means of merger, consolidation or
otherwise, in which the Company does not, immediately after such merger,
consolidation or other transaction, retain stock representing a majority of the
voting power of SuperCede, Inc.; "Permitted Repurchases" means the repurchase
by the Company of shares of Common Stock held by employees, officers, directors,
consultants, independent contractors, advisors, or other persons performing
services for the Company or a subsidiary that are subject to restricted stock
purchase agreements or stock option exercise agreements under which the Company
has the option to repurchase such shares.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
A. To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Delaware General Corporation Law, as so amended.
B. To the extent permitted by applicable law, this corporation is also
authorized to provide indemnification of (and advancement of expenses to) agents
(and any other persons to
27
<PAGE>
which Delaware law permits this corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of
duty to the corporation, its stockholders, and others.
C. Neither any amendment nor repeal of any of the foregoing provisions of
this Article VII, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article VII, shall eliminate, reduce or
otherwise adversely affect any limitation on the personal liability of a
director of the corporation existing at the time of such amendment, repeal or
adoption of such an inconsistent provision.
ARTICLE VIII
Pursuant to the provisions of Section 228 of the Delaware General
Corporation Law, actions which are required to be or which may be taken
at any annual or special meeting of stockholders may not be taken without a
meeting by the consent in writing of the stockholders of the corporation.
ARTICLE IX
The name and mailing address of the incorporator is Jason M. Garlick, c/o
Fenwick & West LLP, Two Palo Alto Square, Suite 800, Palo Alto, California
94306.
The undersigned incorporator hereby acknowledges that the foregoing
certificate is his act and deed and that the facts stated herein are true.
Date: ______________, 1998
__________________________________
Jason M. Garlick, Incorporator
28
<PAGE>
EXHIBIT 3.03
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
ASYMETRIX LEARNING SYSTEMS, INC.
Asymetrix Learning Systems, Inc., a Delaware corporation, does hereby
certify that the following amendment to the Corporation's Certificate of
Incorporation has been duly adopted in accordance with the provisions of Section
242 of the Delaware General Corporation Law:
ARTICLE IV OF THE CERTIFICATE OF INCORPORATION IS HEREBY AMENDED AS FOLLOWS:
Each outstanding share of Common Stock as of the date of effectiveness of
this Amended Certificate of Incorporation shall be converted into and
reconstituted as .75 of one share of Common Stock. No fractional shares shall
be issued upon such conversion and reconstitution, and the number of shares of
Common Stock to be issued shall be rounded down to the nearest whole share. In
lieu of any fractional share, each holder of shares of Common Stock who would
otherwise be entitled to receive a fraction of a share of Common Stock (after
aggregating all shares of Common Stock held by such holder) shall be entitled to
receive from the Corporation an amount in cash, without interest, equal to the
fair market value of such fractional interest as determined by the Corporation's
Board of Directors.
IN WITNESS WHEREOF, said Corporation has caused this Certificate of
Amendment to be signed and attested by its duly authorized officers this ___ day
of ___________, 1998.
Asymetrix Learning Systems, Inc.
By:
_____________________________
James Billmaier, CEO
___________________________
Steven Esau, Secretary
<PAGE>
EXHIBIT 3.04
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
AYSMETIX LEARNING SYSTEMS, INC.
ARTICLE I
The name of the corporation is Asymetrix Learning Systems, Inc.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle. The
name of its registered agent at that address is The Corporation Trust Company.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is Forty-Two Million (42,000,000) shares, consisting of
two classes: Forty Million (40,000,000) shares of Common Stock, $0.01 par value
per share, and Two Million (2,000,000) shares of Preferred Stock, $0.01 par
value per share.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a certificate of
designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). The number of
authorized shares of Preferred Stock may also be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a certificate or
certificates establishing a series of Preferred Stock.
Except as otherwise expressly provided in any certificate of designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including, without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights, senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
<PAGE>
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal Bylaws of the corporation.
ARTICLE VI
A. Election of directors need not be by written ballot unless the Bylaws
of the corporation shall so provide.
B. Any action required or permitted to be taken by the stockholders of the
corporation must be effected at a duly called annual or special meeting of
stockholders of the corporation and may not be effected by any consent in
writing by such stockholders.
C. Special meetings of stockholders of the corporation may be called only
by either the Board of Directors pursuant to a resolution adopted by a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any such resolution
is presented to the Board for adoption) or the Chief Executive Officer.
ARTICLE VII
A. The directors, other than those who may be elected by the holders of
Preferred Stock under specified circumstances, shall be divided into three
classes with the term of office of the first class (Class I) to expire at the
annual meeting of the stockholders held in 1998; the term of office of the
second class (Class II) to expire at the annual meeting of stockholders held in
1999; the term of office of the third class (Class III) to expire at the annual
meeting of stockholders held in 2000; and thereafter for each such term to
expire at each third succeeding annual meeting of stockholders after such
election. All directors shall hold office until the expiration of the term for
which elected, and until their respective successors are elected, except in the
case of the death, resignation, or removal of any director.
B. Subject to the rights of the holders of any series of Preferred Stock
then outstanding, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation or other cause may be filled (a) by the
stockholders at any meeting, (b) by a majority of the directors, although less
than a quorum, or (c) by a sole remaining director, and directors so chosen
shall hold office for a term expiring at the next annual meeting of stockholders
at which the term of office of the class to which they have been elected
expires, and until their respective successors are elected, except in the case
of the death, resignation, or removal of any director. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
ARTICLE VIII
A. To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is
<PAGE>
hereafter amended to authorize the further elimination or limitation of the
liability of a director, then the liability of a director of the corporation
shall be eliminated or limited to the fullest extent permitted by the Delaware
General Corporation Law, as so amended.
B. To the extent permitted by applicable law, this corporation is also
authorized to provide indemnification of (and advancement of expenses to) agents
(and any other persons to which Delaware law permits this corporation to provide
indemnification) through bylaw provisions, agreements with such agents or other
persons, vote of stockholders or disinterested directors or otherwise, in excess
of the indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of
duty to the corporation, its stockholders, and others.
C. Neither any amendment nor repeal of any of the foregoing provisions of
this Article VIII, nor the adoption of any provision of this Certificate of
Incorporation inconsistent with this Article VIII, shall eliminate, reduce or
otherwise adversely affect any limitation on the personal liability of a
director of the corporation existing at the time of such amendment, repeal or
adoption of such an inconsistent provision.
ARTICLE IX
Pursuant to the provisions of Section 228 of the Delaware General
Corporation Law, actions which are required to be or which may be taken at any
annual or special meeting of stockholders may not be taken without a meeting by
the consent in writing of the stockholders of the corporation.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
of Asymetrix Learning Systems, Inc. has been signed and attested as of this ___
day of _______, 1998.
_________________________________
James A. Billmaier,
Chief Executive Officer
Attest:
______________________________
Steven Esau, Secretary
<PAGE>
EXHIBIT 3.05
AMENDED AND RESTATED BYLAWS
OF
ASYMETRIX CORPORATION
Amended and Restated Bylaws
Originally adopted on July 12, 1995.
Amendments are listed on page i
<PAGE>
AMENDMENTS
----------
<TABLE>
<CAPTION>
Date of
Article/Section Effect of Amendment Amendment
- --------------- ------------------- ---------
<S> <C> <C>
ARTICLE II Increase Directors to 4 7/12/95
ARTICLE II Increase Directors to 5 10/11/96, Effective
10/21/96
ARTICLE IV Permit Indemnification 12/13/96
for officers and
employees of subsidiaries.
ARTICLE II Increase Directors to 6 6/24/97
Effective
9/11/97
</TABLE>
i
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I OFFICES.................................................. 1
ARTICLE II NUMBER OF DIRECTORS...................................... 1
ARTICLE III SHAREHOLDERS............................................. 1
Section 3.1 Annual Meeting...................................... 1
Section 3.2 Special Meetings.................................... 1
Section 3.3 Place of Meetings................................... 2
Section 3.4 Fixing of Record Date............................... 2
Section 3.5 Voting Lists........................................ 2
Section 3.6 Notice of Meetings.................................. 2
Section 3.7 Waiver of Notice.................................... 3
Section 3.8 Manner of Acting; Proxies........................... 3
Section 3.9 Participation by Conference Telephone............... 3
Section 3.10 Quorum.............................................. 3
Section 3.11 Voting of Shares.................................... 4
Section 3.12 Voting for Directors................................ 4
Section 3.13 Voting of Shares by Certain Holders................. 4
Section 3.14 Action by Shareholders Without a Meeting............ 5
ARTICLE IV BOARD OF DIRECTORS....................................... 5
Section 4.1 General Powers...................................... 5
Section 4.2 Number, Tenure and Qualification.................... 5
Section 4.3 Annual and Other Regular Meetings................... 5
Section 4.4 Special Meetings.................................... 6
Section 4.5 Quorum.............................................. 6
Section 4.6 Manner of Acting.................................... 6
Section 4.7 Participation by Conference Telephone............... 6
Section 4.8 Presumption of Assent............................... 6
Section 4.9 Action by Board Without a Meeting................... 7
Section 4.10 Board Committees.................................... 7
Section 4.11 Resignation......................................... 7
Section 4.12 Removal............................................. 7
Section 4.13 Vacancies........................................... 7
Section 4.14 Compensation........................................ 8
ARTICLE V OFFICERS................................................. 8
Section 5.1 Number.............................................. 8
Section 5.2 Appointment and Term of Office...................... 8
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 5.3 Resignation......................................... 8
Section 5.4 Removal............................................. 8
Section 5.5 Chairman and Vice-Chairmen of the Board............. 9
Section 5.6 President........................................... 9
Section 5.7 Vice-Presidents..................................... 9
Section 5.8 Secretary........................................... 9
Section 5.9 Treasurer........................................... 10
Section 5.10 Assistant Officers.................................. 10
Section 5.11 Compensation of Officers and Employees.............. 10
ARTICLE VI CONTRACTS, LOANS, CHECKS, DEPOSITS....................... 10
Section 6.1 Contracts........................................... 10
Section 6.2 Loans............................................... 10
Section 6.3 Checks, Drafts, Etc................................. 10
Section 6.4 Deposits............................................ 11
Section 6.5 Contracts with or Loans to Directors and Officers... 11
ARTICLE VII SHARES.............................................. 11
Section 7.1 Certificates for Shares............................. 11
Section 7.2 Issuance of Shares.................................. 11
Section 7.3 Beneficial Ownership................................ 11
Section 7.4 Transfer of Shares.................................. 12
Section 7.5 Lost or Destroyed Certificates...................... 12
Section 7.6 Restrictions on Transfer............................ 12
Section 7.7 Stock Transfer Records.............................. 12
ARTICLE VIII SEAL..................................................... 12
ARTICLE IX INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND AGENTS..................................... 13
Section 9.1 Power to Indemnify.................................. 13
Section 9.2 Indemnification of Directors, Officers,
Employees and Agents............................... 14
Section 9.3 Insurance........................................... 15
Section 9.4 Survival of Benefits................................ 15
Section 9.5 Severability........................................ 15
Section 9.6 Applicable Law...................................... 15
ARTICLE X BOOKS AND RECORDS........................................ 16
ARTICLE XI FISCAL YEAR.............................................. 16
ARTICLE XII VOTING OF SHARES OF ANOTHER CORPORATION.................. 16
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
ARTICLE XIII AMENDMENTS TO BYLAWS..................................... 16
</TABLE>
iv
<PAGE>
BYLAWS
OF
ASYMETRIX CORPORATION
I
OFFICES
The principal office and place of business of the corporation in the state
of Washington shall be located at 110 - 110th Avenue N.E., Suite 717, Bellevue,
Washington 98004.
The corporation may have such other offices within or without the state of
Washington as the board of directors may designate or the business of the
corporation may require from time to time.
II
NUMBER OF DIRECTORS
The board of directors of this corporation shall consist of six (6)
directors.
III
SHAREHOLDERS
III.1 Annual Meeting. The annual meeting of the shareholders shall be
--------------
held on the third Thursday of the month of July in each year, beginning with the
year 1995, at 10:00 a.m., or at such other date or time as may be determined by
the board of directors, for the purpose of electing directors and for the
transaction of such other business as may come before the meeting. If the day
fixed for the annual meeting shall be a legal holiday in the state of
Washington, the meeting shall be held on the next succeeding business day. If
the election of directors is not held on the day designated herein for any
annual meeting of the shareholders or at any adjournment thereof, the board of
directors shall cause the election to be held at a meeting of the shareholders
as soon thereafter as may be convenient.
III.2 Special Meetings. Special meetings of the shareholders for any
----------------
purpose or purposes unless otherwise prescribed by statute may be called by the
president, by the board of directors, or by the written request of any director
or holders of at least ten percent (10%) of the votes entitled to be cast on
each issue to be considered at the special meeting.
1
<PAGE>
III.3 Place of Meetings. Meetings of the shareholders shall be held at
-----------------
either the principal office of the corporation or at such other place within or
without the state of Washington as the board of directors or the president may
designate.
III.4 Fixing of Record Date. For the purpose of determining
---------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment thereof, or shareholders entitled to receive payment of any
dividend, or in order to make a determination of shareholders for any other
proper purpose, the board of directors may fix in advance a date as the record
date for any such determination of shareholders, which date in any case shall
not be more than seventy (70) days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If no
record date is fixed for the determination of shareholders entitled to notice of
or to vote at a meeting of shareholders, or shareholders entitled to receive
payment of a dividend or distribution, the day before the first notice of a
meeting is dispatched to shareholders or the date on which the resolution of the
board of directors authorizing such dividend or distribution is adopted, as the
case may be, shall be the record date for such determination of shareholders.
When a determination of shareholders entitled to notice of or to vote at any
meeting of shareholders has been made as provided in this section, such
determination shall apply to any adjournment thereof unless the board of
directors fixes a new record date, which it must do if the meeting is adjourned
to a date more than one hundred twenty (120) days after the date fixed for the
original meeting.
III.5 Voting Lists. At least ten (10) days before each meeting of the
------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the corporation shall prepare an alphabetical list of all its
shareholders on the record date who are entitled to vote at the meeting or any
adjournment thereof, arranged by voting group, and within each voting group by
class or series of shares, with the address of and the number of shares held by
each, which record for a period of ten (10) days prior to the meeting shall be
kept on file at the principal office of the corporation or at a place identified
in the meeting notice in the city where the meeting will be held. Such record
shall be produced and kept open at the time and place of the meeting and shall
be subject to the inspection of any shareholder, shareholder's agent or
shareholder's attorney at any time during the meeting or any adjournment
thereof. Failure to comply with the requirements of this bylaw shall not affect
the validity of any action taken at the meeting.
III.6 Notice of Meetings. Written or printed notice stating the date,
------------------
time and place of a meeting of shareholders and, in the case of a special
meeting of shareholders, the purpose or purposes for which the meeting is
called, shall be given by or at the direction of the president, the secretary,
or the officer or persons calling the meeting to each shareholder of record
entitled to vote at such meeting (unless required by law to send notice to all
shareholders regardless of whether or not such shareholders are entitled to
vote), not less than ten (10) days and not more than sixty (60) days before the
meeting, except that notice of a meeting to act on an amendment to the articles
of incorporation, a plan of
2
<PAGE>
merger or share exchange, a proposed sale, lease, exchange or other disposition
of all or substantially all of the assets of the corporation other than in the
usual course of business, or the dissolution of the corporation shall be given
not less than twenty (20) days and not more than sixty (60) days before the
meeting. Written notice may be transmitted by: Mail, private carrier or
personal delivery; telegraph or teletype; or telephone, wire or wireless
equipment which transmits a facsimile of the notice. Such notice shall be
effective upon dispatch if sent to the shareholder's address, telephone number,
or other number appearing on the records of the corporation.
If an annual or special shareholders' meeting is adjourned to a different
date, time or place, notice need not be given of the new date, time or place if
the new date, time or place is announced at the meeting before adjournment
unless a new record date is or must be fixed. If a new record date for the
adjourned meeting is or must be fixed, however, notice of the adjourned meeting
must be given to persons who are shareholders as of the new record date.
III.7 Waiver of Notice. A shareholder may waive any notice required to
----------------
be given under the provisions of these bylaws, the articles of incorporation or
by applicable law, whether before or after the date and time stated therein. A
valid waiver is created by any of the following three methods: (a) in writing
signed by the shareholder entitled to the notice and delivered to the
corporation for inclusion in its corporate records; (b) by attendance at the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting; or (c) by failure to
object at the time of presentation of a matter not within the purpose or
purposes described in the meeting notice.
III.8 Manner of Acting; Proxies. A shareholder may vote either in
-------------------------
person or by proxy. A shareholder may vote by proxy by means of a proxy
appointment form which is executed in writing by the shareholder, his agent, or
by his duly authorized attorney-in-fact. All proxy appointment forms shall be
filed with the secretary of the corporation before or at the commencement of
meetings. No unrevoked proxy appointment form shall be valid after eleven (11)
months from the date of its execution unless otherwise expressly provided in the
appointment form. No proxy appointment may be effectively revoked until notice
in writing of such revocation has been given to the secretary of the corporation
by the shareholder appointing the proxy.
III.9 Participation by Conference Telephone. At the discretion of the
-------------------------------------
board of directors, shareholders or proxies may participate in a meeting of the
shareholders by any means of communication by which all persons participating in
the meeting can hear each other during the meeting, and participation by such
means shall constitute presence in person at the meeting.
III.10 Quorum. At any meeting of the shareholders, a majority in
------
interest of all the shares entitled to vote on a matter, represented by
shareholders of record,
3
<PAGE>
shall constitute a quorum of that voting group for action on that matter. Once
a share is represented at a meeting, other than to object to holding the meeting
or transacting business, it is deemed to be present for purposes of a quorum for
the remainder of the meeting and for any adjournment of that meeting unless a
new record date is or must be fixed for the adjourned meeting. At such
reconvened meeting, any business may be transacted which might have been
transacted at the adjourned meeting. If a quorum exists, action on a matter is
approved by a voting group if the votes cast within the voting group favoring
the action exceed the votes cast within the voting group opposing the action,
unless the question is one upon which a different vote is required by express
provision of law or of the articles of incorporation or of these bylaws.
III.11 Voting of Shares. Each outstanding share, regardless of class,
----------------
shall be entitled to one vote on each matter submitted to a vote at a meeting of
shareholders, except as may be otherwise provided in the articles of
incorporation.
III.12 Voting for Directors. Unless otherwise provided in the articles
--------------------
of incorporation, shareholders entitled to vote at any election of directors are
entitled to cumulate votes by multiplying the number of votes they are entitled
to cast by the number of directors for whom they are entitled to vote and to
cast the product for a single candidate or distribute the product among two or
more candidates. Unless otherwise provided in the articles of incorporation, in
any election of directors the candidates elected are those receiving the largest
numbers of votes cast by the shares entitled to vote in the election, up to the
number of directors to be elected by such shares.
III.13 Voting of Shares by Certain Holders.
-----------------------------------
III.13.1 Shares standing in the name of another corporation,
domestic or foreign, may be voted by such officer, agent or proxy as the board
of directors of such corporation may determine. A certified copy of a
resolution adopted by such directors shall be conclusive as to their
determination.
III.13.2 Shares held by a personal representative, administrator,
executor, guardian or conservator may be voted by such administrator, executor,
guardian or conservator, without a transfer of such shares into the name of such
personal representative, administrator, executor, guardian or conservator.
Shares standing in the name of a trustee may be voted by such trustee, but no
trustee shall be entitled to vote shares held in trust without a transfer of
such shares into the name of the trustee.
III.13.3 Shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of a receiver may be
voted by the receiver without the transfer thereof into his name if authority so
to do is contained in an appropriate order of the court by which such receiver
was appointed.
4
<PAGE>
III.13.4 If shares are held jointly by three or more fiduciaries,
the will of the majority of the fiduciaries shall control the manner of voting
or appointment of a proxy, unless the instrument or order appointing such
fiduciaries otherwise directs.
III.13.5 Unless the pledge agreement expressly provides otherwise,
a shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
III.13.6 Shares held by another corporation shall not be voted at
any meeting or counted in determining the total number of outstanding shares
entitled to vote at any given time if a majority of the shares entitled to vote
for the election of directors of such other corporation is held by this
corporation.
III.13.7 On and after the date on which written notice of
redemption of redeemable shares has been dispatched to the holders thereof and a
sum sufficient to redeem such shares has been deposited with a bank or trust
company with irrevocable instruction and authority to pay the redemption price
to the holders thereof upon surrender of certificates therefor, such shares
shall not be entitled to vote on any matter and shall be deemed to be not
outstanding shares.
III.14 Action by Shareholders Without a Meeting. Any action which may
----------------------------------------
or is required to be taken at a meeting of the shareholders may be taken without
a meeting if one or more written consents setting forth the action so taken
shall be signed, either before or after the action taken, by all the
shareholders entitled to vote with respect to the subject matter thereof.
Action taken by written consent of the shareholders is effective when all
consents are in possession of the corporation, unless the consent specifies a
later effective date. Whenever any notice is required to be given to any
shareholder of the corporation pursuant to applicable law, a waiver thereof in
writing, signed by the person or persons entitled to notice, shall be deemed
equivalent to the giving of notice.
IV
BOARD OF DIRECTORS
IV.1 General Powers. The business and affairs of the corporation
--------------
shall be managed by its board of directors.
IV.2 Number, Tenure and Qualification. The number of directors
--------------------------------
set forth in Article II of these bylaws may be increased or decreased from time
to time by amendment to or in the manner provided in these
5
<PAGE>
bylaws. No decrease, however, shall have the effect of shortening the term of
any incumbent director unless such director resigns or is removed in accordance
with the provisions of these bylaws. Except as classification of directors may
be specified by the articles of incorporation and unless removed in accordance
with these bylaws, each director shall hold office until the next annual meeting
of the shareholders and until a successor shall have been elected and qualified.
Directors need not be residents of the state of Washington or shareholders of
the corporation.
IV.3 Annual and Other Regular Meetings. An annual meeting of the
---------------------------------
board of directors shall be held without other notice than this bylaw,
immediately after and at the same place as the annual meeting of shareholders.
The board of directors may specify by resolution the time and place, either
within or without the state of Washington, for holding any other regular
meetings of the board of directors.
IV.4 Special Meetings. Special meetings of the board of directors may be
----------------
called by the board of directors, the chairman of the board, the president, the
secretary or any director. Notice of special meetings of the board of directors
stating the date, time and place thereof shall be given at least two (2) days
prior to the date set for such meeting by the person or persons authorized to
call such meeting, or by the secretary at the direction of the person or persons
authorized to call such meeting. The notice may be oral or written. Oral
notice may be communicated in person or by telephone, wire or wireless
equipment, which does not transmit a facsimile of the notice. Oral notice is
effective when communicated. Written notice may be transmitted by mail, private
carrier, or personal delivery; telegraph or teletype; or telephone, wire, or
wireless equipment which transmits a facsimile of the notice. Written notice is
effective upon dispatch if such notice is sent to the director's address,
telephone number, or other number appearing on the records of the corporation.
If no place for such meeting is designated in the notice thereof, the meeting
shall be held at the principal office of the corporation. Any director may
waive notice of any meeting at any time. Whenever any notice is required to be
given to any director of the corporation pursuant to applicable law, a waiver
thereof in writing signed by the director, entitled to notice, shall be deemed
equivalent to the giving of notice. The attendance of a director at a meeting
shall constitute a waiver of notice of the meeting except where a director
attends a meeting for the express purpose of objecting to the transaction of any
business because the meeting is not lawfully convened. Unless otherwise
required by law, neither the business to be transacted at, nor the purpose of,
any regular or special meeting of the board of directors need be specified in
the notice or waiver of notice of such meeting.
IV.5 Quorum. A majority of the number of directors specified in or
------
fixed in accordance with these bylaws shall constitute a quorum for the
transaction of any business at any meeting of directors. If less than a
majority shall attend a meeting, a majority of the directors present may adjourn
the meeting from time to time without further notice, and a quorum present at
such adjourned meeting may transact business.
6
<PAGE>
IV.6 Manner of Acting. If a quorum is present when a vote is taken,
----------------
the affirmative vote of a majority of directors present is the act of the board
of directors.
IV.7 Participation by Conference Telephone. Directors may
-------------------------------------
participate in a regular or special meeting of the board by, or conduct the
meeting through the use of, any means of communication by which all directors
participating can hear each other during the meeting and participation by such
means shall constitute presence in person at the meeting.
IV.8 Presumption of Assent. A director who is present at a meeting of
---------------------
the board of directors at which action is taken shall be presumed to have
assented to the action taken unless such director's dissent shall be entered in
the minutes of the meeting or unless such director shall file his written
dissent to such action with the person acting as secretary of the meeting before
the adjournment thereof or shall forward such dissent by registered mail to the
secretary of the corporation immediately after adjournment of the meeting. Such
right to dissent shall not apply to a director who voted in favor of such
action.
IV.9 Action by Board Without a Meeting. Any action permitted or
---------------------------------
required to be taken at a meeting of the board of directors may be taken without
a meeting if one or more written consents setting forth the action so taken,
shall be signed, either before or after the action taken, by all the directors.
Action taken by written consent is effective when the last director signs the
consent, unless the consent specifies a later effective date.
IV.10 Board Committees. The board of directors may by resolution
----------------
designate from among its members an executive committee and one or more other
committees, each of which must have two (2) or more members and shall be
governed by the same rules regarding meetings, action without meetings, notice,
waiver of notice, and quorum and voting requirements as applied to the board of
directors. To the extent provided in such resolutions, each such committee
shall have and may exercise the authority of the board of directors, except as
limited by applicable law. The designation of any such committee and the
delegation thereto of authority shall not relieve the board of directors, or any
members thereof, of any responsibility imposed by law.
IV.11 Resignation. Any director may resign at any time by delivering
-----------
written notice to the chairman of the board, the president, the secretary, or
the registered office of the corporation, or by giving oral notice at any
meeting of the directors or shareholders. Any such resignation shall take
effect at any subsequent time specified therein, or if the time is not
specified, upon delivery thereof and, unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
7
<PAGE>
IV.12 Removal. At a meeting of the shareholders called expressly for
-------
that purpose, any director or the entire board of directors may be removed from
office, with or without cause (unless the articles of incorporation provide that
directors may be removed only for cause) by a vote of the holders of a majority
of the shares then entitled to vote at an election of the director or directors
whose removal is sought. If shareholders have the right to cumulate votes in
the election of directors and if less than the entire board is to be removed, no
one of the directors may be removed if the votes cast against his removal would
be sufficient to elect him if then cumulatively voted at an election of the
entire board or the class of directors of which he is a part. If the board of
directors or any one or more directors is so removed, new directors may be
elected at this same meeting.
IV.13 Vacancies. A vacancy on the board of directors may occur by the
---------
resignation, removal or death of an existing director, or by reason of
increasing the number of directors on the board of directors as provided in
these bylaws. Except as may be limited by the articles of incorporation, any
vacancy occurring in the board of directors may be filled by the affirmative
vote of a majority of the remaining directors though less than a quorum. A
director elected to fill a vacancy shall be elected for the unexpired term of
his predecessor in office, except that a vacancy to be filled by reason of an
increase in the number of directors shall be filled by the board of directors
for a term of office continuing only until the next election of directors by
shareholders.
If the vacant office was held by a director elected by holders of one or
more authorized classes or series of shares, only the holders of those classes
or series of shares are entitled to vote to fill the vacancy.
IV.14 Compensation. By resolution of the board of directors, the
------------
directors may be paid a fixed sum plus their expenses, if any, for attendance at
meetings of the board of directors or committee thereof, or a stated salary as
director. No such payment shall preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
V
OFFICERS
V.1 Number. The corporation shall have a president, and may have one
------
or more vice-presidents, a secretary and a treasurer, each of whom shall be
appointed by the board of directors. Such other officers and assistant
officers, including a chairman of the board, as may be deemed necessary or
appropriate may be appointed by the board of directors. By resolution, the
board of directors may designate any officer as chief executive officer, chief
operating officer, chief financial officer, or any similar designation. Any two
or more offices may be held by the same person.
8
<PAGE>
V.2 Appointment and Term of Office. The officers of the corporation
------------------------------
shall be appointed by the board of directors for such term as the board may deem
advisable or may be appointed to serve for an indefinite term at the pleasure of
the board. Each officer shall hold office until a successor shall have been
appointed regardless of such officer's term of office, except in the event of
such officer's termination of an indefinite term at the pleasure of the board or
such officer's removal in the manner herein provided.
V.3 Resignation. Any officer may resign at any time by delivering
-----------
written notice to the chairman of the board, the president, a vice-president,
the secretary or the board of directors, or by giving oral notice at any meeting
of the board. Any such resignation shall take effect at any subsequent time
specified therein, or if the time is not specified, upon delivery thereof and,
unless otherwise specified therein, the acceptance of such resignation shall not
be necessary to make it effective.
V.4 Removal. Any officer appointed by the board of directors may be
-------
removed by the board of directors with or without cause. The removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
V.5 Chairman and Vice-Chairmen of the Board. The chairman of the
---------------------------------------
board, if there be such an office, shall, if present, preside at all meetings of
the board of directors, and exercise and perform such other powers and duties as
may be determined from time to time by resolution of the board of directors.
The vice-chairman of the board, if there be such an office, or in the event
there shall be more than one vice-chairman, the one designated most senior at
the time of election, shall perform the duties of the chairman of the board in
the chairman's absence, or in the event of the chairman's death, disability or
refusal to act. The vice-chairman of the board shall exercise and perform such
other powers and duties as may be determined from time to time by resolution of
the board of directors.
V.6 President. The president shall be the principal executive
---------
officer of the corporation and, subject to the control of the board of
directors, shall generally supervise and control the business and affairs of the
corporation. When present the president shall preside at all meetings of the
shareholders and in the absence of the chairman of the board, or if there be
none, at all meetings of the board of directors. The president may sign with
the secretary or any other proper officer of the corporation thereunto
authorized by law, certificates for shares of the corporation, and may sign
deeds, mortgages, bonds, contracts, or other instruments which the board of
directors has authorized to be executed, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors or by
these bylaws to some other officer or agent of the corporation or shall be
required by law to be otherwise signed or executed. In general, the president
shall perform all duties incident
9
<PAGE>
to the office of president and such other duties as may be prescribed by
resolution of the board of directors from time to time.
V.7 Vice-Presidents. In the absence of the president or in the event
---------------
of his death, disability or refusal to act, the vice-president, or in the event
there shall be more than one vice-president, the vice-presidents in the order
designated at the time of their election, or in the absence of any designation
then in the order of their election, if any, shall perform the duties of the
president. When so acting the vice-president shall have all the powers of and
be subject to all the restrictions upon the president and shall perform such
other duties as from time to time may be assigned to the vice-president by
resolution of the board of directors.
V.8 Secretary. The secretary shall keep the minutes of the
---------
proceedings of the shareholders and board of directors, shall give notices in
accordance with the provisions of these bylaws and as required by law, shall be
custodian of the corporate records of the corporation, shall keep a record of
the names and addresses of all shareholders and the number and class of shares
held by each, have general charge of the stock transfer books of the
corporation, may sign with the president, or a vice-president, certificates for
shares of the corporation, deeds, mortgages, bonds, contracts, or other
instruments which shall have been authorized by resolution of the board of
directors, and in general shall perform all duties incident to the office of
secretary and such other duties as from time to time may be assigned to the
secretary by resolution of the board of directors.
V.9 Treasurer. If required by the board of directors, the treasurer
---------
shall give a bond for the faithful discharge of his duties, in such sum and with
such surety or sureties as the board of directors shall determine. The
treasurer shall have charge and custody of and be responsible for keeping
correct and complete books and records of account, for all funds and securities
of the corporation, receive and give receipts for moneys due and payable to the
corporation from any source whatsoever, deposit all such moneys in the name of
the corporation in the banks, trust companies or other depositories as shall be
selected in accordance with the provisions of these bylaws, and in general
perform all of the duties incident to the office of treasurer and such other
duties as from time to time may be assigned to the treasurer by resolution of
the board of directors.
V.10 Assistant Officers. The assistant officers in general shall
------------------
perform such duties as are customary or as shall be assigned to them by
resolution of the board of directors. If required by the board of directors,
the assistant treasurers shall respectively give bonds for the faithful
discharge of their duties in such sums and with such sureties as the board of
directors shall determine.
V.11 Compensation of Officers and Employees. The board of directors
--------------------------------------
shall fix compensation of officers and may
10
<PAGE>
fix compensation of other employees from time to time. No officer shall be
prevented from receiving a salary by reason of the fact that such officer is
also a director of the corporation.
VI
CONTRACTS, LOANS, CHECKS, DEPOSITS
VI.1 Contracts. The board of directors may authorize any officer or
---------
officers, agent or agents, to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the corporation, and that authority
may be general or confined to specific instances.
VI.2 Loans. No loans shall be contracted on behalf of the corporation
-----
and no evidences of indebtedness shall be issued in its name unless authorized
by a resolution of the board of directors, which authority may be general.
Section VI.42 Checks, Drafts, Etc.
--------------------
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation shall be
signed by the officer or officers, or agent or agents, of the corporation and in
the manner as shall from time to time be prescribed by resolution of the board
of directors.
VI.3 Deposits. All funds of the corporation not otherwise employed
--------
shall be deposited from time to time to the credit of the corporation in the
banks, trust companies or other depositories as the board of directors may
select.
VI.4 Contracts with or Loans to Directors and Officers. The
-------------------------------------------------
corporation may enter into contracts and otherwise transact business as vendor,
purchaser, or otherwise, with its directors, officers, and shareholders and with
corporations, associations, firms, and entities in which they are or may become
interested as directors, officers, shareholders, members, or otherwise, as
freely as though such interest did not exist, as permitted by applicable law.
In the absence of fraud the fact that any director, officer, shareholder, or any
corporation, association, firm or other entity of which any director, officer,
or shareholder is interested, is in any way interested in any transaction or
contract shall not make the transaction or contract void or voidable, or require
the director, officer, or shareholder to account to this corporation for any
profits therefrom if the transaction or contract is or shall be authorized,
ratified, or approved by (a) vote of a majority of a quorum of the board of
directors excluding any interested director or directors, (b) the written
consent of the holders of a majority of the shares entitled to vote, or (c) a
general resolution approving the acts of the directors and officers adopted at a
shareholders meeting by vote of the holders of the majority of the shares
entitled to vote. Nothing herein contained shall create or imply any liability
in the circumstances above described or prevent
11
<PAGE>
the authorization, ratification or approval of such transactions or contracts in
any other manner.
VII
SHARES
VII.1 Certificates for Shares. The shares of the corporation may be
-----------------------
represented by certificates in such form as prescribed by the board of
directors. Signatures of the corporate officers on the certificate may be
facsimiles if the certificate is manually signed on behalf of a transfer agent,
or registered by a registrar, other than the corporation itself or an employee
of the corporation. All certificates shall be consecutively numbered or
otherwise identified. All certificates shall bear such legend or legends as
prescribed by the board of directors or these bylaws.
VII.2 Issuance of Shares. Shares of the corporation shall be issued
------------------
only when authorized by the board of directors, which authorization shall
include the consideration to be received for each share.
VII.3 Beneficial Ownership. Except as otherwise permitted by these
--------------------
bylaws, the person in whose name shares stand on the books of the corporation
shall be deemed by the corporation to be the owner thereof for all purposes.
The board of directors may adopt by resolution a procedure whereby a shareholder
of the corporation may certify in writing to the corporation that all or a
portion of the shares registered in the name of such shareholder are held for
the account of a specified person or persons. Upon receipt by the corporation
of a certification complying with such procedure, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the shareholder making the certification.
VII.4 Transfer of Shares. Transfer of shares of the corporation shall
------------------
be made only on the stock transfer books of the corporation by the holder of
record thereof or by his legal representative who shall furnish proper evidence
of authority to transfer, or by his attorney thereunto authorized by power of
attorney duly executed and filed with the secretary of the corporation, on
surrender for cancellation of the certificate for the shares. All certificates
surrendered to the corporation for transfer shall be cancelled and no new
certificate shall be issued until the former certificate for a like number of
shares shall have been surrendered and cancelled.
VII.5 Lost or Destroyed Certificates. In the case of a lost, destroyed
------------------------------
or mutilated certificate, a new certificate may be issued therefor upon such
terms and indemnity to the corporation as the board of directors may prescribe.
12
<PAGE>
VII.6 Restrictions on Transfer. Except to the extent that the
------------------------
corporation has obtained an opinion of counsel acceptable to the corporation
that transfer restrictions are not required under applicable securities laws,
all certificates representing shares of the corporation shall bear a legend on
the face of the certificate or on the reverse of the certificate if a reference
to the legend is contained on the face, to the effect as follows:
These securities are not registered under state or federal securities laws
and may not be offered, sold, pledged or otherwise transferred, nor may
these securities be transferred on the books of the company, without an
opinion of counsel or other assurance satisfactory to the company that no
violation of such registration provisions would result therefrom.
VII.7 Stock Transfer Records. The stock transfer books shall be kept
----------------------
at the principal office of the corporation or at the office of the corporation's
transfer agent or registrar. The name and address of the person to whom the
shares represented by any certificate, together with the class, number of shares
and date of issue, shall be entered on the stock transfer books of the
corporation. Except as provided in these bylaws, the person in whose name
shares stand on the books of the corporation shall be deemed by the corporation
to be the owner thereof for all purposes.
VIII
SEAL
This corporation need not have a corporate seal. If the directors adopt a
corporate seal, the seal of the corporation shall be circular in form and
consist of the name of the corporation, the state and year of incorporation, and
the words "Corporate Seal."
IX
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS
IX.1 Power to Indemnify. The corporation shall have the following
------------------
powers:
IX.1.1 Power to Indemnify. The corporation may indemnify and hold
------------------
harmless to the full extent permitted by applicable law each person who was or
is made a party to or is threatened to be made a party to or is involved
(including, without limitation, as a witness) in any actual or threatened
action, suit or other proceeding, whether civil, criminal, administrative or
investigative, by reason of that fact that he or she is or was a director,
officer, employee or agent of the corporation or any of its subsidiaries or,
being or having
13
<PAGE>
been such a director, officer, employee or agent, he or she is
or was serving at the request of the corporation as a director, officer,
employee, agent, trustee, or in any other capacity of another corporation or of
a partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action or omission in an official capacity or in any other capacity
while serving as a director, officer, employee, agent, trustee or in any other
capacity, against all expense, liability and loss (including, without
limitation, attorneys' fees, judgments, fines, ERISA excise taxes or penalties
and amounts to be paid in settlement) actually or reasonably incurred or
suffered by such person in connection therewith. Such indemnification may
continue as to a person who has ceased to be a director, officer, employee or
agent of the corporation or any of its subsidiaries and shall inure to the
benefit of his or her heirs and personal representatives.
IX.1.2 Power to Pay Expenses in Advance of Final Disposition. The
-----------------------------------------------------
corporation may pay expenses incurred in defending any such proceeding in
advance of the final disposition of any such proceeding; provided, however, that
the payment of such expenses in advance of the final disposition of a proceeding
shall be made to or on behalf of a director, officer, employee or agent only
upon delivery to the corporation of an undertaking, by or on behalf of such
director, officer, employee or agent, to repay all amounts so advanced if it
shall ultimately be determined that such director, officer, employee or agent is
not entitled to be indemnified under this Article or otherwise, which
undertaking may be unsecured and may be accepted without reference to financial
ability to make repayment.
IX.1.3 Power to Enter Into Contracts. The corporation may enter
-----------------------------
into contracts with any person who is or was a director, officer, employee and
agent of the corporation or any of its subsidiaries in furtherance of the
provisions of this Article and may create a trust fund, grant a security
interest in property of the corporation, or use other means (including, without
limitation, a letter of credit) to ensure the payment of such amounts as may be
necessary to effect indemnification as provided in this Article.
IX.1.4 Expansion of Powers. If the Washington Business Corporation
-------------------
Act is amended in the future to expand or increase the power of the corporation
to indemnify, to pay expenses in advance of final disposition, to enter into
contracts, or to expand or increase any similar or related power, then, without
any further requirement of action by the shareholders or directors of this
corporation, the powers described in this Article shall be expanded and
increased to the fullest extent permitted by the Washington Business Corporation
Act, as so amended.
IX.1.5 Limitation on Powers. No indemnification shall be provided
--------------------
under this Article to any such person if the corporation is prohibited by the
nonexclusive provisions of the Washington Business Corporation Act or other
applicable law as then in effect from paying such indemnification. For example,
no indemnification shall be provided to any director in respect of any
proceeding, whether or not involving action in his or her official capacity, in
which he or she shall have been finally adjudged to be liable on the basis of
14
<PAGE>
intentional misconduct or knowing violation of law by the director, or from
conduct of the director in violation of RCW 23B.08.310, or that the director
personally received a benefit in money, property or services to which the
director was not legally entitled.
IX.2 Indemnification of Directors, Officers, Employees and Agents
------------------------------------------------------------
IX.2.1 Directors. The corporation shall indemnify and hold
---------
harmless any person who is or was a director of this corporation, and pay
expenses in advance of final disposition of a proceeding, to the full extent to
which the corporation is empowered.
IX.2.2 Officers, Employees, and Agents. The corporation may, by
-------------------------------
action of its Board of Directors from time to time, indemnify and hold harmless
any person who is or was an officer, employee or agent of the corporation or any
of its subsidiaries, and pay expenses in advance of final disposition of a
proceeding, to the full extent to which the corporation is empowered, or to any
lesser extent which the Board of Directors may determine.
IX.2.3 Character of Rights. The rights to indemnification and
-------------------
payment of expenses in advance of final disposition of a proceeding conferred by
or pursuant to this Article shall be contract rights.
IX.2.4 Enforcement. A director, officer, employee or agent
-----------
("claimant") shall be presumed to be entitled to indemnification and/or payment
of expenses under this Article upon submission of a written claim (and, in an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition, where the undertaking in
subsection 9.1.2 above has been delivered to the corporation) and thereafter the
corporation shall have the burden of proof to overcome the presumption that the
claimant is so entitled.
If a claim under this Article is not paid in full by the corporation
within sixty (60) days after a written claim has been received by the
corporation, except in the case of a claim for expenses incurred in defending a
proceeding in advance of its final disposition, in which case the applicable
period shall be twenty (20) days, the claimant may at any time thereafter bring
suit against the corporation to recover the unpaid amount of the claim and, to
the extent successful in whole or in part, the claimant shall be entitled to be
paid also the expense of prosecuting such claim. Neither the failure of the
corporation (including its board of directors, its shareholders or independent
legal counsel) to have made a determination prior to the commencement of such
action that indemnification of or reimbursement or advancement of expenses to
the claimant is proper in the circumstances nor an actual determination by the
corporation (including its board of directors, its shareholders or independent
legal counsel) that the claimant is not entitled to indemnification or to the
reimbursement or advancement of expenses shall be a defense to the action or
create a presumption that the claimant is not so entitled.
15
<PAGE>
IX.2.5 Rights Not Exclusive. The right to indemnification and
--------------------
payment of expenses in advance of final disposition of a proceeding conferred in
this Article shall not be exclusive of any other right which any person may have
or hereafter acquire under any statute, provision of the articles of
incorporation, bylaws, agreement, vote of shareholders or disinterested
directors or otherwise.
IX.3 Insurance. The corporation may purchase and maintain insurance,
---------
at its expense, to protect itself and any director, officer, employee, agent or
trustee of the corporation or another corporation, partnership, joint venture,
trust or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the Washington Business Corporation Act.
IX.4 Survival of Benefits. Any repeal or modification of this Article
--------------------
shall not adversely affect any right of any person existing at the time of such
repeal or modification.
IX.5 Severability. If any provision of this Article or any application
------------
thereof shall be invalid, unenforceable or contrary to applicable law, the
remainder of this Article, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, unenforceable or
contrary to applicable law, shall not be affected thereby and shall continue in
full force and effect.
IX.6 Applicable Law. For purposes of this Article, "applicable law"
--------------
shall at all times be construed as the applicable law in effect at the date
indemnification may be sought, or the law in effect at the date of the action,
omission or other event giving rise to the situation for which indemnification
may be sought, whichever is selected by the person seeking indemnification. As
of the date hereof, applicable law shall include RCW 23B.08.500 through .600, as
amended.
X
BOOKS AND RECORDS
The corporation shall keep correct and complete books and records of
account, stock transfer books, minutes of the proceedings of its shareholders
and the board of directors and such other records as may be necessary or
advisable.
XI
FISCAL YEAR
16
<PAGE>
The fiscal year of the corporation shall be determined by resolution
adopted by the board of directors. In the absence of such a resolution, the
fiscal year shall be the calendar year.
XII
VOTING OF SHARES OF ANOTHER CORPORATION
Shares of another corporation held by this corporation may be voted by the
president or vice-president, or by proxy appointment form executed by either of
them, unless the directors by resolution shall designate some other person to
vote the shares.
XIII
AMENDMENTS TO BYLAWS
These bylaws may be altered, amended or repealed, and new bylaws may be
adopted, by the board of directors or by the shareholders. Any bylaw adopted,
amended or repealed by the directors may be repealed, amended or reinstated by
the shareholders at the next meeting of shareholders following such action,
without further notice than this bylaw.
The undersigned, being the secretary of the corporation, hereby certifies
that these bylaws are the bylaws of Asymetrix, adopted by resolution of the
directors on July 12, 1995.
DATED this 12th day of July, 1995.
/s/ JOHN D. ATHERLY
-----------------------------
John D. Atherly
Secretary
17
<PAGE>
EXHIBIT 3.06
BYLAWS
OF
ASYMETRIX LEARNING SYSTEMS, INC.
(a Delaware corporation)
As Adopted __________, 199_
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders shall be
----------- ---------------
held for the election of directors at such date, time and place, either within
or without the State of Delaware, as the Board of Directors shall each year fix.
Any other proper business may be transacted at the annual meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for any
----------- ----------------
purpose or purposes may be called at any time by the Chairman of the Board, the
Chief Executive Officer or by a majority of the members of the Board of
Directors. Special meetings may not be called by any other person or persons.
If a special meeting of stockholders is called by any person or persons other
than by a majority of the members of the Board of Directors, then such person or
persons shall call such meeting by delivering a written request to call such
meeting to each member of the Board of Directors, and the Board of Directors
shall then determine the time, date and place of such special meeting, which
shall be held not more than one hundred twenty (120) nor less than thirty-five
(35) days after the written request to call such special meeting was delivered
to each member of the Board of Directors.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice shall be given not less than ten
(10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting.
Section 1.4: Adjournments. Any meeting of stockholders may adjourn from
----------- ------------
time to time to reconvene at the same or another place, and notice need not be
given of any such adjourned meeting if the time, date and place thereof are
announced at the meeting at which the adjournment is taken; provided, however,
-------- -------
that if the adjournment is for more than thirty (30) days, or if after the
adjournment a new record date is fixed for the adjourned meeting, then a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote at the meeting. At the adjourned meeting the Corporation may transact
any business that might have been transacted at the original meeting.
<PAGE>
Section 1.5: Quorum. At each meeting of stockholders the holders of a
----------- ------
majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.6: Organization. Meetings of stockholders shall be presided
----------- ------------
over by such person as the Board of Directors may designate, or, in the absence
of such a person, the Chairman of the Board, or, in the absence of such person,
the Chief Executive Officer of the Corporation, or, in the absence of such
person, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, at the meeting. Such
person shall be chairman of the meeting and, subject to Section 1.11 hereof,
shall determine the order of business and the procedure at the meeting,
including such regulation of the manner of voting and the conduct of discussion
as seems to him or her to be in order. The Secretary of the Corporation shall
act as secretary of the meeting, but in his or her absence the chairman of the
meeting may appoint any person to act as secretary of the meeting.
Section 1.7: Voting; Proxies. Unless otherwise provided by law or the
----------- ---------------
Certificate of Incorporation, and subject to the provisions of Section 1.8 of
these Bylaws, each stockholder shall be entitled to one (1) vote for each share
of stock held by such stockholder. Each stockholder entitled to vote at a
meeting of stockholders, or to express consent or dissent to corporate action in
writing without a meeting, may authorize another person or persons to act for
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. Voting at meetings of
stockholders need not be by written ballot unless such is demanded at the
meeting before voting begins by a stockholder or stockholders holding shares
representing at least one percent (1%) of the votes entitled to vote at such
meeting, or by such stockholder's or stockholders' proxy; provided, however,
that an election of directors shall be by written ballot if demand is so made by
any stockholder at the meeting before voting begins. If a vote is to be taken
by written ballot, then each such ballot shall state the name of the stockholder
or proxy voting and such other information as the chairman of the meeting deems
appropriate. Directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Unless otherwise provided by applicable law,
the Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon that are present in
person or represented by proxy at the meeting and are voted for or against the
matter.
Section 1.8: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------- ----------------------
-2-
<PAGE>
[(a) Generally.] In order that the Corporation may determine the
---------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not precede the date upon which the resolution fixing the record
date is adopted by the Board of Directors and which shall not be more than sixty
(60) nor less than ten (10) days before the date of such meeting, nor more than
sixty (60) days prior to any other action. If no record date is fixed by the
Board of Directors, then the record date shall be as provided by applicable law.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board of Directors may fix a new record date for the adjourned
meeting.
[(b) Stockholder Request for Action by Written Consent. Any stockholder
-------------------------------------------------
of record seeking to have the stockholders authorize or take corporate action by
written consent without a meeting shall, by written notice to the Secretary of
the Corporation, request the Board of Directors to fix a record date for such
consent. Such request shall include a brief description of the action proposed
to be taken. The Board of Directors shall, within ten (10) days after the date
on which such a request is received, adopt a resolution fixing the record date.
Such record date shall not precede the date upon which the resolution fixing the
record date is adopted by the Board of Directors, and shall not be more than ten
(10) days after the date upon which the resolution fixing the record date is
adopted by the Board of Directors. If no record date has been fixed by the
Board of Directors within ten (10) days after the date on which such a request
is received, then the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the Corporation by delivery to its registered office in
the State of Delaware, to its principal place of business, or to any officer or
agent of the Corporation having custody of the book in which proceedings of
meetings of stockholders are recorded. Delivery made to the Corporation's
registered office shall be by hand or by certified or registered mail, return
receipt requested. If no record date has been fixed by the Board of Directors
and prior action by the Board of Directors is required by applicable law, then
the record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of business on the
date on which the Board of Directors adopts the resolution taking such prior
action.]
Section 1.9: List of Stockholders Entitled to Vote. A complete list of
----------- -------------------------------------
stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list
-3-
<PAGE>
shall also be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present at the
meeting.
Section 1.10: Action by Written Consent of Stockholders.
------------ -----------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation, and except as set forth in Section 1.8(b) above, any action
required or permitted to be taken at any annual or special meeting of the
stockholders may be taken without a meeting, without prior notice and without a
vote, if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Written stockholder consents shall bear the date of signature of each
stockholder who signs the consent and shall be delivered to the Corporation by
delivery to its registered office in the State of Delaware, to its principal
place of business or to any officer or agent of the Corporation having custody
of the book in which proceedings of meetings of stockholders are recorded.
Delivery made to the Corporation's registered office shall be by hand or by
certified or registered mail, return receipt requested. No written consent
shall be effective to take the action set forth therein unless, within sixty
(60) days of the earliest dated consent delivered to the Corporation in the
manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate action by
-----------------
stockholders without a meeting by less than unanimous written consent of the
stockholders shall be given to those stockholders who have not consented thereto
in writing and, in the case of a Certificate Action (as defined below), if the
Delaware General Corporation Law so requires, such notice shall be given prior
to filing of the certificate in question. If the action which is consented to
requires the filing of a certificate under the Delaware General Corporation Law
(a "Certificate Action"), then if the Delaware General Corporation Law so
------------------
requires, the certificate so filed shall state that written stockholder consent
has been given in accordance with Section 228 of the Delaware General
Corporation Law and that written notice of the taking of corporate action by
stockholders without a meeting as described herein has been given as provided in
such section.
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Section 1.11: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional, and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering upon the
----------------
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
(d) Duties of Inspectors. At a meeting of stockholders, the inspectors of
--------------------
election shall (i) ascertain the number of shares outstanding and the voting
power of each share, (ii) determine the shares represented at a meeting and the
validity of proxies and ballots, (iii) count all votes and ballots, (iv)
determine and retain for a reasonable period of time a record of the disposition
of any challenges made to any determination by the inspectors, and (v) certify
their determination of the number of shares represented at the meeting, and
their count of all votes and ballots. The inspectors may appoint or retain
other persons or entities to assist the inspectors in the performance of the
duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening and the
----------------------------
closing of the polls for each matter upon which the stockholders will vote at a
meeting shall be announced by the inspectors at the meeting. No ballot, proxies
or votes, nor any revocations thereof or changes thereto, shall be accepted by
the inspectors after the closing of the polls unless the Court of Chancery upon
application by a stockholder shall determine otherwise.
(f) Determinations. In determining the validity and counting of proxies
--------------
and ballots, the inspectors shall be limited to an examination of the proxies,
any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall
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specify the precise information considered by them, including the person or
persons from whom they obtained the information, when the information was
obtained, the means by which the information was obtained and the basis for the
inspectors' belief that such information is accurate and reliable.
Section 1.12: Notice of Stockholder Business; Nominations.
(a) Annual Meeting of Stockholders.
------------------------------
(i) Nominations of persons for election to the Board of Directors and
the proposal of business to be considered by the stockholders shall be made at
an annual meeting of stockholders (A) pursuant to the Corporation's notice of
such meeting, (B) by or at the direction of the Board of Directors or (C) by any
stockholder of the Corporation who was a stockholder of record at the time of
giving of the notice provided for in this Section 1.12, who is entitled to vote
at such meeting and who complies with the notice procedures set forth in this
Section 1.12.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of subparagraph (a)(i)
of this Section 1.12, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation and such other business must
otherwise be a proper matter for stockholder action. To be timely, a
stockholder's notice must be delivered to the Secretary at the principal
executive offices of the Corporation not later than the close of business on the
sixtieth (60th) day nor earlier than the close of business on the ninetieth
(90th) day prior to the first anniversary of the preceding year's annual meeting
(except in the case of the 1998 annual meeting, for which such notice shall be
timely if delivered in the same time period as if such meeting were a special
meeting governed by subparagraph (b) of this Section 1.12); provided, however,
-------- -------
that in the event that the date of the annual meeting is more than thirty (30)
days before or more than sixty (60) days after such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than the close of
business on the ninetieth (90th) day prior to such annual meeting and not later
than the close of business on the later of the sixtieth (60th) day prior to such
annual meeting or the close of business on the tenth (10th) day following the
day on which public announcement of the date of such meeting is first made by
the Corporation. Such stockholder's notice shall set forth: (a) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is otherwise
required, in each case pursuant to Regulation 14A under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), including such person's written
------------
consent to being named in the proxy statement as a nominee and to serving as a
director if elected; (b) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any, on whose behalf the proposal is made; and (c) as to
the stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the Corporation's books, and of such beneficial
owner, and (2) the class and number of shares of
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the Corporation that are owned beneficially and held of record by such
stockholder and such beneficial owner.
(iii) Notwithstanding anything in the second sentence of subparagraph
(a)(ii) of this Section 1.12 to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the Corporation is
increased and there is no public announcement by the Corporation naming all of
the nominees for director or specifying the size of the increased board of
directors at least seventy (70) days prior to the first anniversary of the
preceding year's annual meeting (or, if the annual meeting is held more than
thirty (30) days before or sixty (60) days after such anniversary date, at least
seventy (70) days prior to such annual meeting), a stockholder's notice required
by this Section 1.12 shall also be considered timely, but only with respect to
nominees for any new positions created by such increase, if it shall be
delivered to the Secretary of the Corporation at the principal executive office
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such public announcement is first made by the
Corporation.
(b) Special Meetings of Stockholders. Only such business shall be
--------------------------------
conducted at a special meeting of stockholders as shall have been brought before
the meeting pursuant to the Corporation's notice of such meeting. Nominations
of persons for election to the Board of Directors may be made at a special
meeting of stockholders at which directors are to be elected pursuant to the
Corporation's notice of such meeting (i) by or at the direction of the Board of
Directors or (ii) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice of
the special meeting, who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 1.12. In the
event the Corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
stockholder's notice required by subparagraph (a)(ii) of this Section 1.12 shall
be delivered to the Secretary of the Corporation at the principal executive
offices of the Corporation not earlier than the ninetieth (90th) day prior to
such special meeting and not later than the close of business on the later of
the sixtieth (60th) day prior to such special meeting or the tenth (10th) day
following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting.
(c) General.
-------
(i) Only such persons who are nominated in accordance with the
procedures set forth in this Section 1.12 shall be eligible to serve as
directors and only such business shall be conducted at a meeting of stockholders
as shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.12. Except as otherwise provided by law or these
bylaws, the chairman of the meeting shall have the power and duty to determine
whether a nomination or any business proposed to be brought before the meeting
was made or proposed, as the case may be, in accordance with the procedures set
forth in this Section 1.12
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<PAGE>
and, if any proposed nomination or business is not in compliance herewith, to
declare that such defective proposal or nomination shall be disregarded.
(ii) For purposes of this Section 1.12, the term "public announcement"
-------------------
shall mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant to
section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.12,
a stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth herein. Nothing in this Section 1.12 shall be deemed to affect any rights
of stockholders to request inclusion of proposals in the Corporation's proxy
statement pursuant to Rule 14a-8 under the Exchange Act.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall consist
----------- ----------------------
of one or more members. The initial number of directors shall be six (6), and
thereafter shall be fixed from time to time by resolution of the Board of
Directors. No decrease in the authorized number of directors constituting the
Board of Directors shall shorten the term of any incumbent director. Directors
need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) any director or the entire Board of
Directors may be removed, with or without cause, by the holders of a majority of
the shares then entitled to vote at an election of directors and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of Directors
----------- ----------------
may be held at such places, within or without the State of Delaware, and at such
times as the Board of Directors may from time to time determine. Notice of
regular meetings need not be given if the date, times and places thereof are
fixed by resolution of the Board of Directors.
Section 2.4: Special Meetings. Special meetings of the Board of Directors
----------- ----------------
may be called by the Chairman of the Board, the President or a majority of the
members of the Board of
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Directors then in office and may be held at any time, date or place, within or
without the State of Delaware, as the person or persons calling the meeting
shall fix. Notice of the time, date and place of such meeting shall be given,
orally or in writing, by the person or persons calling the meeting to all
directors at least four (4) days before the meeting if the notice is mailed, or
at least twenty-four (24) hours before the meeting if such notice is given by
telephone, hand delivery, telegram, telex, mailgram, facsimile or similar
communication method. Unless otherwise indicated in the notice, any and all
business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or such committee by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of the
----------- --------------------------------
Board of Directors a majority of the total number of authorized directors shall
constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall be
----------- ------------
presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. Any action required or
----------- ---------------------------
permitted to be taken at any meeting of the Board of Directors, or of any
committee thereof, may be taken without a meeting if all members of the Board or
such committee, as the case may be, consent thereto in writing, and the writing
or writings are filed with the minutes of proceedings of the Board or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
------------ ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may receive,
------------ -------------------------
pursuant to a resolution of the Board of Directors, fees and other compensation
for their services as directors, including without limitation their services as
members of committees of the Board of Directors.
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ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution passed
----------- ----------
by a majority of the whole Board, designate one or more committees, each
committee to consist of one or more of the directors of the Corporation. The
Board may designate one or more directors as alternate members of any committee,
who may replace any absent or disqualified member at any meeting of the
committee. In the absence or disqualification of a member of the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, shall have and
may exercise all the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation and may authorize the
seal of the Corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority in reference to amending the
Certificate of Incorporation (except that a committee may, to the extent
------
authorized in the resolution or resolutions providing for the issuance of shares
of stock adopted by the Board of Directors as provided in subsection (a) of
Section 151 of the Delaware General Corporation Law, fix the designations and
any of the preferences or rights of such shares relating to dividends,
redemption, dissolution, any distribution of assets of the Corporation, or the
conversion into, or the exchange of such shares for, shares of any other class
or classes or any other series of the same or any other class or classes of
stock of the Corporation, or fix the number of shares of any series of stock or
authorize the increase or decrease of the shares of any series), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors otherwise
----------- ---------------
provides, each committee designated by the Board may make, alter and repeal
rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall consist of
----------- ---------
a Chief Executive Officer and/or a President, one or more Vice Presidents, a
Secretary, a Treasurer and
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such other officers, including a Chairman of the Board of Directors, one or more
Assistant Officers and/or Chief Financial Officer, as may from time to time be
appointed by the Board of Directors. All officers shall be elected by the Board
of Directors; provided, however, that the Board of Directors may empower the
Chief Executive Officer of the Corporation to appoint officers other than the
Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or the Treasurer. Each officer shall hold office until his or
her successor is elected and qualified or until his or her earlier resignation
or removal. Any number of offices may be held by the same person. Any officer
may resign at any time upon written notice to the Corporation. Any vacancy
occurring in any office of the Corporation by death, resignation, removal or
otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the Board
----------- -----------------------
of Directors and such supervisory powers, if any, as may be given by the Board
of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the Board
of Directors, to have general supervision, general management, direction and
control of the business and affairs of the Corporation and the general
supervision and direction of all of the officers, employees and agents of the
Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds, conveyances,
mortgages, guarantees, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the Board of Directors
or which, in the judgment of the Chief Executive Officer, should be executed on
behalf of the Corporation; to sign certificates for shares of stock of the
Corporation; and, subject to the direction of the Board of Directors, to have
general charge of the property of the Corporation and to supervise and control
all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
Section 4.3: Chairman of the Board. The Chairman of the Board shall have
----------- ---------------------
the power to preside at all meetings of the Board of Directors and shall have
such other powers and duties as provided in these bylaws and as the Board of
Directors may from time to time prescribe.
Section 4.4: President. The President shall have all such powers and
----------- ---------
duties as are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A President
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may be designated by the Board to perform the duties and exercise the powers of
the Chief Executive Officer in the event of the Chief Executive Officer's
absence or disability.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are delegated to him or her by the Board of Directors or
the Chief Executive Officer. A Vice President may be designated by the Board to
perform the duties and exercise the powers of the Chief Executive Officer or the
President in the event of the Chief Executive Officer's or President's absence
or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
----------- -----------------------
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all monies
----------- ---------
and securities of the Corporation. The Treasurer shall make such disbursements
of the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions. The Treasurer shall also perform such
other duties and have such other powers as are commonly incident to the office
of Treasurer, or as the Board of Directors or the President may from time to
time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be issued
----------- ---------
all authorized notices for, and shall keep, or cause to be kept, minutes of all
meetings of the stockholders and the Board of Directors. The Secretary shall
have charge of the corporate minute books and similar records and shall perform
such other duties and have such other powers as are commonly incident to the
office of Secretary, or as the Board of Directors or the President may from time
to time prescribe.
Section 4.9: Assistant Officers. The Assistant Officers, which may
----------- ------------------
include one or more Assistant Secretaries and/or one or more Assistant
Treasurers, in general shall perform such duties as are customary or as shall be
assigned to them by resolution of the board of directors. If required by the
board of directors, the Assistant Treasurers shall respectively give bonds for
the faithful discharge of their duties in such sums and with such sureties as
the board of directors shall determine.
Section 4.10: Delegation of Authority. The Board of Directors may from
------------ -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
Section 4.11: Removal. Any officer of the Corporation shall serve at the
------------ -------
pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
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ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of New
----------- -------------------------------------------------------------
Certificates. The Corporation may issue a new certificate of stock in the place
- ------------
of any certificate previously issued by it, alleged to have been lost, stolen or
destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or such owner's legal representative, to agree to
indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1 Indemnification of Officers and Directors. Each person who
----------- -----------------------------------------
was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative), is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of his or her heirs, executors and administrators;
provided, however, that the Corporation shall indemnify any such person seeking
- -------- -------
indemnity in connection with a proceeding (or part thereof) initiated by such
person only if such proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation. As used herein, the term "Reincorporated
--------------
Predecessor" means a corporation that is merged with and into the Corporation in
- -----------
a statutory merger where (a) the
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Corporation is the surviving corporation of such merger; (b) the primary purpose
of such merger is to change the corporate domicile of the Reincorporated
Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all expenses
----------- -------------------
(including attorneys' fees) incurred by such a director or officer in defending
any such proceeding as they are incurred in advance of its final disposition;
provided, however, that if the Delaware General Corporation Law then so
requires, the payment of such expenses incurred by such a director or officer in
advance of the final disposition of such proceeding shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such director
or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
-------- -------
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
------------ -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or modification
----------- -------------------
of any provision of this Article VI shall be prospective only, and shall not
adversely affect any right or protection conferred on a person pursuant to this
Article VI and existing at the time of such amendment, repeal or modification.
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein or
----------- ------
required by law, all notices required to be given pursuant to these Bylaws shall
be in writing and may in every instance be effectively given by hand delivery
(including use of a delivery service), by depositing such notice in the mail,
postage prepaid, or by sending such notice by prepaid telegram, telex, overnight
express courier, mailgram or facsimile. Any such notice shall be
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addressed to the person to whom notice is to be given at such person's address
as it appears on the records of the Corporation. The notice shall be deemed
given (i) in the case of hand delivery, when received by the person to whom
notice is to be given or by any person accepting such notice on behalf of such
person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in
the case of delivery by overnight express courier, on the first business day
after such notice is dispatched, and (iv) in the case of delivery via telegram,
telex, mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be given
----------- ----------------
under any provision of these bylaws, a written waiver of notice, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by vote of the stockholders;
or (iii) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified by the Board of Directors, a
committee thereof, or the stockholders. Common or interested directors may be
counted in determining the presence of a quorum at a meeting of the Board of
Directors or of a committee which authorizes the contract or transaction.
-15-
<PAGE>
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the Corporation
----------- ---------------
in the regular course of its business, including its stock ledger, books of
account and minute books, may be kept on, or be in the form of, magnetic tape,
diskettes, photographs, microphotographs or any other information storage
device, provided that the records so kept can be converted into clearly legible
form within a reasonable time. The Corporation shall so convert any records so
kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board of
----------- -------------------------------
Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of any
----------- ------------------------------------
conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be held
----------- ------------
to be invalid, illegal, unenforceable or in conflict with the provisions of the
Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
-16-
<PAGE>
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
------------ ----------
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
-17-
<PAGE>
CERTIFICATION OF BYLAWS
OF
ASYMETRIX LEARNING SYSTEMS, INC.
(A DELAWARE CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, _______________, certify that I am Secretary of Asymetrix Learning
Systems, a Delaware corporation (the "Company"), that I am duly authorized to
make and deliver this certification, that the attached Bylaws are a true and
correct copy of the Bylaws of the Company in effect as of the date of this
certificate.
Dated: ______________, 199_
______________________________
, Secretary
<PAGE>
BYLAWS
OF
ASYMETRIX LEARNING SYSTEMS, INC.
A Delaware Corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I - STOCKHOLDERS........................................... 1
Section 1.1: Annual Meetings.............................. 1
Section 1.2: Special Meetings............................. 1
Section 1.3: Notice of Meetings........................... 1
Section 1.4: Adjournments................................. 1
Section 1.5: Quorum....................................... 2
Section 1.6: Organization................................. 2
Section 1.7: Voting; Proxies.............................. 2
Section 1.8: Fixing Date for Determination of Stockholders
of Record.................................... 3
Section 1.9: List of Stockholders Entitled to Vote........ 4
Section 1.10: Action by Written Consent of Stockholders.... 4
Section 1.11: Inspectors of Elections...................... 5
Section 1.12: Notice of Stockholder Business; Nominations.. 6
ARTICLE II - BOARD OF DIRECTORS.................................... 8
Section 2.1: Number; Qualifications....................... 8
Section 2.2: Election; Resignation; Removal; Vacancies.... 8
Section 2.3: Regular Meetings............................. 8
</TABLE>
i
<PAGE>
BYLAWS
OF
ASYMETRIX LEARNING SYSTEMS, INC.
A Delaware Corporation
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 2.4: Special Meetings................................ 8
Section 2.5: Telephonic Meetings Permitted................... 9
Section 2.6: Quorum; Vote Required for Action................ 9
Section 2.7: Organization.................................... 9
Section 2.8: Written Action by Directors..................... 9
Section 2.9: Powers.......................................... 9
Section 2.10: Compensation of Directors...................... 9
ARTICLE III - COMMITTEES.......................................... 9
Section 3.1: Committees...................................... 9
Section 3.2: Committee Rules................................. 10
ARTICLE IV - OFFICERS............................................. 10
Section 4.1: Generally....................................... 10
Section 4.2: Chief Executive Officer......................... 11
Section 4.3: Chairman of the Board........................... 11
Section 4.4: President....................................... 11
Section 4.5: Vice President.................................. 12
Section 4.6: Chief Financial Officer......................... 12
Section 4.7: Treasurer....................................... 12
Section 4.8: Secretary....................................... 12
</TABLE>
ii
<PAGE>
BYLAWS
OF
ASYMETRIX LEARNING SYSTEMS, INC.
A Delaware Corporation
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 4.9: Delegation of Authority............................ 12
Section 4.10: Removal............................................ 12
ARTICLE V - STOCK ................................................... 12
Section 5.l: Certificates....................................... 12
Section 5.2: Lost, Stolen or Destroyed Stock Certificates;
Issuance of New Certificate........................ 13
Section 5.3: Other Regulations.................................. 13
ARTICLE VI - INDEMNIFICATION............................................. 13
Section 6.1: Indemnification of Officers and Directors.......... 13
Section 6.2: Advance of Expenses................................ 13
Section 6.3: Non-Exclusivity of Rights.......................... 14
Section 6.4: Indemnification Contracts.......................... 14
Section 6.5: Effect of Amendment................................ 14
ARTICLE VII - NOTICES ................................................... 14
Section 7.l: Notice............................................. 14
Section 7.2: Waiver of Notice................................... 14
ARTICLE VIII - INTERESTED DIRECTORS...................................... 15
Section 8.1: Interested Directors; Quorum....................... 15
</TABLE>
iii
<PAGE>
BYLAWS
OF
ASYMETRIX LEARNING SYSTEMS, INC.
A Delaware Corporation
TABLE OF CONTENTS (CONT'D)
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE IX - MISCELLANEOUS........................................... 15
Section 9.1: Fiscal Year........................................ 15
Section 9.2: Seal............................................... 15
Section 9.3: Form of Records.................................... 15
Section 9.4: Reliance Upon Books and Records.................... 16
Section 9.5: Certificate of Incorporation Governs............... 16
Section 9.6: Severability....................................... 16
ARTICLE X - AMENDMENT................................................ 16
Section 10.1: Amendments........................................ 16
</TABLE>
iv
<PAGE>
BYLAWS
OF
________________________________
(a Delaware corporation)
As Adopted _______________, 19__
<PAGE>
EXHIBIT 4.01
RESTATED AND AMENDED INVESTORS' RIGHTS AGREEMENT
This Restated and Amended Investors' Rights Agreement (this "Agreement") is
---------
made and entered into as of December 20, 1996 between Asymetrix Corporation, a
Washington corporation (the "Company"), and the persons and entities listed on
-------
Exhibit A attached hereto (the "Investors").
- --------- ---------
RECITALS
A. SOFTVEN No. 2 Investment Enterprise Partnership (the "Series A
--------
Investor") is the holder by assignment from SOFTBANK Holdings Inc. of the
- --------
outstanding shares of the Company's Series A Preferred Stock, par value $0.01
per share (the "Series A Stock"), issued by the Company to SOFTBANK Holdings
--------------
Inc. pursuant to a Series A Preferred Stock Purchase Agreement dated as of
October 21, 1996 between the Company and SOFTBANK Holdings Inc. (the "Series A
--------
Purchase Agreement"), which Series A Purchase Agreement has been assigned to the
- ------------------
Series A Investor.
B. Multimedia Asia Pacific Pty Ltd. (the "Series B Investor") has agreed
-----------------
to purchase from the Company, and the Company has agreed to sell to the
Investor, 388,395 shares of the Company's Series B Preferred Stock, par value
$0.01 per share ("Series B Stock"), pursuant to a Series B Preferred Stock
--------------
Purchase Agreement dated of even date herewith by and between the Company and
the Series B Investor (the "Purchase Agreement").
------------------
C. The Series A Purchase Agreement and the Series B Purchase Agreement
each provides that the Series A Investor and the Series B Investor shall be
granted certain information and registration rights and rights of first refusal,
all as more fully set forth herein. This Agreement supersedes and replaces in
its entirety that certain Investor's Rights Agreement dated October 21, 1996
between the Company and the Series A Investor.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
------------------
1.1 Financial Information. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, (i) with respect to the Series A
Investor, for so long as the Series A Investor holds any shares of Series A
Stock issued under the Series A Purchase Agreement or shares of Common Stock of
the Company ("Common Stock") issued upon the conversion of such shares of Series
------------
A Stock ("Series A Conversion Stock"), and (ii) with respect to the Series B
-------------------------
Investor, so long as the Series B Investor (A) holds any shares of Series B
Stock issued under the Series B Purchase Agreement or shares of Common Stock
issued upon the conversion of such shares of Series B Stock ("Series B
--------
Conversion Stock," together with the Series A Conversion Stock, the "Conversion
- ---------------- ----------
Stock") and (B) the Series B Investor has repaid in
1
<PAGE>
full the entire principal amount of $4.5 million, together with accrued
interest thereon, of that certain Promissory Note, dated as of the date hereof,
made by the Series B Investor in favor of the Company (the "Note"), the Company
will: ----
(a) Annual Reports. Furnish to such Investor, as soon as practicable
--------------
and in any event within 90 days after the end of each fiscal year of the
Company, a consolidated Balance Sheet as of the end of such fiscal year, a
consolidated Statement of Income and a consolidated statement of cash flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year (if any),
all prepared in accordance with generally accepted accounting principles and
practices (collectively, the "Annual Reports") and audited by nationally
--------------
recognized independent certified public accountants. Notwithstanding the
foregoing, with respect to the Annual Reports relating to the Company's 1996
fiscal year, the Company may furnish unaudited Annual Reports within such 90 day
time period, if, within 60 days after the delivery of such unaudited Annual
Reports, the Company furnishes to such Investor Annual Reports which have been
audited by nationally recognized independent certified public accountants;
(b) Quarterly Reports. Furnish to such Investor as soon as
-----------------
practicable, and in any case within forty-five (45) days of the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited financial statements, including an unaudited Balance
Sheet and an unaudited Statement of Income; and an unaudited consolidated
statement of cash flows, all prepared in accordance with generally accepted
accounting principles and practices; and
(c) Confidentiality. Each Investor agrees to hold all information
---------------
received pursuant to this Section in confidence, and not to use or disclose any
of such information to any third party, except (i) to the extent such
information may be made publicly available by the Company, (ii) as required by
law, or (iii) to any proposed permitted transferee of Series A Stock, Series B
Stock or Common Stock (provided such transferee first agrees in writing to be
bound by this section).
1.2 Inspection Rights. Provided (i) with respect to the Series A
-----------------
Investor, the Series A Investor (including any affiliated partnership managed by
the Series A Investor) holds at least 200,000 shares of Series A Stock issued
under the Series A Stock Purchase Agreement and/or the equivalent number (on an
as-converted basis) of shares of Conversion Stock, (ii) with respect to the
Series B Investor, the Series B Investor (A) holds at least 200,000 shares of
Series B Stock and/or the equivalent number (on an as-converted basis) of shares
of Conversion Stock, and (B) has paid all amounts due under the Note, the
Company shall permit such Investor, at such Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by such Investor. Each
Investor agrees to hold all information received from such inspections in
confidence, and not to use or disclose any of such information to any third
party, except (i) to the extent such information may be made publicly available
by the Company, (ii) as required by law, or (iii) to any proposed permitted
2
<PAGE>
transferee of Series A Stock, Series B Stock or Common Stock (provided such
transferee first agrees in writing to be bound by this section).
1.3 Termination of Certain Rights. The Company's obligations under
-----------------------------
Sections 1.1 and 1.2 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "Securities
----------
Act").
- ---
2. REGISTRATION RIGHTS.
-------------------
2.1 Definitions. For purposes of this Section 2:
-----------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
- -------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities" means:
---------------------- ----------------------
(1) all the shares of Common Stock of the Company issued or issuable upon the
conversion of any shares of Series A Stock issued under the Series A Purchase
Agreement; (2) all the shares of Common Stock of the Company issued or issuable
upon the conversion of any shares of Series B Stock issued under the Series B
Purchase Agreement if all of the Series B Investor's obligations under the Note
have been paid in accordance with the terms of the Note, and (3) any shares of
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security which is issued as) a dividend
or other distribution with respect to, or in exchange for or in replacement of,
all such shares of Common Stock described in clauses (1) and (2) of this
subsection (b); excluding in all cases, however, any Registrable Securities sold
---------
by a person in a transaction in which rights under this Section 2 are not
assigned in accordance with this Agreement or any Registrable Securities sold to
the public or sold pursuant to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of shares of
---------------------------------------
"Registrable Securities then outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 2 and Sections 3 and 4
------
hereof, the term "Holder" means any person owning of record Registrable
------
Securities that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, a record holder
-------- -------
of shares of Series A Stock or Series B Stock convertible into such Registrable
Securities shall be deemed to be the Holder of such Registrable Securities; and
provided, further, that the Company shall in no event be obligated to register
- -------- -------
shares of Series A Stock or Series B Stock and that Holders of Registrable
Securities will not be required to convert their shares of Series A Stock or
Series B Stock into Common Stock in order to exercise the registration rights
granted hereunder, until
3
<PAGE>
immediately before the closing of the offering to which the registration
relates. Notwithstanding the foregoing, the Series B Investor shall not be
deemed to be a Holder for purposes of this Agreement if the Series B Investor
has not paid all of its obligations under the Note in accordance with the terms
of the Note.
(e) Form S-3. The term "Form S-3" means such form under the
-------- --------
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "Commission" means the U.S.
--- --- ----------
Securities and Exchange Commission.
2.2 Demand Registration.
-------------------
(a) Request by Holders. If the Company shall receive at any time six
------------------
(6) months after the effective date of the Company's initial public offering of
its securities pursuant to a registration filed under the Securities Act, a
written request from the Holders of at least twenty percent (20%) of the
Registrable Securities then outstanding that the Company effect any registration
of Registrable Securities pursuant to this Section 2.2, then the Company shall,
within ten (10) business days of the receipt of such written request, give
written notice of such request ("Request Notice") to all Holders, and effect, as
--------------
soon as practicable, such registration under the Securities Act of all
Registrable Securities which Holders request to be registered and included in
such registration by written notice given by such Holders to the Company within
twenty (20) days after receipt of the Request Notice, subject only to the
limitations of this Section 2.2; provided that the Registrable Securities
--------
requested by all Holders to be registered pursuant to such request must either
(i) be at least twenty percent (20%) of all Registrable Securities then
outstanding or (ii) have an anticipated aggregate public offering price (before
any underwriting discounts and commissions) of not less than $5,000,000.
(b) Underwriting. If the Holders initiating the registration request
------------
under this Section 2.2 ("Initiating Holders") intend to distribute such
------------------
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice to other Holders referred to in subsection 2.2(a). In such
event, the right of any other Holder to include its Registrable Securities in
such registration shall be conditioned upon such other Holder's participation in
such underwriting and the inclusion of such other Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed by a majority
in interest of the Initiating Holders and such other Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the managing underwriter or underwriters selected for such underwriting by
the Holders with the consent of the Company, which will not be unreasonably
withheld. Notwithstanding any other provision of this Section 2.2, if the
underwriter(s) advise(s) the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten then the Company shall
so advise all Holders of
4
<PAGE>
Registrable Securities which would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders). If any Holder
of Registrable Securities disapproves of the terms of the underwriting, such
Holder may elect to withdraw from such registration by written notice to the
Company, the underwriter and the Initial Holder. Any Registrable Securities
excluded and withdrawn from such underwriting shall be withdrawn from the
registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
--------------------------------------
to effect only two (2) such registrations pursuant to this Section 2.2, one (1)
at the demand of the Holders of the Series A Stock and one (1) at the demand of
the Holders of the Series B Stock.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
--------
furnish to Holders requesting the filing of a registration statement pursuant to
this Section 2.2, a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 90 days
after receipt of the request of the Initiating Holders; provided, however, that
-------- -------
the Company may not utilize this right more than once in any twelve (12) month
period.
(e) Expenses. All expenses incurred in connection with a registration
--------
pursuant to this Section 2.2, including without limitation all registration,
qualification and filing fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of common counsel for all Holders ("Holders' Counsel") (but excluding
----------------
underwriters' discounts and commissions), blue sky fees and expenses shall be
borne by the Company. Each Holder participating in a registration pursuant to
this Section 2.2 shall bear such Holder's proportionate share (based on the
total number of shares sold in such registration other than for the account of
the Company) of all discounts, commissions or other amounts payable to
underwriters or brokers in connection with such offering and the fees and
disbursements of any counsel for the participating Holders (other than Holders'
Counsel). Notwithstanding the foregoing, the Company shall not be required to
pay for any expenses of any registration proceeding begun pursuant to this
Section 2.2 if the registration request is subsequently withdrawn at the request
of the Holders of a majority of the Registrable Securities to be registered
unless the Holders of a majority of Registrable Securities who have demand
registration rights pursuant to this Section 2.2 agree to forfeit their demand
registration rights hereunder with respect to such registration request,
provided, however, that if at the time of such withdrawal, the Holders have
- -------- -------
learned of a material adverse change in the condition, business, or prospects of
the Company not known to the Holders at the time of their request for such
registration and have withdrawn their request for registration with reasonable
promptness after
5
<PAGE>
learning of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to this
Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any registration
---------
under Section 2.2 or Section 2.4 of this Agreement or to any employee benefit
plan or to any acquisition, merger, consolidation or other corporate
reorganization) and will afford each such Holder an opportunity to include in
such registration statement all or any part of the Registrable Securities then
held by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under which the Company
------------
gives notice under this Section 2.3 is for an underwritten offering, then the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
-----
Company, and second, to the Holders requesting inclusion of their Registrable
------
Securities in such registration statement pursuant to this Section 2.3 on a pro
rata basis based on the total number of Registrable Securities held by each such
Holder, provided however, that the right of the underwriters to exclude shares
-------- -------
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that the number of Registrable Securities
included in any such registration is not reduced below twenty-five percent (25%)
of the shares included in the registration, except for a registration relating
to the Company's initial public offering from which all Registrable Securities
may be excluded. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least ten (10) business days prior
to the effective date of the registration statement. Any Registrable Securities
excluded or withdrawn
6
<PAGE>
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder which is a partnership or corporation, the partners, retired
partners and shareholders of such Holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "Holder", and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a registration
--------
pursuant to this Section 2.3 (excluding underwriters' and brokers' discounts and
commissions), including, without limitation all federal and "blue sky"
registration, qualification and filing fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and the reasonable fees and
expenses of Holders' Counsel shall be borne by the Company.
2.4 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the proposed registration
------
and the Holder's or Holders' request therefor, and any related qualification or
compliance, to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, effect such registration
------------
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within twenty (20) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
-------- -------
any such registration, qualification or compliance pursuant to this Section 2.4:
(1) if Form S-3 is not available for such offering by the Holders;
(2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $250,000;
(3) if the Company shall furnish to the Holders a certificate signed
by the President or Chief Executive Officer of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration
7
<PAGE>
statement no more than once during any twelve month period for a period of not
more than 90 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(4) if the Company has already effected two (2) registrations on Form
S-3 for the Holders pursuant to this Section 2.4; or
(5) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Expenses. Subject to the foregoing, the Company shall file a Form
--------
S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 2.4 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with
each registration requested pursuant to this Section 2.4 (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration, qualification, filing, printers' and
accounting fees, counsel for the Company and the reasonable fees and expenses of
Holders' Counsel.
(d) Not Demand Registration. Form S-3 registrations shall not be
-----------------------
deemed to be demand registrations as described in Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders and to the underwriters, if any, such
number of copies of the registration statement, prospectus, and preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by them that are included in
such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in
8
<PAGE>
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(h) Use its best efforts either to (i) cause all the Registrable
Securities covered by any Registration Statement to be listed on a national
securities exchange, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the quotation of the
Registrable Securities on the Nasdaq National Market.
2.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be reasonably required to
timely effect the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
9
<PAGE>
2.8 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the Company will
--------------
indemnify and hold harmless each Holder, the partners, officers, directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any expenses, losses, claims, damages, or
--------
liabilities (joint or several) (or actions in respect thereof) to which they may
become subject under the Securities Act, the l934 Act or other federal or state
law, insofar as such expenses, losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement,
preliminary prospectus, final prospectus, offering circular or
other document contained therein or any amendments or supplements
thereto;
(ii) the 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
(iii) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any federal or state securities law in
connection with the offering covered by such registration
statement;
and the Company will reimburse each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 2.8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder or its agent, partner,
officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
------------------
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act,
10
<PAGE>
against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder or its agent expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or controlling
person of such other Holder in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 2.8(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided further, that the total
-------- -------
amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of
any Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under this
------
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
-------------------------------------
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but which
Violation is eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
-----
Prospectus), such indemnity agreement shall not inure to the benefit of any
- ----------
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
11
<PAGE>
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such expense, loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of each such party in
connection with such statements or omissions as well as any other relevant
considerations; provided, however, that, in any such case, (A) the total amounts
-------- -------
payable in contribution by any Holder under this Section 2.8(e) shall not exceed
the net proceeds received by such Holder in the registered offering out of which
such responsibility arises; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under this
--------
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees, and in
---------------------------
the event that the Series B Investor is not a Holder, the Series B Investor
agrees, that it shall not, to the extent requested by the Company or an
underwriter of securities of the Company, sell or otherwise transfer or dispose
of any Registrable Securities or other shares of stock of the Company then owned
by such Holder or, if the Series B Investor is not a Holder, the Series B
Investor (other than to donees or partners of the Holder or Series B Investor
who agree to be similarly bound) for up to one hundred eighty (180) days
following the effective date of any registration statement of the Company filed
under the Securities Act (whether filed pursuant to the provisions of this
Agreement or otherwise); provided, however, that:
-------- -------
(a) such agreement shall not apply to Registrable Securities sold
pursuant to such registration statement; and
(b) all executive officers and directors of the Company then holding
Common Stock of the Company and all shareholders owning more than 1% of the
Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to
12
<PAGE>
impose stop transfer instructions with respect to the Registrable Securities and
such other shares of stock of each Holder or, if applicable, Series B Investor
(and the shares or securities of every other person subject to the foregoing
restriction), until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act (at
any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
90 days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), of the
Securities Act and the 1934 Act (at any time after it has become subject to the
reporting requirements of the 1934 Act) or that it qualifies as a registrant
whose securities may be resold pursuant to a Form S-3 (at any time after it so
qualifies), a copy of the most recent annual or quarterly report of the Company,
and such other reports and documents of the Company as a Holder may reasonably
request in availing itself of any rule or regulation of the Commission allowing
a Holder to sell any such securities without registration or pursuant to Form S-
3 (at any time after the Company has become subject to the reporting
requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company shall
----------------------------------------
have no obligations pursuant to Sections 2.2 through 2.4 with respect to: (i)
any request or requests for registration made by any Holder on a date more than
five (5) years after the closing date of the Company's initial public offering;
or (ii) any Registrable Securities proposed to be sold by a Holder in a
registration pursuant to Section 2.2, 2.3 or 2.4 if, in the opinion of counsel
to the Company, all such Registrable Securities proposed to be sold by a Holder
may be sold in the public market in a three-month period without registration
under the Securities Act pursuant to Rule 144 under the Securities Act.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 General. Each Holder (as defined in Section 2.1(d)) and any
-------
party to whom such Holder's rights under this Section 3 have been duly assigned
in accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "Rights Holder") has the right of first refusal to
-------------
purchase such Rights Holder's Pro Rata Share (as defined below),
13
<PAGE>
of all (or any part) of any "New Securities" (as defined in Section 3.2) that
the Company may from time to time issue after the date of this Agreement. A
Rights Holder's Pro Rata Share" for purposes of this right of first refusal is
--------------
the ratio of (a) the number of Registrable Securities as to which such Rights
Holder is the Holder (and/or is deemed to be the Holder under Section 2.1(d)),
to (b) a number of shares of Common Stock of the Company equal to the sum of (i)
the total number of shares of Common Stock of the Company then outstanding plus
(ii) the total number of shares of Common Stock of the Company into which all
then outstanding shares of Registrable Securities of the Company are then
convertible plus (iii) the number of shares of Common Stock of the Company
reserved for issuance under stock purchase and stock option plans of the Company
and outstanding warrants and options plus (iv) the number of shares of Common
Stock of the Company into which all other outstanding convertible securities of
the Company are then convertible.
3.2 New Securities. "New Securities" shall mean any Common Stock or
-------------- --------------
Class B Stock of the Company, whether now authorized or not, and rights, options
or warrants to purchase such Common Stock or Class B Stock, and securities of
any type whatsoever that are, or may become, convertible or exchangeable into
such Common Stock or Class B Stock; provided, however, that the term "New
-------- -------
Securities" does not include:
---- --- -------
(i) any shares of the Company's Common Stock (and/or options or
warrants therefor) issued or issuable to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to incentive
agreements or plans approved by the Board of Directors of the Company;
(ii) any shares of Series A Stock issued under the Series A Purchase
Agreement, as such agreement may be amended, or any shares of Series B Stock
issued under the Series B Purchase Agreement, as such agreement may be amended,
and any shares of Common Stock or other securities issuable upon conversion
thereof.
(iii) up to an aggregate of 50,000 shares of the Company's Series 1
Class B Stock (and the shares of Common Stock issued or issuable upon conversion
of such Series 1 Class B Stock) to be issued from time to time in connection
with a written agreement concerning a business relationship between the Company
and the holder of such Series 1 Class B Stock;
(iv) any securities issuable upon exercise of any options, warrants or
rights to purchase any securities of the Company outstanding on the date of this
Agreement;
(v) shares of the Company's Common Stock or Class B Stock issued
in connection with any stock split or stock dividend;
(vi) securities offered by the Company to the public pursuant to a
registration statement filed under the Securities Act;
14
<PAGE>
(vii) any shares of the Company's stock (and/or options or warrants
therefor) issued or issuable to employees, directors, consultants, or other
parties pursuant to contracts or other arrangements that are approved by the
Board of Directors of the Company;
(viii) any shares of the Company's stock (and/or options or warrants
therefor) issued or issuable to banks, equipment leasing organizations or
similar entities pursuant to any transaction in which the Company borrows money
or anything else of value; or
(ix) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
3.3 Procedures. In the event that the Company proposes to undertake
----------
an issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "Notice"), describing the
------
type of New Securities and the price and the general terms upon which the
Company proposes to issue such New Securities. Each Rights Holder shall have
twenty (20) days from the date of mailing of any such Notice to agree in writing
to purchase such Rights Holder's Pro Rata Share of such New Securities for the
price and upon the general terms specified in the Notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights
Holder fails to so agree in writing within such twenty (20) day period to
purchase such Rights Holder's full Pro Rata Share of an offering of New
Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
--------------------
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that it did not so agree to purchase. Each Rights Holder who has
timely agreed to purchase his full Pro Rata Share of such offering of New
Securities (a "Purchasing Holder") shall have a right of over-allotment such
-----------------
that such Purchasing Holder may purchase, on a pro rata basis, such portion of
the New Securities which any Nonpurchasing Holder elected not to purchase. The
Company shall take all such action as may be required by any regulatory
authority in connection with the exercise by a Purchasing Holder of the right to
purchase New Securities as set forth in this Section 3; provided, however, that
-------- -------
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any state or jurisdiction where it is not so qualified or where it
has not made such a filing.
3.4 Failure to Exercise. In the event that the Rights Holders fail
-------------------
to exercise in full the right of first refusal within such twenty (20) plus five
(5) day period, then the Company shall have 90 days thereafter to sell the New
Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold
the New Securities within such 90 day period, then the Company shall not
thereafter issue or sell any New Securities without again first offering such
New Securities to the Rights Holders pursuant to this Section 3.
15
<PAGE>
3.5 Termination. This right of first refusal shall terminate (i)
-----------
immediately before the closing of the first underwritten sale of Common Stock of
the Company to the public pursuant to a registration statement filed with, and
declared effective by, the SEC under the Securities Act, covering the offer and
sale of Common Stock to the public, or (ii) upon (a) the acquisition of all or
substantially all the assets of the Company or (b) an acquisition of the Company
by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction pursuant to
this Section 3.
4. ASSIGNMENT AND AMENDMENT.
------------------------
4.1 Assignment of Registration Rights. Notwithstanding anything
---------------------------------
herein to any the contrary, the registration rights of a Holder under Section 2
hereof may be assigned by Investor only to a party who acquires at least 75,000
shares of Series A Stock or Series B Stock issued under the Series A Purchase
Agreement or Series B Purchase Agreement, as applicable, and/or an equivalent
number (on an as-converted basis) of Registrable Securities issued upon
conversion thereof; provided, however that no party may be assigned any of the
-------- -------
foregoing rights unless the Company is given written notice by the assigning
party at the time of such assignment stating the name and address of the
assignee and identifying the securities of the Company as to which the rights in
question are being assigned; and provided further that any such assignee shall
-------- -------
receive such assigned rights subject to all the terms and conditions of this
Agreement, including without limitation the provisions of this Section 4.
5. GENERAL PROVISIONS.
------------------
5.1 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows: if to the
Investor, at the address for Investor indicated in Exhibit A hereto and if to
---------
the Company, at:
ASYMETRIX CORPORATION
110 110th Avenue, NE, Suite 700
Bellevue, WA 98004
Phone: (206) 637-5829
Attn: President
with a copy to:
FENWICK & WEST LLP
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Attn: Mark Stevens, Esq.
16
<PAGE>
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of Washington,
excluding that body of law pertaining to conflict of laws.
5.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section
----------------------
4.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
5.7 Captions. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement
----------------------------------
there is a reference to a specific number of shares of Common Stock, Class B
Stock, Series A Stock or Series B Stock of the Company of any class or series,
then, upon the occurrence of any subdivision, combination or stock dividend of
such class or series of stock, the specific number of shares so referenced in
this Agreement shall automatically be proportionally adjusted to reflect
17
<PAGE>
the affect on the outstanding shares of such class or series of stock by such
subdivision, combination or stock dividend.
5.11 Aggregation of Stock. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY INVESTORS
- ----------- ---------
ASYMETRIX CORPORATION SOFTVEN NO. 2 INVESTMENT
ENTERPRISE PARTNERSHIP
By: /s/ J. Billmaier By: /s/ SOFTVEN NO. 2 INVESTMENT
----------------------------- -----------------------------
ENTERPRISE PARTNERSHIP
Title: President & CEO -----------------------------
--------------------------
Title: Chief Financial Officer
---------------------------
MULTIMEDIA ASIA PACIFIC PTY LTD.
By: /s/ MULTIMEDIA ASIA PACIFIC
------------------------------
PTY. LTD.
------------------------------
Title: DIRECTOR
---------------------------
[SIGNATURE PAGE TO RESTATED AND AMENDED
INVESTORS' RIGHTS AGREEMENT]
19
<PAGE>
EXHIBIT A
---------
Series A Investor:
SOFTVEN NO. 2 INVESTMENT ENTERPRISE PARTNERSHIP
a limited partnership
2951 28th Street, Suite 3060
Santa Monica, CA 90405
Series B Investor:
MULTIMEDIA ASIA PACIFIC PTY LTD.
A proprietary limited company
236 Balaclava Road
Caulfield North
Victoria 3161, Australia
20
<PAGE>
EXHIBIT 4.03
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and entered
into as of September 11, 1997, by and between ASYMETRIX CORPORATION, a
Washington corporation (the "COMPANY"), and the persons and entities listed on
Exhibit A hereto (collectively, the "SHAREHOLDERS" and each individually, a
- ---------
"SHAREHOLDER") who immediately prior to the Effective Time of the Merger (as
defined below) are all of the shareholders of AIMTECH CORPORATION, a Delaware
corporation ("AIMTECH").
A. Aimtech, the Company and ASX Merger Corporation ("SUB") have entered
into an Agreement and Plan of Merger dated as of June 24, 1997 (the "PLAN"),
pursuant to which Sub will merge with and into Aimtech in a reverse triangular
merger, with Aimtech to be the surviving corporation of the merger (the
"MERGER").
B. As a condition precedent to the consummation of the Merger, Section
8.7 of the Plan provides that the Shareholders shall be granted certain
registration rights with respect to the shares of the Company's Common Stock
issuable upon conversion of the Asymetrix Series 4 Class B Stock that are issued
to the Shareholders in the Merger, subject to the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. REGISTRATION RIGHTS
1.1 Certain Definitions. For purposes of this Agreement:
-------------------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
- -------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities" means:
---------------------- ----------------------
(1) all the shares of Common Stock of the Company issued or issuable upon the
conversion of any shares of Series 4 Class B Stock issued pursuant to the Plan;
and (2) any shares of Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (1) of
this subsection (b); excluding in all cases, however, (i) any Registrable
---------
Securities sold by a person in a transaction in which rights under this Section
1 are not assigned in accordance with this Agreement, (ii) any Registrable
Securities sold to the public or sold pursuant to Rule 144 promulgated under the
Securities Act or (iii) any Registrable Securities which may be sold in the
public market in a three-month period without registration under the Securities
Act pursuant to Rule 144 under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of shares of
---------------------------------------
"Registrable Securities then outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable
<PAGE>
pursuant to the exercise or conversion of then outstanding and then exercisable
options, warrants or convertible securities.
(d) Holder. For purposes of this Section 1 and Section 2 hereof, the
------
term "Holder" means any person owning of record Registrable Securities that have
------
not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any assignee of record of such Registrable Securities to whom
rights under this Section 1 have been duly assigned in accordance with this
Agreement; provided, however, a record holder of shares of Series 4 Class B
-------- -------
Stock convertible into such Registrable Securities shall be deemed to be the
Holder of such Registrable Securities; and provided, further, that the Company
-------- -------
shall in no event be obligated to register shares of Series 4 Class B Stock.
(e) SEC. The term "SEC" or "Commission" means the U.S.
--- --- ----------
Securities and Exchange Commission.
1.2 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any employee benefit
---------
plan or to any acquisition, merger, consolidation or other corporate
reorganization) and will afford each such Holder an opportunity to include in
such registration statement all or any part of the Registrable Securities then
held by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under which the Company
------------
gives notice under this Section 1.2 is for an underwritten offering, then the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
-----
2
<PAGE>
Company, second to holders of the Company's Series A Preferred Stock and Series
------
B Preferred Stock (or Registrable Securities issuable upon conversion of such
Series A Preferred Stock or Series B Preferred Stock) and third, to the Holders
-----
requesting inclusion of their Registrable Securities in such registration
statement pursuant to this Section 1.2 on a pro rata basis based on the total
number of Registrable Securities held by each such Holder. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For
any Holder which is a partnership or corporation, the partners, retired partners
and shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "Holder", and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a registration
--------
pursuant to this Section 1.2 (excluding underwriters' and brokers' discounts and
commissions and the fees and expenses of Holders' Counsel), including, without
limitation all federal and "blue sky" registration, qualification and filing
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company shall be borne by the Company.
1.3 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as commercially reasonable:
(a) Furnish to the Holders and to the underwriters, if any, such
number of copies of the registration statement, prospectus, and preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by them that are included in
such registration.
(b) Use its commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(c) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(d) Use its best efforts either to (i) cause all the Registrable
Securities covered by any Registration Statement to be listed on a national
securities exchange, if the listing
3
<PAGE>
of such Registrable Securities is then permitted under the rules of such
exchange, or (ii) secure the quotation of the Registrable Securities on the
Nasdaq National Market.
1.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Section 1.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be reasonably required to timely effect
the registration of their Registrable Securities.
1.5 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 1.2:
(a) By the Company. To the extent permitted by law, the Company will
--------------
indemnify and hold harmless each Holder, the partners, officers, directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any expenses, losses, claims, damages, or
--------
liabilities (joint or several) (or actions in respect thereof) to which they may
become subject under the Securities Act, the l934 Act or other federal or state
law, insofar as such expenses, losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, preliminary prospectus,
final prospectus, offering circular or other document contained therein or
any amendments or supplements thereto;
(ii) the 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
(iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law or any
rule or regulation promulgated under the Securities Act, the 1934 Act or
any federal or state securities law in connection with the offering
covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 1.6(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be
4
<PAGE>
unreasonably withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by such Holder or its agent, partner, officer, director,
underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
------------------
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder or its agent expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or controlling
person of such other Holder in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 1.6(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided further, that the total
-------- -------
amounts payable in indemnity by a Holder under this Section 1.6(b) in respect of
any Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under this
------
Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6, but the omission so to deliver written
notice to the indemnifying party
5
<PAGE>
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.6.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
-------------------------------------
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but which
Violation is eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
-----
Prospectus), such indemnity agreement shall not inure to the benefit of any
- ----------
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 1.6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 1.6 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
1.6; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such expense, loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of each such party in
connection with such statements or omissions as well as any other relevant
considerations; provided, however, that, in any such case, (A) the total amounts
-------- -------
payable in contribution by any Holder under this Section 1.6(e) shall not exceed
the net proceeds received by such Holder in the registered offering out of which
such responsibility arises; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under this
--------
Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
1.7 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or any shares of capital stock of the Company then owned
by such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of any registration statement (other than a registration statement relating
to any employee benefit plan or to any acquisition, merger, consolidation or
other corporate reorganization) of the
6
<PAGE>
Company filed under the Securities Act (whether filed pursuant to the provisions
of this Agreement or otherwise); provided, however, that:
-------- -------
(a) such agreement shall not apply to shares of capital stock of the
Company sold pursuant to such registration statement;
(b) all executive officers and directors of the Company then holding
Common Stock of the Company enter into a similar agreement, and any other
stockholder of the Company owning at least as many shares of the Company's
Common Stock as such Holder is also requested by the Company or the underwriter
to enter into a similar agreement; and
(c) in an offering other than the Company's initial public offering,
such agreement shall apply only for a period of 90 days from the effective date
of the registration statement filed under the Securities Act with respect
thereto.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the shares of stock of each Holder (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such period.
1.8 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act (at
any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
90 days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), of the
Securities Act and the 1934 Act (at any time after it has become subject to the
reporting requirements of the 1934 Act), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
7
<PAGE>
2. ASSIGNMENT
Notwithstanding anything herein to any the contrary, the registration
rights of a Holder under Section 1 hereof may be assigned by a Holder only to a
party who acquires at least 75,000 shares of Series 4 Class B Stock issued under
the Plan, and/or an equivalent number (on an as-converted basis) of Registrable
Securities issued upon conversion thereof; provided, however that no party may
-------- -------
be assigned any of the foregoing rights unless the Company is given written
notice by the assigning party at the time of such assignment stating the name
and address of the assignee and identifying the securities of the Company as to
which the rights in question are being assigned; and provided further that any
-------- -------
such assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 2.
3. GENERAL PROVISIONS
3.1 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders of a majority of all Registrable
Securities then outstanding. Any amendment or waiver effected in accordance
with this Section 3.1 shall be binding upon each Holder, each permitted
successor or assignee of such Holder and the Company.
3.2 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
3.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
3.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
3.5 Notices. Any notice or other communication required or permitted
-------
to be given under this Agreement will be in writing, will be delivered
personally, by registered or certified mail, postage prepaid, by confirmed
facsimile or by nationally recognized courier service, and will be deemed given
upon delivery, if delivered personally, or five days after deposit in the mails,
if mailed, or upon receipt if delivered by confirmed facsimile or nationally
recognized courier service to the following addresses:
8
<PAGE>
(i) If to Asymetrix:
---------------
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 494-1417
(ii) If to Shareholder:
-----------------
To the address set forth on Exhibit A hereto
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 3.5.
3.6 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
3.7 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date and year first above written.
ASYMETRIX CORPORATION SHAREHOLDERS
By: /s/ J. BILLMAIER
----------------------
Print Name: J. BILLMAIER
-------------
Title: CEO
-------------------
[SIGNATURE PAGE FOR REGISTRATION RIGHTS AGREEMENT]
10
<PAGE>
EXHIBIT A
---------
List of Shareholders
<TABLE>
<CAPTION>
Number of Shares of
Asymetrix Corporation
Name and Address Series 4 Class B Stock Held
- ---------------- ---------------------------
<S> <C>
Poly Ventures, Limited Partnership 409,392
Attn: Susanne & Shelley Harrison
Polytechnic University Office, Route 110
Farmingdale, NY 11735
New York Life Insurance Company 390,933
Attn: Phillip Smith
51 Madison Avenue
New York, NY 10010
Unterberg Harris (including the following funds) 203,988
Unterberg Harris Private Equity Partners, L.P. 90,871
Unterberg Harris Private Equity Partners, C.V. 24,138
Unterberg Harris Interactive Media Limited
Partners, C.V. 15,619
Unterberg Harris LLC 73,360
Attn: Jody Owen
10 East 50th Street, 22nd Floor
New York, NY 10022
Vertex Investment (II) Ltd. 152,398
HWH Investment (Pte) Ltd. 18,459
Attn: Joanna Chin
Three Lagoon Drive
Suite 220
Redwood City, CA 94065
Technology Associates 124,001
Attn: David Wang
11F, 201, Chien Kuo S. Road, Sec. 2
Taipei, Taiwan R.O.C.
Zesiger Capital Group (includes the following) 507,853
Albert L. Zesiger 62,474
Alfred Heller Trust 8,520
Alza Corp Retirement Plan 10,413
Andrew Zacks 947
Barrie Ramsay Zesiger 25,085
Chapin School Endowment Fund 13,252
City of Milford Pension & Retirement Fund 15,146
City of Stamford Firemen's Pension Fund 15,146
Dean Witter Foundation 18,459
</TABLE>
11
<PAGE>
<TABLE>
<S> <C>
Demvest Equities, L.P. 7,100
Domenic J. Mizio 12,306
Elizabeth Heller Mandell 14,199
Ferris Hamilton Family Trust 8,046
Fred & Lucy Giampino 947
Frederick L. Jacobson 1,894
Harold & Grace Willens 8,046
Helen Hunt 8,046
Jeanne Morency 3,313
Jenifer Altman Foundation 10,413
Leonard E. Kingsley 12,306
May Ann Hamilton Trust 7,100
Morgan Trust Co. of the Bahamas Ltd. 13,252
Norwalk Employee Pension Fund 15,146
Planned Parenthood of New York 3,313
Psychology Associates 1,894
Raonoke College 17,512
Robert J. Suslow 3,787
State of Oregon PERS/ZCG 106,489
Tab Products Company Pension Plan 15,146
The Brearly School Endowment Fund 7,100
Van Loben Sels Foundation 15,146
Warren Otologic Group Profit Sharing trust 5,207
Wells Family LLC 37,390
William B. Lazar 3,313
Attn: Mary Estabil
320 Park Avenue
New York, NY 10022
AH&H Partners Fund Limited Partnership 67,207
Attn: Skip Wells
60 State Street
Boston, MA 02109
Charles Moore 63,842
Woodman Building, Suite 209
75 Pearl Street
Portland, ME 04101
Charles Wilson 25,085
Attn: CW Investments
24 Midway Lane
Pound Ridge, NY 10576
Usman Ismail IRA 1,894
Usman Ismail 16,565
17 Pelham Terrace
Arlington, MA 02174
^^ ??
^^ ??
^^ ??
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
John C. Olapurath 17,512
6 Woodfield Street
Nashua, NH 03062
Interven II 14,199
Attn: David Jones
301 East Goetz Ave.
Santa Ana, CA 92707
Morton Goulder 11,359
97 Ridge Road, Box 419
Hollis, NH 03049
Kinship Partnership II, Limited Partnership 10,886
Attn: Edward Tuck
1900 W. Garvey South, Suite 200
West Covina, CA 91790
Andrew Huffman 17,512
18 Grasmere Drive
Nashua, NH 03063
Arthur Loring 14,672
300 Boylston Street
Boston, MA 02106
Raiser Marital Trust 5,680
Alex. Brown Capital Advisory; Attn: Venida Andrews
19-21 South Street
Baltimore, MD 21202
George Adaniya 4,733
#5 Bracketss. Point
Greenland, NH 03840
Michael Winograd 4,260
c/o Northern Financial Equity Corp.
109 Foster Road
Canterbury, NH 03224
Betty Jane Schuss Trust 3,787
Attn: Jack Schuss
P.O. Box 1907
Basalt, CO 81621
JF Shea Co., Inc. 2,367
Attn: David Jones
301 East Goetz Avenue
Santa Ana, CA 92707
Linda Genovese 1,894
11 Grandview Avenue
Lexington, MA 02173
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
Leo Lucas 1,894
1 Riverbend Road
Wilton, NH 03086
Andrew Harrington IRA 947
Andrew Harringon 474
23 Emerson Road
Walpole, MA 02032
Anthony Salerno 1,420
56 Damien Road
Wellesley, MA 02181
James DiGregorio 1,420
P.O. Box 584
Concord, NH 03302-0584
Jeffrey E. Schuss 947
Jeff Schuss c/o William D. Witter, Inc.
51st Floor, 153 E. 53rd Street
New York, NY 10022
Ben Kopf 947
48 Birkdale Road
Bedford, NH
Larry Concannon 947
27 Edgewood Run
Amherst, NH 03031
Bill Levesque 947
435 Savage Road
Milford, NH 03055
Raouf & Sarah Ismail 947
369 Old Marlboro Road
Concord, MA 01742
Rob Roy 474
87 Parnell Place
Nashua, NH 03060
Curtis Thornbrugh 474
c/o Allen Communications
201 Boston Post Road, Suite 408
Marlboro, MA 01752
Perry Dickau 474
125 Rocky Pond Road
Hollis, NH 03049
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Wayne Griffin 474
22 Labine Street
Nashua, NH 03060
Charles Ray 474
1034 Filbert #248
San Francisco, CA 94133
Gary Benedetti 474
18121 Hayloft Drive
Derwood, MD 20855
Marc Gevinson 947
1311 Sundial Drive
Reston, VA 22094
Del Dickenson 474
183 Methuen Street
Lowell, MA 01850
Elaine LeBlanc 474
67 Stevens Street
Andover, MA 01810
Valeri Baldwin 474
1337 Paddock Place
Bartlett, IL 60103
Ida MacRae 474
8 Leland Road
North Reading, MA 01864
Barbara Brenlove 474
15 Kimberly Drive, #24
Merrimack, NH 03054
Joanne Bryce 474
5 Rome Drive
Westford, MA 01886
John Johansen 474
247 Pullman Road
Mason, NH 03048
David Johnson 474
21 Bayberry Road
Newburyport, MA 01950
Jack Plimpton 474
43 Oak Ridge Road
West Boxford, MA 01885
</TABLE>
15
<PAGE>
<TABLE>
<S> <C>
Kenichi Takahashi 474
3-24-15 Kichijoji Honcho
Musashino-Shi
Tokyo, Japan 80
Joe Gabriel 474
3 Fernwood Drive
Westford, MA 01886
Kim Mager 474
18 Lane End
Westford, MA 01886
David Conti 474
87 Crescent Avenue
Melrose, MA 02176
David Wiedmer 474
59 Averill Road
Brookline, NH 03033
</TABLE>
16
<PAGE>
EXHIBIT 4.04
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "AGREEMENT") is made and
entered into as of September 30, 1997, by and between ASYMETRIX CORPORATION, a
Washington corporation (the "COMPANY"), and GORDON OAKES, KEVIN OAKES and DOUG
FOSTER (collectively, the "SHAREHOLDERS" and each individually, a "SHAREHOLDER")
who immediately prior to the Effective Time of the Mergers (as defined below)
are all of the stockholders of Oakes Interactive, Inc., a Massachusetts
corporation ("OAKES"), TopShelf Multimedia, Inc., a Massachusetts corporation
("TOPSHELF") and Acorn Associates Incorporated, a Massachusetts corporation
("ACORN" and, collectively with Oakes and TopShelf, the "OAKES COMPANIES").
A. Each of the Oakes Businesses and the Company, Oakes Interactive
Acquisition Corp., TopShelf Acquisition Corp., and Acorn Acquisition Corp. have
entered into an Agreement and Plan of Merger dated as of September 30, 1997 (the
"PLAN"), pursuant to which a wholly owned subsidiary of Asymetrix will merge
with and into each of the Oakes Companies in reverse triangular mergers, with
each of the Oakes Companies to be the surviving corporation of each merger (the
"MERGERS").
B. As a condition precedent to the consummation of the Mergers,
Section 8.7 of the Plan provides that the Shareholders shall be granted certain
registration rights with respect to the shares of the Company's Common Stock
issuable upon conversion of the Asymetrix Series 5 Class B Stock that are issued
to the Shareholders in the Mergers, subject to the terms and conditions set
forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. REGISTRATION RIGHTS
1.1 Certain Definitions. For purposes of this Agreement:
-------------------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
- -------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Series 5 Class B Stock issued pursuant to the
Plan; and (2) any shares of Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (1) of
this subsection (b); excluding in all cases, however,
---------
<PAGE>
(i) any Registrable Securities sold by a person in a transaction in which rights
under this Section 1 are not assigned in accordance with this Agreement, (ii)
any Registrable Securities sold to the public or sold pursuant to Rule 144
promulgated under the Securities Act or (iii) any Registrable Securities which
may be sold in the public market in a three-month period without registration
under the Securities Act pursuant to Rule 144 under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of
---------------------------------------
shares of "Registrable Securities then outstanding" shall mean the number of
---------------------------------------
shares of Common Stock which are Registrable Securities and (1) are then issued
and outstanding or (2) are then issuable pursuant to the exercise or conversion
of then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 1 and Section 2
------
hereof, the term "Holder" means any person owning of record Registrable
------
Securities that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 1 have been duly
assigned in accordance with this Agreement; provided, however, a record holder
-------- -------
of shares of Series 5 Class B Stock convertible into such Registrable Securities
shall be deemed to be the Holder of such Registrable Securities; and provided,
--------
further, that the Company shall in no event be obligated to register shares of
- -------
Series 5 Class B Stock.
(e) SEC. The term "SEC" or "Commission" means the U.S.
--- --- ----------
Securities and Exchange Commission.
1.2 Piggyback Registrations. The Company shall notify all Holders
-----------------------
of Registrable Securities in writing at least thirty (30) days prior to filing
any registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any employee benefit
---------
plan or to any acquisition, merger, consolidation or other corporate
reorganization) and will afford each such Holder an opportunity to include in
such registration statement all or any part of the Registrable Securities then
held by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under which
------------
the Company gives notice under this Section 1.2 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any
2
<PAGE>
such Holder's Registrable Securities to be included in a registration pursuant
to this Section 1.2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their Registrable Securities through such underwriting shall enter
into an underwriting agreement in customary form with the managing underwriter
or underwriter(s) selected for such underwriting. Notwithstanding any other
provision of this Agreement, if the managing underwriter determine(s) in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude shares (including
Registrable Securities) from the registration and the underwriting, and the
number of shares that may be included in the registration and the underwriting
shall be allocated, first, to the Company, second to holders of the Company's
----- ------
Series A Preferred Stock and Series B Preferred Stock (or Registrable Securities
issuable upon conversion of such Series A Preferred Stock or Series B Preferred
Stock), third, to the holders of "registrable securities" as that term is
-----
defined in, and pursuant to, that certain Registration Rights Agreement, dated
as of September 11, 1997, by and among the Company and certain shareholders of
Aimtech Corporation, a Delaware corporation, and fourth, to the Holders
------
requesting inclusion of their Registrable Securities in such registration
statement pursuant to this Section 1.2 on a pro rata basis based on the total
number of Registrable Securities held by each such Holder. If any Holder
disapproves of the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the underwriter,
delivered at least ten (10) business days prior to the effective date of the
registration statement. Any Registrable Securities excluded or withdrawn from
such underwriting shall be excluded and withdrawn from the registration. For any
Holder which is a partnership or corporation, the partners, retired partners and
shareholders of such Holder, or the estates and family members of any such
partners and retired partners and any trusts for the benefit of any of the
foregoing persons shall be deemed to be a single "Holder", and any pro rata
reduction with respect to such "Holder" shall be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 1.2 (excluding underwriters' and brokers'
discounts and commissions and the fees and expenses of Holders' counsel),
including, without limitation all federal and "blue sky" registration,
qualification and filing fees, printers' and accounting fees, fees and
disbursements of counsel for the Company shall be borne by the Company.
1.3 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as commercially reasonable:
(a) Furnish to the Holders and to the underwriters, if any,
such number of copies of the registration statement, prospectus, and preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may
3
<PAGE>
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(b) Use its commercially reasonable efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(c) Notify each Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(d) Use its best efforts either to (i) cause all the
Registrable Securities covered by any Registration Statement to be listed on a
national securities exchange, if the listing of such Registrable Securities is
then permitted under the rules of such exchange, or (ii) secure the quotation of
the Registrable Securities on the Nasdaq National Market.
1.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Section 1.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be reasonably required to timely effect
the registration of their Registrable Securities.
1.5 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 1.2:
(a) By the Company. To the extent permitted by law, the
--------------
Company will indemnify and hold harmless each Holder, the partners, officers,
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 Act"), against any expenses, losses, claims, damages, or
--------
liabilities (joint or several) (or actions in respect thereof) to which they may
become subject under the Securities Act, the l934 Act or other federal or state
law, insofar as such expenses, losses, claims, damages, or liabilities (or
actions in respect thereof)
4
<PAGE>
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, preliminary
prospectus, final prospectus, offering circular or other document
contained therein or any amendments or supplements thereto;
(ii) the 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
(iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law or
any rule or regulation promulgated under the Securities Act, the 1934
Act or any federal or state securities law in connection with the
offering covered by such registration statement;
and the Company will reimburse each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 1.6(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder or its agent, partner,
officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
------------------
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder or its agent
expressly for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any
5
<PAGE>
such director, officer, controlling person, underwriter or other Holder,
partner, officer, director or controlling person of such other Holder in
connection with investigating, defending or settling any such loss, claim,
damage, liability or action; provided, however, that the indemnity agreement
-------- -------
contained in this subsection 1.6(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
-------- -------
payable in indemnity by a Holder under this Section 1.6(b) in respect of any
Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
------
under this Section 1.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 1.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.6.
(d) Defect Eliminated in Final Prospectus. The foregoing
-------------------------------------
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but which Violation is eliminated or remedied in the amended prospectus on file
with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "Final Prospectus), such indemnity agreement shall not inure to the
----- ----------
benefit of any person if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 1.6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification
6
<PAGE>
may not be enforced in such case notwithstanding the fact that this Section 1.6
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling Holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 1.6; then, and in each such case, the Company and such Holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the statements
or omissions that resulted in such expense, loss, claim, damage or liability in
such proportion as is appropriate to reflect the relative fault of each such
party in connection with such statements or omissions as well as any other
relevant considerations; provided, however, that, in any such case, (A) the
-------- -------
total amounts payable in contribution by any Holder under this Section 1.6(e)
shall not exceed the net proceeds received by such Holder in the registered
offering out of which such responsibility arises; and (B) no person or entity
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) will be entitled to contribution from any person or entity
who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders
--------
under this Section 1.6 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
1.7 "Market Stand-Off" Agreement. Each Holder hereby agrees that
---------------------------
it shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or any shares of capital stock of the Company then owned
by such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of any registration statement (other than a registration statement relating
to any employee benefit plan or to any acquisition, merger, consolidation or
other corporate reorganization) of the Company filed under the Securities Act
(whether filed pursuant to the provisions of this Agreement or otherwise);
provided, however, that:
- -------- -------
(a) such agreement shall not apply to shares of capital stock
of the Company sold pursuant to such registration statement;
(b) all executive officers and directors of the Company then
holding Common Stock of the Company enter into a similar agreement, and any
other stockholder of the Company owning at least as many shares of the Company's
Common Stock as such Holder is also requested by the Company or the underwriter
to enter into a similar agreement; and
(c) in an offering other than the Company's initial public
offering, such agreement shall apply only for a period of 90 days from the
effective date of the registration statement filed under the Securities Act with
respect thereto.
7
<PAGE>
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the shares of stock of each Holder (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such period.
1.8 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements);
and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
of the Securities Act and the 1934 Act (at any time after it has become subject
to the reporting requirements of the 1934 Act), a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
2. ASSIGNMENT
Notwithstanding anything herein to any the contrary, the registration
rights of a Holder under Section 1 hereof may be assigned by a Holder only to a
party who acquires at least 75,000 shares of Series 5 Class B Stock issued under
the Plan, and/or an equivalent number (on an as-converted basis) of Registrable
Securities issued upon conversion thereof; provided, however that no party may
-------- -------
be assigned any of the foregoing rights unless the Company is given written
notice by the assigning party at the time of such assignment stating the name
and address of the assignee and identifying the securities of the Company as to
which the rights in question are being assigned; and provided further that any
-------- -------
such assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 2.
8
<PAGE>
3. GENERAL PROVISIONS
3.1 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders of a majority of all Registrable
Securities then outstanding. Any amendment or waiver effected in accordance
with this Section 3.1 shall be binding upon each Holder, each permitted
successor or assignee of such Holder and the Company
3.2 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
3.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the intent of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the extent possible, the economic, business and
other purposes of the void or unenforceable provision.
3.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
3.5 Notices. Any notice or other communication required or permitted
-------
to be given under this Agreement will be in writing, will be delivered
personally, by registered or certified mail, postage prepaid, by confirmed
facsimile or by nationally recognized courier service, and will be deemed given
upon delivery, if delivered personally, or five days after deposit in the mails,
if mailed, or upon receipt if delivered by confirmed facsimile or nationally
recognized courier service to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Corporation
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
9
<PAGE>
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 494-1417
(ii) If to Shareholder:
-----------------
To the address set forth on Exhibit A hereto
---------
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 3.5.
3.6 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and, except as
so provided, all provisions hereof will be personal solely between the parties
to this Agreement.
3.7 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date and year first above written.
ASYMETRIX CORPORATION THE SHAREHOLDERS
By: /s/ J. Billmaier /s/ Gordon Oakes
------------------------- ------------------------
Gordon Oakes
Print Name: James Billmaier /s/ Kevin Oakes
----------------- ------------------------
Kevin Oakes
Title: Chief Executive Officer /s/ Douglas A. Foster
------------------------ ------------------------
Douglas A. Foster
[SIGNATURE PAGE FOR REGISTRATION RIGHTS AGREEMENT]
11
<PAGE>
EXHIBIT A
---------
LIST OF SHAREHOLDERS
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
ASYMETRIX CORPORATION
NAME AND ADDRESS SERIES 5 CLASS B STOCK HELD
- ---------------- ---------------------------
<S> <C>
Gordon Oakes 680,825
One Multimedia Plaza
255 Highland Avenue
Needham, MA 02194
Kevin Oakes 680,625
One Multimedia Plaza
255 Highland Avenue
Needham, MA 02194
Doug Foster 151,250
One Multimedia Plaza
255 Highland Avenue
Needham, MA 02194
</TABLE>
12
<PAGE>
EXHIBIT 4.05
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and entered
---------
into as of December 22, 1997, by and between Asymetrix Learning Systems,Inc.,
a Washington corporation (the "Company"), Cynthia Boyd and James Boyd
-------
(collectively, the "Shareholders" and each individually, a "Shareholder") who
------------ -----------
immediately prior to the Effective Time of the Merger (as defined below) are all
of the shareholders of Communication Strategies, Incorporated, a Texas
corporation ("CSI").
---
RECITALS
A. Each of the Shareholders, CSI, the Company and Asymetrix Acquisition
Corp., a Texas corporation and a wholly-owned subsidiary of the Company ("Merger
------
Sub"), have entered into an Agreement and Plan of Reorganization dated as of
- ---
December 22, 1997 (the "Plan"), pursuant to which Merger Sub will merge with and
----
into CSI in a reverse triangular merger, with CSI to be the surviving
corporation of the merger (the "Merger").
------
B. As a condition precedent to the consummation of the Merger, Section 8.6
of the Plan provides that the Shareholders shall be granted certain registration
rights with respect to the shares of the Company's Common Stock that are issued
to the Shareholders in the Merger, subject to the terms and conditions set forth
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. REGISTRATION RIGHTS
1.1 Certain Definitions. For purposes of this Agreement:
-------------------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all the shares of Common Stock of the Company issued pursuant to the
Plan; and (2) any shares of Common Stock of the Company issued as (or issuable
upon the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, all such shares of Common Stock described in clause (1) of
this subsection (b); excluding in all cases, however, (i) any Registrable
Securities sold by a person in a transaction in which rights under this Section
1 are not assigned in accordance with this Agreement, (ii) any Registrable
Securities sold to the public or sold pursuant to Rule 144 promulgated under the
Securities Act or (iii) any Registrable Securities
<PAGE>
which may be sold in the public market in a three-month period without
registration under the Securities Act pursuant to Rule 144 under the Securities
Act.
(c) Registrable Securities Then Outstanding. The number of shares of
---------------------------------------
"Registrable Securities then outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 1 and Section 2 hereof, the
------
term "Holder" means any person owning of record Registrable Securities that have
------
not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any assignee of record of such Registrable Securities to whom
rights under this Section 1 have been duly assigned in accordance with this
Agreement.
(e) SEC. The term "SEC" or "Commission" means the U.S. Securities and
--- --- ----------
Exchange Commission.
1.2 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to (i) the Company's
---------
initial public offering; (ii) any employee benefit plan or (iii) any
acquisition, merger, consolidation or other corporate reorganization) and will
afford each such Holder an opportunity to include in such registration statement
all or any part of the Registrable Securities then held by such Holder. Each
Holder desiring to include in any such registration statement all or any part of
the Registrable Securities held by such Holder shall, within twenty (20) days
after receipt of the above-described notice from the Company, so notify the
Company in writing, and in such notice shall inform the Company of the number of
Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If a registration statement under which the Company
------------
gives notice under this Section 1.2 is for an underwritten offering, then the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 1.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the
2
<PAGE>
managing underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
-----
Company; second to holders of the Company's Series A Preferred Stock and Series
------
1 Class B Stock (or Registrable Securities issuable upon conversion of such
Series A Preferred Stock and Series 1 Class B Stock); third, to the holders of
-----
"registrable securities" as that term is defined in, and pursuant to that
certain Acquisition Agreement, dated as of July 17, 1997 by and among the
Company, Socha Computing, Inc., Asymocha Merger Corporation and John Socha;
fourth to the holders of "registrable securities" as that term is defined in,
- ------
and pursuant to that certain Registration Rights Agreement, dated as of
September 11, 1997, by and among the Company and certain shareholders of Aimtech
Corporation; fifth to the holders of "registrable securities" as that term is
-----
defined in, and pursuant to that certain Registration Rights Agreement, dated as
of September 30, 1997, by and among the Company and certain stockholders of
Oakes Interactive, Inc., TopShelf Multimedia, Inc. and Acorn Associates
Incorporated; and sixth to the Holders requesting inclusion of their Registrable
-----
Securities in such registration statement pursuant to this Section 1.2 on a pro
rata basis based on the total number of Registrable Securities held by each such
Holder. If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder",
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a registration
--------
pursuant to this Section 1.2 (excluding underwriters' and brokers' discounts and
commissions and the fees and expenses of Holders' counsel), including, without
limitation all federal and "blue sky" registration, qualification and filing
fees, printers' and accounting fees, fees and disbursements of counsel for the
Company shall be borne by the Company.
1.3 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as commercially reasonable:
(a) Furnish to the Holders and to the underwriters, if any, such
number of copies of the registration statement, prospectus, and preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by them that are included in
such registration.
3
<PAGE>
(b) Use its commercially reasonable efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.
(c) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(d) Use its best efforts either to (i) cause all the Registrable
Securities covered by any Registration Statement to be listed on a national
securities exchange, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the quotation of the
Registrable Securities on the Nasdaq National Market.
1.4 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Section 1.2 that the
selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be reasonably required to timely effect
the registration of their Registrable Securities.
1.5 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.6 Indemnification. In the event any Registrable Securities are included
---------------
in a registration statement under Sections 1.2:
(a) By the Company. To the extent permitted by law, the Company will
--------------
indemnify and hold harmless each Holder, the partners, officers, directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as amended
(the "1934 Act"), against any expenses, losses, claims, damages, or liabilities
--------
(joint or several) (or actions in respect thereof) to which they may become
subject under the Securities Act, the 1934 Act or other federal or state law,
insofar as such expenses, losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, preliminary prospectus,
final prospectus, offering circular or other document contained therein or any
amendments or supplements thereto;
4
<PAGE>
(ii) the 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
(iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any federal or
state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 1.6(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder or its agent, partner,
officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
------------------
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder or its agent expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or controlling
person of such other Holder in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 1.6(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided further, that the total
-------- -------
amounts payable in indemnity by a Holder under this Section 1.6(b) in respect of
any Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
5
<PAGE>
(c) Notice. Promptly after receipt by an indemnified party under this
------
Section 1.6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 1.6, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.6.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
-------------------------------------
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but which
Violation is eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
-----
Prospectus), such indemnity agreement shall not inure to the benefit of any
- ----------
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 1.6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 1.6 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
1.6; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such expense, loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of each such party in
connection with such statements or omissions as well as any other relevant
considerations; provided, however, that, in
-------- -------
6
<PAGE>
any such case, (A) the total amounts payable in contribution by any Holder under
this Section 1.6(e) shall not exceed the net proceeds received by such Holder in
the registered offering out of which such responsibility arises; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under this
--------
Section 1.6 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
1.7 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or any shares of capital stock of the Company then owned
by such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for up to one hundred eighty (180) days following the effective
date of any registration statement (other than a registration statement relating
to any employee benefit plan or to any acquisition, merger, consolidation or
other corporate reorganization) of the Company filed under the Securities Act
(whether filed pursuant to the provisions of this Agreement or otherwise);
provided, however, that:
- -------- -------
(a) such agreement shall not apply to shares of capital stock of the
Company sold pursuant to such registration statement;
(b) all executive officers and directors of the Company then holding
Common Stock of the Company enter into a similar agreement, and any other
stockholder of the Company owning at least as many shares of the Company's
Common Stock as such Holder is also requested by the Company or the underwriter
to enter into a similar agreement; and
(c) in an offering other than the Company's initial public offering,
such agreement shall apply only for a period of 90 days from the effective date
of the registration statement filed under the Securities Act with respect
thereto.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the shares of stock of each Holder (and the shares or securities of every other
person subject to the foregoing restriction) until the end of such period.
1.8 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date
7
<PAGE>
of the first registration under the Securities Act filed by the Company for an
offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 Act (at
any time after it has become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 (at any time after
90 days after the effective date of the first registration statement filed by
the Company for an offering of its securities to the general public), of the
Securities Act and the 1934 Act (at any time after it has become subject to the
reporting requirements of the 1934 Act), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
2. ASSIGNMENT
Notwithstanding anything herein to any the contrary, the registration
rights of a Holder under Section 1 hereof may be assigned by a Holder only to a
party who acquires at least 75,000 shares of Registrable Securities; provided,
--------
however that no party may be assigned any of the foregoing rights unless the
- -------
Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided further that any such assignee shall receive such assigned rights
-------- -------
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 2.
3. GENERAL PROVISIONS
3.1 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders of a majority of all Registrable
Securities then outstanding. Any amendment or waiver effected in accordance
with this Section 3.1 shall be binding upon each Holder, each permitted
successor or assignee of such Holder and the Company
3.2 Governing Law. The internal laws of the State of Washington
-------------
(irrespective of its conflict of law principles) will govern the validity of
this Agreement, the construction of its terms, and the interpretation and
enforcement of the rights and duties of the parties hereto.
3.3 Severability. If any provision of this Agreement, or the
------------
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this
8
<PAGE>
Agreement and application of such provision to other persons or circumstances
will be interpreted so as reasonably to effect the intent of the parties hereto.
The parties further agree to replace such void or unenforceable provision of
this Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision.
3.4 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which will be an original as regards any party whose
signature appears thereon and all of which together will constitute one and the
same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all parties reflected hereon as signatories. Facsimile copies of such
counterparts are acceptable.
3.5 Notices. Any notice or other communication required or permitted
-------
to be given under this Agreement will be in writing, will be delivered
personally, by registered or certified mail, postage prepaid, by confirmed
facsimile or by nationally recognized courier service, and will be deemed given
upon delivery, if delivered personally, or five days after deposit in the mails,
if mailed, or upon receipt if delivered by confirmed facsimile or nationally
recognized courier service to the following addresses:
(i) If to Asymetrix:
---------------
Asymetrix Learning Systems, Inc.
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Facsimile: (206) 637-1540
Attention: General Counsel
With a copy to:
--------------
Mark C. Stevens, Esq.
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (415) 494-1417
(ii) If to Shareholders:
------------------
To the addresses set forth on Exhibit A hereto
---------
or to such other address as a party may have furnished to the other parties in
writing pursuant to this Section 3.5.
3.6 Absence of Third Party Beneficiary Rights. No provisions of this
-----------------------------------------
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, stockholder, partner or any party hereto or any other
person or entity unless specifically provided otherwise herein, and,
9
<PAGE>
except as so provided, all provisions hereof will be personal solely between the
parties to this Agreement.
3.7 Entire Agreement. This Agreement and the exhibits hereto
----------------
constitute the entire understanding and agreement of the parties hereto with
respect to the subject matter hereof and supersede all prior and contemporaneous
agreements or understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof control and
supersede any course of performance or usage of the trade inconsistent with any
of the terms hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date and year first above written.
ASYMETRIX LEARNING SYSTEMS, INC. THE SHAREHOLDERS
By: /s/ J. Billmaier /s/ Cynthia Boyd
----------------------------- --------------------------------
Cynthia Boyd
Print Name: J. Billmaier /s/ James Boyd
--------------------- --------------------------------
James Boyd
Title: CEO
--------------------------
[SIGNATURE PAGE FOR REGISTRATION RIGHTS AGREEMENT]
10
<PAGE>
EXHIBIT A
---------
LIST OF SHAREHOLDERS
<TABLE>
<CAPTION>
Number of Shares
Name and Address Asymetrix Common Stock Held
- ---------------- ---------------------------
<S> <C>
Cynthia Boyd 550,194
1300 Summit, Suite 516
Fort Worth, TX 76102
James Boyd 183,398
1300 Summit, Suite 516
Fort Worth, TX 76102
</TABLE>
11
<PAGE>
SERIES A PREFERRED STOCK PURCHASE AGREEMENT
This SERIES A PREFERRED STOCK PURCHASE AGREEMENT (this "AGREEMENT") is made
and entered into as of October 21, 1996 by and among ASYMETRIX CORPORATION, a
Washington corporation (the "COMPANY") and SOFTBANK HOLDINGS INC., a Delaware
corporation (the "INVESTOR").
RECITALS
The Company desires to sell to the Investor, and the Investor desires to
purchase from the Company, shares of the Company's Series A Preferred Stock on
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. AGREEMENT TO PURCHASE AND SELL STOCK.
------------------------------------
1.1 Authorization. As of the Closing (as defined below) the Company
-------------
will have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of up to 388,395 shares of the Company's Series A Preferred Stock,
par value, $0.01 per share (the "SERIES A STOCK") having the rights,
preferences, privileges and restrictions set forth in the Statement of
Designation of Rights and Preferences of Series A Preferred Stock attached to
this Agreement as Exhibit A (the "STATEMENT OF RIGHTS").
---------
1.2 Agreement to Purchase and Sell. The Company agrees to sell to the
------------------------------
Investor at the Closing, and the Investor agrees to purchase from the Company at
the Closing, 388,395 shares of Series A Stock, at a price of $12.88 per share.
The shares of Series A Stock purchased and sold pursuant to this Agreement, will
be collectively hereinafter referred to as the "PURCHASED SHARES" and the shares
of Common Stock issuable upon conversion of the Purchased Shares will be
collectively hereinafter referred to as the "CONVERSION SHARES."
2. CLOSING; DELIVERY.
-----------------
2.1 The Closing. The purchase and sale of the Purchased Shares will take
-----------
place at the offices of Fenwick & West LLP, Two Palo Alto Square, Palo Alto,
California, at 11:00 a.m. Pacific Time, on October 21, 1996 or at such other
time and place as the Company and the Investor mutually agree upon (which time
and place are referred to in this Agreement as the "CLOSING").
2.2 Deliveries. At the Closing, the Company will deliver to the Investor
----------
certificates representing 388,395 Purchased Shares against delivery to the
Company by the Investor of the full purchase price of such Purchased Shares,
paid by (i) a check payable to the Company's order, (ii) wire transfer of funds
to the Company, or (iii) any combination of the foregoing.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
---------------------------------------------
represents and warrants to the Investor that, except as set forth in the
Schedule
-1-
<PAGE>
of Exceptions ("SCHEDULE OF EXCEPTIONS") delivered to Investor contemporaneously
herewith (which Schedule of Exceptions shall be deemed to be representations and
warranties to the Investor by the Company under this Section 3), the statements
in the following paragraphs of this Section 3 are all true and correct:
3.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington. The Company is authorized to do business as a
foreign corporation in each jurisdiction where failure to be so qualified would
have a material adverse effect on its financial condition, business, prospects
or operations.
3.2 Capitalization. Immediately prior to the Closing the
--------------
capitalization of the Company will consist of the following:
(a) Class B Stock. A total of 2,000,000 authorized shares of Class B
-------------
Stock, par value $0.01 per share ("CLASS B STOCK"), of which 50,000 shares are
designated as Series 1 Class B Stock ("SERIES 1 STOCK") and 388,395 are
designated as Series A Stock.. The rights, preferences and privileges of the
Series 1 Stock and the Series A Stock will be as stated in the Company's
Articles of Incorporation, as amended, and as provided by law.
(b) Common Stock. A total of 40,000,000 authorized shares of common
------------
stock, no par value per share (the "COMMON STOCK"), of which 7,878,483 shares
will be validly issued, outstanding, fully paid and nonassessable as at Closing.
(c) Options, Warrants, Reserved Shares. Except for: (i) conversion
----------------------------------
privileges of the Series A Stock and the Series 1 Stock, (ii) options to
purchase 4,218,559 shares of Common Stock and 4,218,559 shares of Common Stock
reserved for issuance upon the exercise thereof, (iii) 411,058 additional shares
of Common Stock of the Company reserved for future issuance under the Company's
1995 Combined Incentive and Nonqualified Stock Option Plan (the "OPTION PLAN"),
and (iv) the proposed issuance of up to 50,000 shares of Series 1 Stock (of
which shares, 37,500 will be validly issued, outstanding, fully paid and
nonassessable as at Closing) to certain of the Company's vendors, there are not
outstanding any options, warrants, rights (including conversion or preemptive
rights) or agreements for the purchase or acquisition from the Company of any
shares of its capital stock or any securities convertible into or ultimately
exchangeable or exercisable for any shares of the Company's capital stock.
Apart from the exceptions noted in this Section 3.2(c), and except for rights of
first refusal and rights of repurchase held by the Company to repurchase shares
of its Common Stock issued under Stock Issuance and Restriction Agreements
relating to the issuance of 8,100 shares of Common Stock and to 37,500 shares of
Series 1 Stock (the "STOCK ISSUANCE AND RESTRICTION AGREEMENTS"), rights of
first refusal and repurchase rights held by the Company to purchase shares of
its stock issued under the Option Plan and the rights granted in the Investor's
Rights Agreement, no shares of the Company's outstanding capital stock, or stock
issuable upon exercise or exchange of any outstanding options, warrants or
rights, or other stock issuable by the Company, are subject to any rights of
first refusal or other rights to purchase such stock (whether in favor of the
Company or any other person), pursuant to any agreement or commitment of the
Company.
-2-
<PAGE>
3.3 Subsidiaries. The Company does not presently own or control,
------------
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity.
3.4 Due Authorization. All corporate action on the part of the
-----------------
Company, its officers, directors and shareholders necessary for the
authorization, execution, delivery of, and the performance of all obligations of
the Company under, this Agreement and the Investors Rights Agreement, and the
authorization, issuance, reservation for issuance and delivery of all of the
Purchased Shares being sold under this Agreement and of the Conversion Shares
has been taken or will be taken prior to the Closing, and this Agreement
constitutes, and the Investors Rights Agreement when executed, will constitute,
valid and legally binding obligations of the Company, enforceable in accordance
with their respective terms, except as may be limited by (i) applicable
bankruptcy, insolvency, reorganization or others laws of general application
relating to or affecting the enforcement of creditors' rights generally and (ii)
the effect of rules of law governing the availability of equitable remedies.
3.5 Valid Issuance of Stock.
-----------------------
(a) The Purchased Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration provided for
herein, will be duly and validly issued, fully paid and nonassessable. The
Conversion Shares have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Statement of Rights, will be duly
and validly issued, fully paid and nonassessable.
(b) Based in part on the representations made by the Investor in
Section 4 hereof, the Purchased Shares and (assuming no change in applicable law
and no unlawful distribution of Purchased Shares by Investor or other parties)
the Conversion Shares will be issued in full compliance with the registration
and prospectus delivery requirements of the U.S. Securities Act of 1933, as
amended (the "1933 ACT") and the registration and qualification requirements of
the securities laws of the State of Washington (provided that, with respect to
-------- ----
the Conversion Shares, no commission or other remuneration is paid or given,
directly or indirectly, for soliciting the issuance of Conversion Shares upon
the conversion of the Purchased Shares and no additional consideration is paid
for the Conversion Shares other than surrender of the applicable Purchased
Shares upon conversion thereof in accordance with the Statement of Rights).
3.6 Governmental Consents. No consent, approval, order or
---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local governmental authority on the part of
the Company is required in connection with the consummation of the transactions
contemplated by this Agreement and the Investors Rights Agreement, except for:
------ ---
(i) the filing of any document required by the Washington Securities Act, and
the rules thereunder (the "LAW"), which filing will be effected within the time
prescribed by law; and (ii) such other qualifications or filings under the 1933
Act and the regulations thereunder and all other applicable securities laws as
may be required in connection with the transactions contemplated by this
Agreement. All such qualifications and filings will, in
-3-
<PAGE>
the case of qualifications, be effective on the Closing and will, in the case of
filings, be made within the time prescribed by law.
3.7 Litigation. There is no action, suit, proceeding, claim,
----------
arbitration or investigation ("ACTION") pending (or, to the best of the
Company's knowledge, currently threatened) against the Company, its properties
or assets or, to the best of the Company's knowledge, against any officer,
director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company. The Company is not a party to or subject to the provisions of any
order, writ, injunction, judgment or decree of any court or government agency or
instrumentality.
3.8 Status of Proprietary Assets.
----------------------------
(a) Status. The Company has full title and ownership of, or is duly
------
licensed under or otherwise authorized to use, all patents, patent applications,
trademarks, service marks, trade names, copyrights, mask works, trade secrets,
confidential and proprietary information, designs and proprietary rights (all of
the foregoing collectively hereinafter referred to as the "PROPRIETARY ASSETS"),
necessary to enable it to carry on its business as now conducted without any
conflict with or infringement of the rights of others.
(b) The Company has not received any notice alleging that the Company
has violated or, by conducting its business, would violate any of the patents,
trademarks, service marks, trade names, copyrights or trade secrets or other
proprietary rights of any other person or entity which violation would
materially and adversely affect the assets, properties, financial condition,
operating results or business of the Company. The Company is not aware that any
of its employees is obligated under any contract (including licenses, covenants
or commitments of any nature) or other agreement, or subject to any judgment,
decree or order of any court or administrative agency, that would interfere with
the use of his best efforts to promote the interests of the Company or that
would conflict with the conduct of the Company's business.
3.9 Compliance with Law and Charter Documents. The Company is not in
-----------------------------------------
violation or default of any provisions of its Articles of Incorporation or
Bylaws, both as amended, and, except for any violations that individually and in
the aggregate would have no material adverse impact on the Company's business,
the Company is in compliance with all applicable statutes, laws, regulations and
executive orders of the United States of America and all states, foreign
countries or other governmental bodies and agencies having jurisdiction over the
Company's business or properties. The execution, delivery and performance of
and compliance with this Agreement and the Investors Rights Agreement and the
consummation of the transactions contemplated hereby will not result in any such
violation or default, or be in conflict with or constitute, with or without the
passage of time or the giving of notice or both, (i) a default under the
Articles of Incorporation or the By-Laws of the Company or any agreement or
contract of the Company, (ii) a violation of any statutes, laws, regulations or
orders, or (iii) an event which results in the creation of any lien, charge or
encumbrance upon any asset of the Company.
3.10 Registration Rights. Except as provided in the Investors Rights
-------------------
Agreement, the Company has not granted or agreed to grant to any person or
entity any rights
-4-
<PAGE>
(including piggyback registration rights) to have any securities of the Company
registered with the United States Securities and Exchange Commission ("SEC") or
any other governmental authority.
3.11 Title to Property and Assets. The material properties and assets
----------------------------
the Company owns are owned by the Company free and clear of all mortgages, deeds
of trust, liens, encumbrances and security interests except for statutory liens
for the payment of current taxes that are not yet delinquent and liens,
encumbrances and security interests which arise in the ordinary course of
business and which do not affect material properties and assets of the Company.
With respect to the property and assets it leases, the Company is in material
compliance with such leases.
3.12 Financial Statements. Attached to this Agreement as Exhibit B is
-------------------- ---------
an unaudited balance sheet of the Company dated August 31, 1996 (the "BALANCE
SHEET DATE") and an unaudited income statement of the Company for the eight
month period ended August 31, 1996 (all such financial statements being
collectively referred to herein as the "FINANCIAL STATEMENTS"). Such financial
statements (i) are in accordance with the books and records of the Company, and
(ii) are true, correct and complete and present fairly the financial condition
of the Company at the date or dates therein indicated and the results of
operations for the period or periods therein specified in accordance with
generally accepted accounting principles applied on a consistent basis
throughout such periods.
3.13 Certain Actions. Since the Balance Sheet Date, the Company has
---------------
not: (i) declared or paid any dividends, or authorized or made any distribution
upon or with respect to any class or series of its capital stock; (ii) incurred
any indebtedness for money borrowed or incurred any other liabilities
individually in excess of $250,000 or in excess of $1,000,000 in the aggregate;
(iii) made any loans or advances to any person in excess of $25,000, other than
ordinary advances for travel expenses; (iv) sold, exchanged or otherwise
disposed of any material assets or rights other than the sale of inventory in
the ordinary course of its business; or (v) entered into any material
transactions with any of its officers, directors or employees or any entity
controlled by any of such individuals.
3.14 Activities Since Balance Sheet Date. Since the Balance Sheet
-----------------------------------
Date, there has not been:
(a) any change in the assets, liabilities, financial condition or
operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not
been, in the aggregate, materially adverse;
(b) any material change to a material contract or agreement by which
the Company or any of its assets is bound or to which it or they are subject;
(c) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;
-5-
<PAGE>
(d) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company as presently
conducted;
(e) any waiver by the Company of a valuable right or of a
material debt owed to it; and
(f) to the Company's knowledge, any other event or condition of any
character which would materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company.
3.15 ERISA Plans. The Company does not have any Employee Pension
-----------
Benefit Plan as defined in Section 3 of the Employee Retirement Income Security
Act of 1974, as amended.
3.16 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, sufficient in amount (subject to deductibles) to
allow it to replace any of its properties that might be damaged or destroyed.
3.17 Tax Returns and Payments. The Company has timely filed all tax
------------------------
returns and reports required by law and has never been audited by any state or
federal taxing authority. All tax returns and reports of the Company are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith.
3.18 Labor Agreements and Actions. The Company is not bound by or
----------------------------
subject to any contract, commitment or arrangement with any labor union, and to
the Company's best knowledge, no labor union has requested, sought or attempted
to represent any employees, representatives or agents of the Company. There is
no strike or other labor dispute involving the Company pending nor, to the
Company's best knowledge, threatened, nor is the Company aware of any labor
organization activity involving its employees.
3.19 Real Property Holding Corporation Status. Since its inception
----------------------------------------
the Company has not been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the U.S. Internal Revenue Code of 1986, as
amended, and in Section 1.897-2(b) of the Treasury Regulations issued thereunder
(the "REGULATIONS"), and the Company has filed with the Internal Revenue Service
all statements, if any, with its United States income tax returns which are
required under Section 1.897-2(h) of the Regulations.
3.20 Disclosure. The information furnished in writing by or on
----------
behalf of the Company to Investor in connection with the transactions
contemplated by this Agreement and any other statements or certificates made or
delivered in connection herewith or therewith, when taken together, does not
contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements herein or therein not misleading.
3.21 Permits. The Company has all franchises, permits, licenses and
-------
other authority necessary for its business as now being conducted and believes
it can obtain without
-6-
<PAGE>
undue burden or expense, any similar authority for its business as planned to be
conducted. The Company is not in default in any material respect under any such
franchise, permit, license or other authority.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR.
--------------------------------------------------------------
Investor hereby represents and warrants to, and agrees with, the Company that:
-7-
<PAGE>
4.1 Authorization. This Agreement constitutes Investor's valid and
-------------
legally binding obligation, enforceable in accordance with its terms except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies. Investor represents that Investor has full
power and authority to enter into this Agreement and the Investors Rights
Agreement.
4.2 Purchase for Own Account. The Purchased Shares to be purchased by
------------------------
Investor hereunder will be acquired for investment for Investor's own account,
not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the 1933 Act, and Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same other than a transfer to one or more affiliated
partnerships managed by Investor (an "AFFILIATE"). Investor also represents
that it has not been formed for the specific purpose of acquiring Purchased
Shares.
4.3 Disclosure of Information. Investor has received or has had full
-------------------------
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Purchased Shares to be
purchased by Investor under this Agreement. Investor further has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of the offering of the Purchased Shares and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Investor or to which Investor had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3.
4.4 Investment Experience. Investor understands that the purchase of
---------------------
the Purchased Shares involves substantial risk. Investor has experience as an
investor in securities of companies in the development stage and acknowledges
that Investor is able to fend for itself, can bear the economic risk of
Investor's investment in the Purchased Shares and has such knowledge and
experience in financial or business matters that Investor is capable of
evaluating the merits and risks of this investment in the Purchased Shares and
protecting its own interests in connection with this investment.
4.5 Accredited Investor Status. Investor is an "accredited investor"
--------------------------
within the meaning of Regulation D promulgated under the 1933 Act.
4.6 Restricted Securities. Investor understands that the Purchased
---------------------
Shares are characterized as "restricted securities" under the 1933 Act inasmuch
as they are being acquired from the Company in a transaction not involving a
public offering and that under the 1933 Act and applicable regulations
thereunder such securities may be resold without registration under the 1933 Act
only in certain limited circumstances. In this connection, Investor represents
that Investor is familiar with Rule 144 of the U.S. Securities and Exchange
Commission, as presently in effect, and understands the resale limitations
imposed thereby and by the 1933 Act. Investor understands that the Company is
under no obligation to register any of the securities sold hereunder except as
provided in the Investors Rights Agreement. Investor understands that no
-8-
<PAGE>
public market now exists for any of the Purchased Shares and that it is
uncertain whether a public market will ever exist for the Purchased Shares or
the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way limiting
----------------------------------
the representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Purchased Shares or the Conversion
Shares unless and until:
(a) there is then in effect a registration statement under the 1933
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) Investor shall have
furnished the Company, at the Company's request and at the expense of Investor
or its transferee, with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such securities
under the 1933 Act.
Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be required: for any
transfer of any Purchased Shares or Conversion Shares in compliance with SEC
Rule 144 or Rule 144A or any transfer by Investor to one or more Affiliates,
provided that the transferee agrees in writing to be subject to the terms of
- --------
this Section 4 (other than Section 4.5) to the same extent as if the transferee
were an original Investor hereunder.
4.8 Legends. It is understood that the certificates evidencing the
-------
Purchased Shares and the Conversion Shares will bear the legends set forth
below:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS
OF CERTAIN STATES. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON
TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS
PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO
REGISTRATION OR EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE
AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE
EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND
ANY APPLICABLE STATE SECURITIES LAWS.
(b) Any legend required by the laws of the State of Washington,
including any legend required or any other state securities laws, including a
legend substantially in the form of the following:
THE DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES AND LIMITATIONS
APPLICABLE TO EACH CLASS OF THE CORPORATION'S STOCK OR TO EACH SERIES WITHIN A
CLASS AND THE AUTHORITY OF THE BOARD OF
-9-
<PAGE>
DIRECTORS TO DETERMINE VARIATIONS FOR FUTURE SERIES WILL, UPON
-10-
<PAGE>
RECEIPT OF A WRITTEN REQUEST FROM THE HOLDER HEREOF, BE FURNISHED TO THE HOLDER
HEREOF WITHOUT CHARGE.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Purchased Shares or Conversion Shares upon delivery to
the Company of an opinion by counsel, reasonably satisfactory to the Company,
that a registration statement under the 1933 Act is at that time in effect with
respect to the legended security or that such security can be freely transferred
in a public sale without such a registration statement being in effect and that
such transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Purchased Shares or Conversion Shares.
4.9 Voting. Investor hereby agrees to hold the Purchased Shares (and
------
any other shares of Series A Stock owned by it) subject to, and to vote the
Purchased Shares (and any other shares of Series A Stock owned by it) in
accordance with, this Section 4.9. Investor agrees that with respect to any
vote of the Series A Stock as a separate class, Investor shall vote, grant any
proxy to vote, or consent pursuant to action by written consent of shareholders,
all Series A Stock directly or indirectly owned (of record or beneficially) by
Investor, in the same way as the majority shareholder of the Company votes or
consents (i.e., in favor of any such transaction or other matter if the majority
shareholder votes or consents in favor, or against any such transaction or other
matter if the majority shareholder votes or consents against). The provisions
of this Section 4.9 do not apply to (i) any transaction or other matter on which
the Series A Stock is not required to vote as a separate class, (ii) any
transaction or other matter on which the Series A Stock is entitled to vote as a
separate class pursuant to the provisions of the Statement of Rights or the
Company's Articles of Incorporation, or (iii) to any Common Stock held by
Investor.
5. CONDITIONS TO INVESTOR'S OBLIGATIONS AT CLOSING. The obligations of
-----------------------------------------------
the Investor under Section 2 of this Agreement are subject to the fulfillment or
waiver, on or before the Closing, of each of the following conditions, the
waiver of which shall not be effective against Investor if Investor does not
consent to such waiver, which consent may be given by written, oral or telephone
communication to the Company, its counsel or to counsel to Investor:
5.1 Representations and Warranties True. Each of the representations
-----------------------------------
and warranties of the Company contained in Section 3 shall be true and correct
on and as of the Closing with the same effect as though such representations and
warranties had been made on and as of the date of the Closing.
5.2 Performance. The Company shall have performed and complied with
-----------
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing and
shall have obtained all approvals, consents and qualifications necessary to
complete the purchase and sale described herein.
5.3 Statement of Rights Effective. The Statement of Rights shall have
-----------------------------
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and shareholders, shall have been duly filed with and accepted by
the Secretary of State of the State of Washington and shall constitute part of
the Company's Articles of Incorporation, as amended.
-11-
<PAGE>
5.4 Compliance Certificate. The Company shall have delivered to the
----------------------
Investor at the Closing a certificate signed on its behalf by its President,
Chief Executive Officer, or Chief Financial Officer certifying that the
conditions specified in Sections 5.1, 5.2 and 5.3 have been fulfilled and
stating that there shall have been no material adverse change in the business,
affairs, prospects, operations, properties, assets or condition of the Company
not previously disclosed to the Investor in writing.
5.5 Securities Exemptions. The offer and sale of the Purchased Shares
---------------------
to the Investors pursuant to this Agreement shall be exempt from the
registration requirements of the 1933 Act, the qualification requirements of the
Law and the registration and/or qualification requirements of all other
applicable state securities laws.
5.6 Proceedings and Documents. All corporate and other proceedings of
-------------------------
the Company in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Investor and to the Investor's counsel, and the Investor shall
have received all such counterpart originals and certified or other copies of
the following:
(a) Certified Charter Documents. A copy of the Articles of
---------------------------
Incorporation and the Bylaws of the Company (as amended through the date of the
Closing), certified by the Secretary of the Company as true and correct copies
thereof as of the Closing.
(b) Corporate Actions. A copy of the resolutions of the Board of
-----------------
Directors and, if required, the shareholders of the Company evidencing the
amendment to the Company's Articles of Incorporation providing for the
authorization of the Series A Stock, the approval of this Agreement and the
Investors Rights Agreement, the issuance of the Purchased Shares and the
Conversion Shares and the other matters contemplated hereby, and a copy of the
By-Laws of the Company, certified by the Secretary of the Company to be true,
complete and correct.
5.7 No Material Change. There shall have been no material adverse
------------------
change in the business, affairs, prospects, operations, properties, assets or
condition of the Company taken as a whole.
5.8 Opinion of Company Counsel. The Investor shall have received an
--------------------------
opinion from counsel for the Company, dated as of the date of the Closing, in
the form attached hereto as Exhibit C.
---------
5.9 Investor's Rights Agreement. The Company and the Investor shall
---------------------------
have executed and delivered the Investor's Rights Agreement in the form attached
to this Agreement as Exhibit D (the "INVESTOR'S RIGHTS AGREEMENT").
---------
5.10 Board of Directors. Gary Rieschel, shall have been duly
------------------
appointed to the Company's Board of Directors, subject only to the occurrence of
the Closing.
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<PAGE>
6. CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations of
--------------------------------------------------
the Company to the Investor under this Agreement are subject to the fulfillment
or waiver on or before the Closing of each of the following conditions by each
Investor:
6.1 Representations and Warranties. The representations and
------------------------------
warranties of Investor contained in Section 4 shall be true and correct on the
date of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
6.2 Payment of Purchase Price. Investor shall have delivered to the
-------------------------
Company the purchase price specified in accordance with the provisions of
Section 2.
6.3 Statement of Rights Effective. The Statement of Rights shall have
-----------------------------
been duly adopted by the Company by all necessary corporate action of its Board
of Directors and shareholders, and shall have been duly filed with and accepted
by the Secretary of State of the State of Washington.
6.4 Securities Exemptions. The offer and sale of the Purchased Shares
---------------------
to Investor pursuant to this Agreement shall be exempt from the registration
requirements of the 1933 Act, the qualifications requirements of the Law and the
registration and/or qualification requirements of all other applicable state
securities laws.
6.5 Investor's Rights Agreement. The Company and Investor shall have
---------------------------
executed and delivered the Investor's Rights Agreement.
6.6 Proceedings and Documents. All corporate and other proceedings of
-------------------------
the Investor in connection with the transactions contemplated at the Closing and
all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company and to the Company's legal counsel, and the Company
shall have received all such counterpart originals and certified or other copies
of such documents as it may reasonably request.
7. MISCELLANEOUS.
-------------
7.1 Survival of Warranties. The representations, warranties and
----------------------
covenants of the Company and the Investor contained in or made pursuant to this
Agreement shall survive the execution and delivery of this Agreement and the
Closing and shall in no way be affected by any investigation of the subject
matter thereof made by or on behalf of any of the Investor, their counsel or the
Company, as the case may be.
7.2 Successors and Assigns. The terms and conditions of this
----------------------
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties.
7.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of Washington as applied to agreements
among Washington residents entered into and to be performed entirely within
Washington, without reference to principles of conflicts of law or choice of
laws.
-13-
<PAGE>
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Headings. The headings and captions used in this Agreement are
--------
used for convenience only and are not to be considered in construing or
interpreting this Agreement. All references in this Agreement to sections,
paragraphs, exhibits and schedules shall, unless otherwise provided, refer to
sections and paragraphs hereof and exhibits and schedules attached hereto, all
of which exhibits and schedules are incorporated herein by this reference.
7.6 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid, as follows:
In the case of the Investor, at:
SOFTBANK HOLDINGS INC.
2951 28th Street, Suite 3060
Santa Monica, CA 90405
In the case of the Company, at:
ASYMETRIX CORPORATION
110 110th Avenue NE, Suite 700
Bellevue, WA 98004
Attn: President
With a copy to:
FENWICK & WEST LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attn: Mark C. Stevens, Esq.
Or at such other address as any party or the Company may designate by giving ten
(10) days advance written notice to all other parties.
7.7 No Finder's Fees. Each party represents that it neither is nor
----------------
will be obligated for any finder's or broker's fee or commission in connection
with this transaction. Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' or broker's fee (and any asserted liability) for which Investor or any
of its officers, partners, employees, or representatives is responsible. The
Company agrees to indemnify and hold harmless Investor from any liability for
any commission or compensation in the nature of a finder's or broker's fee (and
any asserted liability) for which the Company or any of its officers, employees
or representatives is responsible.
-14-
<PAGE>
7.8 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of Purchased Shares
and/or Conversion Shares representing at least a majority of the aggregate
number of shares of Common Stock into which the Purchased Shares then are
convertible and/or have been converted (excluding any of such shares that have
been sold to the public or pursuant to SEC Rule 144). Any amendment or waiver
effected in accordance with this Section shall be binding upon each holder of
any Purchased Shares and/or Conversion Shares at the time outstanding, each
future holder of such securities, and the Company.
7.9 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision(s) shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
7.10 Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
7.11 Further Assurances. From and after the date of this Agreement,
------------------
upon the request of Investor or the Company, the Company and Investor shall
execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
THE COMPANY: THE INVESTOR:
- ----------- ------------
ASYMETRIX CORPORATION SOFTBANK HOLDINGS INC.
By: /s/ James Billmaier By: /s/ Gary Rieschel
------------------------- -------------------------
Name: James Billmaier Name: GARY RIESCHEL
------------------------ ------------------------
Title: President & CEO Title: SENIOR VICE PRESIDENT
----------------------- -----------------------
-15-
<PAGE>
[SIGNATURE PAGE TO SERIES A PREFERRED STOCK PURCHASE AGREEMENT]
LIST OF EXHIBITS
----------------
<TABLE>
<CAPTION>
<S> <C>
Exhibit A - Series A Statement of Rights
Exhibit B - Financial Statements
Exhibit C - Opinion of Company Counsel
Exhibit D - Investor's Rights Agreement
</TABLE>
-16-
<PAGE>
EXHIBIT C
OPINION OF COMPANY COUNSEL
--------------------------
<PAGE>
EXHIBIT D
INVESTOR'S RIGHTS AGREEMENT
---------------------------
<PAGE>
EXHIBIT C
October 21, 1996
SOFTBANK Holdings Inc.
2951 22th Street, Suite 3060
Santa Monica, California 90405
Re: Series A Preferred Stock Purchase Agreement between SOFTBANK Holdings
Inc. and Asymetrix Corporation
Ladies and Gentlemen:
This opinion is provided pursuant to Section 5.8 of the Series A Preferred
Stock Purchase Agreement dated October 21, 1996 (the "Agreement"), between
SOFTBANK Holdings Inc. (the "Investor") and Asymetryx Corporation (the
"Company"). We are regular counsel to the Company. The Company was represented
in this transaction by Fenwick & West LLP of Palo Alto, California.
I.
In connection with this opinion, we have examined the Agreement, the
Investor's Rights Agreement dated October 21, 1996, between the Investor and the
Company (the "Investor's Rights Agreement"), the Asymetryx Corporation Statement
of Designation of Rights, Preferences and Limitations of Series A Preferred
Stock adopted by the Company's board of directors on October 11, 1996 (the
"Statement of Rights"), the Company's Articles of Incorporation, as amended by
the Statement of Rights, which were filed as Articles of Amendment on October
16, 1996 (the "Articles"), and such other agreements, instruments, certificates,
documents and records of Company as we have deemed necessary for purposes of
this opinion.
(The Agreement and the Investor's Rights Agreement referred to above are
together the "Closing Agreements." The terms "Purchased Shares" and "Conversion
Shares" are defined in the Agreement.)
As to certain questions of fact material to the following opinions, we have
relied upon certificates of public officials and upon representations of
officers of the Company, without independently verifying the accuracy of such
representations. As to the due execution and delivery of the Closing
Agreements, we have relied exclusively upon the opinion of Steven Esau, General
Counsel to the Company.
<PAGE>
SOFTBANK, Holdings, Inc.
October 21, 1996
Page 3
Where we render an opinion "to our knowledge," our opinion is based solely
upon (i) the conscious awareness of facts or other information, after reasonable
investigation, by the attorneys within the firm who have had active involvement
in preparing this opinion letter provided that reasonable investigation shall
not include a canvass of all lawyers in the firm or a search of all the firm's
files, and (ii) written certifications of officers of the Company.
II.
In connection with the opinions expressed in this letter, we have made the
following assumptions, without making any inquiry into the reasonableness or
validity thereof:
(a) The genuineness of all signatures, authenticity of all documents
provided to us as originals, and the conformity of the authentic original
documents to all documents provided to us as certified, conformed or photostatic
copies or as drafts.
(b) The legal capacity of all individuals executing documents in their
individual capacity or on behalf of the parties to the Agreement.
(c) All parties to the Closing Agreements other than the Company have all
requisite power and authority and have taken all necessary action to execute and
deliver the Closing Agreements and to effect the transactions contemplated
thereby.
(d) The Closing Agreements constitute the valid and binding obligation of,
and are enforceable against, each of the other parties thereto.
III.
Based upon the foregoing, and subject to the further qualifications set
forth below, we are of the opinion that:
1. The Company is a corporation duly incorporated and validly existing
under the laws of the state of Washington. The Company has the requisite
corporate power and authority to execute and enter into the Closing Agreements
and to perform its obligations thereunder. The Company has the requisite
corporate power and authority to own and operate its properties and assets and
carry on its business as currently conducted.
2. To our knowledge, the Company does not currently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association or other entity except as disclosed in the
Schedule of Exceptions to the Agreement.
3. The Company is duly qualified to do business as a foreign corporation
in the states of California and New York. The Company has field sales
representatives resident in the
<PAGE>
SOFTBANK, Holdings, Inc.
October 21, 1996
Page 3
states of New Hampshire, Texas and Virginia, and has decided to qualify to do
business as a foreign corporation in such states. Such qualification is not
complete at the date hereof. To our knowledge, the Company is not required to
qualify to do business as a foreign corporation in any other states within the
United States in order to carry on its business as such is currently conducted,
except such other states in which the failure so to qualify would not have a
material adverse effect on the business and operations of the Company taken as a
whole.
4. The Statement of Rights has been duly adopted by all necessary
corporate action on the part of the Company. The execution, delivery and
performance of each of the Closing Agreements by the Company has been duly
authorized by all requisite corporate action of Company. Each of the Closing
Agreements has been duly executed and delivered on behalf the Company. Each of
the Closing Agreements constitutes the valid and binding obligation the Company,
enforceable against the Company in accordance with its terms.
5. The execution, delivery and performance of the Closing Agreements by
the Company do not conflict with or violate any federal or state law, rule or
regulation, or any provision of the Articles or bylaws of the Company, or to our
knowledge, any judgment, order or decree of any court or arbitrator to which the
Company is a party or is subject.
6. The authorized capital stock of the Company consists of 40,000,000
shares of Common Stock and 2,000,000 shares of Class B Stock, of which 50,000
shares are designated as Series 1 Class B Stock, and 388,395 are designated as
Series A Stock, with the rights, preference and privileges stated in the
Articles, and as provided by law. There are currently issued and outstanding
7,878,483 shares of Common Stock and 37,500 shares of Series 1 Class B Stock,
all of which shares have been duly authorized and are validly issued, fully paid
and non-assessable. Except for: (a) conversion privileges of the Series A Stock
and the Series 1 Class B Stock, (b) options to purchase 4,218,559 shares of
Common Stock and 4,218,559 shares of Common Stock reserved for issuance upon the
exercise thereof, (c) 411,058 additional shares of Common Stock of the Company
reserved for future issuance under the Company's 1995 Combined Incentive and
Nonqualified Stock Option Plan (the "Option Plan") and (d) the proposed issuance
of up to 50,000 shares of Series 1 Class B Stock to certain of the Company's
vendors (of which shares, 37,500 are currently outstanding), to our knowledge
there are not outstanding any options, warrants, rights (including conversion or
preemptive rights) or agreements for the purchase or acquisition from the
Company of any shares of its capital stock or any securities convertible into or
ultimately exchangeable or exercisable for any shares of the Company's capital
stock. To our knowledge and apart from the exceptions noted in this paragraph
6, and except for rights of first refusal and rights of repurchase held by the
Company to repurchase shares of its Common Stock issued under Stock Issuance and
Restriction Agreements relating to the issuance of 8,100 shares of Common Stock
and to 37,500 shares of Series 1 Class B Stock, rights of first refusal and
repurchase rights held by the Company to purchase shares of its stock issued
under the Option Plan and the rights granted in the Investor's Rights Agreement,
no shares of the Company's
<PAGE>
SOFTBANK, Holdings, Inc.
October 21, 1996
Page 3
outstanding capital stock, or stock issuable upon exercise or exchange of any
outstanding options, warrants or rights, or other stock issuable by the Company,
are subject to any rights of first refusal or other rights to purchase such
stock whether in favor of the Company or any other person), pursuant to any
agreement or commitment of the Company. The Purchased Shares, when issued and
paid for as provided in the Agreement, will be duly authorized and validly
issued, fully paid and nonassessable. The Conversion Shares have been duly
authorized and validly reserved for issuance upon conversion of the Purchased
Shares and, when issued upon such conversion in accordance with the Articles,
(assuming no unlawful distribution of Purchased Shares), the Conversion Shares
will be duly authorized and validly issued, fully paid and nonassessable.
7. To our knowledge, there is no suit, action or proceeding against the
Company now pending before any court or administrative agency, nor is there any
suit, action or proceeding overtly threatened in writing against the Company,
which if determined adversely to the Company would, either individually or in
the aggregate, result in any material adverse change in the business, prospects,
financial condition or assets of the Company or in any material liability of the
Company.
8. The offer and sale of the Purchased Shares to the Investor in
accordance with the Agreement, and the issuance of the Conversion Shares solely
to the Investor pursuant to the Articles for no consideration other than the
surrender of the converted Purchased Shares are, and, in the case of such
issuance of Conversion Shares will be, exempt from the registration and
prospectus delivery requirements of Section 5 of the Securities Act of 1933 and
the securities registration requirements of the currently effective provisions
of the securities laws of the State of Washington.
9. To our knowledge, all approvals or authorization of, and filing with
any federal or Washington governmental authority required on the part of the
Company in order to enable the Company to execute, deliver and perform its
obligations under the Closing Agreements have been made, except for notices to
be filed by the Company pursuant to any federal securities laws the securities
laws of the State of Washington.
IV.
In addition to the qualifications, assumptions and other limitations set
forth above, and without limiting the effect of such qualifications, assumptions
and other limitations, our opinion is further qualified as follows:
(a) Enforcement of remedies may be limited by applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium, or similar laws
affecting the enforcement of creditors' rights generally and subject to
equitable principles (whether such enforcement is considered in a proceeding in
equity or at law). Without limiting the foregoing, we express no
<PAGE>
SOFTBANK, Holdings, Inc.
October 21, 1996
Page 3
opinion as to the availability of equitable remedies such as specific
performance or injunctive relief.
(b) The courts of the state of Washington will consider extrinsic evidence
of circumstances surrounding the making of the Agreement to ascertain the intent
of the parties in using the language employed in the Agreement, regardless of
whether or not the language used in the Agreement is plain and unambiguous on
its face, and may incorporate additional or supplementary terms into the
Agreement.
(c) We call to your attention that, under Washington law, where a
provision of a contract permits one party to the contract to recover attorneys'
fees, such provision will be construed to permit the prevailing party in any
action to enforce the contract to recover its reasonable attorneys' fees.
(d) With respect to paragraph 8, we have relied upon and assumed the truth
of the investor's representations in Section 4 of the Agreement. We have also
assumed that such representations will apply to the Conversion Shares on their
issuance to the same extent as they now apply to the Purchased Shares, and that
applicable law will not have changed prior to such issuance.
V.
The opinions expressed in this letter are solely with respect to the
federal laws of the United States and the laws of the state of Washington.
The foregoing opinion is being delivered solely to you in connection with
the execution and delivery of the Agreement and may not be relied on by you for
any other purpose or by any other person for any purpose without our written
consent.
Very truly yours,
FOSTER PEPPER & SHEFELMAN
<PAGE>
Exhibit D
INVESTOR'S RIGHTS AGREEMENT
This Investor's Rights Agreement (this "Agreement") is made and entered
---------
into as of October 21, 1996 between Asymetrix Corporation, a Washington
corporation (the "Company") and SOFTBANK Holdings Inc., a Delaware corporation
-------
("Investor").
--------
RECITALS
A. The Investor has agreed to purchase from the Company, and the Company
has agreed to sell to the Investor, 388,395 shares of the Company's Series A
Preferred Stock ("Series A Stock") pursuant to a Series A Preferred Stock
--------------
Purchase Agreement dated of even date herewith by and between the Company and
the Investor (the "Purchase Agreement").
------------------
B. The Purchase Agreement provides that the Investor shall be granted
certain information and registration rights and rights of first refusal, all as
more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
------------------
1.1 Financial Information. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as Investor holds any
shares of Series A Stock issued under the Purchase Agreement or shares of Common
Stock of the Company ("Common Stock") issued upon the conversion of such shares
------------
of Series A Stock ("Conversion Stock") the Company will:
----------------
(a) Annual Reports. Furnish to the Investor, as soon as
--------------
practicable and in any event within 90 days after the end of each fiscal year of
the Company, a consolidated Balance Sheet as of the end of such fiscal year, a
consolidated Statement of Income and a consolidated statement of cash flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year (if any),
all prepared in accordance with generally accepted accounting principles and
practices (collectively, the "Annual Reports") and audited by nationally
--------------
recognized independent certified public accountants. Notwithstanding the
foregoing, with respect to the Annual Reports relating to the Company's 1996
fiscal year, the Company may furnish unaudited Annual Reports within such 90 day
time period, if, within 60 days after the delivery of such unaudited Annual
Reports, the Company furnishes to Investor Annual Reports which have been
audited by nationally recognized independent certified public accountants;
(b) Quarterly Reports. Furnish to the Investor as soon as
-----------------
practicable, and in any case within forty-five (45) days of the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited financial statements,
1
<PAGE>
including an unaudited Balance Sheet and an unaudited Statement of Income; and
an unaudited consolidated statement of cash flows, all prepared in accordance
with generally accepted accounting principles and practices; and
(c) Confidentiality. Investor agrees to hold all information
---------------
received pursuant to this Section in confidence, and not to use or disclose any
of such information to any third party, except (i) to the extent such
information may be made publicly available by the Company, (ii) as required by
law, or (iii) to any proposed permitted transferee of Series A Preferred Stock
or Common Stock (provided such transferee first agrees in writing to be bound by
this section).
1.2 Inspection Rights. Provided Investor (including any affiliated
-----------------
partnership managed by Investor and which partnership is controlled by or under
common control with Investor) holds at least 200,000 shares of Series A Stock
issued under the Purchase Agreement and/or the equivalent number (on an as-
converted basis) of shares of Conversion Stock, the Company shall permit the
Investor, at Investor's expense, to visit and inspect the Company's properties,
to examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable times
as may be requested by Investor. Investor agrees to hold all information
received from such inspections in confidence, and not to use or disclose any of
such information to any third party, except (i) to the extent such information
may be made publicly available by the Company, (ii) as required by law, or (iii)
to any proposed permitted transferee of Series A Preferred Stock or Common Stock
(provided such transferee first agrees in writing to be bound by this section).
1.3 Termination of Certain Rights. The Company's obligations under
-----------------------------
Sections 1.1 and 1.2 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended (the "Securities
----------
Act").
- ---
2. REGISTRATION RIGHTS.
-------------------
2.1 Definitions. For purposes of this Section 2:
-----------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
- -------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
---------------------- ----------------------
means: (1) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Series A Stock issued under the Purchase
Agreement; and (2) any shares of Common Stock of the Company issued as (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, all such shares of Common Stock described in
clause (1) of this subsection (b); excluding in all cases, however, any
---------
Registrable Securities sold by a person in a transaction in which rights under
this Section 2 are not assigned in accordance with
2
<PAGE>
this Agreement or any Registrable Securities sold to the public or sold pursuant
to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of shares of
---------------------------------------
"Registrable Securities then outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 2 and Sections 3 and 4
------
hereof, the term "Holder" means any person owning of record Registrable
------
Securities that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
-------- -------
of this Agreement, a record holder of shares of Series A Stock convertible into
such Registrable Securities shall be deemed to be the Holder of such Registrable
Securities; and provided, further, that the Company shall in no event be
-------- -------
obligated to register shares of Series A Stock and that Holders of Registrable
Securities will not be required to convert their shares of Series A Stock into
Common Stock in order to exercise the registration rights granted hereunder,
until immediately before the closing of the offering to which the registration
relates.
(e) Form S-3. The term "Form S-3" means such form under the
-------- --------
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
(f) SEC. The term "SEC" or "Commission" means the U.S. Securities
--- --- ----------
and Exchange Commission.
2.2 Demand Registration.
-------------------
(a) Request by Holders. If the Company shall receive at any time
------------------
six (6) months after the effective date of the Company's initial public offering
of its securities pursuant to a registration filed under the Securities Act, a
written request from the Holders of at least 40% of the Registrable Securities
then outstanding that the Company effect any registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within ten (10)
business days of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and effect, as soon as
--------------
practicable, such registration under the Securities Act of all Registrable
Securities which Holders request to be registered and included in such
registration by written notice given by such Holders to the Company within
twenty (20) days after receipt of the Request Notice, subject only to the
limitations of this Section 2.2; provided that the Registrable Securities
--------
requested by all Holders to be registered pursuant to such request must either
(i) be at least forty percent (40%) of all Registrable Securities then
outstanding or (ii) have an anticipated aggregate public offering price (before
any underwriting discounts and commissions) of not less than $5,000,000.
3
<PAGE>
(b) Underwriting. If the Holders initiating the registration request
------------
under this Section 2.2 ("Initiating Holders") intend to distribute such
------------------
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice to other Holders referred to in subsection 2.2(a). In such
event, the right of any other Holder to include its Registrable Securities in
such registration shall be conditioned upon such other Holder's participation in
such underwriting and the inclusion of such other Holder's Registrable
Securities in the underwriting (unless otherwise mutually agreed by a majority
in interest of the Initiating Holders and such other Holder) to the extent
provided herein. All Holders proposing to distribute their securities through
such underwriting shall enter into an underwriting agreement in customary form
with the managing underwriter or underwriters selected for such underwriting by
the Holders with the consent of the Company, which will not be unreasonably
withheld. Notwithstanding any other provision of this Section 2.2, if the
underwriter(s) advise(s) the Company in writing that marketing factors require a
limitation of the number of securities to be underwritten then the Company shall
so advise all Holders of Registrable Securities which would otherwise be
registered and underwritten pursuant hereto, and the number of Registrable
Securities that may be included in the underwriting shall be reduced as required
by the underwriter(s) and allocated among the Holders of Registrable Securities
on a pro rata basis according to the number of Registrable Securities then
outstanding held by each Holder requesting registration (including the
Initiating Holders). If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such Holder may elect to withdraw from such
registration by written notice to the Company, the underwriter and the Initial
Holder. Any Registrable Securities excluded and withdrawn from such
underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
--------------------------------------
to effect only one (1) such registration pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
--------
furnish to Holders requesting the filing of a registration statement pursuant to
this Section 2.2, a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its stockholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 90 days
after receipt of the request of the Initiating Holders; provided, however, that
-------- -------
the Company may not utilize this right more than once in any twelve (12) month
period.
(e) Expenses. All expenses incurred in connection with a registration
--------
pursuant to this Section 2.2, including without limitation all registration,
qualification and filing fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of common counsel for all Holders ("Holders' Counsel") (but excluding
----------------
underwriters' discounts and commissions), blue sky fees and expenses shall be
borne by the Company. Each Holder participating in a registration pursuant to
this Section 2.2 shall bear such Holder's proportionate share (based on the
total number of shares sold in such
4
<PAGE>
registration other than for the account of the Company) of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering and the fees and disbursements of any counsel for the
participating Holders (other than Holders' Counsel). Notwithstanding the
foregoing, the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 2.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered unless the Holders of a majority of
Registrable Securities who have demand registration rights pursuant to this
Section 2.2 agree to forfeit their demand registration rights hereunder with
respect to such registration request, provided, however, that if at the time of
such withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company not known to the Holders at the
time of their request for such registration and have withdrawn their request for
registration with reasonable promptness after learning of such material adverse
change, then the Holders shall not be required to pay any of such expenses and
shall retain their rights pursuant to this Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any registration
---------
under Section 2.2 or Section 2.4 of this Agreement or to any employee benefit
plan or to any acquisition, merger, consolidation or other corporate
reorganization) and will afford each such Holder an opportunity to include in
such registration statement all or any part of the Registrable Securities then
held by such Holder. Each Holder desiring to include in any such registration
statement all or any part of the Registrable Securities held by such Holder
shall, within twenty (20) days after receipt of the above-described notice from
the Company, so notify the Company in writing, and in such notice shall inform
the Company of the number of Registrable Securities such Holder wishes to
include in such registration statement. If a Holder decides not to include all
of its Registrable Securities in any registration statement thereafter filed by
the Company, such Holder shall nevertheless continue to have the right to
include any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under which the
------------
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of
5
<PAGE>
shares that may be included in the registration and the underwriting shall be
allocated, first, to the Company, and second, to Investor, provided however,
----- ------ -------- -------
that the right of the underwriters to exclude shares (including Registrable
Securities) from the registration and underwriting as described above shall be
restricted so that the number of Registrable Securities included in any such
registration is not reduced below twenty-five percent (25%) of the shares
included in the registration, except for a registration relating to the
Company's initial public offering from which all Registrable Securities may be
excluded. If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder which is a partnership or corporation, the
partners, retired partners and shareholders of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "Holder",
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a
--------
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration, qualification and filing fees, printers' and accounting fees,
fees and disbursements of counsel for the Company and the reasonable fees and
expenses of Holders' Counsel shall be borne by the Company.
2.4 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders of Registrable Securities a written request or requests
that the Company effect a registration on Form S-3 and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, then the Company will:
(a) Notice. Promptly give written notice of the proposed
------
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, effect such registration
------------
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within twenty (20) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
-------- -------
any such registration, qualification or compliance pursuant to this Section 2.4:
(1) if Form S-3 is not available for such offering by the
Holders;
6
<PAGE>
(2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $250,000;
(3) if the Company shall furnish to the Holders a
certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 Registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve month period for a period of not
more than 90 days after receipt of the request of the Holder or Holders under
this Section 2.4;
(4) if the Company has already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 2.4; or
(5) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Expenses. Subject to the foregoing, the Company shall file a
--------
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 2.4 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with
each registration requested pursuant to this Section 2.4 (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration, qualification, filing, printers' and
accounting fees, counsel for the Company and the reasonable fees and expenses of
Holders' Counsel.
(d) Not Demand Registration. Form S-3 registrations shall not be
-----------------------
deemed to be demand registrations as described in Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
7
<PAGE>
(c) Furnish to the Holders and to the underwriters, if any, such
number of copies of the registration statement, prospectus, and preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as they may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by them that are included in
such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(h) Use its best efforts either to (i) cause all the Registrable
Securities covered by any Registration Statement to be listed on a national
securities exchange, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure the quotation of the
Registrable Securities on the Nasdaq National Market.
2.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall
8
<PAGE>
furnish to the Company such information regarding themselves, the Registrable
Securities held by them, and the intended method of disposition of such
securities as shall be reasonably required to timely effect the registration of
their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the Company
--------------
will indemnify and hold harmless each Holder, the partners, officers, directors
of each Holder, any underwriter (as defined in the Securities Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any expenses, losses, claims, damages, or
--------
liabilities (joint or several) (or actions in respect thereof) to which they may
become subject under the Securities Act, the l934 Act or other federal or state
law, insofar as such expenses, losses, claims, damages, or liabilities (or
actions in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
---------
(i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement,
preliminary prospectus, final prospectus, offering circular or
other document contained therein or any amendments or supplements
thereto;
(ii) the 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
(iii) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any federal or state securities law in
connection with the offering covered by such registration
statement;
and the Company will reimburse each such Holder, partner, officer, director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 2.8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
9
<PAGE>
use in connection with such registration by such Holder or its agent, partner,
officer, director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
------------------
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder or its agent expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, partner, officer, director or controlling
person of such other Holder in connection with investigating, defending or
settling any such loss, claim, damage, liability or action; provided, however,
-------- -------
that the indemnity agreement contained in this subsection 2.8(b) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Holder, which
consent shall not be unreasonably withheld; and provided further, that the total
-------- -------
amounts payable in indemnity by a Holder under this Section 2.8(b) in respect of
any Violation shall not exceed the net proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under this
------
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
10
<PAGE>
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
-------------------------------------
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but which
Violation is eliminated or remedied in the amended prospectus on file with the
SEC at the time the registration statement in question becomes effective or the
amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
-----
Prospectus), such indemnity agreement shall not inure to the benefit of any
- ----------
person if a copy of the Final Prospectus was furnished to the indemnified party
and was not furnished to the person asserting the loss, liability, claim or
damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such expense, loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of each such party in
connection with such statements or omissions as well as any other relevant
considerations; provided, however, that, in any such case, (A) the total amounts
-------- -------
payable in contribution by any Holder under this Section 2.8(e) shall not exceed
the net proceeds received by such Holder in the registered offering out of which
such responsibility arises; and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under this
--------
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it shall
---------------------------
not, to the extent requested by the Company or an underwriter of securities of
the Company, sell or otherwise transfer or dispose of any Registrable Securities
or other shares of stock of the Company then owned by such Holder (other than to
donees or partners of the Holder who agree to be similarly bound) for up to one
hundred eighty (180) days following the effective date of any registration
statement of the Company filed under the Securities Act (whether filed pursuant
to the provisions of this Agreement or otherwise);
provided, however, that:
- -------- -------
11
<PAGE>
(a) such agreement shall not apply to Registrable Securities sold
pursuant to such registration statement; and
(b) all executive officers and directors of the Company then
holding Common Stock of the Company and all shareholders owning more than 1% of
the Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the Registrable Securities and such other shares of stock of each Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements);
and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
of the Securities Act and the 1934 Act (at any time after it has become subject
to the reporting requirements of the 1934 Act) or that it qualifies as a
registrant whose securities may be resold pursuant to a Form S-3 (at any time
after it so qualifies), a copy of the most recent annual or quarterly report of
the Company, and such other reports and documents of the Company as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration or
pursuant to Form S-3 (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company shall
----------------------------------------
have no obligations pursuant to Sections 2.2 through 2.4 with respect to: (i)
any request or requests for registration made by any Holder on a date more than
five (5) years after the closing date of the Company's initial public offering;
or (ii) any Registrable Securities proposed to be sold by a Holder in a
registration pursuant to Section 2.2, 2.3 or 2.4 if, in the opinion of counsel
to the Company, all such Registrable Securities proposed to be sold by a Holder
may be sold in the
12
<PAGE>
public market in a three-month period without registration under the Securities
Act pursuant to Rule 144 under the Securities Act.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 General. Each Holder (as defined in Section 2.1(d)) and any
-------
party to whom such Holder's rights under this Section 3 have been duly assigned
in accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "Rights Holder") has the right of first refusal to
-------------
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 3.2) that the Company may
from time to time issue after the date of this Agreement. A Rights Holder's
"Pro Rata Share" for purposes of this right of first refusal is the ratio of (a)
- ---------------
the number of Registrable Securities as to which such Rights Holder is the
Holder (and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number
of shares of Common Stock of the Company equal to the sum of (i) the total
number of shares of Common Stock of the Company then outstanding plus (ii) the
total number of shares of Common Stock of the Company into which all then
outstanding shares of Series A Stock of the Company are then convertible plus
(iii) the number of shares of Common Stock of the Company reserved for issuance
under stock purchase and stock option plans of the Company and outstanding
warrants and options plus (iv) the number of shares of Common Stock of the
Company into which all other outstanding convertible securities of the Company
are then convertible.
3.2 New Securities. "New Securities" shall mean any Common Stock or
-------------- --------------
Class B Stock of the Company, whether now authorized or not, and rights, options
or warrants to purchase such Common Stock or Class B Stock, and securities of
any type whatsoever that are, or may become, convertible or exchangeable into
such Common Stock or Class B Stock; provided, however, that the term "New
-------- -------
Securities" does not include:
---- --- -------
(i) any shares of the Company's Common Stock (and/or options or
warrants therefor) issued or issuable to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to incentive
agreements or plans approved by the Board of Directors of the Company;
(ii) any shares of Series A Stock issued under the Purchase
Agreement as such agreement may be amended.
(iii) up to an aggregate of 50,000 shares of the Company's Series
1 Class B Stock (and the shares of Common Stock issued or issuable upon
conversion of such Series 1 Class B Stock) to be issued from time to time in
connection with a written agreement concerning a business relationship between
the Company and the holder of such Series 1 Class B Stock;
(iv) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company outstanding on the
date of this Agreement;
13
<PAGE>
(v) shares of the Company's Common Stock or Class B Stock
issued in connection with any stock split or stock dividend;
(vi) securities offered by the Company to the public pursuant
to a registration statement filed under the Securities Act;
(vii) any shares of the Company's stock (and/or options or
warrants therefor) issued or issuable to employees, directors, consultants, or
other parties pursuant to contracts or other arrangements that are approved by
the Board of Directors of the Company;
(viii) any shares of the Company's stock (and/or options or
warrants therefor) issued or issuable to banks, equipment leasing organizations
or similar entities pursuant to any transaction in which the Company borrows
money or anything else of value; or
(ix) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
3.3 Procedures. In the event that the Company proposes to undertake
----------
an issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "Notice"), describing the
------
type of New Securities and the price and the general terms upon which the
Company proposes to issue such New Securities. Each Rights Holder shall have
twenty (20) days from the date of mailing of any such Notice to agree in writing
to purchase such Rights Holder's Pro Rata Share of such New Securities for the
price and upon the general terms specified in the Notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights
Holder fails to so agree in writing within such twenty (20) day period to
purchase such Rights Holder's full Pro Rata Share of an offering of New
Securities (a "Nonpurchasing Holder"), then such Nonpurchasing Holder shall
--------------------
forfeit the right hereunder to purchase that part of his Pro Rata Share of such
New Securities that it did not so agree to purchase. Each Rights Holder who has
timely agreed to purchase his full Pro Rata Share of such offering of New
Securities (a "Purchasing Holder") shall have a right of over-allotment such
-----------------
that such Purchasing Holder may purchase, on a pro rata basis, such portion of
the New Securities which any Nonpurchasing Holder elected not to purchase. The
Company shall take all such action as may be required by any regulatory
authority in connection with the exercise by a Purchasing Holder of the right to
purchase New Securities as set forth in this Section 3; provided, however, that
-------- -------
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any state or jurisdiction where it is not so qualified or where it
has not made such a filing.
3.4 Failure to Exercise. In the event that the Rights Holders fail
-------------------
to exercise in full the right of first refusal within such twenty (20) plus five
(5) day period, then the Company shall have 90 days thereafter to sell the New
Securities with respect to which the Rights Holders'
14
<PAGE>
rights of first refusal hereunder were not exercised, at a price and upon
general terms not materially more favorable to the purchasers thereof than
specified in the Company's Notice to the Rights Holders. In the event that the
Company has not issued and sold the New Securities within such 90 day period,
then the Company shall not thereafter issue or sell any New Securities without
again first offering such New Securities to the Rights Holders pursuant to this
Section 3.
3.5 Termination. This right of first refusal shall terminate (i)
-----------
immediately before the closing of the first underwritten sale of Common Stock of
the Company to the public pursuant to a registration statement filed with, and
declared effective by, the SEC under the Securities Act, covering the offer and
sale of Common Stock to the public, or (ii) upon (a) the acquisition of all or
substantially all the assets of the Company or (b) an acquisition of the Company
by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction pursuant to
this Section 3.
4. ASSIGNMENT AND AMENDMENT.
------------------------
4.1 Assignment of Registration Rights. Notwithstanding anything
---------------------------------
herein to the contrary, the registration rights of a Holder under Section 2
hereof may be assigned by Investor only to a party who acquires at least 75,000
shares of Series A Stock issued under the Purchase Agreement and/or an
equivalent number (on an as-converted basis) of Registrable Securities issued
upon conversion thereof; provided, however that no party may be assigned any of
-------- -------
the foregoing rights unless the Company is given written notice by the assigning
party at the time of such assignment stating the name and address of the
assignee and identifying the securities of the Company as to which the rights in
question are being assigned; and provided further that any such assignee shall
-------- -------
receive such assigned rights subject to all the terms and conditions of this
Agreement, including without limitation the provisions of this Section 4.
5. GENERAL PROVISIONS.
------------------
5.1 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows: if to the
Investor, at the address for Investor indicated in Exhibit A hereto and if to
---------
the Company, at:
ASYMETRIX CORPORATION
110 110th Avenue, NE, Suite 700
Bellevue, WA 98004
Phone: (206) 637-5829
Attn: President
15
<PAGE>
with a copy to:
FENWICK & WEST LLP
Two Palo Alto Square, Suite 800
Palo Alto, CA 94306
Attn: Mark Stevens, Esq.
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of Washington,
excluding that body of law pertaining to conflict of laws.
5.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section
----------------------
4.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
5.7 Captions. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
16
<PAGE>
5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement
----------------------------------
there is a reference to a specific number of shares of Common Stock, Class B
Stock or Series A Stock of the Company of any class or series, then, upon the
occurrence of any subdivision, combination or stock dividend of such class or
series of stock, the specific number of shares so referenced in this Agreement
shall automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
5.11 Aggregation of Stock. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
ASYMETRIX CORPORATION SOFTBANK HOLDINGS INC.
By:______________________________ By:_______________________________
Title:___________________________ Title:____________________________
[SIGNATURE PAGE TO INVESTOR'S RIGHTS AGREEMENT]
18
<PAGE>
EXHIBIT A
---------
Investor:
SOFTBANK HOLDINGS INC.,
a Delaware corporation
2951 28th Street, Suite 3060
Santa Monica, CA 90405
19
<PAGE>
EXHIBIT 10.02
ASYMETRIX LEARNING SYSTEMS, INC.
INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement"), dated as of _____________,
---------
1998, is made by and between Asymetrix Learning Systems, Inc., a Delaware
corporation (the "Company"), and _________________, a director and/or officer of
-------
the Company (the "Indemnitee").
----------
RECITALS
A. The Company is aware that competent and experienced persons are
increasingly reluctant to serve as directors or officers of corporations unless
they are protected by comprehensive liability insurance and/or indemnification,
due to increased exposure to litigation costs and risks resulting from their
service to such corporations, and due to the fact that the exposure frequently
bears no reasonable relationship to the compensation of such directors and
officers;
B. Based upon their experience as business managers, the Board of
Directors of the Company (the "Board") has concluded that, to retain and attract
-----
talented and experienced individuals to serve as officers and directors of the
Company, and to encourage such individuals to take the business risks necessary
for the success of the Company, it is necessary for the Company contractually to
indemnify officers and directors and to assume for itself maximum liability for
expenses and damages in connection with claims against such officers and
directors in connection with their service to the Company;
C. Section 145 of the General Corporation Law of Delaware, under which the
Company is organized ("Section 145"), empowers the Company to indemnify by
-----------
agreement its officers, directors, employees and agents, and persons who serve,
at the request of the Company, as directors, officers, employees or agents of
other corporations or enterprises, and expressly provides that the
indemnification provided by Section 145 is not exclusive; and
D. The Company desires and has requested the Indemnitee to serve or
continue to serve as a director or officer of the Company free from undue
concern for claims for damages arising out of or related to such services to the
Company.
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby
agree as follows:
1. DEFINITIONS.
-----------
1.1 Agent. For the purposes of this Agreement, "agent" of the Company
----- -----
means any person who is or was a director or officer of the Company or a
subsidiary of the Company; or is or was serving at the request of, for the
convenience of, or to represent the
<PAGE>
interest of the Company or a subsidiary of the Company as a director or officer
of another foreign or domestic corporation, partnership, joint venture, trust or
other enterprise or an affiliate of the Company; or was a director or officer of
a foreign or domestic corporation which was a predecessor corporation of the
Company, including, without limitation, Asymetrix Learning Systems, Inc., a
Washington corporation, or was a director or officer of another enterprise or
affiliate of the Company at the request of, for the convenience of, or to
represent the interests of such predecessor corporation. The term "enterprise"
----------
includes any employee benefit plan of the Company, its subsidiaries, affiliates
and predecessor corporations.
1.2 Expenses. For purposes of this Agreement, "expenses" includes all
-------- --------
direct and indirect costs of any type or nature whatsoever (including, without
limitation, all attorneys' fees and related disbursements and other out-of-
pocket costs) actually and reasonably incurred by the Indemnitee in connection
with the investigation, defense or appeal of a proceeding or establishing or
enforcing a right to indemnification or advancement of expenses under this
Agreement, Section 145 or otherwise; provided, however, that expenses shall not
-------- -------
include any judgments, fines, ERISA excise taxes or penalties or amounts paid in
settlement of a proceeding.
1.3 Proceeding. For the purposes of this Agreement, "proceeding" means
---------- ----------
any threatened, pending or completed action, suit or other proceeding, whether
civil, criminal, administrative, investigative or any other type whatsoever.
1.4 Subsidiary. For purposes of this Agreement, "subsidiary" means any
---------- ----------
corporation of which more than 50% of the outstanding voting securities is owned
directly or indirectly by the Company, by the Company and one or more of its
subsidiaries or by one or more of the Company's subsidiaries.
2. AGREEMENT TO SERVE. The Indemnitee agrees to serve and/or continue to
------------------
serve as an agent of the Company, at the will of the Company (or under separate
agreement, if such agreement exists), in the capacity the Indemnitee currently
serves as an agent of the Company, faithfully and to the best of his ability, so
long as he is duly appointed or elected and qualified in accordance with the
applicable provisions of the charter documents of the Company or any subsidiary
of the Company; provided, however, that the Indemnitee may at any time and for
-------- -------
any reason resign from such position (subject to any contractual obligation that
the Indemnitee may have assumed apart from this Agreement), and the Company or
any subsidiary shall have no obligation under this Agreement to continue the
Indemnitee in any such position.
3. DIRECTORS' AND OFFICERS' INSURANCE. The Company shall, to the extent
----------------------------------
that the Board determines it to be economically reasonable, maintain a policy of
directors' and officers' liability insurance ("D&O Insurance"), on such terms
-------------
and conditions as may be approved by the Board.
4. MANDATORY INDEMNIFICATION. Subject to Section 9 below, the Company
-------------------------
shall indemnify the Indemnitee:
2
<PAGE>
4.1 Third Party Actions. If the Indemnitee is a person who was or is a
-------------------
party or is threatened to be made a party to any proceeding (other than an
action by or in the right of the Company) by reason of the fact that he is or
was an agent of the Company, or by reason of anything done or not done by him in
any such capacity, against any and all expenses and liabilities of any type
whatsoever (including, but not limited to, judgments, fines, ERISA excise taxes
or penalties and amounts paid in settlement) actually and reasonably incurred by
him in connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful; and
4.2 Derivative Actions. If the Indemnitee is a person who was or is a
------------------
party or is threatened to be made a party to any proceeding by or in the right
of the Company to procure a judgment in its favor by reason of the fact that he
is or was an agent of the Company, or by reason of anything done or not done by
him in any such capacity, against any amounts paid in settlement of any such
proceeding and all expenses actually and reasonably incurred by him in
connection with the investigation, defense, settlement or appeal of such
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Company; except that no
------
indemnification under this subsection shall be made in respect of any claim,
issue or matter as to which such person shall have been finally adjudged to be
liable to the Company by a court of competent jurisdiction due to willful
misconduct of a culpable nature in the performance of his duty to the Company,
unless and only to the extent that the Court of Chancery or the court in which
such proceeding was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such amounts which the
Court of Chancery or such other court shall deem proper; and
4.3 Exception for Amounts Covered by Insurance. Notwithstanding the
------------------------------------------
foregoing, the Company shall not be obligated to indemnify the Indemnitee for
expenses or liabilities of any type whatsoever (including, but not limited to,
judgments, fines, ERISA excise taxes or penalties and amounts paid in
settlement) to the extent such have been paid directly to the Indemnitee by D&O
Insurance.
5. PARTIAL INDEMNIFICATION AND CONTRIBUTION.
----------------------------------------
5.1 Partial Indemnification. If the Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of any expenses or liabilities of any type whatsoever (including, but
not limited to, judgments, fines, ERISA excise taxes or penalties and amounts
paid in settlement) incurred by him in the investigation, defense, settlement or
appeal of a proceeding but is not entitled, however, to indemnification for all
of the total amount thereof, then the Company shall nevertheless indemnify the
Indemnitee for such total amount except as to the portion thereof to which the
Indemnitee is not entitled to indemnification.
3
<PAGE>
5.2 Contribution. If the Indemnitee is not entitled to the
------------
indemnification provided in Section 4 for any reason other than the statutory
limitations set forth in the Delaware General Corporation Law, then in respect
of any threatened, pending or completed proceeding in which the Company is
jointly liable with the Indemnitee (or would be if joined in such proceeding),
the Company shall contribute to the amount of expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred and paid or payable by the Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and the Indemnitee on the other hand from the transaction from which
such proceeding arose and (ii) the relative fault of the Company on the one hand
and of the Indemnitee on the other hand in connection with the events which
resulted in such expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if contribution pursuant to this
Section 5 were determined by pro rata allocation or any other method of
allocation which does not take account of the foregoing equitable
considerations.
6. MANDATORY ADVANCEMENT OF EXPENSES.
---------------------------------
6.1 Advancement. Subject to Section 9 below, the Company shall advance
-----------
all expenses incurred by the Indemnitee in connection with the investigation,
defense, settlement or appeal of any proceeding to which the Indemnitee is a
party or is threatened to be made a party by reason of the fact that the
Indemnitee is or was an agent of the Company or by reason of anything done or
not done by him in any such capacity. The Indemnitee hereby undertakes to
promptly repay such amounts advanced only if, and to the extent that, it shall
ultimately be determined that the Indemnitee is not entitled to be indemnified
by the Company under the provisions of this Agreement, the Certificate of
Incorporation or Bylaws of the Company, the General Corporation Law of Delaware
or otherwise. The advances to be made hereunder shall be paid by the Company to
the Indemnitee within thirty (30) days following delivery of a written request
therefor by the Indemnitee to the Company.
6.2 Exception. Notwithstanding the foregoing provisions of this
---------
Section 6, the Company shall not be obligated to advance any expenses to the
Indemnitee arising from a lawsuit filed directly by the Company against the
Indemnitee if an absolute majority of the members of the Board reasonably
determines in good faith, within thirty (30) days of the Indemnitee's request to
be advanced expenses, that the facts known to them at the time such
determination is made demonstrate clearly and convincingly that the Indemnitee
acted in bad faith. If such a determination is made, the Indemnitee may have
such decision reviewed by another forum, in the manner set forth in Sections
8.3, 8.4 and 8.5 hereof, with all references therein to "indemnification" being
deemed to refer to "advancement of expenses," and the burden of proof shall be
on the Company to demonstrate clearly and convincingly that, based on the facts
known at the time, the Indemnitee acted in bad faith. The Company may not avail
itself of this Section 6.2 as to a given lawsuit if, at any time after the
occurrence of the activities or
4
<PAGE>
omissions that are the primary focus of the lawsuit, the Company has undergone a
change in control. For this purpose, a change in control shall mean a given
person or group of affiliated persons or groups increasing their beneficial
ownership interest in the Company by at least twenty (20) percentage points
without advance Board approval.
7. NOTICE AND OTHER INDEMNIFICATION PROCEDURES.
-------------------------------------------
7.1 Promptly after receipt by the Indemnitee of notice of the
commencement of or the threat of commencement of any proceeding, the Indemnitee
shall, if the Indemnitee believes that indemnification with respect thereto may
be sought from the Company under this Agreement, notify the Company of the
commencement or threat of commencement thereof.
7.2 If, at the time of the receipt of a notice of the commencement of
a proceeding pursuant to Section 7.1 hereof, the Company has D&O Insurance in
effect, the Company shall give prompt notice of the commencement of such
proceeding to the insurers in accordance with the procedures set forth in the
respective policies. The Company shall thereafter take all necessary or
desirable action to cause such insurers to pay, on behalf of the Indemnitee, all
amounts payable as a result of such proceeding in accordance with the terms of
such D&O Insurance policies.
7.3 In the event the Company shall be obligated to advance the
expenses for any proceeding against the Indemnitee, the Company, if appropriate,
shall be entitled to assume the defense of such proceeding, with counsel
approved by the Indemnitee (which approval shall not be unreasonably withheld),
upon the delivery to the Indemnitee of written notice of its election to do so.
After delivery of such notice, approval of such counsel by the Indemnitee and
the retention of such counsel by the Company, the Company will not be liable to
the Indemnitee under this Agreement for any fees of counsel subsequently
incurred by the Indemnitee with respect to the same proceeding, provided that:
--------
(a) the Indemnitee shall have the right to employ his own counsel in any such
proceeding at the Indemnitee's expense; (b) the Indemnitee shall have the right
to employ his own counsel in connection with any such proceeding, at the expense
of the Company, if such counsel serves in a review, observer, advice and
counseling capacity and does not otherwise materially control or participate in
the defense of such proceeding; and (c) if (i) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (ii) the Indemnitee
shall have reasonably concluded that there may be a conflict of interest between
the Company and the Indemnitee in the conduct of any such defense or (iii) the
Company shall not, in fact, have employed counsel to assume the defense of such
proceeding, then the fees and expenses of the Indemnitee's counsel shall be at
the expense of the Company.
8. DETERMINATION OF RIGHT TO INDEMNIFICATION.
-----------------------------------------
8.1 To the extent the Indemnitee has been successful on the merits or
otherwise in defense of any proceeding referred to in Section 4.1 or 4.2 of this
Agreement or in the defense of any claim, issue or matter described therein, the
Company shall indemnify the Indemnitee against expenses actually and reasonably
incurred by him in connection with the
5
<PAGE>
investigation, defense or appeal of such proceeding, or such claim, issue or
matter, as the case may be.
8.2 In the event that Section 8.1 is inapplicable, or does not apply
to the entire proceeding, the Company shall nonetheless indemnify the Indemnitee
unless the Company shall prove by clear and convincing evidence to a forum
listed in Section 8.3 below that the Indemnitee has not met the applicable
standard of conduct required to entitle the Indemnitee to such indemnification.
8.3 The Indemnitee shall be entitled to select the forum in which the
validity of the Company's claim under Section 8.2 hereof that the Indemnitee is
not entitled to indemnification will be heard from among the following, except
------
that the Indemnitee can select a forum consisting of the stockholders of the
Company only with the approval of the Company:
(a) A quorum of the Board consisting of directors who are not
parties to the proceeding for which indemnification is being sought;
(b) The stockholders of the Company;
(c) Legal counsel mutually agreed upon by the Indemnitee and the
Board, which counsel shall make such determination in a written opinion;
(d) A panel of three arbitrators, one of whom is selected by the
Company, another of whom is selected by the Indemnitee and the last of whom is
selected by the first two arbitrators so selected; or
(e) The Court of Chancery of Delaware or other court having
jurisdiction of subject matter and the parties.
8.4 As soon as practicable, and in no event later than thirty (30) days
after the forum has been selected pursuant to Section 8.3 above, the Company
shall, at its own expense, submit to the selected forum its claim that the
Indemnitee is not entitled to indemnification, and the Company shall act in the
utmost good faith to assure the Indemnitee a complete opportunity to defend
against such claim.
8.5 If the forum selected in accordance with Section 8.3 hereof is not a
court, then after the final decision of such forum is rendered, the Company or
the Indemnitee shall have the right to apply to the Court of Chancery of
Delaware, the court in which the proceeding giving rise to the Indemnitee's
claim for indemnification is or was pending or any other court of competent
jurisdiction, for the purpose of appealing the decision of such forum, provided
--------
that such right is executed within sixty (60) days after the final decision of
such forum is rendered. If the forum selected in accordance with Section 8.3
hereof is a court, then the rights of the Company or the Indemnitee to appeal
any decision of such court shall be governed by the applicable laws and rules
governing appeals of the decision of such court.
6
<PAGE>
8.6 Notwithstanding any other provision in this Agreement to the contrary,
the Company shall indemnify the Indemnitee against all expenses incurred by the
Indemnitee in connection with any hearing or proceeding under this Section 8
involving the Indemnitee and against all expenses incurred by the Indemnitee in
connection with any other proceeding between the Company and the Indemnitee
involving the interpretation or enforcement of the rights of the Indemnitee
under this Agreement unless a court of competent jurisdiction finds that each of
the material claims and/or defenses of the Indemnitee in any such proceeding was
frivolous or not made in good faith.
9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding,
----------
the Company shall not be obligated pursuant to the terms of this Agreement:
9.1 Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to the Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by the Indemnitee and not by way of defense, except with respect to
------
proceedings specifically authorized by the Board or brought to establish or
enforce a right to indemnification and/or advancement of expenses arising under
this Agreement, the charter documents of the Company or any subsidiary or any
statute or law or otherwise, but such indemnification or advancement of expenses
may be provided by the Company in specific cases if the Board finds it to be
appropriate; or
9.2 Unauthorized Settlements. To indemnify the Indemnitee hereunder
------------------------
for any amounts paid in settlement of a proceeding unless the Company consents
in advance in writing to such settlement, which consent shall not be
unreasonably withheld; or
9.3 Securities Law Actions. To indemnify the Indemnitee on account of
----------------------
any suit in which judgment is rendered against the Indemnitee for an accounting
of profits made from the purchase or sale by the Indemnitee of securities of the
Company pursuant to the provisions of Section l6(b) of the Securities Exchange
Act of 1934 and amendments thereto or similar provisions of any federal, state
or local statutory law; or
9.4 Unlawful Indemnification. To indemnify the Indemnitee if a final
------------------------
decision by a court having jurisdiction in the matter shall determine that such
indemnification is not lawful. In this respect, the Company and the Indemnitee
have been advised that the Securities and Exchange Commission takes the position
that indemnification for liabilities arising under the federal securities laws
is against public policy and is, therefore, unenforceable and that claims for
indemnification should be submitted to appropriate courts for adjudication.
10. NON-EXCLUSIVITY. The provisions for indemnification and advancement
---------------
of expenses set forth in this Agreement shall not be deemed exclusive of any
other rights which the Indemnitee may have under any provision of law, the
Company's Certificate of Incorporation or Bylaws, the vote of the Company's
stockholders or disinterested directors, other agreements or otherwise, both as
to action in the Indemnitee's official capacity and to action in another
capacity while occupying his position as an agent of the Company, and the
Indemnitee's rights hereunder shall continue after the Indemnitee has ceased
acting as an agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of the Indemnitee.
7
<PAGE>
11. GENERAL PROVISIONS
------------------
11.1 Interpretation of Agreement. It is understood that the parties
---------------------------
hereto intend this Agreement to be interpreted and enforced so as to provide
indemnification and advancement of expenses to the Indemnitee to the fullest
extent now or hereafter permitted by law, except as expressly limited herein.
11.2 Severability. If any provision or provisions of this Agreement
------------
shall be held to be invalid, illegal or unenforceable for any reason whatsoever,
then: (a) the validity, legality and enforceability of the remaining provisions
of this Agreement (including, without limitation, all portions of any paragraphs
of this Agreement containing any such provision held to be invalid, illegal or
unenforceable that are not themselves invalid, illegal or unenforceable) shall
not in any way be affected or impaired thereby; and (b) to the fullest extent
possible, the provisions of this Agreement (including, without limitation, all
portions of any paragraphs of this Agreement containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall be construed so as to give effect to the intent
manifested by the provision held invalid, illegal or unenforceable and to give
effect to Section 11.1 hereof.
11.3 Modification and Waiver. No supplement, modification or
-----------------------
amendment of this Agreement shall be binding unless executed in writing by both
of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such waiver constitute a continuing waiver.
11.4 Subrogation. In the event of full payment under this Agreement,
-----------
the Company shall be subrogated to the extent of such payment to all of the
rights of recovery of the Indemnitee, who shall execute all documents required
and shall do all acts that may be necessary or desirable to secure such rights
and to enable the Company effectively to bring suit to enforce such rights.
11.5 Counterparts. This Agreement may be executed in one or more
------------
counterparts, which shall together constitute one agreement.
11.6 Successors and Assigns. The terms of this Agreement shall bind,
----------------------
and shall inure to the benefit of, the successors and assigns of the parties
hereto.
11.7 Notice. All notices, requests, demands and other communications
------
under this Agreement shall be in writing and shall be deemed duly given: (a) if
delivered by hand and receipted for by the party addressee; or (b) if mailed by
certified or registered mail, with postage prepaid, on the third business day
after the mailing date. Addresses for notice to either party are as shown on
the signature page of this Agreement or as subsequently modified by written
notice.
8
<PAGE>
11.8 Governing Law. This Agreement shall be governed exclusively by
-------------
and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
11.9 Consent to Jurisdiction. The Company and the Indemnitee each
-----------------------
hereby irrevocably consent to the jurisdiction of the courts of the State of
Delaware for all purposes in connection with any action or proceeding which
arises out of or relates to this Agreement.
11.10 Attorneys' Fees. In the event Indemnitee is required to bring any
---------------
action to enforce rights under this Agreement (including, without limitation,
the expenses of any Proceeding described in Section 3), the Indemnitee shall be
entitled to all reasonable fees and expenses in bringing and pursuing such
action, unless a court of competent jurisdiction finds each of the material
claims of the Indemnitee in any such action was frivolous and not made in good
faith.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have entered into this Indemnity
Agreement effective as of the date first written above.
ASYMETRIX LEARNING SYSTEMS, INC. INDEMNITEE:
By:
----------------------------- -------------------------------
Title: Printed Name:
-------------------------- ------------------
Address: Address:
------------------------ -----------------------
- -------------------------------- -------------------------------
10
<PAGE>
ASYMETRIX CORPORATION
1995 Combined Incentive and Nonqualified
Stock Option Plan
1. PURPOSE.
The purpose of the Asymetrix Corporation 1995 Combined Incentive and
Nonqualified Stock Option Plan (the "Plan") is to enable Asymetrix Corporation
(the "Company") to attract and retain the services of people with training,
experience and ability and to provide additional incentive to such persons by
granting them an opportunity to participate in the ownership of the Company.
2. STOCK SUBJECT TO PLAN.
The stock subject to this Plan shall be the Company's common stock, par value
$0.01 per share (the "Common Stock"), presently authorized but unissued or now
held or subsequently acquired by the Company as treasury shares. Subject to
adjustment as provided in Section 10, the aggregate amount of Common Stock
reserved for issuance or delivery upon exercise of all options granted under
this Plan shall not exceed 4,200,000 shares of Common Stock, as constituted on
---------
the date of adoption of this Plan by the Board of Directors. If any option
granted under this Plan shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares subject thereto shall thereupon
again be available for purposes of this Plan.
3. ADMINISTRATION.
The Plan shall be administered by the Board of Directors of the Company, in
accordance with the following terms and conditions:
(a) General Authority. Subject to the express provisions of the Plan, the
-----------------
Board of Directors shall have the authority, in its discretion, to determine all
matters relating to options to be granted under the Plan, including the
selection of individuals to be granted options, the number of shares to be
subject to each option, the exercise price, the term, whether such options shall
be immediately exercisable or shall become exercisable in increments over time,
and all other terms and conditions thereof. Grants under this Plan to persons
eligible need not be identical in any respect, even when made simultaneously.
The Board of Directors may from time to time adopt rules and regulations
relating to the administration of the Plan. The interpretation and construction
by the Board of Directors of any terms or provisions of this Plan or any option
issued hereunder, or of any rule or regulation promulgated in connection
herewith, shall be conclusive and binding on all interested parties. The Board
of Directors in its sole discretion, may grant incentive stock options
("Incentive Stock Options") as such term is defined in Section 422(b) of the
Internal Revenue Code of 1986, as amended, (the "Code") and/or nonqualified
stock options ("Nonqualified Stock Options"). A Nonqualified Stock Option is a
stock option which is not an Incentive Stock Option. The type of option
granted, whether an Incentive Stock Option or a Nonqualified Stock Option shall
be clearly identified by the Board of Directors when granted. The term "option"
when used in this Plan refers to Incentive Stock Options and Nonqualified Stock
Options, collectively.
(b) Directors. A member of the Board of Directors may be eligible to
---------
participate in or receive or hold options under this Plan; provided, however,
that no member of the Board of Directors shall vote with respect to the granting
of an option hereunder to himself or herself, as the case may be.
(c) Delegation to a Committee. Notwithstanding the foregoing, the Board of
-------------------------
Directors, if it so determines, may delegate to a committee of the Board of
Directors any or all authority for the administration of the Plan, and
thereafter references to the Board of Directors in this Plan shall be deemed to
be references to the committee to the extent provided in the resolution
establishing the committee.
-1-
<PAGE>
(d) Persons Subject to Section 16(b). Notwithstanding anything in the Plan
--------------------------------
to the contrary, the Board of Directors, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of any
provision of the Plan to participants who are officers and directors subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), without so restricting, limiting or conditioning the Plan with respect to
other participants.
(e) Replacement of Options. The Board of Directors, in its absolute
----------------------
discretion, may grant options subject to the condition that options previously
granted at a higher or lower exercise price under the Plan be canceled or
exchanged in connection with such grant. The number of shares covered by the
new options, the exercise price, the term and the other terms and conditions of
the new option, shall be determined in accordance with the Plan and may be
different from the provisions of the canceled or exchanged options.
Alternatively, the Board of Directors may, with the agreement of the Optionee,
amend previously granted options to establish the exercise price at the then
current fair market value of the Company's Common Stock, maintaining existing
vesting and expiration dates.
(f) Loans to Optionees. The Board of Directors, in its absolute
------------------
discretion, may provide that the Company loan to Optionees sufficient funds to
exercise any option granted under the Plan and/or to pay withholding tax due
upon exercise of such option. The Board of Directors shall have the authority
to make such determinations at the time of grant or exercise and shall establish
repayment terms thereof, including installments, maturity and interest rate.
4. ELIGIBILITY.
Options may be granted only to persons who, at the time the option is granted,
are employees, directors, consultants or independent contractors of the Company
or any of its present or future parent or subsidiary corporations (as those
terms are used in Section 424(e) and Section 424(f) of the Code, hereafter a
"Parent" or "Subsidiary"). Any individual to whom an option is granted under
this Plan shall be referred to hereinafter as "Optionee." Any Optionee may
receive one or more grants of options as the Board of Directors shall from time
to time determine, and such determinations may be different as to different
Optionees and may vary as to different grants. Optionees who are not employees
will only be eligible to receive Nonqualified Stock Options.
5. TERMS AND CONDITIONS OF OPTIONS.
Options granted under this Plan shall be evidenced by written agreements which
shall contain such terms, conditions, limitations and restrictions as the Board
of Directors shall deem advisable and which are not inconsistent with this Plan.
Each option granted hereunder shall clearly indicate whether it is an Incentive
Stock Option or a Nonqualified Stock Option. Notwithstanding the foregoing, all
such options shall include or incorporate by reference the following terms and
conditions:
(a) Number of Shares. The maximum number of shares that may be purchased
----------------
pursuant to the exercise of each option and the price per share at which such
option is exercisable (the "exercise price") shall be as established by the
Board of Directors, provided, that the exercise price of Incentive Stock Options
shall not be less than the fair market value per share of the Common Stock at
the time the option is granted, as determined in good faith by the Board of
Directors. The exercise price of Nonqualified Stock Options may be greater or
less than the fair market value per share of the Common Stock at the time the
option is granted.
(b) Duration of Options. Subject to the restrictions contained in Section
-------------------
9, the term of each option shall be established by the Board of Directors and,
if not so established, shall be ten years from the date it is granted, but in no
event shall the term of any Incentive Stock Option exceed ten years.
-2-
<PAGE>
(c) Exercisability. The Board of Directors in its absolute discretion
--------------
may, at the time of grant of any option or at any time thereafter, require that
all options granted to any individual pursuant to the Plan, whether granted at
one time or at more than one time, shall be exercised at one time only. Subject
to the other provisions of this Plan, such a requirement shall not obligate an
Optionee to exercise options prior to the date when all options have become
fully vested. Such exercise may be for all or less than all of the options held
by such individual pursuant to the Plan, but upon such first exercise, all
unexercised options shall thereupon expire and be of no further force or effect.
The foregoing shall also apply to options which may be granted but not vested,
such that an exercise of some or all vested options by an individual shall have
the effect of terminating all unvested as well as any remaining unexercised
vested options. The Board of Directors, in its absolute discretion, may waive or
accelerate any installment requirement contained in outstanding options. In no
case may an option be exercised as to less than 100 shares at any one time (or
the remaining shares covered by the option if less than 100) during the term of
the option. Only whole shares shall be issued pursuant to the exercise of any
option.
(d) Incentive Stock Option. Any option which is issued as an Incentive
----------------------
Stock Option under this Plan, shall, notwithstanding any other provisions of
this Plan or the option terms to the contrary, contain all of the terms,
conditions, restrictions, rights and limitations required to be an Incentive
Stock Option, and any provision to the contrary shall be disregarded.
6. NONTRANSFERABILITY OF OPTIONS.
Options granted under this Plan and the rights and privileges conferred hereby
may not be transferred, assigned, pledged or hypothecated in any manner (whether
by operation of law or otherwise) other than by will or the applicable laws of
descent and distribution, and shall not be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, pledge, hypothecate or
otherwise dispose of any option under this Plan or any right or privilege
conferred hereby, contrary to the provisions hereof, or upon the sale or levy or
any attachment or similar process, such option thereupon shall terminate and
become null and void. During an Optionee's lifetime, any options granted under
this Plan are personal to him or her and are exercisable solely by such
Optionee.
7. CERTAIN LIMITATIONS REGARDING INCENTIVE STOCK OPTIONS.
The grant of Incentive Stock Options shall be subject to the following special
limitations:
(a) Limitation on Amount of Grants. In no event shall any Optionee be
------------------------------
granted Incentive Stock Options that in the aggregate (together with all other
Incentive Stock Options granted by the Company or any Parents or Subsidiaries)
entitle the Optionee to purchase, in any calendar year during which such options
first become exercisable, stock of the Company, any Parent or any Subsidiary
having a fair market value (determined as of the time such options are granted)
in excess of $100,000, plus the amount of any unused limit carry-over permitted
under the applicable provisions of the Code. No limitation shall apply to
Nonqualified Stock Options.
(b) Grants to 10% Shareholders. Incentive Stock Options may be granted a
--------------------------
person owning more than 10% of the total combined voting power of all classes of
stock of the Company and any Parent or Subsidiary only if: (i) the exercise
price is at least 110% of the fair market value of the stock at the time of
grant, and (ii) the option is not exercisable after the expiration of five (5)
years from the date of grant.
8. EXERCISE OF OPTIONS.
Options shall be exercised in accordance with the following terms and
conditions:
(a) Procedure. Options shall be exercised by delivery to the Company of
---------
written notice of the number of shares with respect to which the option is
exercised.
-3-
<PAGE>
(b) Payment. Payment of the option price shall be made in full within five
-------
(5) business days of the notice of exercise of the option and shall be in cash
or bank-certified or cashier's checks, or personal check if permitted by the
Board of Directors. To the extent permitted by applicable laws and regulations
(including, but not limited to, federal tax and securities laws and
regulations), an option may be exercised by delivery of shares of Common Stock
of the Company held by the Optionee having a fair market value equal to the
exercise price, such fair market value to be determined in good faith by the
Board of Directors. Such payment in stock may occur in the context of a single
exercise of an option or successive and simultaneous exercises, sometimes
referred to as "pyramiding," which provides that, rather than physically
exchanging certificates for a series of exercises, bookkeeping entries will be
made pursuant to which the Optionee is permitted to retain his existing stock
certificate and a new stock certificate is issued for the net shares. If the
Company's Common Stock is registered under the 1934 Act, and if permitted by the
Board of Directors, and to the extent permitted by applicable laws and
regulations, (including, but not limited to, federal tax and securities laws and
regulations) an option also may be exercised by delivery of a properly executed
exercise notice together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of sale or loan proceeds to pay the exercise
price.
(c) Federal Withholding Tax Requirements. Upon exercise of an option, the
------------------------------------
Optionee shall, upon notification of the amount due and prior to or concurrently
with the delivery of the certificates representing the shares, pay to the
Company amounts necessary to satisfy applicable federal, state and local
withholding tax requirements or shall otherwise make arrangements satisfactory
to the Company for such requirements. Such arrangements may include payment of
the appropriate withholding tax in shares of stock of the Company having a fair
market value equal to such withholding tax, either through delivery of shares
held by the Optionee or by reduction in the number of shares to be delivered to
the Optionee upon exercise of such option.
9. TERMINATION OF EMPLOYMENT, DISABILITY AND DEATH.
(a) General. If the employment of the Optionee by the Company, a Parent or
-------
a Subsidiary shall terminate by retirement or for any reason other than death,
disability or cause as hereinafter provided, the option may be exercised by the
Optionee at any time prior to the expiration of thirty (30) days after the date
of such termination of employment (unless by its terms the option sooner
terminates or expires), but only if, and to the extent the Optionee was entitled
to exercise the option at the date of such termination.
(b) Disability. If the employment of the Optionee by the Company, a Parent
----------
or a Subsidiary is terminated because of the Optionee's disability (as herein
defined), the option may be exercised by the Optionee at any time prior to the
expiration of one year after the date of such termination (unless by its terms
the option sooner terminates or expires), but only if, and to the extent the
Optionee was entitled to exercise the option at the date of such termination.
For purposes of this Section, an Optionee will be considered to be disabled if
the Optionee is unable to engage in any substantial gainful activity by reason
of any medically determinable mental or physical impairment which can be
expected to result in death or which has lasted or can be expected to last a
continuous period of not less than twelve (12) months.
(c) Death. In the event of the death of an Optionee while in the employ of
-----
the Company, a Parent or a Subsidiary, the option shall be exercisable on or
prior to the expiration of one year after the date of such death (unless by its
terms the option sooner terminates and expires), but only if and to the extent
the Optionee was entitled to exercise the option at date of such death and only
by the Optionee's personal representative if then subject to administration as
part of the Optionee's estate, or by the person or persons to whom such
Optionee's rights under the option shall have passed by the Optionee's will or
by the applicable laws of descent and distribution.
(d) Termination for Cause. If the Optionee's employment with the Company,
---------------------
a Parent or a Subsidiary is terminated for cause, any option granted hereunder
shall automatically terminate as of the first advice or discussion thereof, and
such Optionee shall thereupon have no right to purchase any shares pursuant to
such option. "Termination for Cause" shall mean dismissal for dishonesty,
conviction or
-4-
<PAGE>
confession of a crime punishable by law (except minor violations), intoxication
while at work, fraud, misconduct or disclosure of confidential information.
(e) Waiver or Extension of Time Periods. The Board of Directors shall have
-----------------------------------
the authority, prior to or within the times specified in this Section 9 for the
exercise of any such option, to extend such time period or waive in its entirety
any such time period to the extent that such time period expires prior to the
expiration of the term of such option. In addition, the Board of Directors may
grant, pursuant to a specific resolution adopted at the time of grant, modify or
eliminate the time periods specified in this Section 9. However, no Incentive
Stock Option may be exercised after the expiration of ten (10) years from the
date such option is granted. If an Optionee holding an Incentive Stock Option
exercises such option, by permission, after the expiration of the time period
specified in this Section 9, the option will no longer be treated as an
Incentive Stock Option under the Code and shall automatically be converted into
a Nonqualified Stock Option.
(f) Termination of Options. To the extent that the option of any deceased
----------------------
Optionee or of any Optionee whose employment is terminated shall not have been
exercised within the limited periods prescribed in this Section 9, all further
rights to purchase shares pursuant to such option shall cease and terminate at
the expiration of such period. No Incentive Stock Option may be exercised after
the expiration of ten (10) years from the date such option is granted,
notwithstanding any provision to the contrary.
(g) Non-employee Optionees. Options granted to Optionees who are not
----------------------
employees of the Company, a Parent or a Subsidiary at the time of grant shall
not be subject to the provisions of this Section 9, except as specifically
provided in the option.
10. OPTION ADJUSTMENTS.
(a) Adjustments Upon Changes in Capitalization. The aggregate number and
------------------------------------------
class of shares on which options may be granted under this Plan, the number and
class of shares covered by each outstanding option and the exercise price per
share thereof (but not the total price), and all such options, shall each be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or any like capital adjustment, or the payment of any stock dividend,
or any other increase or decrease in the number of shares of Common Stock of the
Company without the receipt of consideration by the Company.
(b) Effect of Certain Transactions. Except as provided in subsection
------------------------------
10(c), upon a merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation of the Company, as a result of which
the shareholders of the Company receive cash, stock or other property in
exchange for their shares of Common Stock, any option granted hereunder shall
terminate, but, provided that the Optionee shall have the right immediately
prior to any such merger, consolidation, acquisition of property or stock,
separation, reorganization or liquidation to exercise his or her option in whole
or in part whether or not the vesting requirements set forth in the option
agreement have been satisfied.
(c) Conversion of Options on Stock for Stock Exchange. If the shareholders
-------------------------------------------------
of the Company receive capital stock of another corporation ("Exchange Stock")
in exchange for their shares of Common Stock in any transaction involving a
merger, consolidation, acquisition of property or stock, separation or
reorganization, all options granted hereunder shall terminate in accordance with
the provision of subsection 10(b) unless the Board of Directors and the
corporation issuing the Exchange Stock, in their sole and arbitrary discretion
and subject to any required action by the shareholders of the Company and such
corporation, agree that all such options granted hereunder are converted into
options to purchase shares of Exchange Stock. The amount and price of the such
options shall be determined by adjusting the amount and price of the options
granted hereunder in the same proportion as used for determining the number of
shares of Exchange Stock the holders of the Common Stock receive in such merger,
consolidation, acquisition of property or stock, separation or reorganization.
The vesting schedule set forth in the option agreement shall continue to apply
to the options granted for the Exchange Stock.
-5-
<PAGE>
(d) Fractional Shares. In the event of any adjustment in the number of
-----------------
shares covered by any option, any fractional shares resulting from such
adjustment shall be disregarded and each such option shall cover only the number
of full shares resulting from such adjustment.
(e) Determination of Board of Directors to be Final. All such adjustments
-----------------------------------------------
shall be made by the Board of Directors and its determination as to what
adjustments shall be made, and the extent thereof, shall be final, binding and
conclusive.
11. SECURITIES REGULATIONS.
(a) Compliance. Shares shall not be issued with respect to an option
----------
granted under this Plan unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the 1934 Act, the rules
and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall further be subject
to the approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain from any regulatory body having jurisdiction,
the authority deemed by the Company's counsel to be necessary for the lawful
issuance and sale of any shares hereunder, shall relieve the Company of any
liability in respect of the nonissuance or sale of such shares as to which such
requisite authority shall not have been obtained.
(b) Representations by Optionee. As a condition to the exercise of an
---------------------------
option, the Company may require the Optionee to represent and warrant at the
time of any such exercise that the shares are being purchased only for
investment and without any present intention to sell or distribute such shares,
if, in the opinion of counsel for the Company, such representation is required
by any relevant provision of the laws referred to in subsection 11(a). At the
option of the Company, a stop transfer order against any shares of stock may be
placed on the official stock books and records of the Company, and a legend
indicating that the stock may not be pledged, sold or otherwise transferred
unless an opinion of counsel was provided (concurred in by counsel for the
Company) stating that such transfer is not in violation of any applicable law or
regulation, may be stamped on the stock certificate in order to assure exemption
from registration. The Board of Directors may also require such other action or
agreement by the Optionees as may from time to time be necessary to comply with
the federal and state securities laws. This provision shall not obligate the
Company to undertake registration of options or stock hereunder.
12. EMPLOYMENT RIGHTS.
Nothing in this Plan or any option or right granted pursuant hereto shall confer
upon any Optionee any right to be continued in the employment of the Company, a
Parent or any Subsidiary of the Company or to remain a director, or to interfere
in any way with the right of the Company, a Parent or any Subsidiary, in its
sole discretion, to terminate such Optionee's employment at any time or to
remove the Optionee as a director at any time.
13. AMENDMENT AND TERMINATION.
(a) Action by Shareholders. The Plan may be terminated, modified or
----------------------
amended by the shareholders of the Company.
(b) Action by Board of Directors. The Board of Directors may also
----------------------------
terminate the Plan, or modify or amend the Plan in such respects as it shall
deem advisable in order to conform to any changes in law or regulation
applicable thereto, or in other respects; provided, however, that the Board of
Directors may not, without further approval by the shareholders of the Company:
-6-
<PAGE>
(i) Change the number of shares in the aggregate which may be sold
pursuant to options granted under the Plan;
(ii) Increase the period during which options may be granted or
exercised; or
(iii) Change the terms of the Plan which causes the Plan to lose its
qualification as an incentive stock option plan under Section 422(b) of the
Code.
No termination, suspension or amendment of the Plan may, without the consent of
each Optionee to whom any option shall theretofore have been granted, adversely
affect the rights of such Optionees under such options.
(c) Automatic Termination. Unless the Plan shall theretofore have been
---------------------
terminated as herein provided, this Plan shall terminate ten (10) years from the
earlier of: (i) the date on which the Plan is adopted; or (ii) the date on
which this Plan is approved by the shareholders of the Company. No option may
be granted after such termination, or during any suspension of this Plan. The
amendment or termination of this Plan shall not, without the consent of the
Optionee, alter or impair any rights or obligations under any option theretofore
granted under this Plan.
14. COMPANY RIGHT OF REPURCHASE.
(a) Scope of Repurchase Rights. Options granted to Optionees who are
--------------------------
employees of the Company, a Parent or Subsidiary at the time of grant and shares
of Common Stock issued upon exercise of such Options shall be subject to the
provisions of this Section 14. This Section shall not apply to any shares of
Common Stock held by Optionee which are freely tradable on any securities
exchange.
(b) Company Rights. Upon an Optionee's termination of employment with the
--------------
Company for any reason whatsoever, the Company shall have the absolute right,
but not the obligation, to purchase all shares owned by the Optionee which have
been acquired by the Optionee pursuant to exercise of Options included within
the scope of this Section 14. The Company shall have 180 days after the later
of (i) the termination of employment of an Optionee or (ii) the termination of
all of an Optionee's Options, in which to notify Optionee of its exercise of its
rights under this Section 14. Upon receipt of such notification, such
Optionee's rights to shares of Common Stock issued upon exercise of Options
shall terminate and be null and void, such shares of Common Stock shall be
canceled on the books and records of the Company and Optionee's sole right with
regard to such shares shall be the payment of funds to it pursuant to this
Section 14. The purchase price to be paid by the Company shall be as determined
by subsection 14(c) below. Such purchase price shall be paid in cash in full
after the Company has received from Optionee certificates evidencing the shares
of Common Stock being purchased.
(c) Purchase Price. The price of shares of Company Common Stock acquired
--------------
pursuant to this Section shall be the fair market value for such shares at the
time of termination of employment as determined in good faith by the Company's
Board of Directors. Such determination shall be final and binding.
15. RIGHT OF FIRST REFUSAL.
Options granted and the Common Stock acquired upon the exercise of such Options
("Restricted Shares") shall be subject to the following right of first refusal.
Prior to the transfer of Restricted Shares by an Optionee, the Optionee shall
give the Company written notice ("Notice") of the proposed transfer, which
Notice shall state the number of Restricted Shares proposed to be transferred,
the name of the proposed purchaser, the proposed purchase price and the proposed
terms and conditions of the transfer. The Company shall have the right to
purchase such Restricted Shares on the same terms and conditions as set forth in
the Notice, provided that the Company must give the Optionee written notice of
its intention to purchase such Restricted Shares within forty-five (45) days
from the date of the receipt of such Notice by
-7-
<PAGE>
the Company. If the Company does not elect to purchase the Restricted Shares,
the Optionee may effect the transfer of the Restricted Shares to the purchaser
identified in the Notice and upon the terms and conditions set forth in the
Notice, provided that such transfer must be completed within ninety (90) days
from the date the Notice was first received by the Company, and further provided
that such transfer is otherwise allowable under Section 11. The terms of this
Section 15 shall survive the termination of the Optionee as an employee,
director, consultant, or independent contractor of the Company. This Section
shall not apply to any shares of Common Stock held by Optionee which are freely
tradable on any securities exchange.
16. COMPLIANCE WITH SECTION 16 OF THE 1934 ACT.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of this
Plan or action by Plan administrators fails to comply, it shall be deemed null
and void to the extent permitted by law and deemed advisable by Plan
administrators.
17. EFFECTIVE DATE OF THE PLAN.
This Plan shall become effective on the date of its adoption by the Board of
Directors of the Company and options may be granted immediately thereafter but
no option may be exercised under the Plan unless and until the Plan shall have
been approved by the shareholders within twelve (12) months after the date of
adoption of the Plan by the Board of Directors. If such approval is not
obtained within such period the Plan and any options granted thereunder shall be
null and void.
-8-
<PAGE>
FIRST AMENDMENT TO
ASYMETRIX CORPORATION
1995 COMBINED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
EFFECTIVE APRIL 8, 1996
The following amendment to the 1995 Combined Incentive and Nonqualified Stock
Option Plan (the "Plan") of Asymetrix Corporation was duly approved by the Board
of Directors of the Company at a meeting held on March 25, 1996 and was duly
approved by the shareholders of the Company at a meeting held on April 8, 1996
in accordance with the requirements of the Plan.
AMENDMENT TO SECTION 2.
Section 2 of the Plan is hereby deleted and replaced with a new Section 2 to
read in its entirety as follows:
2. STOCK SUBJECT TO PLAN.
The stock subject to this Plan shall be the Company's common stock, par
value $0.01 per share (the "Common Stock"), presently authorized but
unissued or now held or subsequently acquired by the Company as treasury
shares. Subject to adjustment as provided in Section 10, the aggregate
amount of Common Stock reserved for issuance or delivery upon exercise of
all options granted under this Plan shall not exceed 4,700,000 shares of
---------
Common Stock, as constituted on the date of adoption of this Plan by the
Board of Directors. If any option granted under this Plan shall expire or
terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan.
NO OTHER CHANGES; DEFINED TERMS.
Except as otherwise set forth in this Amendment, all of the terms and conditions
and conditions of the Plan shall be unchanged and shall continue in full force
and effect in accordance with the terms thereof. Capitalized terms in this
Amendment shall have the meanings defined in the Plan unless otherwise defined
herein.
-1-
<PAGE>
SECOND AMENDMENT TO
ASYMETRIX CORPORATION
1995 COMBINED INCENTIVE AND NONQUALIFIED
STOCK OPTION PLAN
EFFECTIVE DECEMBER 2, 1996
The following amendment to the 1995 Combined Incentive and Nonqualified Stock
Option Plan (the "Plan") of Asymetrix Corporation was duly approved by the Board
of Directors of the Company pursuant to a unanimous consent dated November 11,
1996 and was duly approved by the shareholders of the Company at a meeting held
on December 3, 1996 in accordance with the requirements of the Plan.
AMENDMENT TO SECTION 2.
Section 2 of the Plan is hereby deleted and replaced with a new Section 2 to
read in its entirety as follows:
2. STOCK SUBJECT TO PLAN.
The stock subject to this Plan shall be the Company's common stock, par
value $0.01 per share (the "Common Stock"), presently authorized but
unissued or now held or subsequently acquired by the Company as treasury
shares. Subject to adjustment as provided in Section 10, the aggregate
amount of Common Stock reserved for issuance or delivery upon exercise of
all options granted under this Plan shall not exceed 5,700,000 shares of
---------
Common Stock, as constituted on the date of adoption of this Plan by the
Board of Directors. If any option granted under this Plan shall expire or
terminate for any reason without having been exercised in full, the
unpurchased shares subject thereto shall thereupon again be available for
purposes of this Plan.
NO OTHER CHANGES; DEFINED TERMS.
Except as otherwise set forth in this Amendment, all of the terms and conditions
and conditions of the Plan shall be unchanged and shall continue in full force
and effect in accordance with the terms thereof. Capitalized terms in this
Amendment shall have the meanings defined in the Plan unless otherwise defined
herein.
-1-
<PAGE>
CREDIT AGREEMENT
between
PAUL G. ALLEN, and
ASYMETRIX CORPORATION,
as the Borrowers,
and
SEATTLE-FIRST NATIONAL BANK,
BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION,
FIRST INTERSTATE BANK OF WASHINGTON, N.A., and
FIRST INTERSTATE BANK OF OREGON, N.A.,
as LenderS,
and
SEATTLE-FIRST NATIONAL BANK,
as the Agent for the Lenders
Dated as of November 4, 1992
<PAGE>
TABLE OF CONTENTS
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is made as of November 4, 1992, by and among PAUL G.
ALLEN and ASYMETRIX CORPORATION, a Washington corporation, as the Borrowers, and
SEATTLE-FIRST NATIONAL BANK, BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION, FIRST INTERSTATE BANK OF WASHINGTON, N.A., and FIRST INTERSTATE
BANK OF OREGON, N.A., as Lenders, and SEATTLE-FIRST NATIONAL BANK, as the Agent
for the Lenders.
ARTICLE I
DEFINITIONS
-----------
1.01 Certain Defined Terms. As used in this Agreement, the following
---------------------
terms have the following meanings, which apply to both the singular and plural
forms of the terms defined:
"Acceptable Collateral" means (i) any debt security of or guaranteed
---------------------
by the United States of America or any agency thereof; (ii) any debt security
which at the time is rated either AAA, AA, A, or BBB by Standard & Poor's
Corporation ("S&P") or Aaa, Aa, A or Baa by Moody's Investors Service, Inc.
("Moody's"); (iii) time deposits with, including certificates of deposit issued
by, any bank or trust company whose commercial paper is Rated A-1 or A-2 by S&P
or Prime-1 or Prime-2 by Moody's and/or whose long-term debt is rated as
provided in clause (ii) above; (iv) repurchase agreements secured by obligations
described in clause (i) above with primary dealers or banks whose debt
securities are rated as provided in clause (ii) above; and (v) commercial paper
which at the time is rated Prime-1 or Prime-2 by Moody's or A-1 or A-2 by S&P or
issued by issuers whose long-term debt is rated as provided in clause (ii)
above, and, in each case, which is pledged by Allen under the Pledge Agreement
and is subject to a perfected first lien security interest thereunder.
"Agent" means Seattle-First National Bank in its capacity as agent for
-----
the Lenders, and any successor agent designated pursuant to Section 7.06.
"Allen" means Paul G. Allen.
-----
"Asymetrix" means Asymetrix Corporation, a Washington corporation, and
---------
any Successor.
"Bank Affiliate" means a subsidiary of a Lender or a direct or
--------------
indirect parent of a Lender which, in either case, is engaged primarily in the
business of commercial banking.
"Borrower" or "Borrowers" means Allen and Asymetrix, individually and
-------- ---------
collectively.
"Business Day" means a day, other than a Saturday or Sunday, on which
------------
all of the Lenders are open for business.
<PAGE>
"Change in Control" means (a) any voluntary or involuntary disposition
-----------------
(including without limitation, any disposition to Allen's estate, any trust or
otherwise as a result of Allen's death) by Allen of any of Asymetrix's
outstanding voting stock or (b) the issuance by Asymetrix of any voting stock
if, after giving effect to any event described in foregoing clauses (a) or (b),
Allen would not have the direct ownership of fifty-one percent (51%) or more of
the then outstanding voting stock of Asymetrix.
"Collateral" means the "Collateral" as defined in the Pledge
----------
Agreement.
"Commitment" and "Commitment Period" have the meanings defined in
---------- -----------------
Section 2.01.
"Coverage Ratio" has the meaning defined in Section 5.02.
--------------
"Eligible Assignee" means (i) a commercial bank organized under the
-----------------
laws of the United States, or any state thereof, and having a combined capital
and surplus of at least $200,000,000, and (ii) a commercial bank organized under
the laws of any other country which is a member of the Organization for Economic
Cooperation and Development, or a political subdivision of any such country, and
having a combined capital and surplus of least $200,000,000, provided such bank
is acting through a branch or agency located in the United States, and (iii) any
Bank Affiliate.
"Event of Default" has the meaning defined in Section 6.01.
----------------
"Federal Funds Rate" means for any period, a fluctuating interest rate
------------------
per annum equal for each day during such period to the weighted average of the
rates on overnight federal funds transactions with members of the Federal
Reserve System arranged by federal funds brokers, as published for such day (or,
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a Business Day, the average of the quotations for such day on such
transactions received by the Agent from three federal funds brokers of
recognized standing selected by it.
"Government Approval" means an approval, permit, license,
-------------------
authorization, certificate, or consent of any Governmental Authority.
"Governmental Authority" means the government of the United States or
----------------------
any state or any foreign country or any political subdivision of any thereof or
any branch, department, agency, instrumentality, court, tribunal or regulatory
authority which constitutes a part or exercises any sovereign power of any of
the foregoing.
"Indebtedness" means for any person (i) all items of indebtedness or
------------
liability (except capital, surplus, deferred credits and reserves, as such)
which would be included in determining total liabilities as shown on the
liability side of a balance sheet as of the date as of which indebtedness is
determined, (ii) indebtedness secured by any Lien, whether or not such
indebtedness shall have been assumed, (iii) any other indebtedness or liability
for borrowed money or for the deferred purchase price of property or services
for which such person is directly
2
<PAGE>
or contingently liable as obligor, guarantor, or otherwise, or in respect of
which such person otherwise assures a creditor against loss, and (iv) any other
obligations of such person under leases which shall have been or should be
recorded as capital leases.
"Interest Period has the meaning defined in Section 2.02.
---------------
"Lender" or "Lenders" means all or any of Seattle-First National Bank,
------ -------
Bank of America National Trust and Savings Association, First Interstate Bank of
Washington, N.A., and First Interstate Bank of Oregon, N.A., and their
Successors.
"Lien" means, for any person, any security interest, pledge, mortgage,
----
charge, assignment, hypothecation, encumbrance, attachment, garnishment,
execution or other voluntary or involuntary lien upon or affecting the revenues
of such person or any real or personal property in which such person has or
hereafter acquires any interest, except (i) liens for Taxes which are not
------
delinquent or which remain payable without penalty or the validity or amount of
which is being contested in good faith by appropriate proceedings upon stay of
execution of the enforcement thereof; (ii) liens imposed by law (such as
mechanics' liens) incurred in good faith in the ordinary course of business
which are not delinquent or which remain payable without penalty or the validity
or amount of which is being contested in good faith by appropriate proceedings
upon stay of execution of the enforcement thereof; and (iii) deposits or pledges
under worker's compensation, unemployment insurance, social security or other
similar laws or made to secure the performance of bids, tenders, contracts
(except for repayment of borrowed money), or leases, or to secure statutory
obligations or surety or appeal bonds or to secure indemnity, performance or
other similar bonds given in the ordinary course of business.
"Loan" or "Loans" means the Revolving Credit Loans and Term Loans.
---- -----
"Loan Documents" means this Agreement, the Note, and the Pledge
--------------
Agreement and any other documents furnished pursuant to Article III.
"Majority Lenders" means Lenders holding sixty-seven percent (67%) of
----------------
the aggregate Commitments.
"Market Value" means:
------------
(a) for purposes of determining the market value of the Pledged
Microsoft Stock, (i) the last price per share of Microsoft Corporation's common
stock as reported for the trading day immediately preceding the date of
determination on the National Association of Security Dealers Automated
Quotation System ("NASDAQ") or, if Microsoft Corporation's common stock is then
traded on a stock exchange, the closing price on such trading date on the
principal trading exchange (ii) times the number of shares of Microsoft
Corporation's common stock constituting Pledged Microsoft Stock on the date of
determination; provided, that if Microsoft Corporation's common stock is not
--------
reported on NASDAQ or traded on a stock exchange, in either case for a period of
five (5) consecutive calendar days, then for purposes of determining Market
Value, it shall be deemed to have no value; and
3
<PAGE>
(b) for purposes of determining the market value of Acceptable
Collateral and other collateral acceptable to the Lenders as provided in Section
5.02, the market price determined as of each date of calculation as reported in
generally available reporting services or otherwise determined in good faith by
the Agent or Lenders.
"Note" has the meaning defined in Section 2.01(d).
----
"Pledge Agreement" means a Pledge Agreement executed by Allen in
----------------
favor of the Lenders and the Agent in substantially the form of Exhibit A.
---------
"Pledged Microsoft Stock" means the shares of common stock of
-----------------------
Microsoft Corporation pledged by Allen under the Pledge Agreement.
"Prime Rate" has the meaning defined in Section 2.02(a).
----------
"Pro Rata Share" means for each Lender the percentage set forth
--------------
opposite such Lender's name in Section 2.01(a).
"Qualified Microsoft Stock" means shares of Microsoft
-------------------------
Corporation's common stock which were acquired, and have been owned at all
times, by Allen for more than three (3) years prior to the date of this
Agreement, and the full purchase price or other consideration therefor was paid
or given by Allen more than three (3) years prior to the date of this Agreement,
all within the meaning of, and as required by, the Securities and Exchange
Commission's Rules 144(d)(1) and (2) and 144(k).
"Revolving Credit Loans" means the revolving credit loans made by
----------------------
the Lenders to the Borrowers pursuant to Section 2.01(a).
"Successor" means, for any corporation or banking association,
---------
any successor by merger or consolidation, or by acquisition of substantially all
of the assets of the predecessor, and, for Allen, his estate, personal
representative or heirs or legatees.
"Tax" means for any person any tax, assessment, duty, levy,
---
impost or other charge imposed by any Governmental Authority on such person or
on any property, revenue, income, or franchise of such person and any interest
or penalty with respect to any of the foregoing.
"Term Loans" means Revolving Credit Loans which have been
----------
converted to term loans as provided in Section 2.01(b).
1.02 Interest Rate-Related Definitions. Certain definitions related to
---------------------------------
the provisions governing the calculation and payment of interest are set forth
in Section 2.02(a).
1.03 Accounting Terms. Except as otherwise provided herein, accounting
----------------
terms not specifically defined shall be construed, and all accounting procedures
shall be performed, in accordance with generally accepted accounting principles
consistently applied.
4
<PAGE>
ARTICLE II
THE CREDIT
----------
2.01 Agreement to Lend. Each Lender severally agrees on the terms and
-----------------
conditions of this Agreement to make the following loans to the Borrowers:
(a) Revolving Credit Loans. Revolving Credit Loans in accordance with
----------------------
each Lender's Pro Rata Share during the period beginning on November 4, 1992,
and ending on the earlier of (i) the date on which a Change of Control occurs or
(ii) November 4, 1995 (the "Commitment Period"), in an aggregate principal
amount not to exceed at any time the sum set forth opposite such Lender's name
below, reduced by such Lender's Pro Rata Share of any outstanding Term Loans or
as a result of the Borrowers' election to reduce the Commitments (such Lender's
Commitment"):
<TABLE>
<CAPTION>
Lender's
Lender Commitment Pro Rata Share
------ ----------- ---------------
<S> <C> <C>
Seattle-First National Bank $26,000,000 30.59%
Bank of America National Trust and $30,000,000 35.29%
Savings Association
First Interstate Bank of Washington, 20,000,000 23.53%
N.A.
First Interstate Bank of Oregon, N.A. 9,000,000 10.59%
----------- ------
Total $85,000,000 100.00%
</TABLE>
The Commitments are for Revolving Credit Loans and within the amount and time
specified, the Borrowers may pay, prepay and reborrow.
At any time during the Commitment Period the Borrowers may elect to reduce
the amount of the Commitments by giving the Agent not less than ten (10)
Business Days' prior written notice, specifying the amount by which the
Commitments are to be reduced and the effective date of such reduction. No such
reduction shall reduce the total remaining Commitments to less than the
principal balances of the then outstanding Loans, and each such reduction shall
remain in effect during the entire Commitment Period.
The Borrowers (or such person as the Borrowers shall have designated by
written notice to the Agent) shall give the Agent written or telephonic notice
no later than 10:00 a.m., Seattle time, at least two (2) Business Days prior to
the date of borrowing (confirmed in writing by telecopy or letter received no
later than 10:00 a.m., Seattle time, on the specified date of borrowing, but
Borrowers' failure to provide such confirmation shall not invalidate the Agent
and
5
<PAGE>
Lenders' authority to rely on such telephonic notice) specifying the amount
and date of each Revolving Credit Loan, which shall be in a minimum amount of
$500,000 and integral multiples of $100,000 above such minimum, and the intended
use of the proceeds of such Loan. Such notices shall be effective upon receipt,
except that a notice received by the Agent after 10:00 a.m., Seattle time, shall
be deemed to be received on the immediately succeeding Business Day. Such
notices shall be irrevocable.
On receipt of each such notice, the Agent shall promptly notify each Lender
by telephone (confirmed by telecopy prior to the close of business on the day of
notice) of the information set forth in the Borrowers' notice of borrowing.
Each Lender shall, before 10:00 a.m., Seattle time, on the specified date of
borrowing, make available such Lender's Pro Rata Share of the requested
borrowing in federal or other funds immediately available in Seattle, Washington
to the Agent at its Seattle Private Banking Office, Attn: Loan Processing,
Seattle, Washington. Upon fulfillment to the Agent's satisfaction of the
applicable conditions set forth in Article III, and after receipt by the Agent
of such funds, the Agent will make such funds available to the Borrowers by
depositing them to an ordinary checking account maintained by Asymetrix at the
Agent's Seattle Private Banking Office Branch. If the Borrowers do not borrow
all or part of the amount requested in their notice of borrowing on the date
indicated in that notice of borrowing, the Borrowers, to that extent, shall be
deemed to have borrowed and prepaid the Loan in question on said date.
(b) Term Loans. The Borrowers may elect by written notice to the
----------
Agent at any time prior to November 4, 1995, to convert the Revolving Credit
Loans into Term Loans and to commence payment of equal quarterly installments of
principal. Such elections shall be for minimum principal amounts of $10,000,000
and integral multiples of $1,000,000 above such minimum. On November 4, 1995,
all outstanding Revolving Credit Loans shall automatically convert to a Term
Loan and the Borrowers shall then commence to pay quarterly installments of
principal. The quarterly installments of principal, whether commencing before
or after November 4, 1995, shall be in equal amounts sufficient to fully
amortize the unpaid balance of the Revolving Credit Loans converted into Term
Loans, based upon a 5-year amortization of the principal amount of each such
Term Loan.
(c) Required Payment of Loans. The entire unpaid balances of the
-------------------------
Loans, and all accrued interest thereon, shall be payable in full on the earlier
of (a) November 4, 2000, (b) within ninety (90) days following the date on which
a Change in Control occurs which was caused as a result of Allen's death, (c)
the date on which a Change in Control other than a Change in Control described
in clause (b) occurs, and (d) the first Business Day immediately following the
date on which the Market Value of a share of Pledged Microsoft Stock is, prior
to any stock dividend, stock split or other subdivision or combination occurring
after the date of this Agreement, less than Thirty Dollars ($30.00), and
following any such subdivision or combination, is less than Twenty-six Dollars
($26.00), and no further adjustment shall be made to give effect to any
subsequent such subdivisions or combinations. All or a portion of the unpaid
balance of the Loans, and all accrued interest thereon, shall be payable on such
date as may be required to maintain the Coverage Ratio.
6
<PAGE>
The Term Loans may be prepaid in whole or in part at any time and any
prepayment shall be accompanied by all interest accrued thereon to the date of
such prepayment and any payment required by Section 2.01(e). All prepayments
shall be applied first to interest and then to principal installments in the
inverse order of their maturity.
(d) Note. The Loans shall be evidenced by a promissory note of the
----
Borrowers substantially in the form of Exhibit B hereto payable to the order of
---------
the Agent, as agent for the Lenders (the "Note").
The Agent shall record in its records the date and amount of each Loan and
Loan repayment, the applicable interest rates, and the applicable Interest
Periods. The information so recorded shall be presumptive evidence of the
principal amount owing and interest payable on the Loans. The failure to so
record any such information or error in so recording such information shall not,
however, limit or otherwise affect the obligations of the Borrowers hereunder or
under the Note to repay the principal amount of the Loans together with all
interest accruing thereon.
(e) Prepayments, Failure of Interest Elections. The Borrowers shall
------------------------------------------
pay a prepayment premium to each Lender (i) if Borrowers elect pursuant to
Section 2.02(b) to have all or any portion of a Loan bear interest based on
either the Adjusted CD Rate or the Adjusted Euro-dollar Rate and for any reason
(including the occurrence of an event which is, or upon the lapse of time or
notice or both would become, an Event of Default) such election does not become
effective (a "Failed Election") or (ii) if for any reason (including voluntary
or mandatory prepayment or acceleration) any Lender receives all or part of its
Pro Rata Share of the principal amount of a CD Rate Loan or a Euro-dollar Rate
Loan prior to the last day of the Interest Period applicable to such Loan (a
"Prepayment").
The prepayment premium shall be payable on demand by the Agent or by the
Lender entitled thereto and shall be in the amount (if any) by which (Y) exceeds
(Z) where:
(Y) is the amount of interest which would have been payable and
was not paid on such Lender's Pro Rata Share of the Loan
with respect to which there was a Failed Election or a
Prepayment had such Lender's Pro Rata Share of such Loan
been outstanding and earned interest during the elected or
applicable Interest Period; and
(Z) is the amount of interest which would have been recoverable
by such Lender if the Lender's Pro Rata Share of the Loan
with respect to which there was a Failed Election or
Prepayment had earned interest based on an Adjusted CD Rate
or the Adjusted Euro-dollar Rate, as the case may be, for an
assumed Interest Period approximately equal to the remaining
unexpired portion of the elected or applicable Interest
Period, with such Adjusted CD Rate or Adjusted Euro-dollar
Rate determined in the manner provided in Section 2.02(a) as
of the commencement of such assumed Interest Period.
7
<PAGE>
(f) Compensation for Increased Costs. In the evet that after the date
--------------------------------
hereof any change occurs in any applicable law, regulation, treaty or directive
or interpretation thereof by any authority charged with the administration or
interpretation thereof, or any condition is imposed by any authority after the
date hereof or any change occurs in any condition imposed by any authority on or
prior to the date hereof which:
(i) subjects any Lender to any tax, duties or other charges, or
changes the basis of taxation of any payments to any Lender on account of
principal of or interest on the Euro-dollar Rate Loans or CD Rate Loans or
fees in respect of any Lender's obligation to make Eurodollar Rate Loans or
CD Rate Loans or other amounts payable with respect to its Euro-dollar Rate
Loans or CD Rate Loans (other than a change in the rate of tax based solely
on the overall net or gross income of such Lender); or
(ii) imposes, modifies or determines applicable any reserve,
deposit or similar requirements against any assets held by, deposits with
or for the account of, or loans or commitments by, any office of any Lender
in connection with its CD Rate Loans or its Euro-dollar Rate Loans to the
extent the amount of which is in excess of, or was not applicable at the
time of computation of, the amounts provided for in the definition of
Adjusted Euro-dollar Rate or Adjusted CD Rate; or
(iii) affects the amount of capital required or expected to be
maintained by banks generally or corporations controlling banks and any
Lender determines the amount by which such Lender or any corporation
controlling such Lender is required or expected to maintain or increase its
capital is increased by, or based upon, the existence of this Agreement or
of such Lender's Commitment; or
(iv) imposes upon any Lender any other condition with respect to
its CD Rate or Euro-dollar Rate Loans or its obligation to make CD Rate or
Euro-dollar Rate Loans;
which, as a result thereof, (1) increases the cost to any Lender of making or
maintaining its Loans or its Commitment hereunder, or (2) reduces the net amount
of any payment received by any Lender in respect of its Euro-dollar Rate Loans
or CD Rate Loans (whether of principal, interest, commitment fees or otherwise),
or (3) requires any Lender to make any payment on or calculated by reference to
the gross amount of any sum received by it in respect of its Euro-dollar Rate
Loans or CD Rate Loans, in each case by an amount which any such Lender in its
sole judgment deems material, then and in any such case the Borrowers shall pay
to such Lender on demand such amount or amounts as will compensate such Lender
for any increased cost, reduction or payment actually incurred or made by such
Lender. The demand for payment by any Lender shall be delivered to both the
Agent and the Borrowers and shall state the subjection or change which occurred
or the reserve or deposit requirements or other conditions which have been
imposed upon such Lender or the request, direction or requirement with which it
has complied, together with the date thereof, the amount of such cost, reduction
or payment and the manner in which such amount has been calculated. (Such
Lender will provide the Borrowers with such information as the Borrowers
reasonably request in order to confirm such
8
<PAGE>
calculations.) The statement of each Lender as to the additional amounts payable
pursuant to this Section 2.01(f) shall be prima facie evidence thereof.
The protection of this Section 2.01(f) shall be available to each Lender
regardless of any possible contention of invalidity or inapplicability of the
relevant law, regulation, treaty, directive, condition or interpretation
thereof. In the event that the Borrowers pay any Lender the amount necessary to
compensate such Lender for any charge, reduction or payment incurred or made by
such Lender as provided in this Section 2.01(f), and such charge, reduction or
payment or any part thereof is subsequently returned to such Lender as a result
of the final determination of the invalidity or inapplicability of the relevant
law, regulation, treaty, directive or condition, then such Lender shall remit to
the Borrowers the amount paid by the Borrowers which has actually been returned
to such Lender (together with any interest actually paid to Lender on such
returned amount), less the percentage share of such Lender's costs and expenses
incurred in connection with such governmental regulation or any challenge made
by such Lender with respect to its validity or applicability that is
proportionate to the percentage that the affected Loan or Commitment bears to
all of such Lender's affected assets.
2.02 Interest. The Borrowers agree to pay interest on the unpaid
--------
principal amount of the Loans from the date of each Loan until such Loan shall
be due and payable at a per annum rate equal to the Prime Rate, unless the
Borrowers shall have made an election under Section 2.02(b) which shall be in
effect for any particular Loan.
(a) Certain Defined Terms. The following terms have the following
---------------------
meanings, which apply to both the singular and plural forms of the terms
defined:
"Adjusted CD Rate" shall mean, with respect to any CD Rate Loan for
----------------
any Interest Period, an interest rate per annum (rounded upwards, if necessary,
to the next 1/20 of 1%) equal to the sum of (a) the Fixed CD Rate in effect for
such Interest Period, (b) Statutory Reserves in effect on the first day of such
Interest Period, plus (c) the Assessment Rate in effect on the first day of such
Interest Period, with such adjustment as may be required to reflect any change
during any Interest Period in the Statutory Reserves or the Assessment Rate.
For purposes hereof, the term "Fixed CD Rate" shall mean the rate for "CDs
(Secondary Markets)" with maturities comparable to the applicable Interest
Period as reported in the Federal Reserve Statistical Release (Publication
H.15(519)) published by the Federal Reserve Bank for the first day of the
applicable Interest Period, or, if said rate is not published as of the first
day of the Interest Period, the rate for a period equal to the Interest Period
appearing as of said date under the caption "Certs of Deposit" on the display
designated as "Page 120" on the Telerate Service (or such other page as may
replace Page 120 on such service) or, if none, such other available service
displaying a composite of rates offered for U.S. dollar Certificates of Deposit
as reported by the Federal Reserve System. If there is no period equal to the
Interest Period on the display, the CD Rate shall be determined by straight-line
interpolation to the nearest month (or week or day if expressed in weeks or
days) corresponding to the Interest Period between the two nearest neighboring
periods on the display.
9
<PAGE>
For purposes hereof, "Statutory Reserves" means (a) a fraction (expressed
as a decimal), the numerator of which is the Fixed CD Rate and the denominator
of which is the number one minus the aggregate of the maximum reserve
percentages (including, without limitation, any marginal, special, emergency or
supplemental reserves) expressed as a decimal established by the Board of
Governors of the Federal Reserve System or any other banking authority to which
the Lenders are subject for determining the reserve requirements of the Lenders
in respect of new negotiable time deposits in dollars of over $100,000 with
maturities approximately equal to the applicable Interest Period, such reserve
requirements including, without limitation, those imposed under Regulation D of
such Board of Governors, minus (b) the Fixed CD Rate.
For purposes hereof, the term "Assessment Rate" for any Interest Period
shall mean for any date the net annual assessment rate (rounded upwards, if
necessary, to the next 1/100 of 1%) most recently estimated by the Agent to be
payable by the Agent to the Federal Deposit Insurance Corporation (or its
successor) for insurance by such Corporation (or such successor) on time
deposits made in dollars at the Agent's domestic offices.
"Adjusted Euro-dollar Rate" shall mean, with respect to any Euro-
-------------------------
dollar Rate Loan for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the sum of (a) the Euro-
dollar Rate in effect for such Interest Period and (b) the Euro-dollar Reserves
in effect on the first day of such Interest Period, with such adjustment as may
be required to reflect any change in the Euro-dollar Reserves during any
Interest Period.
For purposes hereof, the term "Euro-dollar Rate" shall mean for any
Interest Period that per annum rate equal to the arithmetic mean (rounded to the
nearest thousandth of a percentage point) of the offered rates for U.S. Dollar
deposits for a period equal to such Interest Period appearing on the display
designated as page "LIBO" on the Reuters Monitor Money Rates Service (or such
other page on such service as may replace said page or, if none, on such other
available service which displays two or more London interbank offered rates of
major banks for U.S. Dollar deposits) as of 11:00 a.m., London time, on the day
which is two London Banking Days (a day on which dealings are carried out in the
London interbank market) prior to the first day of such Interest Period. If
there is no period equal to the Interest Period on the display, the Euro-dollar
Rate shall be determined by straight-line interpolation to the nearest month (or
week or day if expressed in weeks or days) corresponding to such Interest Period
between the two nearest neighboring periods on the display.
For purposes hereof, the term "Euro-dollar Reserves" means (a) a fraction
(expressed as a decimal), the numerator of which is the Euro-dollar Rate and the
denominator of which is the number one minus the aggregate of the maximum
reserve percentages (including, without limitation, any special, supplemental,
marginal or emergency reserves) expressed as a decimal established by the Board
of Governors of the Federal Reserve System or any other banking authority to
which the Lenders are subject for Eurocurrency Liability (as defined in
Regulation D of such Board of Governors), minus (b) the Euro-dollar Rate. It is
agreed that for purposes hereof, each Euro-dollar Rate Loan shall be deemed to
constitute a Eurocurrency Liability and to be subject to the reserve
requirements of Regulation D, without benefit of credit or proration,
10
<PAGE>
exemptions or offsets which might otherwise be available to the Lenders from
time to time under such Regulation D.
"CD Rate Loan" shall mean those portions of the Loans which bear
------------
interest based on the Adjusted CD Rate in accordance with the provisions hereof.
"Euro-dollar Rate Loan" shall mean those portions of the Loans which
---------------------
bear interest based on the Adjusted Euro-dollar Rate in accordance with the
provisions hereof.
"Interest Period" shall mean:
---------------
(a) as to any Euro-dollar Rate Loan, the period commencing on the date
specified in the notice to the Agent under Section 2.02(b) for such Euro-
dollar Rate Loan and ending one, three or six months thereafter, as elected
under such notice, and
(b) as to any CD Rate Loan, the period commencing on the date
specified in the notice to the Agent under Section 2.02(b) for such CD Rate
Loan and ending 30, 90 or 180 days thereafter, as elected under such
notice;
provided, that (i) subject to Section 2.03(d), if any Interest Period would end
- --------
on a day which shall not be a Business Day, such Interest Period shall be
extended to the next succeeding Business Day, (ii) no Interest Period with
respect to any Loan shall end later than November 4, 2000, and (iii) interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
Calculation of interest based upon the Adjusted CD Rate in accordance with
the foregoing provisions is illustrated by the following example based on
annualized interest rate:
Assume that the Fixed CD Rate is .0600, the reserve requirement is
.0300, and the FDIC assessment is .0008. The Statutory Reserve
decimal is as follows:
<TABLE>
<S> <C> <C> <C> <C> <C>
.06
---
1 - .03 - .06 .0019
The Adjusted CD Rate is the sum of the following:
Fixed CD Rate....................................... .0600
Statutory Reserves.................................. .0019
FDIC Assessment. .0008
-----
.0627 = Adjusted CD Rate
- ---------------------------------------------------- --- ----------------
</TABLE>
"Prime Rate" means on any day the rate of interest publicly announced
----------
or published by Seattle-First National Bank from time to time as its prime rate
of interest, which is not necessarily its best rate.
11
<PAGE>
(b) Interest Rate Options. Prior to maturity and subject to the
---------------------
provisions of Sections 2.02(e) and (f), the Borrowers (or such person as the
Borrowers shall have designated by written notice to the Agent) may elect to
have all or portions of the Loans bear interest at a rate per annum equal to the
Adjusted CD Rate plus, in the case of Revolving Credit Loans, 1.00%, and, in the
case of Term Loans, 1.25%, or the Adjusted Euro-dollar Rate plus, in the case of
Revolving Credit Loans, 1.00%, and, in the case of Term Loans, 1.25%.
Such elections shall be made by written or telephonic notice (confirmed in
writing by telecopy or letter received no later than 5:00 p.m., Seattle time, on
the day of such election, but Borrowers' failure to provide such confirmation
shall not invalidate the Agent and Lenders' authority to rely on such telephonic
notice) given to the Agent by 10:00 a.m., Seattle time, on a day which is (a) in
the case of a Euro-dollar Rate Loan, not less than three (3) Business Days prior
to, and (b) in the case of a CD Rate Loan, not less than two (2) Business Days
prior to, the commencement of the Interest Period, which notice shall specify
(i) the interest rate option elected, (ii) the Interest Period, (iii) the Loan
and amount of such Loan subject to such election and (iv) the Business Day on
which such Interest Period is to commence, in each case subject to the following
further limitations:
(i) At any time only one (l) interest rate option may be in effect for
all of the Revolving Credit Loans and only one (1) interest rate option may be
in effect for all of the Term Loans;
(ii) A new interest rate option with respect to a Loan may be elected
to be effective only on the last day of any applicable Interest Period then in
effect with respect to such Loan;
(iii) No Interest Period for a Euro-dollar Rate Loan which ends
on one of the last two (2) Business Days of any calendar quarter may be elected;
and
(iv) At all times, if any, when the Agent shall have given notices
(which remain in effect) under both Sections 2.02(e) and (f) that neither the
Adjusted Euro-dollar Rate nor the Adjusted CD Rate can be ascertained, or that
such rates do not adequately reflect the cost to the Lenders of making Loans,
the Loans shall bear interest at a per annum rate equal to the Prime Rate
(changing as such Prime Rate changes).
(c) Payment of Interest. Unless otherwise provided, interest on the
-------------------
Loans shall be payable monthly on the first day of each calendar month and at
maturity.
(d) Default Interest Rate . At such times as an Event of Default has
----------------------
occurred and is continuing, the Loans and any other amount payable hereunder
shall bear interest, which shall be payable on demand, at a per annum rate equal
to the higher of (i) the Prime Rate (changing as the Prime Rate changes) plus
three percent (3%), or (ii) the interest rate otherwise then in effect with
respect to the Loans or any portion thereof.
(e) Unavailability of Euro-dollar Rates. In the event, and on each
-----------------------------------
occasion, that the Agent shall have reasonably determined (which determination
shall be conclusive and
12
<PAGE>
binding) that dollar deposits in the amount of the requested principal amount of
a Euro-dollar Rate Loan are not generally available in the London Interbank
Market, or that the rate at which such dollar deposits are being offered will
not adequately and fairly reflect the cost to the Lenders of making or
maintaining the principal amount of such Euro-dollar Loan during such Interest
Period, or that reasonable means do not exist for ascertaining the adjusted
Euro-dollar Rate, the Agent shall, as soon as practicable thereafter, give
notice of such determination to the Borrowers and no request for a Euro-dollar
Rate Loan pursuant to Section 2.02(b) shall be effective until after the Agent
shall have rescinded such notice.
(f) Unavailability of CD Rates. In the event, and on each occasion,
--------------------------
that the Agent shall have reasonably determined (which determination shall be
conclusive and binding) that the Adjusted CD Rate cannot be ascertained for any
reason (including, without limitation, the inability of the Lenders to obtain
sufficient bids in accordance with the terms of the definition of the Adjusted
CD Rate) or the Agent shall determine that the Adjusted CD Rate will not
adequately and fairly reflect the cost to the Lenders of making or maintaining
the principal amount of a CD Rate Loan during the Interest Period for such CD
Rate Loan, the Agent shall, as soon as practicable thereafter, give notice of
such determination to the Borrowers and no request for a CD Rate Loan pursuant
to Section 2.02(b) shall be effective until after the Agent shall have rescinded
such notice.
2.03 Manner or Payments.
------------------
(a) All payments and prepayments of principal and interest on the
Loans and Note and all other amounts payable hereunder by the Borrowers to the
Lenders shall be made by paying the same in United States Dollars and in
immediately available funds to the Agent at its Seattle Private Banking Office
not later than 10:00 a.m., Seattle time, on the date on which such payment or
prepayment is made. The Agent will, on the same day of receipt, cause to be
distributed in like funds all such payments, prepayments and receipts to the
Lenders to be applied in accordance with the terms of this Agreement; if the
Agent fails to make any such distribution on the same day, the distribution
shall be made together with interest at the Federal Funds Rate then in effect.
(b) The Borrowers hereby authorize any Lender, if and to the extent
any payment is not promptly made pursuant to this Agreement or any Note, to
charge from time to time against any or all of the accounts of either Borrower
with such Lender or any affiliate of such Lender any amount due hereunder or
under any Note.
(c) All computations of interest shall be made on the basis of a year
of three hundred sixty (360) days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest is payable.
(d) Whenever any payment hereunder or under the Note shall be stated
to be due, or whenever the last day of any Interest Period would otherwise
occur, on a day other than a Business Day, such payment shall be made on, and
the last day of such Interest Period shall occur on, the next succeeding
Business Day, and such extension of time shall, in either such case, be included
in the computation of payment of interest; but if such extension would cause
either
13
<PAGE>
such payment to be made on, or the last date of such Interest Period to
occur in, the next following calendar month, then such payment shall be made on,
and the last day of such Interest Period shall occur on, the next preceding
Business Day.
(e) Any payment made by the Borrowers hereunder shall be applied first
against fees, expenses and indemnities due hereunder; secondly, against interest
due on amounts in default, if any; thirdly, against interest due on any Loan;
and thereafter against Loan principal.
2.04 Sharing or Payments, Etc. If the Agent or any Lender shall obtain
-------------------------
any payment from either Borrower which is applied in respect of the Loans
(whether voluntary or involuntary through the exercise of any right of setoff or
otherwise) in excess of its Pro Rata Share, the Agent or such Lender shall hold
such excess payment in trust for the other Lenders. In the case of such excess
amounts held by the Agent, it shall forthwith remit to the Lenders their Pro
Rata Shares, and, in the case of such excess amounts held by any Lender, such
Lender shall forthwith remit the sum to the Agent for distribution to the
Lenders in accordance with their Pro Rata Shares.
The Borrowers agree that the Agent and the Lenders may remit such excess
amounts to each other and that the Borrowers' obligations to the Agent and the
Lenders shall be determined after giving effect thereto.
2.05 Commitment Fee. The Borrowers agree to pay to the Agent for the
--------------
account of the Lenders a commitment fee computed daily at the rate of three-
eighths of one percent (0.375%) per annum on the unused portion of each Lender's
Commitment during the Commitment Period, payable in arrears on the last Business
Day of each calendar quarter during the Commitment Period and on demand upon the
occurrence of an Event of Default. All fees paid pursuant to this Section 2.05
shall be deemed to be fully earned and non-refundable when paid without regard
to any subsequent voluntary or involuntary prepayment of the Loans or
termination or reduction of the Commitments.
2.06 Facility Fee. The Borrowers agree to pay to the Agent, for the
------------
account of the Lenders, a facility fee in an amount equal to one-sixteenth of
one percent (.0625%)- of the total Commitments, payable on the first day of the
Commitment Period. The facility fee shall be deemed to be fully earned and non-
refundable when paid.
2.07 Agent's Fee. The Borrowers agree to pay to the Agent, for the
-----------
account of the Agent, an Agent's fee (a) during the Commitment Period in an
amount equal to one-tenth of one percent (.10%) of the total Commitments and (b)
thereafter in an amount equal to one-twelfth of one percent (.0833%) of the
balance of Term Loans outstanding on each November 4 during the period in which
any Term Loans are outstanding. The Agent's fees shall be paid annually in
advance on the first day of the Commitment Period and on each anniversary date
thereof during the periods in which Agent's fees are payable. All Agent's fees
paid pursuant to this Section 2.07 shall be deemed fully earned and non-
refundable when paid, without regard to any subsequent voluntary or involuntary
prepayment of the Loans or termination of the Commitments.
14
<PAGE>
ARTICLE III
CONDITIONS OF LENDING
---------------------
3.01 Conditions to Initial Revolving Credit Loan. The obligation of the
-------------------------------------------
Lenders to make the initial Revolving Credit Loan is subject to fulfillment of
the following conditions:
(a) Note. The Agent shall have received the Note specified in Section
----
2.01(d), duly executed and delivered by the Borrowers.
(b) Pledge Agreement. The Agent shall have received the Pledge
----------------
Agreement duly executed end delivered by Allen, together with certificates
evidencing the Pledged Microsoft Stock and stock powers duly executed in blank
by Allen with signatures guaranteed, with respect to each certificate evidencing
Pledged Microsoft Stock.
(c) Corporate Authority. The Agent shall have received in form and
-------------------
substance satisfactory to it and the Lenders a certified copy of a resolution
adopted by the Board of Directors of Asymetrix authorizing the execution,
delivery and performance of this Agreement and the Note and the borrowing
hereunder, together with evidence of the authority and specimen signatures of
the persons who have signed this Agreement and who will sign the Note on behalf
of Asymetrix, and such other evidence of corporate authority as the Agent and
the Lenders shall reasonably require.
(d) Legal Opinion. the Agent shall have received in writing the legal
-------------
opinion, addressed to the Lenders and satisfactory to them in form and
substance, of Foster Pepper & Shefelman, counsel for the Borrowers.
(e) Evidence of Security; Other Information. The Agent shall have
---------------------------------------
received evidence satisfactory to it and the Lenders that the security interest
created by the Pledge Agreement on the Collateral has been duly perfected by a
possessory pledge, and, the taking of all such other or additional acts as may
be necessary or advisable to create a valid and perfected lien of first priority
enforceable against all third parties in all jurisdictions to secure all
obligations of the Borrowers to the Lenders under this Agreement and the Loan
Documents.
(f) Regulation U. The Agent shall have received a statement executed
------------
by Allen conforming with the requirements of Federal Reserve Regulation U.
3.02 Conditions to Each Loan. The obligation of the Lenders to make any
-----------------------
Revolving Credit Loan, including the initial Revolving Credit Loan, is subject
to fulfillment of the following conditions:
(a) Prior Conditions. All of the conditions set forth in Section 3.01
----------------
shall have been fulfilled.
(b) Notice of Borrowing. The Agent shall have received notice of
-------------------
borrowing pursuant to Section 2.01(a).
15
<PAGE>
(c) Market Value of Pledged Microsoft Stock. The Market Value of the
---------------------------------------
Pledged Microsoft Stock shall, after giving effect to the Loan then being
requested, be not less than two hundred percent (200%) of the principal amount
of all Loans that will then be outstanding.
(d) No Default. At the date of the Loan, no Event of Default and no
----------
event which, with notice or lapse of time or both, would constitute an Event of
Default, shall have occurred and be continuing or will have occurred as a result
of the making of the Loan, the representations of Borrowers in Article IV shall
be true on and as of such date with the same force and effect as if made on such
date, and each request for a Loan shall be deemed a certification as to all of
the foregoing.
(e) Other Information. The Agent shall have received such other
-----------------
statements, opinions, certificates, documents and information as it and the
Lenders may reasonably request in order to satisfy itself of any of the
foregoing conditions.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
The Borrowers jointly and severally represent and warrant to the Lenders as
follows:
4.01 Corporate Existence and Power. Asymetrix is a corporation duly
-----------------------------
incorporated, validly existing and in good standing under the laws of
Washington, is qualified to do business in each other jurisdiction where the
conduct of its business or the ownership of its properties requires such
qualification, and has full corporate power and authority to carry on its
business as presently conducted, to own and operate its properties and assets,
and to execute, deliver and perform this Agreement and any Note.
4.02 Corporate Authorization: No Conflict. The execution, delivery and
------------------------------------
performance by Asymetrix of this Agreement and the Note and any borrowing
hereunder have been duly authorized by all necessary corporate action required
of Asymetrix, do not require any shareholder approval and do not contravene
Asymetrix's Articles of Incorporation or Bylaws, and the execution, delivery and
performance of this Agreement, the Note, the Pledge Agreement, and the other
Loan Documents, and any borrowing hereunder do not require the approval or
consent of any trustee or the holders of any Indebtedness of either of the
Borrowers, do not contravene any law, regulation, rule or order binding on
either Borrower, and do not contravene the provisions of or constitute a default
under any indenture, mortgage, contract or other agreement or instrument to
which either Borrower is a party or by which either Borrower or any of its
respective properties may be bound or affected.
4.03 Government Approvals, Etc. No Government Approval or filing or
--------------------------
registration with any Governmental Authority is required for the making and
performance by the Borrowers of this Agreement or any Note or in connection with
any of the transactions contemplated hereby.
16
<PAGE>
4.04 Binding Obligations Etc. This Agreement has been duly executed and
------------------------
delivered by the Borrowers and constitutes, and the Note and the other Loan
Documents, when duly executed and delivered, will constitute, the legal, valid
and binding obligations of the Borrowers, enforceable against the Borrowers in
accordance with their respective terms, and the Pledge Agreement, when duly
executed and delivered by Allen, will constitute the legal, valid and binding
obligation of Allen, enforceable against Allen in accordance with its terms.
4.05 Litigation. There are no actions, proceedings, investigations, or
----------
claims against or affecting the Borrowers now pending before any court,
arbitrator or Governmental Authority (nor to the knowledge of the Borrowers has
any thereof been threatened nor does any basis exist therefor) which if
determined adversely to either Borrower would be likely to have a material
adverse effect on the financial condition of either Borrower or the operations
of Asymetrix, or to result in a judgment or order against either borrower (in
excess or insurance coverage) for more than 5500,000 in any one case or
$1,000,000 in the aggregate, or to impair or defeat the Lien of the Lenders on
any Collateral or any rights of Allen therein, except as reflected in the
financial statements referred to in Section 4.06.
4.06 Financial Condition. The balance sheet of (a) Allen as at December
-------------------
31, 1991, and (b) the balance sheet of Asymetrix as of December 31, 1991, and
the related statements of income and retained earnings of Asymetrix for the
fiscal year then ended, copies of which have been furnished to the Lenders,
fairly present, respectively, the financial condition of Allen and Asymetrix as
at such dates and the results of operations of Asymetrix for the period then
ended, all in the case of Asymetrix in accordance with generally accepted
accounting principles consistently applied. Neither Borrower on such date had
any contingent liabilities for Taxes, unusual forward or long-term commitments
or unrealized or anticipated losses from any unfavorable commitments, except as
referred to or reflected or provided for in those balance sheets and in the
notes thereto. Since those dates, there has been no material adverse change in
the financial condition of Allen or in the financial condition or operations of
Asymetrix.
4.07 Title and Liens. Each Borrower has good and marketable title to each
---------------
of the properties and assets reflected in its respective balance sheets referred
to in Section 4.06 (except, in the case of Asymetrix, such as have been since
sold or otherwise disposed of in the ordinary course of business). No assets or
revenues of either Borrower are subject to any Lien except as required or
permitted by this Agreement or disclosed in the balance sheets referred to in
Section 4.06. The Pledged Microsoft Stock is subject to no Lien other than the
Lien of the Pledge Agreement and Allen has good and marketable title thereto.
4.08 Taxes. Each Borrower has filed all tax returns and reports required
-----
of it, has paid all Taxes which are due and payable, and has provided adequate
reserves for payment of any Tax whose payment is being contested. The charges,
accruals and reserves on the books of Asymetrix in respect of Taxes for all
fiscal periods to date are accurate. There are no questions or disputes between
either Borrower and any Governmental Authority with respect to any Taxes except
as disclosed in the balance sheets referred to in Section 4.06.
17
<PAGE>
4.09 Lien Priority. On the date of any Loan the Agents possession of the
-------------
Collateral under the Pledge Agreement shall be continuing and such possession
will constitute a valid and perfected lien of first priority in and to all of
the Collateral and will be enforceable against all third parties in all
jurisdictions as security for all obligations of the Borrowers to the Lenders.
4.10 Other Agreements. Neither Borrower is in material breach of or
----------------
default under any material agreement to which it is a party or which is binding
on it or any of its assets.
4.11 Federal Reserve Regulations. Neither Borrower is engaged principally
---------------------------
or as one of its important activities in the business of extending credit for
the purpose of purchasing or carrying any margin stock (within the meaning of
Federal Reserve Regulation U), and no part of the proceeds of any Loan will be
used to purchase or carry any such margin stock or to extend credit to others
for the purpose of purchasing or carrying any such margin stock or for any other
purpose that violates the applicable provisions of any Federal Reserve
Regulation. The Borrowers will furnish on request to the Agent a statement
conforming with the requirements of Regulation U.
4.12 Pension Plans. No "reportable event" as defined in Section 4043(b)
-------------
of Title IV of the Employee Retirement Income Security Act of 1974 has occurred
and is continuing with respect to any employee benefit plan or other plan
maintained for employees of Asymetrix and subject to that Title IV.
4.13 Security Offerings. Neither the Borrowers nor anyone acting on their
------------------
behalf has directly or indirectly offered any Note or similar security for sale
to any person or solicited from any person any offer to buy any such security or
approached or negotiated with any person concerning any such security, except
for the Lenders.
4.14 Ownership of Asymetrix. Allen is the direct owner of not less than
----------------------
fifty-one percent (51%) of the issued and outstanding voting stock of Asymetrix,
free and clear of all Liens and subject to no options, warrants, contracts or
agreements of any kind.
4.15 Ownership of Pledged Microsoft Stock. All Pledged Microsoft Stock is
------------------------------------
Qualified Microsoft Stock.
4.16 Representations as a Whole. This Agreement, the financial statements
--------------------------
referred to in Section 4.06, and all other instruments, documents, certificates
and statements furnished to the Lenders or the Agent by the Borrowers, taken as
a whole, do not contain any untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements contained herein or
therein not misleading.
18
<PAGE>
ARTICLE V
AFFIRMATIVE COVENANTS
---------------------
So long as the Lenders shall have any Commitment hereunder and until
payment in full of each Loan and the Note and performance of all other
obligations of the Borrowers under the Loan Documents, the Borrowers agree to do
all of the following:
5.01 Use of Proceeds. The Borrowers will use the Loan proceeds
---------------
exclusively for the purposes of refinancing the existing obligations of the
Borrowers to the Agent and certain lenders and for Asymetrix's working capital
needs, except that up to Twenty-five Million Dollars ($25,000,000) of the Loan
proceeds may be used for uncontested, friendly acquisitions by Asymetrix.
5.02 Maintenance of Coverage Ratio. If on any date the Market Value of
-----------------------------
the Pledged Microsoft Stock plus Acceptable Collateral and other collateral
acceptable to the Lenders is less than two hundred percent (200%) of the
principal balance of the outstanding Loans, Allen shall within ten (10) days
following such date either (a) deliver to the Agent additional shares of
Qualified Microsoft Stock registered in the name of Allen and evidenced by
certificates without restrictive legends, together with stock powers acceptable
to the Agent, to be held in pledge under the Pledge Agreement, (b) provide
Acceptable Collateral or such other collateral as is acceptable to all of the
Lenders in their sole discretion, or (c) pay such amount of the principal of the
Loans as is required so that, after giving effect to such action, the Market
Value of Pledged Microsoft Stock plus the market value of Acceptable Collateral
or any other collateral accepted by the Lenders shall equal or exceed two
hundred percent (200%) of the principal balance of the Loans (the "Coverage
Ratio"); provided, that the total of Pledged Microsoft Stock and common stock of
--------
Microsoft Corporation pledged to or otherwise held by the Agent or any Lender
pursuant to this Agreement or pursuant to or in connection with any other credit
facility for Allen or any of Allen's affiliates shall at all times constitute
less than ten percent (10%) of the total outstanding Microsoft Corporation
common stock.
5.03 Preservation of Corporate Existence Etc. Asymetrix will preserve
----------------------------------------
and maintain its corporate existence, rights, franchises and privileges in the
jurisdiction of its incorporation and will qualify and remain qualified as a
foreign corporation in each jurisdiction where such qualification is necessary
or advisable in view of the business and operations of Asymetrix or the
ownership of its properties.
5.04 Visitation Rights. At any reasonable time, and from time to time,
-----------------
the Borrowers will permit the Lenders to examine and make copies of and
abstracts from the records and books of account of and to visit the properties
of Asymetrix and to discuss the affairs, finances and accounts of Asymetrix with
any of its officers or directors.
5.05 Other Obligations. Each borrower will pay and discharge before the
-----------------
same shall become delinquent all Indebtedness, Taxes and other obligations for
which such Borrower is liable, except any thereof whose validity or amount is
being contested in good faith by such Borrower in
19
<PAGE>
appropriate proceedings with provision having been made to the satisfaction of
the Lenders for the payment thereof in the event the contest is determined
adversely to such Borrower.
5.06 Financial Information. The Borrowers will deliver to the Lenders:
---------------------
(a) Allen Financial Statements.
--------------------------
(i) As soon as available and in any event (y) prior to April 30
of each year, the personal financial statement of Allen as of the preceding
December 31, and (z) prior to August 31 of each year, the personal
financial statement of Allen as of the preceding June 30, in each case in a
form reasonably acceptable to the Lenders (but which need not be prepared
in accordance with generally accepted accounting principles) and
accompanied by Allen's certificate of compliance with the requirements of
Section 5.10;
(ii) As soon as available and in any event within fifteen (15)
days after filing with the Internal Revenue Service, copies of Allen's
federal income tax return for each calendar year; and
(iii) All other statements, reports and other information as the
Agent may reasonably request concerning the financial condition and
business affairs of Allen.
(b) Asymetrix's Financial Statements.
--------------------------------
(i) As soon as available and in any event within ninety (90) days
after the end of each fiscal year Asymetrix, the unaudited balance sheet of
Asymetrix as of the end of such fiscal year and the related statements of
operations and cash flows of Asymetrix for such fiscal year;
(ii) As soon as available and in any event within thirty (30)
days after the end of the first three fiscal quarters or Asymetrix, the
unaudited balance sheet and the related statement of operations and cash
flows of Asymetrix as of the end of such fiscal quarter (including the
fiscal year to the end of such fiscal quarter); and
(iii) All other statements, reports and other information as the
Agent may reasonably request concerning the financial condition and
business affairs of Asymetrix.
The financial statements delivered pursuant to preceding clauses (i) and
(ii) shall be accompanied by the certificate of the chief financial officer of
Asymetrix that such unaudited financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present the financial condition and operations of Asymetrix as of the
end of the respective fiscal periods.
5.07 Notification. Promptly after learning thereof, the Borrowers will
------------
notify the Lenders of (a) the details of any action, proceeding, investigation
or claim against or affecting either Borrower instituted before any court,
arbitrator or Governmental Authority or, to either
20
<PAGE>
Borrower's knowledge threatened to be instituted, which, if determined adversely
to either Borrower would be likely to impair or defeat the Lien of the Lenders
on any Collateral or any rights of either Borrower therein, or to have a
material adverse effect on the financial condition of either Borrower or the
operations of Asymetrix, or to result in a judgment or order against either
Borrower (in excess of insurance coverage) for more than $1,000,000 or, when
combined with all other pending or threatened claims, more than $1,000,000; (b)
any substantial dispute between either Borrower and any Governmental Authority;
(c) any labor controversy which has resulted in or, to either Borrower's
knowledge, threatens to result in a strike which would materially affect the
business operations of Asymetrix; and (d) the occurrence of any Event of Default
or other event which, with notice or lapse of time or both, would constitute an
Event of Default.
5.08 Additional Payments; Additional Acts. From time to time the
------------------------------------
Borrowers will (a) pay or reimburse the Lenders for all Taxes imposed on this
Agreement or any Loan Document; (b) pay all expenses, including reasonable legal
fees (including reasonable time charges of counsel that are employees of any
Lender) actually incurred by the Agent or any Lender in connection with the
preparation of this Agreement and any amendment of this Agreement or any Loan
Document; (c) obtain and promptly furnish to the Agent evidence of all such
Government Approvals as may be required to enable either Borrower to comply with
its obligations under this Agreement and the Loan Documents; (d) execute and
deliver all such instruments (such as Uniform Commercial Code continuation
statements) and perform a such other acts as may be necessary to maintain
continuously perfected as a Lien of first priority in all jurisdictions the Lien
of the Pledge Agreement on the Collateral; and (e) execute and deliver all such
other instruments and perform all such other acts as the Agent may reasonably
request to carry out the transactions contemplated by this Agreement.
5.09 Notice of Microsoft Stock Sales. At any time when the Market Value
-------------------------------
of the Pledged Microsoft Stock plus Acceptable Collateral and other collateral
acceptable to the Lenders is less than two hundred fifty percent (250%) of the
principal balance of the outstanding Loans, Allen agrees that he will not make
any single sale, or series of sales within a period of three (3) months, of
common stock of Microsoft Corporation exceeding 100,000 shares without first
giving ten (10) Business Days' prior written notice to the Lenders of his
intention to make such sales. The number of shares to be included as sales by
Allen for purposes of this Section 5.09 shall be determined as provided in the
Securities and Exchange Commission's Rule 144(e)(3).
5.10 Maintenance of Liquidity. Allen shall at all times directly own
------------------------
Qualified Microsoft Stock, cash, cash equivalents and other readily marketable
assets acceptable to Majority Lenders which have in the aggregate a current fair
market value of not less than one hundred percent (100%) of Allen's total
Indebtedness; provided, that any assets subject to any Lien (including the Lien
--------
of the Pledge Agreement), negative pledge or other restriction on transfer shall
not be considered a qualifying asset for purposes of this Section 5.10.
21
<PAGE>
ARTICLE VI
EVENTS OF DEFAULT
-----------------
6.01 Events of Default. The occurrence or any of the following events
-----------------
shall constitute an "Event of Default:"
(a) Payment Default. The Borrowers shall fail to pay for a period of
---------------
ten (10) days after the date when due any amount of principal of or interest on
any Loan or the Note or any other amount payable by it hereunder or under any
other Loan Document; or
(b) Breach of Warranty. Any representation or warranty made or deemed
------------------
made by the Borrowers under or in connection with this Agreement or any Loan
Document shall prove to have been incorrect in any material respect when made;
or
(c) Breach of Certain Covenants. Failure to perform or observe the
---------------------------
covenants in any of Sections 5.01, 5.02 or 5.10; or
(d) Breach of Other Covenants. Either Borrower shall fail to perform
-------------------------
or observe any other covenant, obligation or term of this Agreement or any other
Loan Document and such failure shall remain unremedied for thirty (30) days
after written notice thereof shall have been given to the Borrowers by the
Agent; or
(e) Default under Pledge Agreement. An Event of Default under the
------------------------------
Pledge Agreement shall occur; or
(f) Cross-Default. With respect to any Indebtedness with a principal
-------------
amount in excess of $1,000,000 individually or in the-aggregate, (i) either
Borrower shall fail to pay when due (whether by scheduled maturity, required
prepayment, acceleration, demand or otherwise) any such Indebtedness or any
interest or premium thereon and such failure shall continue after the applicable
grace period, if any, specified in the agreement or instrument relating to such
Indebtedness, or (ii) either Borrower shall fail to perform any term or covenant
on its part to be performed under any agreement or instrument relating to any
such Indebtedness and required to be performed and such failure shall continue
after the applicable grace period, if any, specified in such agreement or
instrument, if the effect of such failure to perform is to accelerate or to
permit the acceleration of the maturity of such Indebtedness, or (iii) any such
Indebtedness shall be declared to be due and payable or required to be prepaid
(other than by regularly scheduled required prepayment) prior to the stated
maturity thereof; or
(g) Insolvency Etc. Either Borrower shall admit in writing its
---------------
inability to pay its debts, shall generally not be paying its debts as such
debts become due, or shall make a general assignment for the benefit of
creditors; or either Borrower shall commence a voluntary case or other
proceeding seeking liquidation, reorganization or other relief with respect to
itself or its debts under any bankruptcy, insolvency or other similar law, or
seeking the appointment of a trustee, receiver, liquidator or other similar
official of it or any substantial part of its assets; or shall consent to any of
the foregoing in an involuntary proceeding commenced against it; or shall
22
<PAGE>
take any corporate action to authorize any of the foregoing; or an involuntary
case or other proceeding shall be commenced against either Borrower seeking
liquidation, reorganization or other relief with respect to it or its debts
under any bankruptcy, insolvency or other similar law or seeking the appointment
of a trustee, receiver, liquidator or other similar official of it or any
substantial part of its assets and such involuntary case or other proceeding
shall remain undismissed and unstayed for a period of sixty (60) days; or an
order for relief shall be entered against either Borrower under the federal
bankruptcy laws; or
(h) Judgment. A final judgment or order for the payment of money in
--------
excess of $1,000,000, or, when combined with all other such judgments or orders,
exceeds $1,000,000, or its equivalent in another currency, or a final judgment
or order which impairs or defeats the Lien of the Lenders on any Collateral or
any rights of Allen therein, shall be rendered against either Borrower or any
Collateral and such judgment or order shall continue unsatisfied and in effect
for a period of ten (10) consecutive days; or
(i) Liens. Any (i) involuntary Lien in the sum of $1,000,000 or more,
-----
individually or in the aggregate, shall attach to any asset or property of
either Borrower, or (ii) any Lien shall attach to any Collateral which, in
either case, is not discharged within sixty (60) days after such attachment or
within thirty (30) days after notice from the Agent, whichever first occurs.
(j) Failure to Give Notice of Stock Sales. Allen shall fail to give
-------------------------------------
notice of stock sales as required by Section 5.09 and such failure continues for
a period of five (5) days, or shall fail within five (5) days after giving any
such notice of stock sales to either (i) deliver to the Agent additional shares
of Qualified Microsoft Stock registered in the name of Allen and evidenced by
certificates without restrictive legends, together with stock powers acceptable
to the Agent, to be held in pledge under the Pledge Agreement, (ii) provide
Acceptable Collateral or such other collateral as is acceptable to the Lenders
in their sole discretion, or (iii) pay such amount of the principal of the Loans
as is required so that, after giving effect to such action, the Market Value of
Pledged Microsoft Stock plus the market value of Acceptable Collateral or any
other collateral accepted by the Lenders equals or exceeds two hundred fifty
percent (250%) of the principal balance of the outstanding Loans.
6.02 Consequences of Default. If any of the Events of Default defined in
-----------------------
Section 6.01(g) shall occur, the Commitments shall immediately terminate and the
principal of and the interest on the Loans and the Note and all other sums
payable by the Borrowers hereunder and under the other Loan Documents, shall
become immediately due and payable without protest, presentment, notice or
demand, all of which the Borrowers expressly waive. If any other Event of
Default shall occur and be continuing, then in any such case and at any time
thereafter so long as any such Event of Default shall be continuing, the Agent
may, with the consent of the Majority Lenders, and shall at the request of the
Majority Lenders, immediately terminate the Commitments and, if Loans shall have
been made, the Agent may, with the consent of the Majority Lenders, and shall at
the request of the Majority Lenders, (a) declare the principal of and the
interest on the Loans and the Note and all other sums payable by the Borrowers
hereunder or under any other Loan Document to be immediately due and payable,
whereupon the
23
<PAGE>
same shall become immediately due and payable without protest, presentment,
notice, or demand, all of which the Borrowers expressly waive, and (b) exercise
on behalf of itself and the Lenders all other rights and remedies available to
it and the Lenders under the Loan Documents or applicable law.
ARTICLE VII
THE AGENT
---------
7.01 Authorization and Action. Each Lender hereby appoints and authorizes
------------------------
the Agent to take such action as agent on its behalf and to exercise such powers
under this Agreement as are delegated to the Agent by the terms hereof, together
with such powers as are reasonably incidental thereto. The Agent shall have no
duties or responsibilities except those expressly set forth in this Agreement.
The duties of the Agent shall be mechanical and administrative in nature, except
as provided in Section 2.04. The Agent shall hold all payments and prepayments
of principal and interest on the Loans and Note and any payments made pursuant
to this Agreement (except pursuant to Section 2.07) or the Pledge Agreement in
trust for the Lenders. The Agent shall not have by reason of this Agreement a
fiduciary relationship in respect of any Lender, and nothing in this Agreement
or the other Loan Documents, expressed or implied, is intended to or shall be
construed to impose upon the Agent any obligations in respect of this Agreement
or the other Loan Documents except as expressly set forth herein or therein. As
to any matters not expressly provided for by this Agreement, including
enforcement or collection of the Loans, the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining)
upon the instructions of the Majority Lenders, and such instructions shall be
binding upon all Lenders and any holder of the Note; provided that the Agent
--------
shall not be required to take any action which exposes the Agent to personal
liability or which is contrary to the Loan Documents or applicable law;
provided, further, that without the consent of all Lenders, the Agent shall not
- -------- -------
increase a Lender's Commitment, change or modify the conditions precedent set
forth in Article III, the timing or rates of interest payments, the timing or
amount of commitment fees, or the timing or amounts of principal payments due in
respect of Loans, Section 5.02 or this Section 7.01, or release any Collateral
(except as provided under the Loan Documents); and Provided, further, that the
-------- -------
terms of this Article VII shall not be amended without the prior written consent
of the Agent (acting for its own account). In the absence of instructions from
the Majority Lenders, the Agent shall have authority, in its sole discretion, to
take or not to take any action unless this Agreement specifically requires the
consent of the Lenders, and any such action or failure to act shall be binding
on all the Lenders and on the holder of the Note.
7.02 Duties and Obligations.
----------------------
(a) Neither the Agent nor any of its directors, officers, agents or
employees shall be liable for any action taken or omitted to be taken by it or
any of them under or in connection with this Agreement except for its or their
own gross negligence or willful misconduct. Without limiting the generality of
the foregoing, the Agent (i) may treat the payee of any Note as the holder
thereof until the Agent receives written notice of the assignment
24
<PAGE>
thereof signed by such payee and a written agreement of the assignee that it is
bound hereby as it would have been had it been an original party hereto, in each
case in form satisfactory to the Agent; (ii) may consult with legal counsel
(including counsel for either Borrower), independent public accountants and
other experts selected by it and shall not be liable for any action taken or
omitted to be taken in good faith by it in accordance with the advice of such
experts; (iii) may appoint a third-party custodian acceptable to all Lenders and
at the expense of Lenders to monitor the value of Pledged Microsoft Stock and
Allen's compliance with Section 5.02, which custodian shall act on behalf of and
report to all of the Lenders; (iv) makes no warranty or representation to any
Lender and shall not be responsible to any Lender for any statements, warranties
or representations made in or in connection with this Agreement or in any
instrument or document furnished pursuant hereto; (v) shall not have any duty to
ascertain or to inquire as to the performance of any of the terms, covenants, or
conditions of this Agreement on the part of the Borrowers or as to the use of
the proceeds of any Loan or, unless the officers of the Agent active in their
capacity as officers of the Agent on the Borrowers' account have actual
knowledge thereof or have been notified in writing thereof by a Lender, the
existence or possible existence of any Event of Default or any event which, with
notice or lapse of time or both, would constitute an Event of Default; (vi)
shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, effectiveness, or value of this Agreement
or of any instrument or document furnished pursuant hereto; and (vii) shall
incur no liability under or in respect to this Agreement by acting upon any
notice, consent, z- certificate or other instrument or writing (which may be by
X telegram/ cable or telex) believed by it to be genuine and signed or sent by
the proper party or parties or by acting upon any representation or warranty of
the Borrowers deemed to be a made hereunder;
(b) The Agent will transmit to each Lender copies of documents
received from the Borrowers or others pursuant to the requirements of this
Agreement.
7.03 Dealings Between the Agent and Borrowers. With respect to its
----------------------------------------
Commitment, the Loan made by it, and the Note, the Agent shall have the same
rights and powers under this Agreement as any other Lender and may exercise the
same as though it were not the Agent, and the term "Lender" shall unless
otherwise expressly indicated include the Agent in its individual capacity. The
Agent may accept deposits from, lend money to, act and generally engage in any
kind of business with the Borrowers and any person which may do business with
the Borrowers, all as if the Agent were not the Agent hereunder and without any
duty to account therefor to the Lenders.
7.04 Lender Credit Decision. Each Lender acknowledges that it has,
----------------------
independently and without reliance upon the Agent or any other Lender and based
upon such documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Lender also
acknowledges that it will, independently and without reliance upon the Agent or
any other Lender and based upon such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under this Agreement.
25
<PAGE>
7.05 Indemnification. The Lenders agree to indemnify the Agent (to the
---------------
extent not reimbursed by the Borrowers) ratably according to their respective
Commitments from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind or nature whatsoever which may be imposed on, incurred by or
asserted against the Agent in any way relating to or arising out of this
Agreement or any action taken or omitted by the Agent under this Agreement,
except as result from the Agent's gross negligence or willful misconduct.
Without limiting the foregoing, each Lender agrees to reimburse the Agent
promptly on demand for its ratable share of any out-of-pocket expenses,
including legal fees, incurred by the Agent in connection with the
administration or enforcement of or the preservation of any rights under this
Agreement (to the extent that the Agent is not reimbursed for such expenses by
the Borrowers).
7.06 Successor Agent. The Agent may resign at any time by giving written
---------------
notice thereof to the Lenders and the Borrowers and may be removed at any time
with or without cause by the Majority Lenders. Upon any such resignation or
removal, the Majority Lenders shall have the right to appoint a successor Agent.
If no successor Agent shall have been so appointed by the Majority Lenders and
shall have accepted such appointment within thirty (30) days after the retiring
Agent's giving of notice of resignation or the Majority Lenders' removal of the
retiring Agent, then the retiring Agent may on behalf of the Lenders, appoint a
successor Agent, which shall be a bank organized under the laws of the 'United
States or of any state thereof, or any affiliate of such bank, located in the
State of Washington and having a combined capital and surplus of at least
Twenty-Five Million Dollars ($25,000,000). Upon the acceptance of any
appointment as the Agent hereunder by a successor Agent, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement arising after
such acceptance by a successor Agent. After any retiring Agent's resignation or
removal hereunder as the Agent, the provisions of this Article VII shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
the Agent under this Agreement.
7.07 Commitments Not Borrowed. If the Commitments are not borrowed owing
------------------------
to nonfulfillment of any condition precedent specified in Article III, no party
hereto shall be responsible to any other party for any damage or loss by reason
thereof, except that the Borrowers shall be in any event liable to pay the fees,
Taxes, and expenses for which they are obligated hereunder. If for any other
reason the Commitment of any Lender is not borrowed, neither the Agent nor any
other Lender shall be responsible to the Borrowers for any damage or loss by
reason thereof, nor shall any other Lender or the Borrowers be excused from
their performance hereunder.
ARTICLE VIII
MISCELLANEOUS
-------------
8.01 No Waiver: Remedies Cumulative. No failure by the Lenders or any
------------------------------
holder of the Note to exercise, and no delay in exercising, any right, power or
remedy under this Agreement or
26
<PAGE>
any Note shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, power or remedy under this Agreement or any Note preclude
any other or further exercise thereof or the exercise of any other right, power,
or remedy. The exercise of any right, power, or remedy shall in no event
constitute a cure or waiver of any Event of Default under this Agreement or any
Note nor prejudice the right of the Lenders or the holder of any Note in the
exercise of any right hereunder or thereunder, unless in the exercise of such
right, all obligations of the Borrowers under this Agreement and the Note are
paid in full. The rights and remedies provided herein and therein are cumulative
and not exclusive of any right or remedy provided by law.
8.02 Guarantees, Waivers, Etc. To the extent that either Borrower is, or
-------------------------
is deemed to be, a guarantor of the other Borrower's obligations under this
Agreement, the Note or any other Loan Document, such Borrower hereby waives
notice, demand, protest, presentment, prior notice thereof or of non-payment of
any of the Loans or any other obligations or amounts payable under any of the
Loan Documents (collectively, the "Obligations") and any other notices with
respect to any of the Loan Documents or the Obligations. Without affecting the
liability of any other person for payment of any of the Obligations and without
affecting the Lenders' Lien on any Collateral, such Borrower hereby agrees that
either the Lenders or the Agent may at any time and from time to time, at their
discretion and with or without notice or consideration to or consent from any
party (a) allow substitution, release or withdrawal of any Collateral or other
security owned by the other Borrower for the Obligations; (b) sell, or otherwise
realize upon, any Collateral or any other security owned by the other Borrower
for the Obligations; (c) release any party liable on the Obligations; (d)
extend, renew, rearrange, modify or amend the Obligations, whether or not for a
term or terms in excess of the original term thereof; (e) make compositions or
other arrangements with debtors or creditors; or (f) waive or delay the exercise
of any of Lenders' or the Agent's rights or remedies against any person liable
for any of the Obligations. Any of such actions may be taken without impairing
or diminishing the Obligations of such Borrower under any of the Loan Documents.
The liability of such Borrower shall not be impaired or reduced by any of the
Lenders' or the Agent's failure, refusal or neglect to collect the Obligations,
loss or subordination of any Collateral or other security or guarantee for any
of the Obligations, the existence of any unguaranteed indebtedness, or the
taking of any other security or guarantee for any of the Obligations in addition
to the security or guarantees presently existing.
To the extent that either Borrower is, or is deemed to be, a guarantor,
such Borrower hereby irrevocably waives all claims it has or may acquire against
the other Borrower in respect of the Obligations, including rights of
exoneration, reimbursement and subrogation. Each Borrower agrees to indemnify
the Agent and each Lender, and hold them harmless from and against all loss and
expense, including legal fees, suffered or incurred by any of them as a result
of claims to avoid any payment received by the Agent or any Lender from either
Borrower, or for its account or from collateral, with respect to the Obligations
of a Borrower guaranteed, or deemed to be guaranteed hereunder or under any
other Loan Document.
8.03 Governing Law. This Agreement and any Note and the other Loan
-------------
Documents shall be governed by and construed in accordance with the laws of the
State of Washington.
27
<PAGE>
8.04 Consent to Jurisdiction; Waiver of Immunities. Each Borrower hereby
---------------------------------------------
irrevocably submits to the jurisdiction of any state or federal court sitting in
Seattle, King County, Washington, in any action or proceeding brought to enforce
or otherwise arising out of or relating to this Agreement or any Note and
irrevocably waives to the fullest extent permitted by law any objection which it
may now or hereafter have to the laying of venue in any such action or
proceeding in any such forum, and hereby further irrevocably waives any claim
that any such forum is an inconvenient forum. Each Borrower agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Nothing herein shall impair the right of Lenders or the holder
of any Note to bring any action or proceeding against the Borrowers or their
property in the courts of any other jurisdiction, and each Borrower irrevocably
submits to the nonexclusive jurisdiction of the appropriate courts sitting in
any place where property or an office of a Borrower is located.
8.05 Notices. All notices and other communications provided for in this
-------
Agreement shall be in writing (unless otherwise specified) or by telecopy and
shall be mailed (with postage prepaid) or sent or delivered to each party at the
address or telecopy number set forth under its name on the signature page
hereof, or at such other address or telecopy number as shall be designated by
such party in a written notice to each other party. Except as otherwise
specified, all such notices and communications if duly given or made shall be
effective upon the earlier of receipt or two (2) Business Days after deposit in
the mail.
8.06 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their respective Successors and assigns,
except that neither Borrower may make an intervivos assignment or otherwise
transfer all or any part of its rights or obligations hereunder without the
prior written consent of the Lenders, and any such assignment or transfer
purported to be made without such consent shall be ineffective.
8.07 Assignments, Participations, Etc.
---------------------------------
(a) any Lender may at all times other than during the existence of an
Event of Default, with the written consent of the Borrowers and the Agent, which
consent of the Borrowers shall not be unreasonably withheld, assign to one or
more Eligible Assignees a ratable part of the Loans, the Commitments and the
other rights and obligations of such Lender hereunder in a minimum amount of
$5,000,000 (including outstanding Loans and such Lenders remaining Commitment);
provided, that the Borrowers, the Agent and the other Lenders may continue to
- --------
deal solely and directly with such Lender in connection with the interest so
assigned until written notice of such assignment ("Notice"), together with
payment instructions, addresses and related information with respect to the
Eligible Assignee, shall have been given to the Borrowers and the Agent by such
Lender and Eligible Assignee. An assignment of less than all of a Lender's
interest in the Loans, the Commitments, and the other rights and obligations of
such Lender hereunder shall be of the same percentage interest with respect to
each of such rights and obligations. Each Eligible Assignee which is a foreign
person (i.e., a person other than a United States person for United States
Federal income tax purposes) shall comply with the Agent's
28
<PAGE>
request for tax forms and any other related documentation prior to the
effectiveness of any assignment.
(b) From and after the date that the Agent notifies the assignor
Lender and the other Lenders that it has received a Notice, (i) the Eligible
Assignee thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it by the assignor Lender, shall
have the rights and obligations of a Lender under the Loan Documents, and (ii)
the assignor Lender shall, to the extent that rights and obligations hereunder
have been assigned by it pursuant to such assignment, relinquish its rights and
be released from the obligations under the Loan Documents.
(c) Immediately upon Agent receiving a Notice and all required
consents, this Agreement, shall be deemed to be amended to the extent, but only
to the extent, necessary to reflect the addition of the Eligible Assignee and
the resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Eligible Assignee shall reduce such Commitments of the
assignor Lender pro tanto.
--- -----
(d) Any Lender (an "Originating Lender") may at any time sell to one
or more commercial banks (a "Participant") participating interests in any Loans
-----------
and the Commitment and other interests of that Lender hereunder and under the
other Loan Documents; provided, however, that (i) the Originating Lender's
-------- -------
obligations under this Agreement shall remain unchanged, (ii) the Originating
Lender shall remain solely responsible for the performance of such obligations,
(iii) the Borrowers, the Agent and the other Lenders shall continue to deal
solely and directly with the Originating Lender in connection with the
Originating Lender's rights and obligations under this Agreement and the other
Loan Documents, and (iv) no Lender shall transfer or grant any participating
interest under which the Participant shall have the right to approve any
amendment to, or any consent or waiver with respect to, this Agreement or any
other Loan Document, except to the extent such amendment, consent or waiver
would require unanimous consent as described in Section 7.01. In the case of
any such participation, the Participant shall not have any rights under this
Agreement or any of the other Loan Documents, and all amounts payable by the
Borrowers hereunder and thereunder shall be determined as if such Lender had not
sold such participation; except that, if amounts outstanding under this
Agreement are due and unpaid, or shall have been declared or shall have become
due and payable upon the occurrence of an Event of Default, each Participant
shall be deemed to have, subject to Section 2.04, the right of set-off in
respect of its participating interest in amounts owing under this Agreement to
the same extent as if the amount of its participating interest were owing
directly to it as a Lender under this Agreement.
(e) Each Lender agrees to take normal and reasonable precautions and
exercise due care to maintain the confidentiality of all non-public information
provided to it by the Borrowers, or by the Agent on the Borrowers' behalf, in
connection with this Agreement or any other Loan Document, and neither it nor
any of its affiliates shall use any such information for any purpose or in any
manner other than pursuant to the terms contemplated by this Agreement unless
such information (i) was or becomes generally available to the public other than
as a result of a disclosure by the Lender, or (ii) was or becomes available on a
non-
29
<PAGE>
confidential basis from a source other than the Borrowers, provided that such
source is not bound by a confidentiality agreement with the Borrowers known to
the Lender. Notwithstanding the foregoing, (a) any Lender may disclose such
information (i) at the request or pursuant to any requirement of any
Governmental Authority to which the Lender is subject or in connection with an
examination of such Lender by any such authority; (ii) pursuant to subpoena or
other court process; (iii) when required to do so in accordance with the
provisions of any applicable requirement of law; and (iv) to such Lender's
independent auditors and other professional advisors, and (b) the Borrowers
authorize each Lender to disclose to any Participant or Eligible Assignee (each,
a "Transferee") and to any prospective Transferee, such financial and other
information in such Lender's possession concerning the Borrowers which has been
delivered to Agent or the Lenders pursuant to this Agreement or which has been
delivered to the Agent or the Lenders by the Borrowers in connection with the
Lenders' credit evaluation of the Borrowers prior to entering into this
Agreement if, unless otherwise agreed by the Borrowers, such Transferee or
prospective Transferee shall agree in writing with such Lender to keep such
information confidential to the same extent required of the Lenders hereunder.
8.08 Severability. Any provision of this Agreement or any other Loan
------------
Document 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
affecting the validity or enforceability of such provision in any other
jurisdiction. To the extent permitted by applicable law, the parties waive any
provision of law which renders any provision hereof prohibited or unenforceable
in any respect.
8.09 Executed in Counterparts. This Agreement may be executed in any
------------------------
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original, and all of
which taken together shall constitute one and the same Agreement.
8.10 Entire Agreement: Amendment. This Agreement and the other Loan
---------------------------
Documents comprise the entire agreement of the parties and may not be amended or
modified except in writing. No provision of this Agreement may be waived except
in writing and then only in the specific instance and for the specific purpose
for which given.
8.11 Headings. The headings of the various provisions of this Agreement
--------
are for convenience of reference only, do not constitute a part hereof, and
shall not affect the meaning or construction of any provision hereof.
8.12 Construction. In the event of any conflict between the terms,
------------
conditions and provisions of this Agreement and those of any other document
referred to herein, the terms, conditions and provisions of this Agreement shall
control.
8.13 Attorneys' Fees and Expenses. In the case of any default by any
----------------------------
party in the performance of any of the terms, conditions or covenants of this
Agreement or any Loan Document, and if attorneys are employed for collection,
adjustment, enforcement, or settlement, whether suit be instituted or not, the
prevailing party shall be entitled to recover, upon demand, all losses,
reasonable costs and expenses, including attorneys' fees (and time charges of
counsel
30
<PAGE>
that are employees of any Lender) that may be incurred in connection with such
collection, adjustment, settlement or suit, whether at trial or on appeal. The
Agent shall also have the right to commence an action or appear in any
proceeding or action purporting to affect the rights or duties of the Borrowers
hereunder, or the payment of said funds herein or therein required to be paid,
and in connection therewith, the Agent shall have the right to incur the
necessary expenses, employ counsel and to pay reasonable legal fees.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers or agents as of the date first above
written.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
BORROWERS:
/s/ Paul G. Allen
_____________________________________
PAUL G. ALLEN
Address: 6451 West Mercer Way
Mercer Island, WA 98040
Telecopy: (206) 562-0359
--------------
ASYMETRIX CORPORATION:
By: /s/ Paul G. Allen
__________________________________
PAUL G. ALLEN
Its: PRESIDENT
Address: 110 - 110/th/ Avenue N.E.
Suite 717
Bellevue, WA 98004
Telecopy: (206) 637-1539
--------------
31
<PAGE>
Copies of Notice to:
FOSTER PEPPER & SHEFELMAN
1111 Third Avenue Building
Suite 3400
Seattle, WA 98101
Telecopy: (206) 447-9700
Attn: Mr. Allen D. Israel
LENDERS
SEATTLE-FIRST NATIONAL BANK,
individually and in its capacity as the Agent
By: /s/ Seattle-First National Bank
_________________________________
Its: Senior Vice President
Address: Seattle Private Banking
701 Fifth Ave., 47/th/ Fl.
Seattle, WA 98104
Attn: Private Banking
Telecopy: (206) 358-3120
--------------
BANK OF AMERICA NATIONAL TRUST AND SAVINGS
ASSOCIATION
By: /s/ Mary Rohan
__________________________________
Its: Senior Vice President
Address: Peninsula Private Banking
600 Hansen Way, Suite 220
Palo Alto, CA 94306
Telecopy: (415) 496-2026
--------------
32
<PAGE>
LENDERS
FIRST INTERSTATE BANK OF WASHINGTON, N.A.
By: /s/ First Interstate Bank of Washington
________________________________________
Its: Senior Vice President
Address: Bellevue Private Banking
225 - 108/th/ Avenue N.E.
Bellevue, WA 98004
Telecopy: (206) 462-5508
--------------
FIRST INTERSTATE BANK OF OREGON, N.A.
By: /s/ First Interstate Bank of Oregon
________________________________________
Its: Senior Vice President
Address: Oregon Corporate Division
1300 S.W. 5/th/ Ave. T/19
Portland, OR 97201
Telecopy: (503) 225-3599
--------------
33
<PAGE>
EXHIBIT A
PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT is made as of November 4, 1992, by PAUL G. ALLEN (the
"Debtor") for the benefit of SEATTLE-FIRST NATIONAL BANK, BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, FIRST INTERSTATE BANK OF WASHINGTON,
N.A., and FIRST INTERSTATE BANK OF OREGON, N.A., (the "Lenders"), and SEATTLE-
FIRST NATIONAL BANK, as agent (the "Agent") for the Lenders.
R E C I T A L S
The Debtor, Asymetrix Corporation, the Lenders and the Agent entered
into a Credit Agreement dated as of November 4, 1992 (as the same may
be amended from time to time, the "Credit Agreement"); and
The execution and delivery of this Pledge Agreement is a material
condition precedent to the Lenders' obligations to make, and the
Agent's obligation to disburse, the Loans to Debtor as provided in the
Credit Agreement.
It is mutually agreed as follows:
1. Defined Terms. Capitalized terms not otherwise defined herein shall
-------------
have the meanings given in the Credit Agreement.
"Event of Default" means either (a) the Debtor s failure to perform or
----------------
observe any of the covenants contained herein, (b) any representation or
warranty made by the Debtor herein shall prove to have been incorrect in any
material respect, or (c) an Event of Default as defined under the Credit
Agreement.
2. Security Interest. Debtor hereby pledges, assigns and grants to the
-----------------
Lenders a security interest in all of his right, title and interest in and to
the following personal property, whether now owned or hereafter acquired (the
"Collateral"):
(a) Initial Shares of Microsoft Stock. Shares or common stock of
---------------------------------
Microsoft Corporation which are registered in the name of Debtor and evidenced
by the certificates identified on attached Schedule 1 (the "Microsoft Stock");
(b) Additional Shares of Microsoft Stock. Such additional shares of
------------------------------------
common stock of Microsoft Corporation as are delivered to the Agent from time to
time to be held in pledge under this Agreement for the ratable benefit of the
Lenders as required by the Credit Agreement;
(c) Acceptable Collateral and Other Collateral. Such Acceptable
------------------------------------------
Collateral or other collateral as is acceptable to all of the Lenders in their
sole discretion which is delivered to
<PAGE>
the Agent from time to time to be held in pledge for the ratable benefit of the
Lenders under this Agreement as required by the Credit Agreement;
(d) Stock Dividends. Etc. All stock and other non-cash dividends,
---------------------
including liquidating dividends, stock rights, warrants and other rights to
subscribe, at any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all thereof; and in the
event Debtor receives any such property, Debtor will immediately deliver it to
the Agent to be held hereunder for the ratable benefit of the Lenders;
(e) Related Rights. All securities and stock powers delivered by the
--------------
Debtor in substitution for or in addition to any of the foregoing, all
certificates and instruments representing or evidencing such securities; and
(f) Proceeds and Products. All cash and non-cash proceeds and
---------------------
products of all of the foregoing property;
provided, that Debtor shall have the right to remove Collateral from the
- --------
foregoing pledge if no Event of Default has occurred, and if, after giving
effect to such removal, the Coverage Ratio will be maintained.
3. Transfer or Instruments, Etc. Debtor agrees to deliver to the Agent on
-----------------------------
the date of the initial Loan all instruments and stock certificates pertaining
to the Collateral now owned and to deliver to the Agent promptly upon receipt
thereof all instruments and stock certificates pertaining to the Collateral
hereafter acquired. Without limiting the foregoing, if Debtor shall become
entitled to receive or shall receive, in connection with any of the Collateral,
any: (i) stock certificate, including without limitation any certificate
representing a stock dividend or in connection with any increase or reduction of
capital, reclassification, merger, consolidation, sale of assets, combination of
shares, stock split, spin-off, split-off or split-up, or liquidation; (ii)
option, warrant, or right, whether as an addition to or in substitution or in
exchange for any of its securities, or otherwise; or (iii) dividend (provided
that Debtor shall be entitled to retain any cash dividend declared and paid at a
time when no Event of Default has occurred and is continuing) or distribution
payable in property, including securities issued by other than the issuer of any
of its securities; then Debtor shall accept the same as the Agent's agent, in
trust for the Lenders, and shall deliver them forthwith to the Agent in the
exact form received, with, as applicable, Debtor's endorsement when necessary,
or appropriate stock powers duly executed in blank, to be held by the Agent for
the ratable benefit of the Lenders, subject to the terms hereof, as part of the
Collateral.
4. Obligations Secured. This Pledge Agreement is given to secure THE FULL
-------------------
AND timely performance by Debtor of all indebtedness, liabilities and
obligations owing to the Lenders pursuant to the terms of the Credit Agreement
and the other Loan Documents, and any other agreement now or hereafter entered
into by Debtor in favor of the Lenders in connection with the Credit Agreement,
the other Loan Documents, or the transactions contemplated thereby, and payment
of all costs and expenses to be paid hereunder and thereunder, whether now
existing or hereafter incurred, matured or unmatured, direct or contingent,
joint or several, including any
-2-
<PAGE>
renewals, extensions or modifications thereof and replacements or substitutions
therefor (collectively, the "Obligations").
5. Certain Agreements Regarding the Collateral. Debtor represents and
-------------------------------------------
warrants to, and agrees with, the Lenders that:
5.1 Debtor is the legal and beneficial owner of all or the Collateral
and is not prohibited by contract or otherwise from subjecting the same to the
pledge and security interest created hereby;
5.2 The Collateral is free and clear or all Liens;
5.3 No Governmental Approval or filing or registration with any
Governmental Authority by the Debtor is required for the making and performance
by the Debtor of this Agreement;
5.4 All shares of the Microsoft Stock are Qualified Microsoft Stock
that have been duly and validly issued, are fully paid and nonassessable and are
endorsed and in good order for transfer;
5.5 Debtor will neither create nor suffer to exist any Lien on the
Collateral, nor sell, transfer, lease or otherwise dispose of any item of
Collateral;
5.6 Debtor will fully and punctually perform any duty required of him
in connection with the Collateral and will not take any action which will
impair, damage or destroy the Lenders' rights with respect to the Collateral or
hereunder or the value thereof; and
5.7 Debtor (i) is not entering into this Agreement in order to
circumvent the reporting requirements of Section 13(d) or 13(g) of the
Securities and Exchange Act of 1934; (ii) to the extent required, Debtor will
continue to report the securities as beneficially owned by Debtor on Debtor's
Schedule 13D or 13G filings with the SEC; and (iii) Debtor will timely inform
the Lenders and keep the Lenders current as to all information needed to permit
timely preparation and filing by the Lenders of any statement on Schedule 13D or
13G that may be required after default.
6. Debtor's Voting Rights. So long as no Event of Default has occurred
----------------------
and is continuing, Debtor shall be entitled to exercise, or permit others to
exercise, any voting rights incident to the Collateral. Upon the occurrence and
continuation of an Event of Default, at the option of the Majority Lenders and
upon notice to the Debtor, the Debtor's right to exercise, or permit others to
exercise, such voting rights shall immediately cease and terminate and all
voting rights with respect to the Collateral shall thereupon rest solely and
exclusively in the Agent on behalf of the Lenders. The foregoing sentence shall
constitute and grant to the Agent an irrevocable proxy coupled with an interest
to vote the Collateral upon the occurrence and continuation of such an Event of
Default, and any officer of any corporation whose voting stock constitutes
Collateral, including without limitation any inspectors of elections or tellers,
may rely
-3-
<PAGE>
hereon and on any written notice from the Agent as to the existence of
an Event of Default and the Agent's right to vote such Collateral.
7. Appointment of Agent. So long as any Obligation remains unpaid or the
--------------------
Lenders have any Commitments to make Loans to Debtor, Debtor does hereby
designate and appoint the Agent his true and lawful attorney with power
irrevocable, for him and in his name, place and stead, whether or not an Event
of Default shall have occurred, to ask, demand, receive, receipt and give
acquittance for any and all amounts which may be or become due or payable to
Debtor with respect to the Collateral, and in the Agent's sole discretion to
file any claim or take any action or proceeding or either, in its own name or in
the name of Debtor, or otherwise, which the Agent deems necessary or desirable
in order to collect or enforce payment of any and all amounts which may become
due or owing with respect to the Collateral. The acceptance of this appointment
and the appointment set forth in Section 6 above by the Agent shall not obligate
it (or any Lender) to perform any duty, covenant or obligation required to be
performed by Debtor under or by virtue of the Collateral the Agent may also
execute, on behalf of Debtor, any financing statements or other instruments
which in its opinion or the opinion of any Lender may be necessary or desirable
to perfect or protect the Lenders' position with respect to the Collateral.
Without limiting the generality of the foregoing, the Agent is authorized at any
time to exercise any right of Debtor, or enforce any obligation owed to Debtor
pertaining to the Collateral and any expenses incurred by the Agent in
connection therewith shall bear interest from the date incurred until repaid by
Debtor at a per annum rate (the "Default Interest Rate") equal to the higher of
(a) the Prime Rate (changing as the Prime Rate changes) plus three percent (3%),
or (b) the interest rate otherwise then in effect with respect to the Loans or
any portion thereof. "Prime Rate" means on any day the rate of interest
publicly announced or published by the Agent from time to time as its prime rate
of interest, which is not necessarily its best rate. Any such amounts shall be
secured hereby and shall be repaid by Debtor on demand.
8. Taxes. Debtor will pay before delinquency any Taxes which are or may
-----
become through assessment or distraint or otherwise a Lien on the Collateral and
will pay any Tax which may be levied on any Obligation secured hereby.
9. Release or Collateral Etc. The obligations of Debtor shall not be
-------------------------
affected by the release or substitution of any collateral or by the release of
any renewal or extensions of time to any party to any instrument, obligation or
liability secured hereby or to which Debtor is a party. Neither the Agent nor
the Lenders shall be bound to resort to or exhaust their recourse or to take any
action against other parties or other collateral. Debtor-hereby waives
presentment, demand, protest, notice of protest and notice of nonacceptance or
nonpayment with respect to any indebtedness, obligation or liability secured
hereby. Beyond the exercise of reasonable care to assure the safe custody of
the Collateral while held hereunder, the Agent and the Lenders shall have no
duty or liability to preserve rights pertaining thereto and shall be relieved of
all responsibility for the Collateral upon surrendering it or tendering
surrender of it to Debtor.
10. Further Assurances. Debtor, at its sole cost and expense, will at any
------------------
time and from time to time hereafter (a) execute such financing statements and
other instruments and perform such other acts as the Agent may reasonably
request to establish and maintain the
-4-
<PAGE>
security interests herein granted by Debtor to the Lenders and the priority and
continued perfection thereof; (b) obtain and promptly furnish to the Agent
evidence of all such Government Approvals as may be required to enable Debtor to
comply with its obligations hereunder and under the Credit Agreement; and (c)
execute and deliver all such other instruments and perform all such other acts
as the Agent may reasonably request to carry out the transactions contemplated
hereunder and under the Credit Agreement.
11. Expenses Incurred by Secured Party. Neither the Agent nor any Lender
----------------------------------
is required to, but the Agent may, at its option pay any Tax, filing or
recording fees, or other charges payable by Debtor hereunder or under the Credit
Agreement and any such amount shall bear interest from the date of payment Until
repaid at the Default Interest Rate. Such amounts shall be repayable by Debtor
on demand and Debtor's obligation to make such repayment shall constitute an
additional Obligation secured hereby.
12. Remedies Upon Default. If an Event of Default shall occur, the Agent
---------------------
and the Lenders shall have all of the remedies provided by law or equity and,
without limiting the generality of the foregoing, or the remedies provided in
any other paragraph hereof, shall have the following remedies:
(a) The remedies of a secured party under the Uniform Commercial Code;
(b) Vote the Pledged Shares as provided in Section 6 above;
(c) Receive all dividends and all other distributions of any kind on
all or any of the Collateral;
(d) Exercise any and all rights of collection, conversion or exchange,
and any and all other rights, privileges, options or powers of the Debtor
pertaining or relating to the Collateral (the Debtor hereby irrevocably
constituting and appointing the Agent his proxy and attorney-in-fact with full
power of substitution so to do), although the Agent shall not have any duty to
exercise any such rights, privileges, options or powers or to sell or to
otherwise realize upon any of the Collateral, as hereinafter authorized, or to
preserve the same, and the Lenders shall not be responsible for any failure to
do so or delay in so doing; and/or
(e) Sell, assign and deliver the whole or, from time to time, any part
of the Collateral at any public or private sale, public auction, or otherwise,
in each case with or without demand or advertisement of the time or place of
sale or adjournment thereof, for cash, for credit or for other property, for
immediate or future delivery, and for such price or prices and on such terms as
the Agent in its discretion may determine, and the Agent may bid for and
purchase the whole or any part of the collateral so sold free from any such
right or equity of redemption- The Agent may, without notice of publication,
adjourn any public or private sale or cause the same to be adjourned from time
to time by announcement at the time and place fixed for the sale, and such sale
may be made at any time or place to which the same may be so adjourned. For the
purposes hereof, (i) a private sale shall, in the case of the Collateral, mean a
sale after solicitation of a number of persons reasonably approximating the
maximum number which in the sole opinion of the Agent, shall not require
registration of the Collateral so being offered for sale
-5-
<PAGE>
pursuant to the Securities Act of 1933, as amended (the "1933 Act"), or
compliance with any applicable state securities law commonly known as a "Blue
Sky Law," and (ii) an agreement to sell all or any part of the Collate shall be
treated as a sale thereof, and the Agent shall be free to carry out such sale
pursuant to such agreement and the Debtor shall not be entitled to the return of
any Collateral subject thereto, notwithstanding the fact that after the Agent
shall have entered into such an agreement all Events of Default may have been
remedied or the obligations may have been paid in full.
In view or the possible position of the Debtor as an "affiliate" or
"control person" of the issuer of the all or a portion of securities
constituting the Collateral under the 1933 Act, the Debtor understands that
compliance with the 1933 Act may very strictly limit the course of conduct of
the Agent or Lenders if the Agent were to attempt to dispose of all or any part
of the Collateral and may also limit the extent to which or the manner in which
any subsequent transferee of the Collateral may dispose of the same. Debtor
also understands that there may be other legal restrictions or limitations
affecting the Agent or Lenders in any attempts to dispose of all or any part of
the Collateral under applicable Blue Sky or other state securities laws. The
Debtor agrees that any private sale conducted in a manner which complies with
the 1933 Act and Blue Sky or state securities laws shall be commercially
reasonable (within the meaning of Section 9-504(3) of the Uniform Commercial
Code), and the Debtor hereby waives any claims against the Lenders arising by
reason of the fact that the price at which the Collateral may have been sold at
such a private sale was less than the price which might have been obtained at a
public sale or was less than the aggregate amount of the Obligations, even if
the Agent accepts the first offer received and does not Offer the Collateral to
more than one possible purchaser. Without limiting the generality of the
foregoing, the foregoing provisions would apply if, for example, the Agent were
to place all or any part of the Collateral for private placement by an
investment banking firm, or if such h investment banking firm purchased all or
any part of the Collateral for its own account, or if the Agent placed all or
any part or the Collateral privately with a purchaser or purchasers.
13. Notice. Debtor agrees that a period of ten (10) days from the date
------
notice is sent shall be a reasonable period of notification, if required, of
sale or other disposition of Collateral by the Lenders as secured party;
provided however that if the Collateral threatens to decline rapidly in value or
is of a type customarily sold on a recognized market then such notice may be
dispensed with.
14. Hold Harmless. Debtor will indemnify and hold the Lenders harmless
-------------
from all liability, loss, damage or expense, including attorneys' fees and
costs, that the Agent or the Lenders may incur in compliance with or the
enforcement of the terms of this Agreement or the Obligations. The covenants
set forth in this Section 14 shall survive the termination of this Agreement.
15. No Waiver: Remedies Cumulative. No failure by the Agent, any Lender
------------------------------
or any holder of any Note to exercise, and no delay in exercising, any right
power or remedy under this Agreement shall operate as a waiver thereof, nor
shall any single or partial exercise of any right, power or remedy under this
Agreement preclude any other or further exercise thereof or the
-6-
<PAGE>
exercise of any other right, power, or remedy. The exercise of any right, power,
or remedy shall in no event constitute a cure or waiver of any Event of Default
nor prejudice the right of the Agent, any Lender or the holder of any Note in
the exercise of any right hereunder or thereunder, unless in the exercise of
such right, all Obligations are paid in full. The rights and remedies provided
herein are cumulative and not exclusive of any right or remedy provided by law.
16. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of Washington, except insofar as the laws
of a jurisdiction where Collateral is located require the laws of that
jurisdiction to govern the creation, perfection, or enforcement of a Lien on any
such Collateral.
17. Consent to Jurisdiction Waiver of Immunities. Debtor hereby
--------------------------------------------
irrevocably submits to the jurisdiction of any state or federal court sitting in
Seattle, Washington, in any action or proceeding brought to enforce or otherwise
arising out of or relating to this Agreement and hereby waives any objection to
venue in any such court, and waives any claim that such forum is an inconvenient
forum. Debtor agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing herein shall impair
the right of the Agent, any Lender or the holder of any Note to bring any action
or proceeding against Debtor, or any of h property, in the courts of any other
jurisdiction.
18. Notices. All notices and other communications provided for in this
-------
Agreement shall be in writing (unless otherwise specified) and shall be given as
specified in the Credit Agreement.
19. Assignment. This Agreement shall be binding upon and inure to the
----------
benefit of the parties and their respective Successors and assigns, except that
Debtor may not assign or transfer of all or any part of his rights or
obligations hereunder without the prior written consent of the Lenders, and any
such assignment or transfer purported to be made without such consent shall be
ineffective.
20. Severability. Any provision of this Agreement 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 affecting the validity or enforceability of such
provision in any other jurisdiction. To the extent permitted by applicable law,
Debtor waives any provision of law which renders any provision hereof prohibited
or unenforceable in any respect.
21. Entire Agreement; Amendment. This Agreement and the other Loan
---------------------------
Documents comprise the entire agreement between Debtor, Asymetrix Corporation,
the Agent, and the Lenders, and may not be amended or modified except in
writing. No provision of this Agreement may be waived except in writing and
then only in the specific instance and for the specific purpose for which given.
-7-
<PAGE>
22. Headings. The headings of the various provisions of this Agreement
--------
are for convenience or reference only, do not constitute a part hereof, and
shall not affect the meaning or construction of any provision hereof.
23. Construction. Except as otherwise provided, time is of the essence of
------------
the performance of each and every obligation of Debtor set forth herein.
24. Attorneys' Fees and Expenses. If attorneys are employed for
----------------------------
collection, adjustment, enforcement, or settlement, whether suit be instituted
or not, the Lenders shall be entitled to recover, upon demand, all losses,
reasonable costs and expenses, including attorney's fees (and time charges of
counsel that are employees of any Lender) that may be incurred in connection
with such collection, adjustment, settlement or such. The Lenders shall also
have the right to commence an action or appear in any proceeding or action
purporting to arrest the rights or duties of Debtor hereunder, and in connection
therewith, the Lenders shall have the right to incur the necessary expenses,
employ counsel and to pay reasonable legal fees. All such amounts owed to the
Lenders are secured hereby.
IN WITNESS WHEREOF, Debtor has executed this Agreement as or the day and
year first above written.
_______________________________________
PAUL G. ALLEN
-8-
<PAGE>
SCHEDULE 1
<TABLE>
<CAPTION>
Certificate Number Shares
------------------ -------
<S> <C>
MS46532 500,000
MS46533 500,000
MS46S35 500,000
MS46538 500,000
MS46539 420,000
MS65659 500,000
MS65668 420,000
MS100311 250,000
MS100312 250,000
MS100313 250,000
MS100322 50,000
MS100323 50,000
MS100324 50,000
MS100333 20,000
</TABLE>
<PAGE>
EXHIBIT B
PROMISSORY NOTE
$85,000,000 November 4, 1992
Seattle, Washington
FOR VALUE RECEIVED, PAUL G. ALLEN and ASYMETRIX CORPORATION ("Borrowers")
jointly and severally promise to pay to the order of SEATTLE-FIRST NATIONAL
BANK, as Agent for Seattle-First National Bank, Bank of America National Trust
and Savings Association, First Interstate Bank of Washington, N.A., and First
Interstate Bank of Oregon, N.A. (the "Lenders"), the principal sum of Eighty-
five Million Dollars ($85,000,000), or such lesser amount as shall equal the
balance outstanding of Loans made to the Borrowers under the Credit Agreement,
plus interest thereon, as hereinafter provided. This Promissory Note is issued
by the Borrowers pursuant to the Credit Agreement between the Borrowers, the
Lenders and the Agent dated as of November 4, 1992 (as the same may be amended
from time to time, the "Credit Agreement"). Capitalized terms not otherwise
defined in this Note shall have the meanings set forth in the Credit Agreement.
The Borrower further agrees as follows:
1. The principal balance of this Promissory Note, and all accrued interest
thereon, shall be paid in full on the earlier of (a) November 4, 2000, (b) the
date on which a Change of Control occurs, and (c) the first Business Day
immediately following the date on which the Market Value of a share of Pledged
Microsoft Stock is less than (i) Thirty Dollars ($30.00) or (ii) Twenty-Six
Dollars ($26.00) following any adjustment to give effect to any stock dividend,
stock split or other subdivision or combination occurring after the date of this
Promissory Note. All or a portion of the principal balance of this Promissory
Note, and all accrued interest thereon, shall be payable on such date as may be
required to maintain the Coverage Ratio.
The unpaid principal shall rear interest at a rate determined as provided
in Section 2.02 of the Credit Agreement. Unless otherwise provided in the
Credit Agreement, interest shall be payable monthly on the first day of each
calendar month and at maturity.
All payments of principal and interest on this Promissory Note shall be
made to the Agent for the account of the Lenders in accordance with their
respective Pro Rata Shares in Immediately available funds as provided in section
2.03(a) or the Credit Agreement.
2. This Promissory Note 1S issued pursuant to and 1S subject to the terms
and conditions of the Credit Agreement, reference to which is made for a
description of the Events of Default, mandatory prepayment, prepayment premium,
and certain other matters. The obligations of the Borrower hereunder are
secured by the Pledge Agreement.
3. Each party executing, endorsing or otherwise obligated hereon hereby
waives demand, notice, presentment, protest, notice thereof or of nonpayment,
and is bound as a principal and not as surety. In the event the holder of this
Promissory Note takes any action to
<PAGE>
enforce or collect this Promissory Note, the Borrower agrees to pay the
reasonable cost thereof, including without limitation, reasonable attorneys'
fees, including any on appeal, and whether or not suit is instituted.
4. This Promissory Note shall be construed and enforced in accordance with
the laws of the State of Washington.
/s/ Paul G. Allen
________________________________
PAUL G. ALLEN
ASYMETRIX CORPORATION
By: Paul G. Allen
_________________________________
Its PRESIDENT
-2-
<PAGE>
ASYMETRIX CORPORATION
UNANIMOUS CONSENT
OF DIRECTORS
Having reviewed the loan proposal and the form of Credit Agreement dated as
of November 4, 1992 ("Credit Agreement") among Seattle-First National Bank, Bank
of America National Trust and Savings Association, First Interstate Bank of
Washington, N.A., and First Interstate Bank of Oregon, N.A., as Lenders;
Seattle-First National Bank as Agent for the Lenders; and Asymetrix Corporation
(the "Company") and Paul G. Allen as Borrowers in the form attached hereto, and
having reviewed such other matters as they have deemed relevant and necessary,
the undersigned, being all of the directors of the Company, hereby consent to
the following corporate action in lieu of meeting:
RESOLVED, that the Company Vs hereby authorized to borrow up to $85,000,000
pursuant to the terms of the Credit Agreement; to enter into the Credit
Agreement, a note or notes evidencing such borrowings and into such other
documents as are more fully described in the Credit Agreement; and to execute
such other certificates and instruments to be provided by the Company pursuant
to the Credit Agreement or as are necessary to give effect to the Credit
Agreement.
RESOLVED, that either the Chairman and President or the Executive Vice
President and Secretary/Treasurer, be and hereby is authorized and empowered to
execute and deliver on behalf of the Company the Credit Agreement, notes and the
other loan documents described therein in substantially the form presented to
the directors or with such changes thereto as such Officers, or any one of them,
shall determine to be necessary or appropriate (the execution of such documents
to be conclusive evidence of the approval of the terms and conditions thereof).
Such Officers are authorized and empowered to execute and deliver all other
agreements, instruments and certificates and are authorized and empowered to do
and perform, or cause to be done or performed, any and all such other acts,
matters and things as in their judgment may be necessary, proper or convenient
in order, fully and effectively, to carry out the provisions of the Credit
Agreement and other loan documents and the transactions contemplated therein,
the execution and delivery of any such documents to be conclusive evidence of
the approval of the terms and conditions thereof.
RESOLVED, that each of the following persons are hereby authorized to (i)
notify the Agent under the Credit Agreement of the Company's intention to borrow
under the Revolving Credit Loans pursuant to Section 2.01(a) of the Credit
Agreement and to specify in such notice the amount of any such borrowing, (ii)
select such interest rate options as such Officer shall deem desirable on behalf
of the Company and to notify the Agent pursuant to Section 2.02(b) of the Credit
Agreement of the interest rate option selected, the interest period and the
business day on which the interest period is to commence, and (iii) convert the
Revolving Credit Leans into Term Loans and to notify the Agent of the Company's
intention to convert under Section 2.01(b) of the Credit Agreement and the
amount of the borrowing to be so converted:
<PAGE>
Name Position
---- --------
Paul G. Allen President and Chairman of the Board
Bert E. Kolde Executive Vice President and Secretary/Treasurer
John Atherly Controller
DATED this 12th day of November, 1992.
DIRECTORS:
/s/ Paul G. Allen
_____________________________
PAUL G. ALLEN
/s/ Bert Kolde
______________________________
BERT E. KOLDE
-2-
<PAGE>
CERTIFICATE OF PAUL G. ALLEN
AND
ASYMETRIX CORPORATION
Paul G. Allen ("Borrower") on behalf of himself, and Paul G. Allen .and
Bert E. Kolde, as the President and Executive Vice President, respectively, of
Asymetrix Corporation, a Washington corporation (the "Company"), hereby certify
that:
1. No action or proceeding for the merger, consolidation, male of assets
or business, liquidation, winding up or dissolution of the Company has been
commenced and no such action or proceeding is contemplated.
2. Except as described on Exhibit A attached hereto, there is no action,
proceeding or claim against the Company or the Borrower now pending before any
court, arbitrator or Governmental Authority which, if determined adversely to
the Company or to the Borrower, would be likely to have a material adverse
effect on the financial condition of the Company or the Borrower or to result in
the judgment or order against the Company or Borrower for (in each case in
excess of insurance coverage) more than $100,000 in any one case or $250,000 in
the aggregate, or impair or defeat the Lien of the Lenders on any Collateral or
any rights of the Company or Borrower therein.
3. Except for (i) the Credit Agreement dated as of November 4, 1992 among
the Borrower, Seattle-First National Bank, Bank of America National Trust and
Savings Association, First Interstate Bank of Washington, N.A., First Interstate
Bank of Oregon, N.A. and First Interstate Bank of California, as Lenders; and
Seattle-First National Bank, as Agent, (ii) the Credit Agreement dated as of
April 5, 1989, between the Borrower and Asymetrix corporation as the Borrowers
and Seattle-First National Bank, First Interstate Bank of Washington, N.A.,
First Interstate Bank of Nevada, N.A., as Lender, and Seattle-First National
Bank, as Agent, (iii) the Credit Agreement made as of August 15, 1990 by and
among Paul G. Allen, as the Borrower and Debtor, and Seattle-First National
Bank, First Interstate Bank of Oregon, N.A., First Interstate Bank of
California, and First Interstate Bank of Washington, N.A., as Lenders, and
Seattle-First National Bank as Agent, and (iv) the Credit Agreement made as-of
June 27, 1988 by and among Paul G. Allen as Borrower, Trail Blazers Inc.,
Guarantor and Seattle-First national Bank, First Interstate Bank of Washington,
N.A., First Interstate Banks of Oregon, N.A., and Bank of America Oregon, as
Lenders, and Seattle-First National Bank, as Agent, there are not any loan or
credit agreements which the Company or Borrower has incurred indebtedness
currently exceeding $1,000,000.
4. Borrower owns more than fifty-one percent of the issued and outstanding
voting stock: (i) of the company and (ii) of Interval Research Corporation, a
Washington corporation, ("Interval"). There are no Liens on any of the stock of
the Company or the stock of Interval, which is owned by the Borrower. None of
such stock is subject to any option, warrant, contract, or agreement of any
kind.
5. Neither the Company nor Interval has any outstanding options, warrants,
convertible securities or other agreements of any nature obligating either
entity to issue any voting securities to any person other than the Borrower.
-1-
<PAGE>
6. The Pledged MicroSoft Stock is free and clear of all Liens other than
those created in favor of the Lenders pursuant to the Pledge Agreement.
Borrower has no notice or knowledge of any interest or claim against any of the
Pledged MicroSoft stock that is adverse to the respective interests of Allen and
the Lenders in such stock. Borrower has not received any notice of deficiency
in respect of, or any assessment of, any federal, state or other tax, and
Borrower has filed all tax returns and paid all federal, state and local taxes
required to be filed or paid by him. Borrower has not executed a security
agreement with respect to or granted a security interest in the Pledged
MicroSoft stock except in favor of the lenders.
7. Borrower has not granted to any person any lien or security interest
against or in the Pledged Microsoft stock or the stock of the Company or
Interval owned by the Borrower.
Capitalized terms not otherwise defined herein have the same meaning as set
forth in the Credit Agreement dated November __, 1992 between Paul G. Allen and
Asymetrix Corporation, as the Borrowers and Seattle-First National Bank, Bank of
America National Trust and Savings Association, First Interstate Bank of
Washington, N.A., and First Interstate Bank of Oregon, N.A., as Lenders and
Seattle-First National Bank as Agent for the Lenders. This certificate is being
furnished to you in connection with rendering your opinion dated the same date
to the Lenders. It is understood that you are relying on the certifications
herein in giving your opinion .
DATED: November 12, 1992
/s/ Paul G. Allen
____________________________________
PAUL G. ALLEN
ASYMETRIX CORPORATION
By: /s/ Paul G. Allen
________________________________
PAUL G. ALLEN, PRESIDENT
ASYMETRIX CORPORATION
By: /s/ Bert Kolde
________________________________
BERT E. KOLDE, EXECUTIVE
VICE PRESIDENT
-2-
<PAGE>
EXHIBIT A
In Asymetrix v. Merillin Paris, C 91-366 D (W.D. Washington), Ms. Paris has
---------------------------
alleged counterclaims in connection with the termination of her employment by
Asymetrix, and in connection with Asymetrix's seizure of certain software from
Ms. Paris' home pursuant to the Copyright Act. The amounts claimed by Ms. Paris
are not specified, but could potentially exceed $100,000.
-3-
<PAGE>
November 12, 1992
Seattle-First National Bank First Interstate Bank of Oregon, N.A.
Seattle Private Banking Oregon Corporate Division
701 Fifth Avenue 1300 S.W. Fifth Avenue T/19
Seattle, Washington 98104 Portland, Oregon 97201
Bank of America National Trust First Interstate Bank of
and Savings Association Washington, N.A.
Peninsula Private Banking Bellevue Private Banking
600 Hansen Way, Suite 220 225 - 108th Avenue N.E.
Palo Alto, California 94306 Bellevue, Washington 98004
Re: Loan to Paul G. Allen and Asymetrix Corporation
Ladies and Gentlemen:
We have acted as counsel for Paul G. Allen ("Allen") and Asymetrix
Corporation, a Washington corporation ("Asymetrix" and, collectively, with
Allen, the "Borrowers"), in connection with the preparation of and the
transactions contemplated by the Credit Agreement dated as of November 4, 1992
(the @'Credit Agreement") among the Borrowers; Seattle-First National Bank, Bank
of America National Trust and Savings Association, First Interstate Bank of
Washington, N.A. and First Interstate Bank of Oregon, N.A., as Lenders; and
Seattle-First National Bank, as Agent. This opinion is delivered to you
pursuant to Section 3.01(d) of the Credit Agreement. Capitalized terms not
otherwise defined herein have the respective meanings set forth in the Credit
Agreement.
In connection with our opinion, we have reviewed the following documents:
(a) the Credit Agreement;
(b) the Note;
(c) the Pledge Agreement;
(d) the Articles of Incorporation of Asymetrix and all amendments
thereto, certified by the Secretary of State of the state of Washington;
(e) the Bylaws of Asymetrix and all amendments thereto certified by
the secretary of Asymetrix;
(f) the Certificate of the Secretary of State of the state of
Washington dated October 5, 1992 as to the valid existence of Asymetrix;
<PAGE>
November 12, 1992
Page 2
(g) the loan or credit agreements and other agreements which the
Borrowers have certified to us are the only agreements pursuant to which either
of them has incurred indebtedness, in each case where the amount of indebtedness
exceeds $1,000,000 (the "Material Financing Documents"); and
(h) such other records of the Borrowers, agreements, instruments,
certificates of public officials and documents as we have deemed necessary for
the opinions expressed in this letter.
The Credit Agreement, the Pledge Agreement and the Note are sometimes
collectively referred to herein as the "Loan Documents".
In giving our opinion, we have assumed (i) the genuineness of all
signatures, (ii) the authenticity of all documents provided to us as originals,
and the conformity to authentic, original documents of all documents provided to
us as certified, conformed or photostatic copies and (iii) the due
authorization, execution and delivery of the Credit Agreement and the Pledge
Agreement by, and the enforceability thereof against, the Lenders and the Agent.
As to questions of fact material to our opinion, we have, where relevant facts
were not independently established, relied upon certifications by the Borrowers.
In rendering the opinion expressed in paragraph 6, we have relied
exclusively and without further inquiry or independent verification (i) upon
certifications by each Borrower and (ii) in accordance with our standard audit
letter response procedures, upon inquiries of those attorneys in our firm who
handle matters for the Borrowers.
In rendering the opinions expressed in paragraphs 7(b) and 8, we have
relied exclusively and without further inquiry or independent verification (a)
upon the results of searches conducted by Prentice Hall Legal and Financial
Services of the records of the Department of Licensing for financing statements
and the offices of the County Auditor of King County, Washington for federal and
state tax liens filed against Allen(which results cover financing statements
filed as of the close of business on September 24, 1992 and federal and state
tax liens filed as of the close of business on September 22, 1992), (b) on the
representations of Allen in the Loan Documents and the written certifications
delivered to us in connection with the delivery of this opinion and (c) our
examination of the certificates representing the Pledged Microsoft Stock and the
stock of Asymetrix registered in the name of Allen.
In rendering the opinion expressed in paragraph 9 below, we have assumed
that Allen has rights in the Pledged Microsoft Stock and that the Pledged
Microsoft Stock will be duly endorsed to the Lenders or in blank.
Based on the foregoing and subject to the further qualifications below, we
are of the opinion that:
l. Asymetrix is a corporation duly incorporated and validly existing under
the laws of the state of Washington, and has full corporate power and authority
to carry on its business as presently conducted, to own and operate its
properties and assets, and to execute, deliver and perform the Credit Agreement
and the Note.
<PAGE>
November 12, 1992
Page 3
2. The execution, delivery and performance by Asymetrix of the Credit
Agreement and the Note, and any borrowing thereunder, have been duly authorized
by all necessary corporate action required of Asymetrix, do not require any
shareholder approval and do not contravene the Articles of Incorporation or
Bylaws of Asymetrix.
3. To our knowledge, the execution, delivery and performance by each
Borrower of the Loan Documents to which such Borrower is a party and any
borrowing under the Credit Agreement and Note (a) do not require the approval or
consent of any trustee under any Material--Financing Documents or the holders of
any Indebtedness created under any Material Financing Documents, (b) do not
contravene any law, regulation, rule or order of a Governmental Authority
binding on such Borrower and (c) do not constitute a default under any of the
Material Financing Documents.
4. No Governmental Approval or filing or registration with any Government
Authority is required for the making and performance by either Borrower of the
Loan Documents to which such Borrower is a party, or in connection with any of
the transactions contemplated thereby.
5. The Credit Agreement, the Note and the Pledge Agreement have been duly
executed and delivered by each Borrower party to such instrument and constitute
the valid and binding obligations of such Borrower, enforceable in accordance
with their respective terms, subject to the following qualifications:
(a) Enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws relating to the rights and remedies of
creditors and by general principles of equity, including without limitation
concepts of materiality, reasonableness, good faith and fair dealing and the
possible-unavailability of specific performance or injunctive relief, regardless
of whether considered in a proceeding in equity or at law.
(b) No opinion is expressed as to the ability of the Lenders to
collect a prepayment fee under the Note and Credit Agreement to the extent such
fee is not determined to be reasonable in amount and to reflect demonstrable
compensation or adjustment for actual damages, losses or costs.
(c) We express no opinion as to title to or ownership of any of the
Collateral, the priority of any lien or security interest in the Collateral or
the perfection of any lien or security interest in the Collateral (other than
the Pledged Microsoft Stock). We express no opinion as to title to or ownership
of any stock of Asymetrix, except for record title as noted in paragraph 7(a)
below.
(d) The courts of the state of Washington will consider extrinsic
evidence of circumstances surrounding the making of the Loan Documents to
ascertain the intent of the parties in using the language employed in the Loan
Documents, regardless of whether or not the language used in the Loan Documents
is plain and unambiguous on its face, and may incorporate additional or
supplementary terms into the Loan Documents.
<PAGE>
November 12, 1992
Page 4
(e) Applicable laws, including judicial decisions, may limit or render
ineffective certain rights, remedial provisions (including without limitation
self-help remedies) and waivers in the Credit Agreement and Pledge Agreement,
provided that in our opinion such laws do not make the remedies or procedures
afforded by the Credit Agreement and Pledge Agreement inadequate for the
practical realization of the principal benefits intended to be provided by the
Credit Agreement and Pledge Agreement.
6. To our knowledge, except as set forth on Exhibit A, there are no
actions, proceedings or claims against either Borrower now pending before any
court, arbitrator or Governmental Authority which, if determined adversely to
such Borrower, would be likely to have a material adverse effect on the
financial condition of such Borrower or to result in the judgment or order
against such Borrower for (in each case in excess of insurance coverage) more
than $100,000 in any one case or $250,000 in the aggregate, or impair or defeat
the Lien of the Lenders on any Collateral or any rights of such Borrower
therein.
7. (a) Based upon our review of the corporate records of Asymetrix, we
confirm that Allen is listed on the registration books of Asymetrix as the
holder of record of not less than fifty-one percent of the issued and
outstanding voting stock of Asymetrix.
(b) To our knowledge, the voting stock registered in the name of Allen
is free and clear of all Liens and subject to no options, warrants, contracts or
agreements of any kind.
(c) To our knowledge, Asymetrix does not have any outstanding options,
warrants, convertible securities or other agreements of any nature obligating it
to issue any voting securities to any person other than Allen.
8. To our knowledge, all of the Pledged Microsoft Stock pledged under the
Pledge Agreement on the date hereof is free and clear of all Liens other than
those created in favor of the Lenders pursuant to the Pledge Agreement.
9. No filings, recordings, registrations or other actions are required to
perfect the Lien of the Pledge Agreement on the Pledged Microsoft Stock, other
than the Lenders taking and maintaining continuous possession of the Pledged
Microsoft Stock.
The opinions herein expressed are limited to matters governed by the
federal laws of the United States and the laws of the state of Washington, in
each case as they exist at the date hereof, and we express no opinion as to the
laws of any other jurisdiction. This opinion is addressed solely to you for
your information in connection with the transactions described herein, any may
not be relied upon by any other person or for any-.other purpose without our
prior written consent.
Very truly yours,
FOSTER PEPPER & SHEFELMAN
/s/ Lynn Loacker
Lynn J. Loacker
LJL/kmg
cc: Mr. Paul G. Allen
<PAGE>
November 12, 1992
Page 5
EXHIBIT A
In Asymetrix v. Merillin Paris, C 91-366 D (W.D. Washington), Ms. Paris has
---------------------------
alleged counterclaims in connection with the termination of her employment by
Asymetrix, and in connection with Asymetrix's seizure of certain software from
Ms. Paris' home pursuant to the Copyright Act. The amounts claimed by Ms. Paris
are not specified, but could potentially exceed $100,000.
<PAGE>
FEDERAL RESERVE FORM U-1
<PAGE>
FIRST AMENDMENT TO
CREDIT AGREEMENT
THIS AGREEMENT DATED as of September 30, 1994, amends that Credit Agreement
between PAUL G. ALLEN and ASYMETRIX CORPORATION as Borrowers and SEATTLE-FIRST
NATIONAL BANK, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, FIRST
INTERSTATE BANK OF WASHINGTON, N.A. AND FIRST INTERSTATE BANK OF OREGON, N.A. as
Lenders and SEATTLE-FIRST NATIONAL BANK as Agent for the Lenders dated as of
November 4, 1992 (the "Credit Agreement").
1. Capitalized terms not otherwise defined herein shall have the meanings
as defined in the Credit Agreement.
2. Subsection 2.01(a) of the Credit Agreement is amended to change the
respective sum set forth opposite each Lender's name and thereby change each
such Lender's Commitment and Pro Rata Share for that portion of the Commitment
Period remaining from and after the effective date of this Amendment as follows;
<TABLE>
<CAPTION>
Lender's
Lender Commitment Pro Rata Share
- --------------------------------------------------------------------------------
<S> <C> <C>
Seattle-First National Bank $ 51,000,000 42.50%
Bank of America, National $ 30,000,000 25.00%
Trust and Savings Association
First Interstate Bank of $ 30,000,000 25.00%
Washington, N.A.
First Interstate Bank of $ 9,000,000 7.50%
Oregon, N.A. ------------ -------
Total $120,000,000 100.00%
</TABLE>
3. Subsection 2.01(b) is amended to read as follows:
(b) Term Loans. The Borrowers may elect, by written notice to the
----------
Agent at any time prior to November 4, 1995, to convert the Revolving
Credit Loans to Term Loans and to commence payment of 20 consecutive equal
quarterly, fully amortizing installments of principal. Such elections
shall be for minimum principal amounts of $10,000,000 and integral
multiples of $1,000,000 above such minimum and shall be effective on the
first to occur of the 4th day of February, May, August or November after
Agent's receipt of said notice of election. On November 40 1995 all
outstanding Revolting Credit Loans shall automatically convert to a Term
Loan repayable in 20 equal quarterly, fully amortizing installments of
principal. The quarterly installments of principal shall be payable on the
4th day of each February, May, August and November thereafter, commencing
with the
<PAGE>
first such date occurring after the conversion, until the 5th year
anniversary of the conversion when the entire unpaid principal balance
together with any unpaid interest thereon shall paid in full .
4. On the date of this First Amendment Borrowers shall execute and deliver
to Agent, as agent for the Lenders, a promissory note of Borrowers substantially
in the form of Exhibit A to this Amendment. Such note shall be payable to the
order of the Agent as agent for the Lenders and will replace the promissory note
of Borrowers dated November 4, 1992 (such replacement note together with any
extensions, modifications or renewals thereof, the "Note").
5. Except as hereby expressly amended all of the terms and conditions of
the Credit Agreement and Loan Documents remain in full force and effect.
ORAL AGREEMENTS OR ORAL COMMITMENTS TO LOAN MONEY, EXTEND CREDIT, OR TO
FORBEAR FROM ENFORCING REPAYMENT OF A DEBT ARE NOT ENFORCEABLE UNDER WASHINGTON
LAW.
EFFECTIVE as of the date set forth above.
BORROWERS:
/s/ Paul G. Allen
____________________________________
PAUL G. ALLEN
ASYMETRIX CORPORATION
By: /s/ Bert Kolde
________________________________
Its PRESIDENT
---------
LENDERS:
SEATTLE-FIRST NATIONAL BANK
By: /s/ Seattle-First National Bank
________________________________
Its VICE PRESIDENT
--------------
-2-
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ Bank of America National Trust
__________________________________
Its VICE PRESIDENT
--------------
FIRST INTERSTATE BANK OF
WASHINGTON, N.A.
By: /s/ First Interstate of Washington
__________________________________
Its VICE PRESIDENT
--------------
FIRST INTERSTATE BANK OF OREGON, N.A.
By: /s/ First Interstate of Oregon
__________________________________
Its VICE PRESIDENT
--------------
AGENT:
SEATTLE-FIRST NATIONAL BANK
By: /s/ Seattle-First National Bank
__________________________________
Its
-3-
<PAGE>
EXHIBIT 10.05
ASYMETRIX LEARNING SYSTEMS, INC.
1998 DIRECTORS STOCK OPTION PLAN
As Adopted _____________, 199__
1. PURPOSE. This 1998 Directors Stock Option Plan (this "PLAN") is
established to provide equity incentives for certain nonemployee members of the
Board of Directors of Asymetrix Learning Systems, Inc. (the "COMPANY"), who are
described in Section 6.1 below, by granting such persons options to purchase
shares of stock of the Company.
2. ADOPTION AND STOCKHOLDER APPROVAL. After this Plan is adopted by the
Board of Directors of the Company (the "BOARD"), this Plan will become effective
on the time and date (the "EFFECTIVE DATE") on which the registration statement
filed by the Company with the Securities and Exchange Commission ("SEC") under
the Securities Act of 1933, as amended (the "SECURITIES ACT"), to register the
initial public offering of the Company's Common Stock is declared effective by
the SEC. This Plan shall be approved by the stockholders of the Company,
consistent with applicable laws, within twelve (12) months after the date this
Plan is adopted by the Board.
3. TYPES OF OPTIONS AND SHARES. Options granted under this Plan shall be
non-qualified stock options ("NQSOS"). The shares of stock that may be
purchased upon exercise of Options granted under this Plan (the "SHARES") are
shares of the Common Stock of the Company.
4. NUMBER OF SHARES. The maximum number of Shares that may be issued
pursuant to Options granted under this Plan (the "MAXIMUM NUMBER") is 250,000
Shares, subject to adjustment as provided in this Plan. If any Option is
terminated for any reason without being exercised in whole or in part, the
Shares thereby released from such Option shall be available for purchase under
other Options subsequently granted under this Plan. At all times during the
term of this Plan, the Company shall reserve and keep available such number of
Shares as shall be required to satisfy the requirements of outstanding Options
granted under this Plan; provided, however that if the aggregate number of
Shares subject to outstanding Options granted under this Plan plus the aggregate
number of Shares previously issued by the Company pursuant to the exercise of
Options granted under this Plan equals or exceeds the Maximum Number, then
notwithstanding anything herein to the contrary, no further Options may be
granted under this Plan until the Maximum Number is increased or the aggregate
number of Shares subject to outstanding Options granted under this Plan plus the
aggregate number of Shares previously issued by the Company pursuant to the
exercise of Options granted under this Plan is less than the Maximum Number.
5. ADMINISTRATION. This Plan shall be administered by the Board or by a
committee of not less than two members of the Board appointed to administer this
Plan (the "COMMITTEE"). As used in this Plan, references to the Committee shall
mean either such Committee or the Board if no Committee has been established.
The interpretation by the Committee of any of the provisions of this Plan or any
Option granted under this Plan shall be final and binding upon the Company and
all persons having an interest in any Option or any Shares purchased pursuant to
an Option.
6. ELIGIBILITY AND AWARD FORMULA.
6.1 Eligibility. Options shall be granted only to directors of the
-----------
Company who are not employees of the Company or any Parent, Subsidiary or
Affiliate of the Company, as those terms are defined in Section 18 below (each
such person referred to as an "OPTIONEE").
6.2 Initial Grant. Each Optionee who on or after the Effective Date is
-------------
or becomes a member of the Board will automatically be granted an Option for
10,000 Shares (an "INITIAL GRANT") on the later of the Effective Date and the
date such Optionee first becomes a member of the Board.
<PAGE>
6.3 Succeeding Grants. On each annual anniversary of an Optionee's
-----------------
Initial Grant, provided the Optionee is a member of the Board on such
anniversary date and has served continuously as a member of the Board since the
date of such Optionee's Initial Grant, the Optionee will automatically be
granted an Option for 10,000 Shares (a "SUCCEEDING GRANT").
7. TERMS AND CONDITIONS OF OPTIONS. Subject to the following and to
Section 6 above:
7.1 Form of Option Grant. Each Option granted under this Plan shall
--------------------
be evidenced by a written Stock Option Grant ("GRANT") in such form (which need
not be the same for each Optionee) as the Committee shall from time to time
approve, which Grant shall comply with and be subject to the terms and
conditions of this Plan.
7.2 Vesting. The date an Optionee receives an Initial Grant or a
-------
Succeeding Grant is referred to in this Plan as the "START DATE" for such
Option.
(a) Initial Grants. Each Initial Grant will vest as to two and
--------------
seventy-seven one-hundredths percent (2.77%) of the Shares on the last day of
each month following the Start Date for such Initial Grant, so long as the
Optionee continuously remains a director or a consultant of the Company.
(b) Succeeding Grants. Each Succeeding Grant will vest as to two and
-----------------
seventy-seven one-hundredths percent (2.77%) of the Shares on the last day of
each month following the Start Date for such Succeeding Grant, so long as the
Optionee continuously remains a director or a consultant of the Company.
7.3 Exercise Price. The exercise price of an Option shall be the Fair
--------------
Market Value (as defined in Section 18.4) of the Shares, at the time that the
Option is granted.
7.4 Termination of Option. Except as provided below in this Section, each
---------------------
Option shall expire ten (10) years after its Start Date (the "EXPIRATION DATE").
The Option shall cease to vest when the Optionee ceases to be a member of the
Board or, as determined by the Board in the Initial Grant or the Succeeding
Grant, a consultant of the Company provided, however that if the Optionee ceases
to be a member of the Board or a consultant of the Company due to death or total
and permanent disability, the vesting of each Option shall accelerate with
respect to the number of shares that would have been vested on the anniversary
of the date of grant next following the Optionee's termination date. The date
on which the Optionee ceases to be a member of the Board or a consultant of the
Company shall be referred to as the "TERMINATION DATE". An Option may be
exercised after the Termination Date only as set forth below:
(a) Termination Generally. If the Optionee ceases to be a member of the
---------------------
Board or a consultant of the Company for any reason except death of the Optionee
or disability of the Optionee (whether temporary or permanent, partial or total,
as determined by the Committee), then each Option then held by such Optionee, to
the extent (and only to the extent) that it would have been exercisable by the
Optionee on the Termination Date, may be exercised by the Optionee no later than
seven (7) months after the Termination Date, but in no event later than the
Expiration Date.
(b) Death or Disability. If the Optionee ceases to be a member of the
-------------------
Board or a consultant of the Company because of the death of the Optionee or the
disability of the Optionee (whether temporary or permanent, partial or total, as
determined by the Committee), then each Option then held by such Optionee to the
extent (and only to the extent) that it would have been exercisable by the
Optionee on the Termination Date, may be exercised by the Optionee (or the
Optionee's legal representative) no later than twelve (12) months after the
Termination Date, but in no event later than the Expiration Date.
-2-
<PAGE>
8. EXERCISE OF OPTIONS.
8.1 Exercise Period. Subject to the provisions of Section 8.5 below,
---------------
Options shall be exercisable as they vest.
8.2 Notice. Options may be exercised only by delivery to the Company
------
of an exercise agreement in a form approved by the Committee stating the number
of Shares being purchased, the restrictions imposed on the Shares and such
representations and agreements regarding the Optionee's investment intent and
access to information as may be required by the Company to comply with
applicable securities laws, together with payment in full of the exercise price
for the number of Shares being purchased.
8.3 Payment. Payment for the Shares purchased upon exercise of an
-------
Option may be made (a) in cash or by check; (b) by surrender of shares of Common
Stock of the Company that have been owned by the Optionee for more than six (6)
months (and which have been paid for within the meaning of SEC Rule 144 and, if
such shares were purchased from the Company by use of a promissory note, such
note has been fully paid with respect to such shares) or were obtained by the
Optionee in the open public market, having a Fair Market Value equal to the
exercise price of the Option; (c) by waiver of compensation due or accrued to
the Optionee for services rendered; (d) provided that a public market for the
Company's stock exists, through a "same day sale" commitment from the Optionee
and a broker-dealer that is a member of the National Association of Securities
Dealers (an "NASD Dealer") whereby the Optionee irrevocably elects to exercise
the Option and to sell a portion of the Shares so purchased to pay for the
exercise price and whereby the NASD Dealer irrevocably commits upon receipt of
such Shares to forward the exercise price directly to the Company; (e) provided
that a public market for the Company's stock exists, through a "margin"
commitment from the Optionee and an NASD Dealer whereby the Optionee irrevocably
elects to exercise the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the NASD Dealer in the
amount of the exercise price, and whereby the NASD Dealer irrevocably commits
upon receipt of such Shares to forward the exercise price directly to the
Company; or (f) by any combination of the foregoing.
8.4 Withholding Taxes. Prior to issuance of the Shares upon exercise of
-----------------
an Option, the Optionee shall pay or make adequate provision for any federal or
state withholding obligations of the Company, if applicable.
8.5 Limitations on Exercise. Notwithstanding the exercise periods set
-----------------------
forth in the Grant, exercise of an Option shall always be subject to the
following limitations:
(a) An Option shall not be exercisable unless such exercise is in
compliance with the Securities Act and all applicable state securities laws, as
they are in effect on the date of exercise.
(b) The Committee may specify a reasonable minimum number of Shares
that may be purchased upon any exercise of an Option, provided that such minimum
number will not prevent the Optionee from exercising the full number of Shares
as to which the Option is then exercisable.
9. NONTRANSFERABILITY OF OPTIONS. During the lifetime of the Optionee, an
Option shall be exercisable only by the Optionee or by the Optionee's guardian
or legal representative, unless otherwise determined by the Committee. No
Option may be sold, pledged, assigned, hypothecated, transferred or disposed of
in any manner other than by will or by the laws of descent and distribution,
unless otherwise determined by the Committee.
10. PRIVILEGES OF STOCK OWNERSHIP. No Optionee shall have any of the
rights of a stockholder with respect to any Shares subject to an Option until
the Option has been validly exercised. No adjustment shall be made for
dividends or distributions or other rights for which the record date is prior to
the date of exercise, except as provided in this Plan. The Company shall
provide to each Optionee a copy of the annual financial statements of the
Company at such time after the close of each fiscal year of the Company as they
are released by the Company to its stockholders.
-3-
<PAGE>
11. ADJUSTMENT OF OPTION SHARES. In the event that the number of
outstanding shares of Common Stock of the Company is changed by a stock
dividend, stock split, reverse stock split, combination, reclassification or
similar change in the capital structure of the Company without consideration,
the number of Shares available under this Plan and the number of Shares subject
to outstanding Options and the exercise price per share of such outstanding
Options shall be proportionately adjusted, subject to any required action by the
Board or stockholders of the Company and compliance with applicable securities
laws; provided, however, that no fractional shares shall be issued upon exercise
of any Option and any resulting fractions of a Share shall be rounded up to the
nearest whole Share.
12. NO OBLIGATION TO CONTINUE AS DIRECTOR. Nothing in this Plan or any
Option granted under this Plan shall confer on any Optionee any right to
continue as a director of the Company.
13. COMPLIANCE WITH LAWS. The grant of Options and the issuance of Shares
upon exercise of any Options shall be subject to and conditioned upon compliance
with all applicable requirements of law, including without limitation compliance
with the Securities Act, compliance with all other applicable state securities
laws and compliance with the requirements of any stock exchange or national
market system on which the Shares may be listed. The Company shall be under no
obligation to register the Shares with the SEC or to effect compliance with the
registration or qualification requirement of any state securities laws, stock
exchange or national market system.
14. ACCELERATION OF OPTIONS ON CERTAIN CORPORATE TRANSACTIONS. In the
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Options granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption, conversion or
replacement will be binding on all Optionees), (c) a merger in which the Company
is the surviving corporation but after which the stockholders of the Company
(other than any stockholder which merges (or which owns or controls another
corporation which merges) with the Company in such merger) cease to own their
shares or other equity interests in the Company, (d) the sale of substantially
all of the assets of the Company, or (e) the acquisition, sale or transfer of
more than 50% of the outstanding shares of the Company by tender offer or
similar transaction, the vesting of all options granted pursuant to this Plan
will accelerate and the options will become exercisable in full prior to the
consummation of such event at such times and on such conditions as the Committee
determines, and must be exercised, if at all, within six months of the
consummation of said event. Any options not exercised within such six-month
period shall expire.
15. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time terminate
or amend this Plan or any outstanding option, provided that the Board may not
terminate or amend the terms of any outstanding option without the consent of
the Optionee. In any case, no amendment of this Plan may adversely affect any
then outstanding Options or any unexercised portions thereof without the written
consent of the Optionee.
16. TERM OF PLAN. Options may be granted pursuant to this Plan from time
to time within a period of ten (10) years from the Effective Date.
17. CERTAIN DEFINITIONS. As used in this Plan, the following terms shall
have the following meanings:
17.1 "PARENT" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
17.2 "SUBSIDIARY" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
-4-
<PAGE>
17.3 "AFFILIATE" means any corporation that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or is under
common control with, another corporation, where "control" (including the terms
"controlled by" and "under common control with") means the possession, direct or
indirect, of the power to cause the direction of the management and policies of
the corporation, whether through the ownership of voting securities, by contract
or otherwise.
17.4 "FAIR MARKET VALUE" means, as of any date, the value of a share
of the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National
Market, its closing price on the Nasdaq National Market on the
date of determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
(d) in the case of an Option granted on the Effective Date, the price
per share at which shares of the Company's Common Stock are
initially offered for sale to the public by the Company's
underwriters in the initial public offering of the Company's
Common Stock pursuant to a registration statement filed with the
SEC under the Securities Act; or
(e) if none of the foregoing is applicable, by the Committee in
good faith.
-5-
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
1998 EQUITY INCENTIVE PLAN
As Adopted _____________, 199_
1. PURPOSE. The purpose of this Plan is to provide incentives to
-------
attract, retain and motivate eligible persons whose present and potential
contributions are important to the success of the Company, its Parent and
Subsidiaries, by offering them an opportunity to participate in the Company's
future performance through awards of Options, Restricted Stock and Stock
Bonuses. Capitalized terms not defined in the text are defined in Section 23.
2. SHARES SUBJECT TO THE PLAN.
--------------------------
2.1 Number of Shares Available. Subject to Sections 2.2 and 18,
--------------------------
the total number of Shares reserved and available for grant and issuance
pursuant to this Plan will be 2,000,000 Shares. Subject to Sections 2.2 and 18,
Shares that: (a) are subject to issuance upon exercise of an Option but cease to
be subject to such Option for any reason other than exercise of such Option; (b)
are subject to an Award granted hereunder but are forfeited or are repurchased
by the Company at the original issue price; or (c) are subject to an Award that
otherwise terminates without Shares being issued, will again be available for
grant and issuance in connection with future Awards under this Plan. Any
authorized shares not issued or subject to outstanding grants under the
Company's 1995 Combined Incentive and Nonqualified Stock Option Plan (the "Prior
Plan") on the Effective Date (as defined below) and any shares that are issuable
upon exercise of options granted pursuant to the Prior Plan that expire or
become unexercisable for any reason without having been exercised in full, will
no longer be available for grant and issuance under the Prior Plan, but will be
available for grant and issuance under this Plan. In addition, any shares
issued under the Prior Plan which are repurchased or forfeited will be available
for grant and issuance under this Plan. At all times the Company shall reserve
and keep available a sufficient number of Shares as shall be required to satisfy
the requirements of all outstanding Options granted under this Plan and all
other outstanding but unvested Awards granted under this Plan.
2.2 Adjustment of Shares. In the event that the number of
--------------------
outstanding shares is changed by a stock dividend, recapitalization, stock
split, reverse stock split, subdivision, combination, reclassification or
similar change in the capital structure of the Company without consideration,
then (a) the number of Shares reserved for issuance under this Plan, (b) the
Exercise Prices of and number of Shares subject to outstanding Options, and (c)
the number of Shares subject to other outstanding Awards will be proportionately
adjusted, subject to any required action by the Board or the stockholders of the
Company and compliance with applicable securities laws; provided, however, that
-------- -------
fractions of a Share will not be issued but will either be replaced by a cash
payment equal to the Fair Market Value of such fraction of a Share or will be
rounded up to the nearest whole Share, as determined by the Committee.
3. ELIGIBILITY. ISOs (as defined in Section 5 below) may be granted
-----------
only to employees (including officers and directors who are also employees) of
the Company or of a Parent or Subsidiary of the Company. All other Awards may
be granted to employees, officers, directors, consultants, independent
contractors and advisors of the Company or any Parent or Subsidiary of the
Company; provided such consultants, contractors and advisors render bona fide
--------
services not in connection with the offer and sale of securities in a capital-
raising transaction. No person will be eligible to receive more than 500,000
Shares in any calendar year under this Plan pursuant to the grant of Awards
hereunder, other than new employees of the Company or of a Parent or Subsidiary
of the Company (including new employees who are also officers and directors of
the Company or any Parent or Subsidiary of the Company), who are eligible to
receive up to a maximum of 1,000,000 Shares in the calendar year in which they
commence their employment. A person may be granted more than one Award under
this Plan.
1
<PAGE>
4. ADMINISTRATION.
--------------
4.1 Committee Authority. This Plan will be administered by the
-------------------
Committee or by the Board acting as the Committee. Subject to the general
purposes, terms and conditions of this Plan, and to the direction of the Board,
the Committee will have full power to implement and carry out this Plan.
Without limitation, the Committee will have the authority to:
(a) construe and interpret this Plan, any Award Agreement and any
other agreement or document executed pursuant to this Plan;
(b) prescribe, amend and rescind rules and regulations relating to
this Plan or any Award;
(c) select persons to receive Awards;
(d) determine the form and terms of Awards;
(e) determine the number of Shares or other consideration subject to
Awards;
(f) determine whether Awards will be granted singly, in combination
with, in tandem with, in replacement of, or as alternatives to,
other Awards under this Plan or any other incentive or
compensation plan of the Company or any Parent or Subsidiary of
the Company;
(g) grant waivers of Plan or Award conditions;
(h) determine the vesting, exercisability and payment of Awards;
(i) correct any defect, supply any omission or reconcile any
inconsistency in this Plan, any Award or any Award Agreement;
(j) determine whether an Award has been earned; and
(k) make all other determinations necessary or advisable for the
administration of this Plan.
4.2 Committee Discretion. Any determination made by the
--------------------
Committee with respect to any Award will be made in its sole discretion at the
time of grant of the Award or, unless in contravention of any express term of
this Plan or Award, at any later time, and such determination will be final and
binding on the Company and on all persons having an interest in any Award under
this Plan. The Committee may delegate to one or more officers of the Company
the authority to grant an Award under this Plan to Participants who are not
Insiders of the Company.
5. OPTIONS. The Committee may grant Options to eligible persons and
-------
will determine whether such Options will be Incentive Stock Options within the
meaning of the Code ("ISO") or Nonqualified Stock Options ("NQSOs"), the number
of Shares subject to the Option, the Exercise Price of the Option, the period
during which the Option may be exercised, and all other terms and conditions of
the Option, subject to the following:
5.1 Form of Option Grant. Each Option granted under this Plan
--------------------
will be evidenced by an Award Agreement which will expressly identify the Option
as an ISO or an NQSO ("Stock Option Agreement"), and will be in such form and
contain such provisions (which need not be the same for each Participant) as the
Committee may from time to time approve, and which will comply with and be
subject to the terms and conditions of this Plan.
2
<PAGE>
5.2 Date of Grant. The date of grant of an Option will be the
-------------
date on which the Committee makes the determination to grant such Option, unless
otherwise specified by the Committee. The Stock Option Agreement and a copy of
this Plan will be delivered to the Participant within a reasonable time after
the granting of the Option.
5.3 Exercise Period. Options may be exercisable within the times
---------------
or upon the events determined by the Committee as set forth in the Stock Option
Agreement governing such Option; provided, however, that no Option will be
-------- -------
exercisable after the expiration of ten (10) years from the date the Option is
granted; and provided further that no ISO granted to a person who directly or by
-------- -------
attribution owns more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or of any Parent or Subsidiary of the
Company ("Ten Percent Stockholder") will be exercisable after the expiration of
five (5) years from the date the ISO is granted. The Committee also may provide
for Options to become exercisable at one time or from time to time, periodically
or otherwise, in such number of Shares or percentage of Shares as the Committee
determines.
5.4 Exercise Price. The Exercise Price of an Option will be
--------------
determined by the Committee when the Option is granted and may be not less than
85% of the Fair Market Value of the Shares on the date of grant; provided that:
(i) the Exercise Price of an ISO will be not less than 100% of the Fair Market
Value of the Shares on the date of grant; and (ii) the Exercise Price of any ISO
granted to a Ten Percent Stockholder will not be less than 110% of the Fair
Market Value of the Shares on the date of grant. Payment for the Shares
purchased may be made in accordance with Section 8 of this Plan.
5.5 Method of Exercise. Options may be exercised only by
------------------
delivery to the Company of a written stock option exercise agreement (the
"Exercise Agreement") in a form approved by the Committee (which need not be the
same for each Participant), stating the number of Shares being purchased, the
restrictions imposed on the Shares purchased under such Exercise Agreement, if
any, and such representations and agreements regarding Participant's investment
intent and access to information and other matters, if any, as may be required
or desirable by the Company to comply with applicable securities laws, together
with payment in full of the Exercise Price for the number of Shares being
purchased.
5.6 Termination. Notwithstanding the exercise periods set forth
-----------
in the Stock Option Agreement, exercise of an Option will always be subject to
the following:
(a) If the Participant is Terminated for any reason except death or
Disability, then the Participant may exercise such Participant's
Options only to the extent that such Options would have been
exercisable upon the Termination Date no later than three (3)
months after the Termination Date (or such shorter or longer time
period not exceeding five (5) years as may be determined by the
Committee, with any exercise beyond three (3) months after the
Termination Date deemed to be an NQSO), but in any event, no later
than the expiration date of the Options.
(b) If the Participant is Terminated because of Participant's death or
Disability (or the Participant dies within three (3) months after
a Termination other than because of Participant's death or
disability), then Participant's Options may be exercised only to
the extent that such Options would have been exercisable by
Participant on the Termination Date and must be exercised by
Participant (or Participant's legal representative or authorized
assignee) no later than twelve (12) months after the Termination
Date (or such shorter or longer time period not exceeding five (5)
years as may be determined by the Committee, with any such
exercise beyond (a) three (3) months after the Termination Date
when the Termination is for any reason other than the
Participant's death or Disability, or (b) twelve (12) months after
the Termination Date when the Termination is for Participant's
death or Disability, deemed to be an NQSO), but in any event no
later than the expiration date of the Options.
3
<PAGE>
(c) Notwithstanding the provisions in paragraph 5.6(a) above, if a
Participant is terminated for Cause, neither the Participant, the
Participant's estate nor such other person who may then hold the
Option shall be entitled to exercise any Option with respect to
any Shares whatsoever, after termination of service, whether or
not after termination of service the Participant may receive
payment from the Company or Subsidiary for vacation pay, for
services rendered prior to termination, for services rendered for
the day on which termination occurs, for salary in lieu of notice,
or for any other benefits. In making such determination, the
Board shall give the Participant an opportunity to present to the
Board evidence on his behalf. For the purpose of this paragraph,
termination of service shall be deemed to occur on the date when
the Company dispatches notice or advice to the Participant that
his service is terminated.
5.7 Limitations on Exercise. The Committee may specify a
-----------------------
reasonable minimum number of Shares that may be purchased on any exercise of an
Option, provided that such minimum number will not prevent Participant from
exercising the Option for the full number of Shares for which it is then
exercisable.
5.8 Limitations on ISO. The aggregate Fair Market Value
------------------
(determined as of the date of grant) of Shares with respect to which ISO are
exercisable for the first time by a Participant during any calendar year (under
this Plan or under any other incentive stock option plan of the Company, Parent
or Subsidiary of the Company) will not exceed $100,000. If the Fair Market
Value of Shares on the date of grant with respect to which ISO are exercisable
for the first time by a Participant during any calendar year exceeds $100,000,
then the Options for the first $100,000 worth of Shares to become exercisable in
such calendar year will be ISO and the Options for the amount in excess of
$100,000 that become exercisable in that calendar year will be NQSOs. In the
event that the Code or the regulations promulgated thereunder are amended after
the Effective Date of this Plan to provide for a different limit on the Fair
Market Value of Shares permitted to be subject to ISO, such different limit will
be automatically incorporated herein and will apply to any Options granted after
the effective date of such amendment.
5.9 Modification, Extension or Renewal. The Committee may
----------------------------------
modify, extend or renew outstanding Options and authorize the grant of new
Options in substitution therefor, provided that any such action may not, without
the written consent of a Participant, impair any of such Participant's rights
under any Option previously granted. Any outstanding ISO that is modified,
extended, renewed or otherwise altered will be treated in accordance with
Section 424(h) of the Code. The Committee may reduce the Exercise Price of
outstanding Options without the consent of Participants affected by a written
notice to them; provided, however, that the Exercise Price may not be reduced
-------- -------
below the minimum Exercise Price that would be permitted under Section 5.4 of
this Plan for Options granted on the date the action is taken to reduce the
Exercise Price.
5.10 No Disqualification. Notwithstanding any other provision in
-------------------
this Plan, no term of this Plan relating to ISO will be interpreted, amended or
altered, nor will any discretion or authority granted under this Plan be
exercised, so as to disqualify this Plan under Section 422 of the Code or,
without the consent of the Participant affected, to disqualify any ISO under
Section 422 of the Code.
6. RESTRICTED STOCK. A Restricted Stock Award is an offer by the
----------------
Company to sell to an eligible person Shares that are subject to restrictions.
The Committee will determine to whom an offer will be made, the number of Shares
the person may purchase, the price to be paid (the "Purchase Price"), the
restrictions to which the Shares will be subject, and all other terms and
conditions of the Restricted Stock Award, subject to the following:
6.1 Form of Restricted Stock Award. All purchases under a
------------------------------
Restricted Stock Award made pursuant to this Plan will be evidenced by an Award
Agreement ("Restricted Stock Purchase Agreement") that will be in such form
(which need not be the same for each Participant) as the Committee will from
time to time approve, and will comply with and be subject to the terms and
conditions of this Plan. The offer of Restricted Stock will be accepted by the
Participant's execution and delivery of the Restricted Stock Purchase Agreement
and full payment for the Shares to the Company within thirty (30) days from the
date the Restricted Stock Purchase
4
<PAGE>
Agreement is delivered to the person. If such person does not execute and
deliver the Restricted Stock Purchase Agreement along with full payment for the
Shares to the Company within thirty (30) days, then the offer will terminate,
unless otherwise determined by the Committee.
6.2 Purchase Price. The Purchase Price of Shares sold pursuant
--------------
to a Restricted Stock Award will be determined by the Committee on the date the
Restricted Stock Award is granted, except in the case of a sale to a Ten Percent
Stockholder, in which case the Purchase Price will be 100% of the Fair Market
Value. Payment of the Purchase Price may be made in accordance with Section 8
of this Plan.
6.3 Terms of Restricted Stock Awards. Restricted Stock Awards
--------------------------------
shall be subject to such restrictions as the Committee may impose. These
restrictions may be based upon completion of a specified number of years of
service with the Company or upon completion of the performance goals as set out
in advance in the Participant's individual Restricted Stock Purchase Agreement.
Restricted Stock Awards may vary from Participant to Participant and between
groups of Participants. Prior to the grant of a Restricted Stock Award, the
Committee shall: (a) determine the nature, length and starting date of any
Performance Period for the Restricted Stock Award; (b) select from among the
Performance Factors to be used to measure performance goals, if any; and (c)
determine the number of Shares that may be awarded to the Participant. Prior to
the payment of any Restricted Stock Award, the Committee shall determine the
extent to which such Restricted Stock Award has been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Restricted Stock Awards that are subject to different Performance Periods and
having different performance goals and other criteria.
6.4 Termination During Performance Period. If a Participant is
-------------------------------------
Terminated during a Performance Period for any reason, then such Participant
will be entitled to payment (whether in Shares, cash or otherwise) with respect
to the Restricted Stock Award only to the extent earned as of the date of
Termination in accordance with the Restricted Stock Purchase Agreement, unless
the Committee will determine otherwise.
7. STOCK BONUSES.
-------------
7.1 Awards of Stock Bonuses. A Stock Bonus is an award of Shares
-----------------------
(which may consist of Restricted Stock) for services rendered to the Company or
any Parent or Subsidiary of the Company. A Stock Bonus may be awarded for past
services already rendered to the Company, or any Parent or Subsidiary of the
Company pursuant to an Award Agreement (the "Stock Bonus Agreement") that will
be in such form (which need not be the same for each Participant) as the
Committee will from time to time approve, and will comply with and be subject to
the terms and conditions of this Plan. A Stock Bonus may be awarded upon
satisfaction of such performance goals as are set out in advance in the
Participant's individual Award Agreement (the "Performance Stock Bonus
Agreement") that will be in such form (which need not be the same for each
Participant) as the Committee will from time to time approve, and will comply
with and be subject to the terms and conditions of this Plan. Stock Bonuses may
vary from Participant to Participant and between groups of Participants, and may
be based upon the achievement of the Company, Parent or Subsidiary and/or
individual performance factors or upon such other criteria as the Committee may
determine.
7.2 Terms of Stock Bonuses. The Committee will determine the
----------------------
number of Shares to be awarded to the Participant. If the Stock Bonus is being
earned upon the satisfaction of performance goals pursuant to a Performance
Stock Bonus Agreement, then the Committee will: (a) determine the nature,
length and starting date of any Performance Period for each Stock Bonus; (b)
select from among the Performance Factors to be used to measure the performance,
if any; and (c) determine the number of Shares that may be awarded to the
Participant. Prior to the payment of any Stock Bonus, the Committee shall
determine the extent to which such Stock Bonuses have been earned. Performance
Periods may overlap and Participants may participate simultaneously with respect
to Stock Bonuses that are subject to different Performance Periods and different
performance goals and other criteria. The number of Shares may be fixed or may
vary in accordance with such performance goals and criteria as may be determined
by the Committee. The Committee may adjust the performance goals applicable to
the Stock Bonuses to take into account changes in law and accounting or tax
rules and to make such adjustments as
5
<PAGE>
the Committee deems necessary or appropriate to reflect the impact of
extraordinary or unusual items, events or circumstances to avoid windfalls or
hardships.
7.3 Form of Payment. The earned portion of a Stock Bonus may be
---------------
paid currently or on a deferred basis with such interest or dividend equivalent,
if any, as the Committee may determine. Payment may be made in the form of cash
or whole Shares or a combination thereof, either in a lump sum payment or in
installments, all as the Committee will determine.
8. PAYMENT FOR SHARE PURCHASES.
---------------------------
8.1 Payment. Payment for Shares purchased pursuant to this Plan
-------
may be made in cash (by check) or, where expressly approved for the Participant
by the Committee and where permitted by law:
(a) by cancellation of indebtedness of the Company to the Participant;
(b) by surrender of shares that either: (1) have been owned by
Participant for more than six (6) months and have been paid for
within the meaning of SEC Rule 144 (and, if such shares were
purchased from the Company by use of a promissory note, such note
has been fully paid with respect to such shares); or (2) were
obtained by Participant in the public market;
(c) by tender of a full recourse promissory note having such terms as
may be approved by the Committee and bearing interest at a rate
sufficient to avoid imputation of income under Sections 483 and
1274 of the Code; provided, however, that Participants who are not
-------- -------
employees or directors of the Company will not be entitled to
purchase Shares with a promissory note unless the note is
adequately secured by collateral other than the Shares;
(d) by waiver of compensation due or accrued to the Participant for
services rendered;
(e) with respect only to purchases upon exercise of an Option, and
provided that a public market for the Company's stock exists:
(1) through a "same day sale" commitment from the Participant and
a broker-dealer that is a member of the National Association
of Securities Dealers (an "NASD Dealer") whereby the
Participant irrevocably elects to exercise the Option and to
sell a portion of the Shares so purchased to pay for the
Exercise Price, and whereby the NASD Dealer irrevocably
commits upon receipt of such Shares to forward the Exercise
Price directly to the Company; or
(2) through a "margin" commitment from the Participant and a NASD
Dealer whereby the Participant irrevocably elects to exercise
the Option and to pledge the Shares so purchased to the NASD
Dealer in a margin account as security for a loan from the
NASD Dealer in the amount of the Exercise Price, and whereby
the NASD Dealer irrevocably commits upon receipt of such
Shares to forward the Exercise Price directly to the Company;
or
(f) by any combination of the foregoing.
8.2 Loan Guarantees. The Committee may help the Participant pay
---------------
for Shares purchased under this Plan by authorizing a guarantee by the Company
of a third-party loan to the Participant.
6
<PAGE>
9. WITHHOLDING TAXES.
-----------------
9.1 Withholding Generally. Whenever Shares are to be issued in
---------------------
satisfaction of Awards granted under this Plan, the Company may require the
Participant to remit to the Company an amount sufficient to satisfy federal,
state and local withholding tax requirements prior to the delivery of any
certificate or certificates for such Shares. Whenever, under this Plan,
payments in satisfaction of Awards are to be made in cash, such payment will be
net of an amount sufficient to satisfy federal, state, and local withholding tax
requirements.
9.2 Stock Withholding. When, under applicable tax laws, a
-----------------
Participant incurs tax liability in connection with the exercise or vesting of
any Award that is subject to tax withholding and the Participant is obligated to
pay the Company the amount required to be withheld, the Committee may in its
sole discretion allow the Participant to satisfy the minimum withholding tax
obligation by electing to have the Company withhold from the Shares to be issued
that number of Shares having a Fair Market Value equal to the minimum amount
required to be withheld, determined on the date that the amount of tax to be
withheld is to be determined. All elections by a Participant to have Shares
withheld for this purpose will be made in accordance with the requirements
established by the Committee and be in writing in a form acceptable to the
Committee.
10. PRIVILEGES OF STOCK OWNERSHIP.
-----------------------------
10.1 Voting and Dividends. No Participant will have any of the
--------------------
rights of a stockholder with respect to any Shares until the Shares are issued
to the Participant. After Shares are issued to the Participant, the Participant
will be a stockholder and have all the rights of a stockholder with respect to
such Shares, including the right to vote and receive all dividends or other
distributions made or paid with respect to such Shares; provided, that if such
--------
Shares are Restricted Stock, then any new, additional or different securities
the Participant may become entitled to receive with respect to such Shares by
virtue of a stock dividend, stock split or any other change in the corporate or
capital structure of the Company will be subject to the same restrictions as the
Restricted Stock; provided, further, that the Participant will have no right to
-------- -------
retain such stock dividends or stock distributions with respect to Shares that
are repurchased at the Participant's Purchase Price or Exercise Price pursuant
to Section 12.
10.2 Financial Statements. The Company will provide financial
--------------------
statements to each Participant prior to such Participant's purchase of Shares
under this Plan, and to each Participant annually during the period such
Participant has Awards outstanding; provided, however, the Company will not be
-------- -------
required to provide such financial statements to Participants whose services in
connection with the Company assure them access to equivalent information.
11. TRANSFERABILITY. Awards granted under this Plan, and any interest
---------------
therein, will not be transferable or assignable by Participant, and may not be
made subject to execution, attachment or similar process, otherwise than by will
or by the laws of descent and distribution or as determined by the Committee and
set forth in the Award Agreement with respect to Awards that are not ISOs.
During the lifetime of the Participant an Award will be exercisable only by the
Participant, and any elections with respect to an Award may be made only by the
Participant unless otherwise determined by the Committee and set forth in the
Award Agreement with respect to Awards that are not ISOs.
12. RESTRICTIONS ON SHARES. At the discretion of the Committee, the
----------------------
Company may reserve to itself and/or its assignee(s) in the Award Agreement a
right to repurchase a portion of or all Unvested Shares held by a Participant
following such Participant's Termination at any time within ninety (90) days
after the later of Participant's Termination Date and the date Participant
purchases Shares under this Plan, for cash and/or cancellation of purchase money
indebtedness, at the Participant's Exercise Price or Purchase Price, as the case
may be.
13. CERTIFICATES. All certificates for Shares or other securities
------------
delivered under this Plan will be subject to such stock transfer orders, legends
and other restrictions as the Committee may deem necessary or
7
<PAGE>
advisable, including restrictions under any applicable federal, state or foreign
securities law, or any rules, regulations and other requirements of the SEC or
any stock exchange or automated quotation system upon which the Shares may be
listed or quoted.
14. ESCROW; PLEDGE OF SHARES. To enforce any restrictions on a
------------------------
Participant's Shares, the Committee may require the Participant to deposit all
certificates representing Shares, together with stock powers or other
instruments of transfer approved by the Committee, appropriately endorsed in
blank, with the Company or an agent designated by the Company to hold in escrow
until such restrictions have lapsed or terminated, and the Committee may cause a
legend or legends referencing such restrictions to be placed on the
certificates. Any Participant who is permitted to execute a promissory note as
partial or full consideration for the purchase of Shares under this Plan will be
required to pledge and deposit with the Company all or part of the Shares so
purchased as collateral to secure the payment of Participant's obligation to the
Company under the promissory note; provided, however, that the Committee may
-------- -------
require or accept other or additional forms of collateral to secure the payment
of such obligation and, in any event, the Company will have full recourse
against the Participant under the promissory note notwithstanding any pledge of
the Participant's Shares or other collateral. In connection with any pledge of
the Shares, Participant will be required to execute and deliver a written pledge
agreement in such form as the Committee will from time to time approve. The
Shares purchased with the promissory note may be released from the pledge on a
pro rata basis as the promissory note is paid.
15. EXCHANGE AND BUYOUT OF AWARDS. The Committee may, at any time or
-----------------------------
from time to time, authorize the Company, with the consent of the respective
Participants, to issue new Awards in exchange for the surrender and cancellation
of any or all outstanding Awards. The Committee may at any time buy from a
Participant an Award previously granted with payment in cash, Shares (including
Restricted Stock) or other consideration, based on such terms and conditions as
the Committee and the Participant may agree.
16. SECURITIES LAW AND OTHER REGULATORY COMPLIANCE. An Award will not
----------------------------------------------
be effective unless such Award is in compliance with all applicable federal and
state securities laws, rules and regulations of any governmental body, and the
requirements of any stock exchange or automated quotation system upon which the
Shares may then be listed or quoted, as they are in effect on the date of grant
of the Award and also on the date of exercise or other issuance.
Notwithstanding any other provision in this Plan, the Company will have no
obligation to issue or deliver certificates for Shares under this Plan prior to:
(a) obtaining any approvals from governmental agencies that the Company
determines are necessary or advisable; and/or (b) completion of any registration
or other qualification of such Shares under any state or federal law or ruling
of any governmental body that the Company determines to be necessary or
advisable. The Company will be under no obligation to register the Shares with
the SEC or to effect compliance with the registration, qualification or listing
requirements of any state securities laws, stock exchange or automated quotation
system, and the Company will have no liability for any inability or failure to
do so.
17. NO OBLIGATION TO EMPLOY. Nothing in this Plan or any Award
-----------------------
granted under this Plan will confer or be deemed to confer on any Participant
any right to continue in the employ of, or to continue any other relationship
with, the Company or any Parent or Subsidiary of the Company or limit in any way
the right of the Company or any Parent or Subsidiary of the Company to terminate
Participant's employment or other relationship at any time, with or without
cause.
18. CORPORATE TRANSACTIONS.
----------------------
18.1 Assumption or Replacement of Awards by Successor. In the
------------------------------------------------
event of (a) a dissolution or liquidation of the Company, (b) a merger or
consolidation in which the Company is not the surviving corporation (other than
a merger or consolidation with a wholly-owned subsidiary, a reincorporation of
the Company in a different jurisdiction, or other transaction in which there is
no substantial change in the stockholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption will be binding on all
Participants), (c) a merger in which the Company is the surviving corporation
but after which the stockholders of the Company immediately prior to
8
<PAGE>
such merger (other than any stockholder that merges, or which owns or controls
another corporation that merges, with the Company in such merger) cease to own
their shares or other equity interest in the Company, (d) the sale of
substantially all of the assets of the Company, or (e) the acquisition, sale, or
transfer of more than 50% of the outstanding shares of the Company by tender
offer or similar transaction, any or all outstanding Awards may be assumed,
converted or replaced by the successor corporation (if any), which assumption,
conversion or replacement will be binding on all Participants. In the
alternative, the successor corporation may substitute equivalent Awards or
provide substantially similar consideration to Participants as was provided to
stockholders (after taking into account the existing provisions of the Awards).
The successor corporation may also issue, in place of outstanding Shares of the
Company held by the Participant, substantially similar shares or other property
subject to repurchase restrictions no less favorable to the Participant. In the
event such successor corporation (if any) refuses to assume or substitute
Awards, as provided above, pursuant to a transaction described in this
Subsection 18.1, such Awards will accelerate in full immediately prior to such
transaction.
18.2 Other Treatment of Awards. Subject to any greater rights
-------------------------
granted to Participants under the foregoing provisions of this Section 18, in
the event of the occurrence of any transaction described in Section 18.1, any
outstanding Awards will be treated as provided in the applicable agreement or
plan of merger, consolidation, dissolution, liquidation, or sale of assets.
18.3 Assumption of Awards by the Company. The Company, from time
-----------------------------------
to time, also may substitute or assume outstanding awards granted by another
company, whether in connection with an acquisition of such other company or
otherwise, by either; (a) granting an Award under this Plan in substitution of
such other company's award; or (b) assuming such award as if it had been granted
under this Plan if the terms of such assumed award could be applied to an Award
granted under this Plan. Such substitution or assumption will be permissible if
the holder of the substituted or assumed award would have been eligible to be
granted an Award under this Plan if the other company had applied the rules of
this Plan to such grant. In the event the Company assumes an award granted by
another company, the terms and conditions of such award will remain unchanged
(except that the exercise price and the number and nature of Shares issuable
------
upon exercise of any such option will be adjusted appropriately pursuant to
Section 424(a) of the Code). In the event the Company elects to grant a new
Option rather than assuming an existing option, such new Option may be granted
with a similarly adjusted Exercise Price.
19. ADOPTION AND STOCKHOLDER APPROVAL. This Plan will become
---------------------------------
effective on the date on which the registration statement filed by the Company
with the SEC under the Securities Act registering the initial public offering of
the Company's Common Stock is declared effective by the SEC (the "Effective
Date"). This Plan shall be approved by the stockholders of the Company
(excluding Shares issued pursuant to this Plan), consistent with applicable
laws, within twelve (12) months before or after the date this Plan is adopted by
the Board. Upon the Effective Date, the Committee may grant Awards pursuant to
this Plan; provided, however, that: (a) no Option may be exercised prior to
-------- -------
initial stockholder approval of this Plan; (b) no Option granted pursuant to an
increase in the number of Shares subject to this Plan approved by the Board will
be exercised prior to the time such increase has been approved by the
stockholders of the Company; and (c) in the event that stockholder approval of
such increase is not obtained within the time period provided herein, all Awards
granted pursuant to such increase will be canceled, any Shares issued pursuant
to any Award granted pursuant to such increase will be canceled, and any
purchase of Shares pursuant to such increase will be rescinded.
20. TERM OF PLAN/GOVERNING LAW. Unless earlier terminated as provided
--------------------------
herein, this Plan will terminate ten (10) years from the date this Plan is
adopted by the Board or, if earlier, the date of stockholder approval. This
Plan and all agreements thereunder shall be governed by and construed in
accordance with the laws of the State of California.
21. AMENDMENT OR TERMINATION OF PLAN. The Board may at any time
--------------------------------
terminate or amend this Plan in any respect, including without limitation
amendment of any form of Award Agreement or instrument to be executed pursuant
to this Plan; provided, however, that the Board will not, without the approval
-------- -------
of the stockholders of the Company, amend this Plan in any manner that requires
such stockholder approval.
9
<PAGE>
22. NONEXCLUSIVITY OF THE PLAN. Neither the adoption of this Plan by
--------------------------
the Board, the submission of this Plan to the stockholders of the Company for
approval, nor any provision of this Plan will be construed as creating any
limitations on the power of the Board to adopt such additional compensation
arrangements as it may deem desirable, including, without limitation, the
granting of stock options and bonuses otherwise than under this Plan, and such
arrangements may be either generally applicable or applicable only in specific
cases.
23. DEFINITIONS. As used in this Plan, the following terms will have
-----------
the following meanings:
"Award" means any award under this Plan, including any Option,
Restricted Stock or Stock Bonus.
"Award Agreement" means, with respect to each Award, the signed
written agreement between the Company and the Participant setting forth the
terms and conditions of the Award.
"Board" means the Board of Directors of the Company.
"Cause" means the commission of an act of theft, embezzlement,
fraud, dishonesty or a breach of fiduciary duty to the Company or a Parent or
Subsidiary of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Compensation Committee of the Board.
"Company" means Asymetrix, Learning Systems, Inc. or any successor
corporation.
"Disability" means a disability, whether temporary or permanent,
partial or total, within the meaning of Section 22(e)(3) of the Code, as
determined by the Committee.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Exercise Price" means the price at which a holder of an Option
may purchase the Shares issuable upon exercise of the Option.
"Fair Market Value" means, as of any date, the value of a share of
the Company's Common Stock determined as follows:
(a) if such Common Stock is then quoted on the Nasdaq National Market,
its closing price on the Nasdaq National Market on the date of
determination as reported in The Wall Street Journal;
-----------------------
(b) if such Common Stock is publicly traded and is then listed on a
national securities exchange, its closing price on the date of
determination on the principal national securities exchange on
which the Common Stock is listed or admitted to trading as
reported in The Wall Street Journal;
-----------------------
(c) if such Common Stock is publicly traded but is not quoted on the
Nasdaq National Market nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and
asked prices on the date of determination as reported in The Wall
--------
Street Journal;
--------------
10
<PAGE>
(d) in the case of an Award made on the Effective Date, the price per
share at which shares of the Company's Common Stock are initially
offered for sale to the public by the Company's underwriters in
the initial public offering of the Company's Common Stock pursuant
to a registration statement filed with the SEC under the
Securities Act; or
(d) if none of the foregoing is applicable, by the Committee in good
faith.
"Insider" means an officer or director of the Company or any other
person whose transactions in the Company's Common Stock are subject to Section
16 of the Exchange Act.
"Option" means an award of an option to purchase Shares pursuant
to Section 5.
"Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if each of such
corporations other than the Company owns stock possessing 50% or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
"Participant" means a person who receives an Award under this
Plan.
"Performance Factors" means the factors selected by the Committee
from among the following measures to determine whether the performance goals
established by the Committee and applicable to Awards have been satisfied:
(a) Net revenue and/or net revenue growth;
(b) Earnings before income taxes and amortization and/or earnings
before income taxes and amortization growth;
(c) Operating income and/or operating income growth;
(d) Net income and/or net income growth;
(e) Earnings per share and/or earnings per share growth;
(f) Total shareholder return and/or total shareholder return
growth;
(g) Return on equity;
(h) Operating cash flow return on income;
(i) Adjusted operating cash flow return on income;
(j) Economic value added; and
(k) Individual confidential business objectives.
"Performance Period" means the period of service determined by the
Committee, not to exceed five years, during which years of service or
performance is to be measured for Restricted Stock Awards or Stock Bonuses.
"Plan" means this Asymetrix Corporation 1998 Equity Incentive
Plan, as amended from time to time.
"Restricted Stock Award" means an award of Shares pursuant to
Section 6.
11
<PAGE>
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means shares of the Company's Common Stock reserved for
issuance under this Plan, as adjusted pursuant to Sections 2 and 18, and any
successor security.
"Stock Bonus" means an award of Shares, or cash in lieu of Shares,
pursuant to Section 7.
"Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
"Termination" or "Terminated" means, for purposes of this Plan
with respect to a Participant, that the Participant has for any reason ceased to
provide services as an employee, officer, director, consultant, independent
contractor, or advisor to the Company or a Parent or Subsidiary of the Company.
An employee will not be deemed to have ceased to provide services in the case of
(i) sick leave, (ii) military leave, or (iii) any other leave of absence
approved by the Committee, provided, that such leave is for a period of not more
than 90 days, unless reemployment upon the expiration of such leave is
guaranteed by contract or statute or unless provided otherwise pursuant to
formal policy adopted from time to time by the Company and issued and
promulgated to employees in writing. In the case of any employee on an approved
leave of absence, the Committee may make such provisions respecting suspension
of vesting of the Award while on leave from the employ of the Company or a
Subsidiary as it may deem appropriate, except that in no event may an Option be
exercised after the expiration of the term set forth in the Option agreement.
The Committee will have sole discretion to determine whether a Participant has
ceased to provide services and the effective date on which the Participant
ceased to provide services (the "Termination Date").
"Unvested Shares" means "Unvested Shares" as defined in the Award
Agreement.
"Vested Shares" means "Vested Shares" as defined in the Award
Agreement.
12
<PAGE>
EXHIBIT 10.07
SUBLEASE
This Sublease is by and between ASYMETRIX CORPORATION ("Landlord") and VULCAN
NORTHWEST INC. ("Tenant"). Landlord, as tenant, entered into a lease dated May
24, 1991, and amended pursuant to a First Amendment to Lease dated April 16,
1992, a Second Amendment to Lease dated May 20, , 1992, a Third Amendment to
Lease dated September 29, 1992, a Fourth Amendment to Lease dated August 27,
1993, a Fifth Amendment to Lease dated April 29, 1995, (collectively the "Prime
Lease"), with DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P. as landlord ("Prime
Landlord"), leasing certain space on the Fifth of the building (the "Building")
at 110 - 110th Avenue NE, Bellevue, Washington 98004. The Building is located
on the real property described on Exhibit A.
---------
The parties hereto have agreed that Landlord shall sublet approximately square
feet of such space to Tenant. The parties agree as follows:
1. Premises. Landlord hereby leases to Tenant the 8,247 square feet, more or
--------
less, of the space on the fifth of the Building ("Premises") shown on Exhibit B
attached hereto and made a part hereof.
2. Term. The term of this Sublease shall commencing on November 13, 1995,
----
and shall terminate upon the termination of the Prime Lease.
3. Rent. Tenant shall pay directly to Prime Landlord in accordance with the
----
terms of the Prime Lease rent at the rate of EIGHTEEN AND 25/100 DOLLARS
($18.25) per square foot per annum, plus the additional rent mentioned in
paragraph 6 below. Tenant shall pay the rent and additional rent provided for
hereunder in monthly installments in accordance with the Prime Lease.
4. Use. The Premises shall be used for the conduct of Tenants business
---
activities and for no other purpose.
5. Assignment. Tenant shall not assign this Sublease nor sublet the Premises
----------
in whole or in part and shall not permit Tenant's interest in this Sublease to
be vested in any third party by operation of law or otherwise.
6. Additional Charges. If Landlord shall be charged for Additional Rent (as
------------------
defined in the Prime Lease) or other sums pursuant to the provisions of the
Prime Lease, including without limitation Article 9 thereof, Tenant shall be
liable a pro rated portion of such costs equal to the ratio that the square
footage of the space being subleased hereunder bears to the square footage of
all space then being leased by Landlord pursuant to this Sublease.
Notwithstanding the foregoing, if any such rent or sums shall be directly
allocable to the space being subleased hereunder or Tenants use thereof, or due
to additional use by Tenant of electrical current in excess of Tenant's
proportionate part of additional use in the Premises demised under the Prime
Lease, then such excess shall be paid in its entirety by Tenant. If Tenant
shall procure any additional services from the Building, such as alterations or
after-hour air conditioning, Tenant shall pay for such services at the rates
charged therefor by the Prime Landlord and shall make such payment directly to
the Prime
1
<PAGE>
Landlord. Any rent or other sums payable by Tenant under this paragraph 6 shall
be additional rent and collectable as such.
7. Prime Lease. This Sublease is subject and subordinate to the Prime Lease.
-----------
Except as may be inconsistent with the terms hereof, all the terms, covenants
and conditions in the Prime Lease shall be applicable to this Sublease with the
same force and effect as if Landlord were the landlord under the Prime Lease and
Tenant were the tenant thereunder and in case of any breach hereof by Tenant,
Landlord shall have all the rights against Tenant as would be available to the
landlord against the tenant under the Prime Lease if such breach were by the
tenant thereunder. Landlord warrants and represents that all consents required
under the Prime Lease to enter into this Sublease have been obtained.
8. Limitation. Notwithstanding anything herein contained, the only services
----------
or rights to which Tenant is entitled hereunder are those to which Landlord is
entitled under the Prime Lease, and for all such services and rights Tenant will
look to the Prime Landlord.
9. Indemnity. Tenant shall neither do nor permit anything to be done which
---------
would cause the Prime Lease to be terminated or forfeited by reason of any right
of termination or forfeiture reserved or vested in the Prime Landlord, and
Tenant shall indemnify and hold Landlord harmless from and against all claims of
any kind whatsoever by reason of any breach or default of the Prime Lease on the
part of Tenant.
10. Representation. Tenant represents that it has read and is familiar with
--------------
the terms of the Prime Lease.
11. Entire Agreement. All prior understandings and agreements between the
----------------
parties are merged within this Sublease, which alone fully and completely sets
forth the understanding of the parties and this Sublease may not be changed or
terminated orally or in any manner other than by an agreement in writing and
signed by the party against whom enforcement of the charge or termination is
sought.
12. Notices. Any notice or demand which either party may or must give to the
-------
other hereunder shall be in writing and delivered personally or sent by
registered mail addressed, if to Landlord, as follows:
Asymetrix Corporation
110-110th Ave N.E.
Suite 700
Bellevue WA 98004
Attn: Steven Esau, General Counsel
and if to Tenant, as follows:
Vulcan Northwest Inc.
110-110th Ave N.E.
Suite 700
2
<PAGE>
Bellevue WA 98004
Attn: William D. Savoy, President
Either party may, by notice in writing, direct that future notices or demands be
sent to a different address.
13. Successors and Assigns. The covenants and agreements herein contained
----------------------
shall bind and inure to the benefit of Landlord, Tenant, and their respective
executors, administrators, successors and assigns.
Exhibits:
Exhibit A: Legal Description
Exhibit B: Floor Plan of Sublet Space
Dated this 30 day of November, 1995.
--
LANDLORD: Asymetrix Corporation
By /s/ John D. Atherly
-------------------------------------
John D. Atherly
Vice President, Finance and Administration
TENANT: Vulcan Northwest Inc.
By /s/ William D. Savoy
-------------------------------------
William D. Savoy, President
3
<PAGE>
Exhibit A
LEGAL DESCRIPTION
That portion of the Southwest quarter of the Northeast quarter of Section 32,
Township 25 North, Range 5 East, W.M., in King County, Washington, described as
follows:
Beginning at the intersection of the East margin of 110th Avenue Northeast, as
now established with a line parallel to and 277.5 feet North of, when measured
at right angles to the East-West centerline of said Section 32; thence Easterly
along said parallel line to a point in line parallel to and 476.8 feet West of,
when measured at right angles, to the East line of said subdivision; thence
Northerly along said parallel line to a point in a line parallel to and 577.5
feet North of, when measured at right angles to, the said center line of said
Section; thence Westerly along said parallel line, 14.09 feet to a point in a
line parallel to and 162.00 feet West of, when measured at right angles to, the
East line of the West three quarters of the South half of said subdivision;
thence Northerly along said parallel line to the South margin of Northeast
Second Street as now established; thence Westerly along said South margin of
Northeast Second Street as to the said East margin of 110th Avenue Northeast;
thence Southerly along said East margin to the point of beginning.
4
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that JOHN D. ATHERLY is
the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he is authorized to execute the instrument and
acknowledged it as the Vice President of Finance and Administration of ASYMETRIX
CORPORATION, to be the free and voluntary act of such corporation for the uses
and purposes mentioned in the instrument.
Dated this 30th day of October, 1995.
----
/s/ Kathryn K. Navarro
-------------------------------------------
(Signature of Notary)
KATHRYN K. NAVARRO
-------------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at WOODINVILLE, WA
---------------------------------------
My appointment expires 9-9-97
----------------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that WILLIAM D. SAVOY is
the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he is authorized to execute the instrument and
acknowledged it as the President of VULCAN NORTHWEST INC., to be the free and
voluntary act of such corporation for the uses and purposes mentioned in the
instrument.
Dated this 30th day of October, 1995.
----
/s/ Francoise E. Barrett
-------------------------------------------
(Signature of Notary)
FRANCOISE E. BARRETT
-------------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at Snohmish, Washington
---------------------------------------
My appointment expires Nov 1, 1996
----------------------------
<PAGE>
EXHIBIT 10.08
SERIES B PREFERRED STOCK EXCHANGE AGREEMENT
This SERIES B PREFERRED STOCK EXCHANGE AGREEMENT (this "Agreement") is made
---------
and entered into as of September 30, 1997 by and among SuperCede, Inc., a
Washington corporation (the "Company") with an address for purposes of this
-------
Agreement at 110 - 110th Avenue NE, Suite ____, Bellevue, Washington 98004 and
Asymetrix Corporation, a Washington corporation (the "Investor") with an address
--------
for purposes of this Agreement at 110 - 110th Avenue NE, Suite 700 Bellevue,
Washington 98004.
RECITALS
--------
WHEREAS, the Company and the Investor desire to recapitalize the Company,
in connection with which Investor will exchange shares of the Company's Common
Stock it currently owns for shares of the Company's newly issued Series B
Preferred Stock, and to enter into certain other related agreements, on the
terms and conditions set forth in this Agreement; and
WHEREAS, in connection with such recapitalization the Company and the
Investor desire to amend that certain Asset Transfer, License and Stock Issuance
Agreement between them dated as of June 24, 1997 (the "Asset and License
Agreement") to terminate the license of certain of the Company's technology to
Investor;
Now, therefore, the parties hereby agree as follows:
1. AGREEMENT TO EXCHANGE STOCK.
---------------------------
1.1 Authorization. As of the Closing (as defined below) the Company will
-------------
have authorized the issuance, pursuant to the terms and conditions of this
Agreement, of up to 3,500,000 shares of the Company's Series B Preferred Stock,
$0.01 par value per share (the "Series B Stock") having the rights, preferences,
--------------
privileges and restrictions set forth in the Restated Articles of Incorporation
of the Company attached to this Agreement as Exhibit A (the "Restated
--------- --------
Articles").
- --------
1.2 Agreement to Exchange. The Company and the Investor agree to exchange
---------------------
3,500,000 shares of the Company's Common Stock, $0.01 par value per share (the
"Asymetrix Shares") for an equivalent number of shares of Series B Stock. The
- -----------------
shares of Series B Stock acquired by Investor pursuant to this Agreement will be
collectively hereinafter referred to as the "Series B Shares" and the shares of
---------------
Common Stock issuable upon conversion of the Series B Shares will be
collectively hereinafter referred to as the "Conversion Shares".
-----------------
2. CLOSING.
-------
2.1 Time and Place. The exchange of the Asymetrix Shares for the Series B
--------------
Shares will take place at the offices of the Company concurrently with the
execution of this Agreement
-1-
<PAGE>
on September 30, 1997 or at such other time and place as the Company and the
Investor mutually agree upon (which time and place are referred to in this
Agreement as the "Closing").
-------
2.2 Deliveries By the Company. At the Closing, the Company will deliver
-------------------------
to the Investor (concurrently with the deliveries from the Investor to the
Company pursuant to Section 2.3) the following:
(a) a certificate representing the Series B Shares;
(b) a copy of the Restated Articles of Incorporation certified by the
Secretary of State of the State of Washington;
(c) a copy of the Bylaws of the Company (as amended through the date
of the Closing), certified by the Secretary of the Company as a true and correct
copy thereof as of the Closing;
(d) an opinion from Graham & James LLP, counsel for the Company,
dated as of the date of the Closing, in the form attached hereto as Exhibit B;
---------
(e) the Investors' Rights Agreement in the form attached to this
Agreement as Exhibit C, executed by the Company (the "Investors' Rights
--------- -----------------
Agreement"); and
- ---------
(f) the Voting Agreement in the form attached to this Agreement as
Exhibit D, executed by both the Company and Vulcan Ventures, Inc. (the "Voting
- --------- ------
Agreement").
- ---------
2.3 Deliveries By the Investor. At the Closing, the Investor will
--------------------------
deliver to the Company (concurrently with the deliveries from the Company to the
Investor pursuant to Section 2.2) the following:
(a) a certificate representing the Asymetrix Shares, duly endorsed by
the Investor as requested by the Company for cancellation;
(b) the Investors' Rights Agreement, executed by the Investor; and
(c) the Voting Agreement, executed by the Investor.
3. REPRESENTATIONS, WARRANTIES AND FURTHER AGREEMENTS OF THE COMPANY.
-----------------------------------------------------------------
The Company hereby represents and warrants to the Investor that, except as set
forth in the Schedule of Exceptions ("Schedule of Exceptions") attached to this
----------------------
Agreement as Exhibit E (which Schedule of Exceptions shall be deemed to be
---------
representations and warranties to the Investor by the Company under this Section
3), the statements in the following paragraphs of this Section 3 are all true
and correct:
3.1 Organization, Good Standing and Qualification. The Company is a
---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Washington
-2-
<PAGE>
and has all requisite corporate power and authority to own its properties and
assets and to carry on its business as now conducted and as presently proposed
to be conducted. The Company is qualified to do business as a foreign
corporation in each jurisdiction where failure to be so qualified would have a
material adverse effect on its financial condition, business, prospects or
operations.
3.2 Capitalization. Immediately prior to the Closing the capitalization
--------------
of the Company will consist of the following:
(a) Preferred Stock. A total of 7,000,000 authorized shares of
---------------
preferred stock, $0.01 par value per share (the "Preferred Stock"), consisting
---------------
of 3,500,000 shares designated as Series B Preferred Stock ("Series B Stock"),
--------------
none of which will be issued and outstanding, and 3,500,000 shares designated as
Series A Preferred Stock ("Series A Stock"), none of which will be issued and
--------------
outstanding. The rights, preferences and privileges of the Series B Stock and
the Series A Stock will be as stated in the Restated Articles and as provided by
law.
(b) Common Stock. A total of 15,000,000 authorized shares of common
------------
stock, $0.01 par value per share (the "Common Stock"), of which 3,500,000 shares
------------
will be issued and outstanding.
(c) Options, Warrants, Reserved Shares. Except for the conversion
----------------------------------
privileges of the Series B Stock and the Series A Stock and conversion rights
under a Convertible Secured Promissory Note dated August 13, 1997 held by Vulcan
Ventures Inc. (which rights under such Convertible Secured Promissory Note will
be canceled upon the Closing), there are not outstanding any options, warrants,
rights (including conversion or preemptive rights) or agreements for the
purchase or acquisition from the Company of any shares of its capital stock or
any securities convertible into or ultimately exchangeable or exercisable for
any shares of the Company's capital stock. Apart from the exceptions noted in
this Section 3.2(c), no shares of the Company's outstanding capital stock, or
stock issuable upon exercise or exchange of any outstanding options, warrants or
rights, or other stock issuable by the Company, are subject to any rights of
first refusal or other rights to purchase such stock (whether in favor of the
Company or any other person), pursuant to any agreement or commitment of the
Company. No more than 4,000,000 shares of the Company's Common Stock will be
reserved for issuance under any stock option plan, stock incentive plan or any
other plan relating to the grant of shares of the Company's capital stock, or of
options or other rights to purchase shares of the Company's capital stock.
(d) Outstanding Security Holders. Other than Asymetrix, there are no
----------------------------
outstanding shareholders, option holders, warrant holders, convertible note
holders and other security holders of the Company as of immediately prior to the
Closing.
3.3 Subsidiaries. The Company does not presently own or control, directly
------------
or indirectly, any interest in any other corporation, partnership, trust, joint
venture, association, or other entity.
-3-
<PAGE>
3.4 Due Authorization. All corporate action on the part of the Company,
-----------------
its officers, directors and shareholders necessary for the authorization,
execution, delivery of, and the performance of all obligations of the Company
under, this Agreement, the Investors' Rights Agreement and the Voting Agreement,
and the authorization, issuance, reservation for issuance and delivery of all of
the Series B Shares being issued under this Agreement and of the Conversion
Shares has been taken, and this Agreement constitutes, and the Investors' Rights
Agreement and the Voting Agreement, when executed, will constitute, valid and
legally binding obligations of the Company, enforceable in accordance with their
respective terms, except as may be limited by (i) applicable bankruptcy,
insolvency, reorganization or others laws of general application relating to or
affecting the enforcement of creditors' rights generally and (ii) the effect of
rules of law governing the availability of equitable remedies.
3.5 Valid Issuance of Stock.
-----------------------
(a) The Series B Shares, when issued, sold and delivered in
accordance with the terms of this Agreement for the consideration provided for
herein, will be duly and validly issued, fully paid and nonassessable. The
Conversion Shares have been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Restated Articles, will be duly and
validly issued, fully paid and nonassessable.
(b) Based in part on the representations made by the Investor in
Section 4 hereof, the Series B Shares and (assuming no change in applicable law
and no unlawful distribution of Series B Shares by Investor or other parties)
the Conversion Shares will be issued in full compliance with the registration
and prospectus delivery requirements of the U.S. Securities Act of 1933, as
amended (the "1933 Act") and the registration and qualification requirements of
--------
the State of Washington or in compliance with applicable exemptions therefrom
(provided that, with respect to the Conversion Shares, no commission or other
remuneration is paid or given, directly or indirectly, for soliciting the
issuance of Conversion Shares upon the conversion of the Series B Shares and no
additional consideration is paid for the Conversion Shares other than surrender
of the applicable Series B Shares upon conversion thereof in accordance with the
Restated Articles).
(c) The outstanding shares of the capital stock of the Company are
duly and validly issued, fully paid and nonassessable, and such shares of such
capital stock, and all outstanding options, warrants, convertible notes and
other securities of the Company, have been issued in full compliance with the
registration and prospectus delivery requirements of the 1933 Act or in
compliance with applicable exemptions therefrom, the registration and
qualification requirements of all applicable securities laws of states of the
United States and all other provisions of applicable securities laws of States
of the United States, including, without limitation, anti-fraud provisions.
3.6 Governmental Consents. No consent, approval, order or authorization
---------------------
of, or registration, qualification, designation, declaration or filing with, any
federal, state or local governmental authority on the part of the Company is
required in connection with the consummation of the transactions contemplated by
this Agreement, the Investors' Rights
-4-
<PAGE>
Agreement or the Voting Agreement, except for such qualifications or filings
------ ---
under the 1933 Act and the regulations thereunder and all other applicable
securities laws of States of the United States as may be required in connection
with the transactions contemplated by this Agreement. All such qualifications
and filings will, in the case of qualifications, be effective on the Closing and
will, in the case of filings, be made within the time prescribed by law.
3.7 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation ("Action") pending (or, to the best of the Company's knowledge,
------
currently threatened) against the Company, its activities, properties or assets
or, to the best of the Company's knowledge, against any officer, director or
employee of the Company in connection with such officer's, director's or
employee's relationship with, or actions taken on behalf of, the Company. To
the best of the Company's knowledge, there is no factual or legal basis for any
such Action that might result, individually or in the aggregate, in any material
adverse change in the business, properties, assets, financial condition, affairs
or prospects of the Company. By way of example but not by way of limitation,
there are no Actions pending or, to the best of the Company's knowledge,
threatened (or any basis therefor known to the Company) relating to the prior
employment of any of the Company's employees or consultants, their use in
connection with the Company's business of any information, technology or
techniques allegedly proprietary to any of their former employers, clients or
other parties, or their obligations under any agreements with prior employers,
clients or other parties. The Company is not a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality and there is no Action by the Company
currently pending or which the Company intends to initiate.
3.8 Status of Proprietary Assets.
----------------------------
(a) Ownership. The Company has full title and ownership of, or has
---------
license to, all patents, patent applications, trademarks, service marks, trade
names, copyrights, moral rights, mask works, trade secrets, confidential and
proprietary information, compositions of matter, formulas, designs, proprietary
rights, know-how and processes (all of the foregoing collectively hereinafter
referred to as the "Proprietary Assets") necessary to enable it to carry on its
------------------
business as now conducted and as presently proposed to be conducted, without any
conflict with or infringement of the rights of others. To the best of the
Company's knowledge, no third party has any ownership right, title, interest,
claim in or lien on any of the Company's Proprietary Assets and the Company has
taken all steps reasonably necessary to preserve its legal rights in, and the
secrecy of, all its Proprietary Assets, except those for which disclosure is
required for legitimate business or legal reasons.
(b) Licenses; Other Agreements. Except for licenses to use the
--------------------------
SuperCede Products granted to customers in the ordinary course of business and
except as set forth on Schedule 3.8(b), the Company has not granted, and, to the
best of the Company's knowledge, there are not outstanding, any options,
licenses or agreements of any kind relating to any Proprietary Asset of the
Company, nor is the Company bound by or a party to any option, license or
agreement of any kind with respect to any of its Proprietary Assets.
-5-
<PAGE>
(c) No Infringement. To the best of the Company's knowledge, the
---------------
Company has not violated or infringed, and is not currently violating or
infringing, and the Company has not received any communications alleging that
the Company (or any of its employees or consultants) has violated or infringed
or, by conducting its business as proposed, would violate or infringe, any
Proprietary Asset of any other person or entity.
(d) No Breach by Employee. The Company is not aware that any
---------------------
employee or consultant of the Company is obligated under any agreement
(including licenses, covenants or commitments of any nature) or subject to any
judgment, decree or order of any court or administrative agency, or any other
restriction that would interfere with the use of his or her best efforts to
carry out his or her duties for the Company or to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. The carrying on of the Company's business by the employees and
contractors of the Company and the conduct of the Company's business as
presently proposed, will not, to the best of the Company's knowledge, conflict
with or result in a breach of the terms, conditions or provisions of, or
constitute a default under, any contract, covenant or instrument under which any
of such employees or contractors or the Company is now obligated. The Company
does not believe it is or will be necessary to utilize any inventions of any
employees of the Company (or persons the Company currently intends to hire) made
prior to their employment by the Company. At no time during the conception of or
reduction of any of the Company's Proprietary Assets to practice was any
developer, inventor or other contributor to such patents operating under any
grants from any governmental entity or agency or private source, performing
research sponsored by any governmental entity or agency or private source or
subject to any employment agreement or invention assignment or nondisclosure
agreement or other obligation with any third party that could adversely affect
the Company's rights in such Proprietary Assets.
3.9 Compliance with Law and Charter Documents. The Company is not in
-----------------------------------------
violation or default of any provisions of its Articles of Incorporation or
Bylaws, both as amended, and to the best of the Company's knowledge, except for
any violations that individually and in the aggregate would have no material
adverse impact on the Company's business, the Company is in compliance with all
applicable statutes, laws, regulations and executive orders of the United States
of America and all states, foreign countries or other governmental bodies and
agencies having jurisdiction over the Company's business or properties. The
Company has not received any notice of any violation of such statutes, laws,
regulations or orders which has not been remedied prior to the date hereof. The
execution, delivery and performance of this Agreement, the Investors' Rights
Agreement and the Voting Agreement and the consummation of the transactions
contemplated hereby or thereby will not result in any such violation or default,
or be in conflict with or constitute, with or without the passage of time or the
giving of notice or both, either a default under the Company's Articles of
Incorporation or Bylaws, or any agreement or contract of the Company, or, to the
best of the Company's knowledge, a violation of any statutes, laws, regulations
or orders, or an event which results in the creation of any lien, charge or
encumbrance upon any asset of the Company.
3.10 Material Agreements. The Company has not breached, nor does the
-------------------
Company have any knowledge of any claim or threat that the Company has breached,
any term or condition
-6-
<PAGE>
of any agreement, contract, lease, license, instrument or commitment that,
individually or in the aggregate, is material to the business, properties,
financial condition, results of operations or affairs or prospects of the
Company ("Material Agreements"). Each Material Agreement is in full force and
effect and, to the Company's knowledge, no other party to such Material
Agreement is in default thereunder. The Company is not a party to any agreement
that restricts its ability to market or sell any of its products (whether by
territorial restriction or otherwise).
3.11 Registration Rights. Except as provided in the Investors' Rights
-------------------
Agreement, the Company has not granted or agreed to grant to any person or
entity any rights (including piggyback registration rights) to have any
securities of the Company registered with the United States Securities and
Exchange Commission ("SEC") or any other governmental authority.
---
3.12 Title to Property and Assets. The Company owns its properties and
----------------------------
assets free and clear of all mortgages, deeds of trust, liens, encumbrances,
security interests and claims except for statutory liens for the payment of
current taxes that are not yet delinquent and liens, encumbrances and security
interests which arise in the ordinary course of business and which do not affect
material properties and assets of the Company. With respect to the property and
assets it leases, the Company is in compliance with such leases and, to the best
of the Company's knowledge, the Company holds valid leasehold interests in such
assets free of any liens, encumbrances, security interests or claims of any
party other than the lessors of such property and assets.
3.13 Financial Statements. Attached to this Agreement as Exhibit F is an
-------------------- ---------
unaudited balance sheet of the Company dated August 31, 1997 (the "Balance Sheet
-------------
Date") and an unaudited income statement of the Company for the two-month period
- ----
ended August 31, 1997 (all such financial statements being collectively referred
to herein as the "Financial Statements"). Such financial statements (i) are in
--------------------
accordance with the books and records of the Company, (ii) are true, correct and
complete and present fairly the financial condition of the Company at the date
or dates therein indicated and the results of operations for the period or
periods therein specified, and (iii) have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis, for the
omission of notes thereto and normal year-end audit adjustments. Specifically,
but not by way of limitation, the balance sheet discloses all of the Company's
material debts, liabilities and obligations of any nature, whether due or to
become due, as of their respective dates (including, without limitation,
absolute liabilities, accrued liabilities, and contingent liabilities) to the
extent such debts, liabilities and obligations are required to be disclosed in
accordance with generally accepted accounting principles. The Company has good
and marketable title to all assets set forth on the balance sheet, except for
such assets as have been spent, sold or transferred in the ordinary course of
business since their respective dates.
3.14 Certain Actions. Since the Balance Sheet Date, the Company has not:
---------------
(i) declared or paid any dividends, or authorized or made any distribution upon
or with respect to any class or series of its capital stock; (ii) incurred any
indebtedness for money borrowed or incurred any other liabilities individually
in excess of $10,000 or in excess of $25,000 in the aggregate; (iii) made any
loans or advances to any person, other than ordinary advances for travel
-7-
<PAGE>
expenses; (iv) sold, exchanged or otherwise disposed of any material assets or
rights other than the sale of inventory in the ordinary course of its business;
or (v) entered into any transactions with any of its officers, directors or
employees or any entity controlled by any of such individuals.
3.15 Activities Since Balance Sheet Date. Since the Balance Sheet Date,
-----------------------------------
there has not been:
(a) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, financial
condition, operating results, prospects or business of the Company (as presently
conducted and as presently proposed to be conducted);
(b) any waiver by the Company of a valuable right or of a material
debt owed to it;
(c) any satisfaction or discharge of any lien, claim or encumbrance
or payment of any obligation by the Company, except such a satisfaction,
discharge or payment made in the ordinary course of business that is not
material to the assets, properties, financial condition, operating results or
business of the Company;
(d) any material change or amendment to a material contract or
arrangement by which the Company or any of its assets or properties is bound or
subject, except for changes or amendments which are expressly provided for or
disclosed in this Agreement;
(e) any material change in any compensation arrangement or agreement
with any present or prospective employee, contractor or director not approved by
the Company's board of directors; or
(f) to the Company's knowledge, any other event or condition of any
character which would materially and adversely affect the assets, properties,
financial condition, operating results or business of the Company.
3.16 ERISA Plans. The Company does not have any Employee Pension Benefit
-----------
Plan as defined in Section 3 of the Employee Retirement Income Security Act of
1974, as amended.
3.17 Insurance. The Company has in full force and effect fire and
---------
casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its properties
that might be damaged or destroyed.
3.18 Tax Returns and Payments. The Company has timely filed all tax
------------------------
returns and reports required by law and has never been audited by any state or
federal taxing authority. All tax returns and reports of the Company are true
and correct in all material respects. The Company has paid all taxes and other
assessments due, except those, if any, currently being contested by it in good
faith which are listed in the Schedule of Exceptions.
-8-
<PAGE>
3.19 Employees. The Company is not aware that any officer or employee
---------
intends to terminate their employment with the Company, nor does the Company
have any present intention to terminate the employment of any of its officers or
employees.
3.20 Disclosure. This Agreement and the Exhibits hereto (when read
----------
together) do not contain any untrue statement of a material fact and do not omit
to state a material fact necessary to make the statements therein or herein not
misleading.
4. REPRESENTATIONS, WARRANTIES AND CERTAIN AGREEMENTS OF INVESTOR.
--------------------------------------------------------------
The Investor hereby represents and warrants to, and agrees with, the Company
that:
4.1 Authorization. This Agreement constitutes Investor's valid and
-------------
legally binding obligation, enforceable in accordance with its terms except as
may be limited by (i) applicable bankruptcy, insolvency, reorganization or other
laws of general application relating to or affecting the enforcement of
creditors' rights generally and (ii) the effect of rules of law governing the
availability of equitable remedies. Investor represents that Investor has full
power and authority to enter into this Agreement, the Investors' Rights
Agreement and the Voting Agreement.
4.2 Purchase for Own Account. The Series B Shares to be acquired by
------------------------
Investor hereunder will be acquired for investment for Investor's own account,
not as a nominee or agent, and not with a view to the public resale or
distribution thereof within the meaning of the 1933 Act, and Investor has no
present intention of selling, granting any participation in, or otherwise
distributing the same.
4.3 Disclosure of Information. Investor has received or has had full
-------------------------
access to all the information it considers necessary or appropriate to make an
informed investment decision with respect to the Series B Shares to be purchased
by Investor under this Agreement. Investor further has had an opportunity to ask
questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series B Shares and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify any
information furnished to Investor or to which Investor had access. The
foregoing, however, does not in any way limit or modify the representations and
warranties made by the Company in Section 3.
4.4 Investment Experience. Investor understands that the purchase of the
---------------------
Series B Shares involves substantial risk. Investor: (i) has experience as an
investor in securities of companies in the development stage and acknowledges
that Investor is able to fend for itself, can bear the economic risk of
Investor's investment in the Series B Shares and has such knowledge and
experience in financial or business matters that Investor is capable of
evaluating the merits and risks of this investment in the Series B Shares and
protecting its own interests in connection with this investment and/or (ii) has
a preexisting personal or business relationship with the Company and certain of
its officers, directors or controlling persons of a nature and duration that
-9-
<PAGE>
enables Investor to be aware of the character, business acumen and financial
circumstances of such persons.
4.5 Accredited Investor Status. Investor is an "accredited investor"
--------------------------
within the meaning of Regulation D promulgated under the 1933 Act.
4.6 Restricted Securities. Investor understands that the Series B Shares
---------------------
are characterized as "restricted securities" under the 1933 Act inasmuch as they
are being acquired from the Company in a transaction not involving a public
offering and that under the 1933 Act and applicable regulations thereunder such
securities may be resold without registration under the 1933 Act only in certain
limited circumstances. In this connection, Investor represents that Investor is
familiar with Rule 144 of the U.S. Securities and Exchange Commission, as
presently in effect, and understands the resale limitations imposed thereby and
by the 1933 Act. Investor understands that the Company is under no obligation
to register any of the securities sold hereunder except as provided in the
Investors' Rights Agreement. Investor understands that no public market now
exists for any of the Series B Shares and that it is uncertain whether a public
market will ever exist for the Series B Shares or the Conversion Shares.
4.7 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above, Investor further agrees not to make any
disposition of all or any portion of the Series B Shares or the Conversion
Shares unless and until:
(a) there is then in effect a registration statement under the 1933
Act covering such proposed disposition and such disposition is made in
accordance with such registration statement; or
(b) (i) Investor shall have notified the Company of the proposed
disposition and shall have furnished the Company with a statement of the
circumstances surrounding the proposed disposition, and (ii) Investor shall have
furnished the Company, at the expense of Investor or its transferee, with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such securities under the 1933 Act.
4.8 Legends. It is understood that the certificates evidencing the Series
-------
B Shares and the Conversion Shares will bear the legends set forth below:
(a) THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"). THE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR TRANSFERRED UNLESS
(1) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT (AND CURRENT PROSPECTUS)
IS IN EFFECT AS TO THE SECURITIES, (2) AN EXEMPTION THEREFROM IS AVAILABLE, OR
(3) THE SECURITIES ARE SOLD PURSUANT TO RULE 144 OF THE SECURITIES ACT. THE
ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR
RESALE IS IN COMPLIANCE WITH THE SECURITIES ACT AND ANY APPLICABLE STATE
SECURITIES LAWS.
-10-
<PAGE>
(b) Any legend required by the laws of the State of Washington.
The legend set forth in (a) above shall be removed by the Company from any
certificate evidencing Series B Shares or Conversion Shares upon delivery to the
Company of an opinion by counsel, reasonably satisfactory to the Company, that a
registration statement under the 1933 Act is at that time in effect with respect
to the legended security or that such security can be freely transferred in a
public sale without such a registration statement being in effect and that such
transfer will not jeopardize the exemption or exemptions from registration
pursuant to which the Company issued the Series B Shares or Conversion Shares.
5. AMENDMENTS TO LICENSE AGREEMENT.
-------------------------------
In order to terminate the license previously granted by the Company to the
Investor, the Asset and License Agreement is hereby amended as follows:
(a) Section 1(e), entitled "Competing Product" is deleted in its
entirety;
(b) Article 4, entitled "License to SuperCede Technology" and
including Sections 4(a), 4(b), 4(c) and 4(d), is hereby deleted in its entirety;
(c) Section 11(g), entitled "Injunctive Relief" is amended by
deleting the following from the first sentence: "or any action by Asymetrix with
respect to the SuperCede Technology outside the scope of the license granted in
Section 4" and is further amended by deleting the following from the second
sentence: "and SuperCede may seek a restraining order and/or an injunction
prohibiting any action by Asymetrix with respect to the SuperCede Technology
outside the scope of the license granted in Section 4,".
The remaining terms and conditions of the Asset and License Agreement shall
continue in full force and effect in accordance with their terms.
6. MISCELLANEOUS.
-------------
6.1 Survival of Warranties. The representations, warranties and covenants
----------------------
of the Company and the Investor contained in or made pursuant to this Agreement
shall survive the execution and delivery of this Agreement and the Closing and
shall in no way be affected by any investigation of the subject matter thereof
made by or on behalf of the Investor or the Company, as the case may be.
6.2 Successors and Assigns. The terms and conditions of this Agreement
----------------------
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties.
6.3 Governing Law. This Agreement shall be governed by and construed
-------------
under the internal laws of the State of Washington as applied to agreements
among Washington residents entered into and to be performed entirely within
Washington, without reference to principles of conflict of laws or choice of
laws.
-11-
<PAGE>
6.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6.5 Headings. The headings and captions used in this Agreement are used
--------
for convenience only and are not to be considered in construing or interpreting
this Agreement. All references in this Agreement to sections, paragraphs,
exhibits and schedules shall, unless otherwise provided, refer to sections and
paragraphs hereof and exhibits and schedules attached hereto, all of which
exhibits and schedules are incorporated herein by this reference.
6.6 Notices. Any notice or other communication required or permitted to
-------
be given under this Agreement will be in writing, will be delivered personally,
by registered or certified mail, postage prepaid, by confirmed facsimile or by
nationally recognized courier service, and will be deemed given upon delivery,
if delivered personally, or five days after deposit in the mails, if mailed, or
upon receipt if delivered by confirmed facsimile or by nationally recognized
courier service, to the address indicated for such party set forth above or to
such other address as a party may have furnished to the other parities in
writing pursuant to this Section 6.6.
6.7 No Finder's Fees. Each party represents that it neither is nor will
----------------
be obligated for any finder's or broker's fee or commission in connection with
this transaction. The Investor agrees to indemnify and to hold harmless the
Company from any liability for any commission or compensation in the nature of a
finders' or broker's fee (and any asserted liability) for which the Investor or
any of its officers, partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless the Investor from any
liability for any commission or compensation in the nature of a finder's or
broker's fee (and any asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
6.8 Attorneys' Fees. If any action at law or in equity is necessary to
---------------
enforce or interpret the terms of this Agreement, the Investors' Rights
Agreement, the Voting Agreement or the Restated Articles, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
6.9 Costs, Expenses. Each party will bear its respective expenses and
---------------
fees of its own accountants, attorneys and other professionals incurred with
respect to this Agreement and the transactions contemplated hereby.
6.10 Amendments and Waivers. Any term of this Agreement may be amended
----------------------
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any Series B Shares and/or Conversion Shares at the time outstanding,
each future holder of such securities, and the Company.
6.11 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, such provision(s) shall be excluded
from this Agreement
-12-
<PAGE>
and the balance of the Agreement shall be interpreted as if such provision(s)
were so excluded and shall be enforceable in accordance with its terms.
6.12 Entire Agreement. This Agreement, together with all exhibits and
----------------
schedules hereto, constitutes the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings duties or
obligations between the parties with respect to the subject matter hereof.
6.13 Further Assurances. From and after the date of this Agreement, upon
------------------
the request of Investor or the Company, the Company and the Investor shall
execute and deliver such instruments, documents or other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
6.14 Assignment of Rights in SuperCede Technology. To the extent that
--------------------------------------------
Asymetrix has acquired any rights in and to the SuperCede Technology (as defined
in the License Agreement), whether pursuant to the terms of any Employee
Invention, Confidentiality, Nonraiding and Noncompetition Agreement (an
"Employee Agreement") between Asymetrix and any employee providing services to
SuperCede or otherwise, which rights were not assigned to SuperCede pursuant
pursuant to the License Agreement, Asymetrix and hereby assigns all such rights
to SuperCede. Asymetrix hereby assigns to SuperCede the right to enforce any
Employee Agreement to the extent it relates to SuperCede Products or SuperCede
Technology, and agrees not to amend or waive any such rights arising under an
Employee Agreement with respect to SuperCede Products or SuperCede Technology
without SuperCede's express written consent.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY: INVESTOR:
- ----------- --------
SUPERCEDE, INC. ASYMETRIX CORPORATION
By: /s/ Shabbir Dahod By: /s/ J. Billmaier
------------------------------------ ----------------------------------
Name: Shabbir Dahod Name: James A. Billmaier
---------------------------------- --------------------------------
Title: Vice President & General Manager Title: CEO
--------------------------------- -------------------------------
-13-
<PAGE>
SERIES B PREFERRED STOCK EXCHANGE AGREEMENT
LIST OF EXHIBITS
- ----------------
Exhibit A - Restated Articles of Incorporation
Exhibit B - Opinion of Company Counsel
Exhibit C - Investors' Rights Agreement
Exhibit D - Voting Agreement
Exhibit E - Schedule of Exceptions
Exhibit F - Unaudited Financial Statement
-14-
<PAGE>
Graham & James LLP/Riddell Williams P.S.
September 30, 1997
Asymetrix Corporation
110-110th Ave. N. E., Ste. 700
Bellevue, WA 98004
Attention: General Counsel
Re: Purchase of Series B Preferred Stock of SuperCede, Inc.
Gentlemen:
We have served as counsel to SuperCede, Inc. (the "Company"), a Washington
corporation (the "Company"), in connection with the purchase by Asymetrix
Corporation, a Washington corporation ("Asymetrix"), of 3,500,000 shares of
Series B Preferred Stock of the Company pursuant to that certain Series B
Preferred Stock Exchange Agreement by and among Asymetrix and the Company dated
as of September 30, 1997 (the "Agreement"). This opinion is delivered to you
pursuant to Section 1.2(a) of the Agreement. Unless otherwise defined herein,
capitalized terms used in this letter shall have the same meanings as set forth
in the Agreement.
For purposes of this opinion, we have reviewed the following documents the
("Documents"):
(a) The Agreement, including the Schedules and Exhibits thereto;
(b) The Investors Rights Agreement, dated September 30, l997, by and among
Asymetrix, Vulcan Ventures, Inc. ("Vulcan") and the Company;
(c) The Voting Agreement, dated September 30, 1997, by and among
Asymetrix, Vulcan and the Company;
(d) The Series A Stock Purchase Agreement, dated September 30, 1997, by
and among Vulcan and the Company (the "Series A Agreement");
(e) A Certificate of Existence/Authorization dated September 30, 1997,
issued by the Secretary of State of the State of Washington with respect to the
Company;
(f) Amended and Restated Articles of Incorporation of the Company dated
September 30, 1997 (the "Articles"), and Amended and Restated Bylaws of the
Company (the "Bylaws") dated September 30, 1997, each certified by an officer of
the Company as being in full force and effect as of the date of this letter;
<PAGE>
Asymetrix Corporation
September 30, 1997
Page 2
(g) Stock records and records of proceedings and actions of the Board of
Directors and shareholders of the Company relating to the formation and
operation of the Company prior to the date hereof, including, without
limitation, the transactions contemplated by the Agreement;
(h) A certificate (the "Certificate") executed by an officer of the
Company with respect to certain other matters, a copy of which is attached
hereto;
(i) That certain Asset Transfer, License and Stock Issuance Agreement
dated effective as of June 24, 1997 by and among Asymetrix and the Company.
Items (a) - (c) are referred to as the "Transaction Documents." We express
no opinion with respect to any document other than the Transaction Documents,
the Articles and the Bylaws, and we have not reviewed any documents for the
purposes of this opinion other than the Documents identified as items (a)
through (i) above.
The term "Parties" means all of the parties to the Transaction Document.
Assumptions
-----------
For purposes of this opinion, we have assumed the following:
A. Parties. All Parties who are natural persons are over the age of 18,
-------
are not operating under any legal disability or incapacity, and are fully
competent to act on their own behalf in executing, delivering and performing the
Transaction Documents. All Parties who are not natural persons, other than the
Company: (i) are duly organized and validly existing; and (ii) have qualified to
do business in any necessary jurisdiction and have all necessary authority, and
all necessary governmental or other consents and authorizations, to enter into,
execute, deliver and perform the Transaction Documents and to effect the
transactions required of them by the Transaction Documents. The Transaction
Documents have been duly executed and delivered by all of the Parties, other
than the Company, by an authorized agent or official of the Parties acting
within the scope of his authority in accordance with applicable law. The
Transaction Documents constitutes the valid and binding obligation of all of the
Parties, other than the Company.
B. Authenticity and Recording. All signatures contained on the Documents
--------------------------
are genuine, and the Transaction Documents submitted to us as originals are
authentic. All copies of the Documents submitted to us as copies actually
executed or to be executed are the same as the originally executed and delivered
Documents.
C. Complete Agreement. There are no facts, agreements or understandings
------------------
among the Parties, written or oral, and there is no usage of trade or course of
prior dealing among the Parties that would, in either case, define, supplement,
modify or supersede the terms of the Transaction Documents.
<PAGE>
Asymetrix Corporation
September 30, 1997
Page 3
D. Governing Law. Washington law (without regard to Washington law
-------------
regarding choice of law or conflicts of law) will apply to the interpretation,
validity and enforceability of the Transaction Documents.
The term "actual knowledge" or "our actual knowledge" means such current,
conscious knowledge as we have obtained from our examination of the Documents
and of attorneys presently in our office who have been involved in substantive
legal representation of the Company prior to the date of this letter.
In connection with the opinions set forth below, we have examined and
relied exclusively as to certain factual matters upon the items referred to in
Items (a) through (i) above, including without imitation the accuracy and
completeness of the representations and warranties of the parties to the
Agreement. We have not verified any actual matters in connection with or apart
from our review of the Documents and matters listed above, and, accordingly, we
do not express any opinion or belief as to matters that might have been
disclosed by such verification.
Opinion
-------
Based solely upon the foregoing and on our examination of such questions of law
we have deemed necessary or appropriate for the purpose of this opinion, and
subject to the Assumptions and Qualifications contained herein, it is our
opinion that:
1. The Company is a duly organized and validly existing corporation under
the laws of the State of Washington. The Company has all requisite corporate
power and corporate authority to own its properties and assets and to carry on
its business as now conducted and is presently proposed to be conducted.
2. The authorized capital stock of the Company consists of a total of
30,000,000 authorized shares of Common Stock, $0.0001 par value, none of which,
immediately after the execution of and consummation of the transactions
contemplated by the Agreement and the Series A Agreement, will be issued and
outstanding, and 7,000,000 authorized shares of Preferred Stock, $0.0001 par
value, 3,500,000 of which are designated as "Series A Preferred Stock" and
3,500,000 of which are designated as "Series B Preferred Stock," all of which,
immediately after execution of and consummation of the transactions contemplated
by the Agreement and the Series A Agreement, will be issued and outstanding.
3. All corporate action on the part of the Company, its officers,
directors and shareholders necessary for the authorization, execution, delivery
of, and the performance of all obligations of the Company under the Transaction
Documents, and the authorization, issuance, reservation or issuance and delivery
of all of the Series B Preferred Stock has been taken, and the Transaction
Documents constitute valid and legally binding obligations of the Company,
enforceable in accordance with their respective terms.
<PAGE>
Asymetrix Corporation
September 30, 1997
Page 4
4. The Series B Preferred Stock, when issued, sold and delivered in
accordance with the terms of the Agreement, for the consideration provided for
therein, will be duly and validly issued, fully paid and nonassessable. The
shares of common stock into which the Series B Preferred Stock may be converted
have been duly and validly reserved for issuance and, upon issuance in
accordance with the terms of the Articles, will be duly and validly issued,
fully paid and nonassessable.
5. The execution, delivery and performance of the Transaction Documents
and the transactions contemplated thereby will not be in conflict with or
constitute, with or without the passage of time or the giving of notice or both,
a default either under the Company's Articles or Bylaws.
Qualifications
--------------
The opinions rendered herein are subject to and qualified in all respects by the
following:
a. Our opinion as to the enforceability of any of the Transaction
Documents is limited by: (i) applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other similar laws affecting the rights
and remedies of creditors and lenders, (ii) general principles of equity and
public policy including, without imitation, concepts of materiality,
reasonableness, good faith and fair dealing (regardless of whether considered in
a proceeding in equity or at law), and (iii) principles governing the
availability of specific performance, injunctive relief or any other equitable
remedy, which generally provide that the award of such remedies is in the
discretion of the court to which application for such relief is made.
b. We express no opinion as to the enforceability of (i) provisions
related to the waiver of rights, remedies and defenses, (ii) any reservation of
the right to pursue inconsistent or cumulative remedies, (iii) limitations on
the liability of, or provisions for indemnification of a party against, such
party's own negligence or misconduct, (iv) provisions pertaining to
jurisdiction, venue or choice of law, (v) provisions permitting modification of
a document only in writing, (vi) noncompetition covenants, and (viii)
severability clauses.
c. The enforceability of the Transaction Documents is limited by
Washington decisions which permit the admission of extrinsic evidence, both oral
and written, to ascertain the intent of the parties to the Transaction
Documents, regardless of the presence or absence of ambiguity in any of such
agreements or instruments and regardless of a statement by the parties in the
Transaction Documents that such agreements or instruments constitute an
integrated expression of their agreement.
d. Our opinion is limited to the effects of the laws of the State of
Washington and the federal laws of the United States presently in force on the
persons and transactions described herein, and we express no opinion as to the
applicability or effect of the
<PAGE>
Asymetrix Corporation
September 30, 1997
Page 5
laws of any other jurisdictions. In addition, we express no opinion regarding
any Federal or state antitrust or securities laws and regulations or compliance
with fiduciary duty requirements.
e. We express no opinion regarding the availability of such general
contractual defenses as mistake, fraud, duress or unconscionability.
This opinion is rendered to you in connection with the above transaction and is
for your exclusive benefit. This opinion may not be relied upon by you for any
other purpose and, without our prior written consent, may not be relied upon or
furnished or quoted to any other person, firm or corporation for any purpose.
Neither you nor any other person to whom we may grant our consent to rely upon
this opinion may rely upon any portion of this opinion which such person knows
to be false or has information which would make reliance upon such portion of
the opinion unreasonable in the circumstances. We expressly disclaim any
obligation to advise you of any changes or developments in matters of law or
fact covered by this opinion that occur after the date hereof.
Very truly yours,
/s/ John M. Steel
John M. Steel
of
GRAHAM & JAMES LLP/RIDDELL WILLIAMS P.S.
<PAGE>
INVESTORS' RIGHTS AGREEMENT
---------------------------
This Investors' Rights Agreement (this "Agreement") is made and entered
---------
into as of September 30, 1997 by and among Supercede, Inc., a Washington
corporation (the "Company"), Asymetrix Corporation, a Washington corporation
-------
("Asymetrix") and Vulcan Ventures Inc. ("Vulcan," together with Asymetrix, the
- ----------- ------
"Investors")
---------
RECITALS
--------
A. Asymetrix has agreed to exchange the shares of Common Stock owned by it
for shares of the Company's Series B Preferred Stock ("Series B Stock") on the
terms and conditions set forth in that certain Series B Preferred Stock Exchange
Agreement dated of even date herewith by and between the Company and Asymetrix
(the "Series B Agreement")
------------------
B. Vulcan has agreed to purchase from the Company, and the Company has
agreed to sell to Vulcan, shares of the Company's Series A Preferred Stock
("Series A Stock") on the terms and conditions set forth in that certain Series
--------------
A Preferred Stock Purchase Agreement, dated of even date herewith by and between
the Company and Vulcan (the "Series A Agreement").
------------------
C. Each of the Series A Agreement and the Series B Agreement provides
that the Investors shall be granted certain information and registration rights
and rights of first refusal, all as more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
------------------
1.1 Financial Information. The Company covenants and agrees that,
---------------------
commencing on the date of this Agreement, for so long as any Investor holds at
least 350,000 shares of Series A Stock issued under the Series A Agreement
and/or 350,000 shares of Series B Stock issued under the Series B Agreement
and/or the equivalent number (on an as-converted basis) of shares of Common
Stock of the Company ("Common Stock") issued upon the conversion of such shares
------------
of Series A Stock or Series B Stock ("Conversion Stock") the Company will:
----------------
(a) Annual Reports. Furnish to such Investor, as soon as practicable
--------------
and in any event within 120 days after the end of each fiscal year of the
Company, a consolidated Balance Sheet as of the end of such fiscal year, a
consolidated Statement of Income and a consolidated Statement of Cash Flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year (if any),
all prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants.
(b) Quarterly Reports. Furnish to such Investor as soon as
-----------------
practicable, and in any case within forty-five (45) days of the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited financial statements, including an
-1-
<PAGE>
unaudited Balance Sheet, and an unaudited Statement of Income and an unaudited
Statement of Cash Flows.
(c) Monthly Reports. Furnish to such Investor as soon as practicable,
---------------
and in any case within forty-five (45) days of the end of each calendar month
(except the last month of the Company's fiscal year), monthly unaudited
financial statements, including an unaudited Balance Sheet, and an unaudited
Statement of Income and an unaudited Statement of Cash Flows.
(d) Annual Budget. Furnish to such Investor as soon as practicable
-------------
and in any event no later than thirty (30) days after the close of each fiscal
year of the Company, an annual operating plan and budget, prepared on a monthly
basis, for the next immediate fiscal year. The Company shall also furnish to
such Investor, within a reasonable time of its preparation, amendments to the
annual budget, if any.
1.2 Inspection Rights. The Company shall permit each Investor holding at
-----------------
least 500,000 shares of Series A Stock and/or Series B Stock and/or the
equivalent number (on an as-converted basis) of shares of Conversion Stock, or
any combination thereof, at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to discuss
the Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Investor.
1.3 Termination of Certain Rights. The Company's obligations under
-----------------------------
Sections 1.1 and 1.2 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the U.S. Securities Act of 1933, as amended (the
"Securities Act").
- ---------------
1.4 Rule 144A Information. The Company agrees to provide each Investor,
---------------------
upon request, with such written information as may be required in order to
permit such Investor to resell any shares of the Company's stock pursuant to
Rule 144A promulgated under the Securities Act.
1.5 Confidentiality. Each Investor agrees to hold all information received
---------------
pursuant to this Agreement in confidence, whether such information is disclosed
to Investor orally or in writing and whether or not such information is
specifically marked as confidential. Investor further agrees not to use such
information except in connection with the exercise of its rights hereunder or
with respect to the Series A Stock, Series B Stock and/or Conversion Stock held
by it. Investor shall take such care to maintain the confidentiality of the
information it receives hereunder as it takes to protect its own confidential
information of a similar nature, but in no event less than a reasonable degree
of care. Upon the request of the Company, the Investor shall provide to the
Company the steps being taken by the Investor to maintain the confidentiality of
such information. The foregoing obligations do not apply to information which:
(i) was in Investor's lawful possession prior to the disclosure and had not been
obtained by Investor either directly or indirectly from the Company; (ii) is
lawfully disclosed to Investor by a third party without restriction on
disclosure; (iii) is independently developed by Investor without reference to
the information received hereunder; or (iv) is publicly disclosed by the
Company.
-2-
<PAGE>
2. REGISTRATION RIGHTS.
-------------------
2.1 Definitions. For purposes of this Section 2:
-----------
(a) Registration. The terms "register," "registered," and
------------ -------- ----------
"registration" refer to a registration effected by preparing and filing a
- -------------
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities" means:
---------------------- ----------------------
(1) all the shares of Common Stock of the Company issued or issuable upon the
conversion of any shares of Series A Stock issued under the Series A Agreement
or any shares of Series B Stock issued under the Series B Agreement that are now
owned or may hereafter be acquired by any Investor or any Investor's permitted
successors and assigns and (2) any shares of Common Stock of the Company issued
as (or issuable upon the conversion or exercise of any warrant, right or other
security which is issued as) a dividend or other distribution with respect to,
or in exchange for or in replacement of, all such shares of Common Stock
described in clause (1) of this subsection (b); excluding in all cases, however,
---------
any Registrable Securities sold by a person in a transaction in which rights
under this Section 2 are not assigned in accordance with this Agreement or any
Registrable Securities sold to the public or sold pursuant to Rule 144
promulgated under the Securities Act
(c) Registrable Securities Then Outstanding. The number of shares of
---------------------------------------
"Registrable Securities then outstanding" shall mean the number of shares of
---------------------------------------
Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 2 and Sections 3 and 4
------
hereof, the term "Holder" means any person owning of record Registrable
------
Securities that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
-------- -------
of this Agreement, a record holder of shares of Series A Stock or Series B Stock
convertible into such Registrable Securities shall be deemed to be the Holder of
such Registrable Securities; provided, further, that the Company shall in no
-------- -------
event be obligated to register shares of Series A Stock or Series B Stock, and
that Holders of Registrable Securities will not be required to convert their
shares of Series A Stock or Series B Stock into Common Stock in order to
exercise the registration rights granted hereunder, until immediately before the
closing of the offering to which the registration relates.
(e) Form S-3. The term "Form S-3" means such form under the
-------- --------
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
-3-
<PAGE>
(f) SEC. The term "SEC" or "Commission" means the U.S. Securities and
--- --- ----------
Exchange Commission.
2.2 Demand Registration.
-------------------
(a) Request by Holders. If the Company shall receive at any time
------------------
after the earlier of (i) September 30, 2002 (except that if the Company has
completed the initial public offering of its securities then the time period in
2.2(a)(ii) shall apply even after September 30, 2002), or (ii) six (6) months
after the effective date of the Company's initial public offering of its
securities pursuant to a registration filed under the Securities Act, a written
request from the Holders of at least twenty-five percent (25%) of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within ten (10)
business days of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and effect, as soon as
--------------
practicable, the registration under the Securities Act of all Registrable
Securities which Holders request to be registered and included in such
registration by written notice given by such Holders to the Company within
twenty (20) days after receipt of the Request Notice, subject only to the
limitations of this Section 2.2; provided that the Registrable Securities
--------
requested by all Holders to be registered pursuant to such request must either
(i) be at least twenty-five percent (25%) of all Registrable Securities then
outstanding or (ii) have an anticipated aggregate public offering price (before
any underwriting discounts and commissions) of not less than $2,500,000.
(b) Underwriting. If the Holders initiating the registration request
------------
under this Section 2.2 ("Initiating Holders") intend to distribute the
------------------
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of
any Holder to include his Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 2.2, if the underwriter(s) advise(s) the Company
in writing that marketing factors require a limitation of the number of
securities to be underwritten then the Company shall so advise all Holders of
Registrable Securities which would otherwise be registered and underwritten
pursuant hereto, and the number of Registrable Securities that may be included
in the underwriting shall be reduced as required by the underwriter(s) and
allocated among the Holders of Registrable Securities on a pro rata basis
according to the number of Registrable Securities then outstanding held by each
Holder requesting registration (including the Initiating Holders); provided,
--------
however, that the number of shares of Registrable Securities to be included in
- -------
such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the
-4-
<PAGE>
underwriting and registration. Any Registrable Securities excluded and withdrawn
from such underwriting shall be withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
--------------------------------------
to effect only four (4) such registrations pursuant to this Section 2.2, two (2)
at the demand of the Holders of the Series A Stock and two (2) at the demand of
the Holders of the Series B Stock.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
--------
furnish to Holders requesting the filing of a registration statement pursuant to
this Section 2.2, a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 120 days
after receipt of the request of the Initiating Holders; provided, however, that
-------- -------
the Company may not utilize this right more than once in any twelve (12) month
period.
(e) Expenses. All expenses incurred in connection with a registration
--------
pursuant to this Section 2.2, including without limitation all registration and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel for the selling Holders (but excluding underwriters' discounts and
commissions), shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section 2.2 shall bear such Holder's proportionate
share (based on the total number of shares sold in such registration other than
for the account of the Company) of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such offering
Notwithstanding the foregoing, the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to this Section 2.2 if
the registration request is subsequently withdrawn at the request of the Holders
of a majority of the Registrable Securities to be registered, unless the Holders
of a majority of the Registrable Securities Securities who have demanded
registration pursuant to this Section 2.2 agree to forfeit their right to one
(1) demand registration pursuant to this Section 2.2 (in which case such right
shall be forfeited by all Holders of Registrable Securities); provided, further,
-------- -------
however, that if at the time of such withdrawal, the Holders have learned of a
- -------
material adverse change in the condition, business, or prospects of the Company
not known to the Holders at the time of their request for such registration and
have withdrawn their request for registration with reasonable promptness after
learning of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to this
Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
-----------------------
Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any registration
---------
under Section 2.2 or Section 2.4 of this Agreement or to any employee benefit
plan or a corporate reorganization) and will afford each such Holder an
opportunity to include in such registration
-5-
<PAGE>
statement all or any part of the Registrable Securities then held by such
Holder. Each Holder desiring to include in any such registration statement all
or any part of the Registrable Securities held by such Holder shall, within
twenty (20) days after receipt of the above-described notice from the Company,
so notify the Company in writing, and in such notice shall inform the Company of
the number of Registrable Securities such Holder wishes to include in such
registration statement. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If a registration statement under which the Company
------------
gives notice under this Section 2.3 is for an underwritten offering, then the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated: first, to the
-----
Company; second, to any Holders or other parties who have exercised a
------
contractual demand right to initiate the registration process; and third, to
-----
each of the Holders and other parties holding contractual registration rights
who have requested inclusion of their Registrable Securities or other securities
entitled to be included in such registration statement, on a pro rata basis
based on the total number of Registrable Securities or other securities entitled
to be included then held by each such Holder or other parties; provided however,
-------- -------
that the right of the underwriters to exclude shares (including Registrable
Securities) from the registration and underwriting as described above shall be
restricted so that:(i) the number of Registrable Securities included in any such
registration is not reduced below twenty percent (20%) of the shares included in
the registration, except for a registration relating to the Company's initial
public offering from which all Registrable Securities may be excluded; and (ii)
all shares that are not Registrable Securities and are held by persons who are
employees or directors of the Company (or any subsidiary of the Company) shall
first be excluded from such registration and underwriting before any Registrable
Securities are so excluded. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least ten (10) business days prior
to the effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration. For any Holder which is a partnership or corporation,
the partners, retired partners and shareholders of such Holder, or the estates
and family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
"Holder", and
-6-
<PAGE>
any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder", as defined in this sentence.
(b) Expenses. All expenses incurred in connection with a registration
--------
pursuant to this Section 2.3 (excluding underwriters' and brokers' discounts and
commissions), including, without limitation all federal and "blue sky"
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and reasonable fees and disbursements
of one counsel for the selling Holders shall be borne by the Company.
2.4 Form S-3 Registration. In case the Company shall receive from any
---------------------
Holder or Holders of at least twenty-five percent (25%) of all Registrable
Securities then outstanding a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such Holder
or Holders, then the Company will:
(a) Notice. Promptly give written notice of the proposed registration
------
and the Holder's or Holders' request therefor, and any related qualification or
compliance, to all other Holders of Registrable Securities; and
(b) Registration. As soon as practicable, effect such registration
------------
and all such qualifications and compliances as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Holder's or Holders' Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any other
Holder or Holders joining in such request as are specified in a written request
given within twenty (20) days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to effect
-------- -------
any such registration, qualification or compliance pursuant to this Section 2.4:
(1) if Form S-3 is not available for such offering by the
Holders;
(2) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than $1,000,000;
(3) if the Company shall furnish to the Holders a certificate
signed by the President or Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement no more
than once during any twelve month period for a period of not more than 120 days
after receipt of the request of the Holder or Holders under this Section 2.4;
(4) if the Company has, within the twelve (12) month period
preceding the date of such request, already effected one (1 ) registration on
Form S-3 for the Holders pursuant to this Section 2.4; or
-7-
<PAGE>
(5) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Expenses. Subject to the foregoing, the Company shall file a
--------
Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 2.4 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with
each registration requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration and qualification, printers' and accounting
fees and the reasonable fees and disbursements of one counsel for the selling
Holder or Holders and counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations shall not be
-----------------------
deemed to be demand registrations as described in Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect the
--------------------------
registration of any Registrable Securities under this Agreement, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to ninety (90) days.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of the Registrable Securities owned by them that
are included in such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
-8-
<PAGE>
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting registration of
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the Holders
requesting registration, addressed to the underwriters, if any, and to the
Holders requesting registration of Registrable Securities and (ii) a "comfort"
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
2.6 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.8 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the Company will
--------------
indemnify and hold harmless each Holder, the partners, officers and directors of
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Securities Exchange Act of 1934, as
amended, (the "1934 Act"), against any losses, claims, damages, or liabilities
--------
(joint or several) to which they may become subject under the Securities Act,
the l934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"):
---------
-9-
<PAGE>
(i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto;
(ii) the 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
(iii) any violation or alleged violation by the Company of the
Securities Act, the 1934 Act, any federal or state securities law or any rule or
regulation promulgated under the Securities Act, the 1934 Act or any federal or
state securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, officer or
director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them, as incurred, in connection with investigating or
defending any such loss, claim, damage, liability or action; provided however,
-------- -------
that the indemnity agreement contained in this subsection 2.8(a) shall not apply
to amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
------------------
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder within the meaning of the Securities Act or the
1934 Act, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, partner or director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will reimburse any legal or other expenses reasonably
incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, partner, officer, director or controlling person of
such other Holder in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
-------- -------
agreement contained in this subsection 2.8(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; and provided further, that the total amounts
-------- -------
payable in indemnity by a Holder under this Section
-10-
<PAGE>
2.8(b) in respect of any Violation shall not exceed the net proceeds received by
such Holder in the registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party under this
------
Section 2.8 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.8, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
-------- -------
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential conflict of interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.8, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 2.8.
(d) Defect Eliminated in Final Prospectus. The foregoing indemnity
-------------------------------------
agreements of the Company and Holders are subject to the condition that, insofar
as they relate to any Violation made in a preliminary prospectus but eliminated
or remedied in the amended prospectus on file with the SEC at the time the
registration statement in question becomes effective or the amended prospectus
filed with the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus), such
----------------
indemnity agreement shall not inure to the benefit of any person if a copy of
the Final Prospectus was furnished to the indemnified party and was not
furnished to the person asserting the loss, liability, claim or damage at or
prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and
-11-
<PAGE>
sold under such registration statement, and the Company and other selling
Holders are responsible for the remaining portion; provided, however, that, in
-------- -------
any such case, (A) no such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable Securities offered
and sold by such Holder pursuant to such registration statement; and (B) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under this
--------
Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree to be
similarly bound) for one hundred eighty (180) days following the effective date
of the first registration statement of the Company filed under the Securities
Act which covers securities to be sold on its behalf to the public in an
underwritten offering and for ninety (90) days following the effective date of
any subsequent registration statement of the Company filed under the Securities
Act Act which covers securities to be sold on its behalf to the public in an
underwritten offering; provided, however, that:
-------- -------
(a) such agreement shall not be applicable to Registrable Securities
sold pursuant to such registration statement; and
(b) all executive officers and directors of the Company then holding
Common Stock of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the Registrable Securities and such other shares of stock of each Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2.10 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission which may at any time permit the
sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date of the first registration under the Securities Act filed by
the Company for an offering of its securities to the general public;
-12-
<PAGE>
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to furnish
to the Holder forthwith upon request a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the first registration statement filed
by the Company for an offering of its securities to the general public), and of
the Securities Act and the 1934 Act (at any time after it has become subject to
the reporting requirements of the 1934 Act), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration (at any time after the Company has become subject to the
reporting requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company shall have no
----------------------------------------
obligations pursuant to Sections 2.2 through 2.4 with respect to: (i) any
request or requests for registration made by any Holder on a date more than five
(5) years after the closing date of the Company's initial public offering in
which gross proceeds raised for the Company's account (calculated before
deduction of underwriters' discounts and commissions) are at least $10,000,000;
or (ii) any Registrable Securities proposed to be sold by a Holder in a
registration pursuant to Section 2.2, 2.3 or 2.4 if, in the opinion of counsel
to the Company, all such Registrable Securities proposed to be sold by a Holder
may be sold in a three-month period without registration under the Securities
Act pursuant to Rule 144 under the Securities Act.
2.12 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the Registrable Securities then outstanding,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 2.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in subsection
2.2(a), or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to Section 2.2.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 General. Each Holder (as defined in Section 2.1(d)) and any party to
-------
whom such Holder's rights under this Section 3 have been duly assigned in
accordance with Section 4.1(b) (each such Holder or assignee being hereinafter
----
referred to as a "Rights Holder") has the right of first refusal to purchase
-------------
such Rights Holder's Pro Rata Share (as defined below), of all (or any part) of
any "New Securities" (as defined in Section 3.2) that the Company may from time
to time issue after the date of this Agreement. A Rights Holder's "Pro Rata
--------
Share" for purposes of
- -----
-13-
<PAGE>
this right of first refusal is the ratio of (a) the number of Registrable
Securities as to which such Rights Holder is the Holder (and/or is deemed to be
the Holder under Section 2.1(d)), to (b) a number of shares of Common Stock of
the Company equal to the sum of (i) the total number of shares of Common Stock
of the Company then outstanding plus (ii) the total number of shares of Common
Stock of the Company into which all then outstanding shares of Preferred Stock
of the Company are then convertible; provided, that if the sum of all Rights
Holders' Pro Rata Shares calculated in the manner set forth above would exceed
two-thirds in the aggregate, then each Rights Holder's Pro Rata Share shall be
proportionally reduced so that the aggregate Pro Rata Shares of all Rights
Holders equals two-thirds.
3.2 New Securities. "New Securities" shall mean any Common Stock or
-------------- --------------
Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
-------- -------
the term "New Securities" does not include:
---- --- -------
(i) shares of the Company's Common Stock (and/or options or
warrants therefor) issued to employees, officers, directors, contractors,
advisors or consultants of the Company pursuant to incentive agreements or plans
approved by the Board of Directors of the Company;
(ii) any shares of Series A or B Stock issued under the Series A
Agreement or the Series B Agreement, respectively, as such agreements may be
amended.
(iii) any securities issuable upon conversion of or with respect to
any then outstanding shares of Series A or Series B Stock of the Company or
Common Stock or other securities issuable upon conversion thereof;
(iv) shares of the Company's Common Stock or Preferred Stock issued
in connection with any stock split or stock dividend;
(v) securities offered by the Company to the public pursuant to a
registration statement filed under the Securities Act;
(vi) securities issued or issuable to parties providing the Company
with equipment leases, real property leases, loans, credit lines, guaranties of
indebtedness, cash price reductions or similar financing, or to licensees,
licensors, distributors, vendors, development partners or strategic relationship
partners; or
(vii) securities issued pursuant to the acquisition of technology, or
of another corporation or entity by the Company by consolidation, merger,
purchase of all or substantially all of the assets, or other reorganization in
which the Company acquires, in a single transaction or series of related
transactions, all or substantially all of the assets of such other corporation
or entity or fifty percent (50%) or more of the voting power of such other
corporation or entity or fifty percent (50%) or more of the equity ownership of
such other entity.
-14-
<PAGE>
3.3 Procedures. In the event that the Company proposes to undertake an
----------
issuance of New Securities, it shall give to each Rights Holder written notice
of its intention to issue New Securities (the "Notice"), describing the type of
------
New Securities and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Rights Holder shall have ten (10)
days from the date of mailing of any such Notice to agree in writing to purchase
such Rights Holder's Pro Rata Share of such New Securities for the price and
upon the general terms specified in the Notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased (not
to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to
so agree in writing within such ten (10) day period to purchase such Rights
Holder's full Pro Rata Share of an offering of New Securities (a "Nonpurchasing
-------------
Holder"), then such Nonpurchasing Holder shall forfeit the right hereunder to
- ------
purchase that part of his Pro Rata Share of such New Securities that he did not
so agree to purchase and the Company shall promptly give each Rights Holder who
has timely agreed to purchase his full Pro Rata Share of such offering of New
Securities (a "Purchasing Holder") written notice of the failure of any
-----------------
Nonpurchasing Holder to purchase such Nonpurchasing Rights Holder's full Pro
Rata Share of such offering of New Securities (the "Overallotment Notice").
--------------------
Each Purchasing Holder shall have a right of overallotment such that such
Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders'
unpurchased Pro Rata Shares of such offering on a pro rata basis according to
the relative Pro Rata Shares of the Purchasing Rights Holders, at any time
within five (5) days after receiving the Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders fail to
-------------------
exercise in full the right of first refusal within such ten (10) plus five (5)
day period, then the Company shall have 120 days thereafter to sell the New
Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold
the New Securities within such 120 day period, then the Company shall not
thereafter issue or sell any New Securities without again first offering such
New Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate (i)
-----------
immediately before the closing of the first underwritten sale of Common Stock of
the Company to the public pursuant to a registration statement filed with, and
declared effective by, the SEC under the Securities Act, covering the offer and
sale of Common Stock to the public in which gross proceeds raised for the
Company's account (calculated before deduction of underwriters' discounts and
commissions) are at least $10,000,000, or (ii) upon (a) the acquisition of all
or substantially all the assets of the Company or (b) an acquisition of the
Company by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction pursuant to
this Section 3.
-15-
<PAGE>
4. ASSIGNMENT AND AMENDMENT.
------------------------
4.1 Assignment. Notwithstanding anything herein to the contrary:
----------
(a) Information Rights. The rights of an Investor under Section 1.1
------------------
or 1.2 or 1.4 hereof may be assigned only to a party who acquires from an
Investor (or an Investor's permitted assigns) at least that number of shares of
Series A Stock and/or Series B Stock and/or an equivalent number (on an as-
converted basis) of shares of Conversion Stock described in Section 1.1 or 1.2
hereof, respectively; provided, however, that in no event shall such rights be
assigned to a competitor of the Company.
(b) Registration Rights; Refusal Rights. The registration rights of a
-----------------------------------
Holder under Section 2 hereof and the rights of first refusal of a Rights Holder
under Section 3 hereof may be assigned only to a party who acquires at least
200,000 shares of Series A Stock issued under the Series A Agreement and/or
Series B Stock issued under the Series B Agreement and/or an equivalent number
(on an as-converted basis) of Registrable Securities issued upon conversion
thereof; provided, however that no party may be assigned any of the foregoing
-------- -------
rights unless the Company is given written notice by the assigning party at the
time of such assignment stating the name and address of the assignee and
identifying the securities of the Company as to which the rights in question are
being assigned; and provided further that any such assignee shall receive such
-------- -------
assigned rights subject to all the terms and conditions of this Agreement,
including without limitation the provisions of this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may be amended
-------------------
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investors (and/or any of their permitted successors
or assigns) holding shares of Series A Stock , Series B Stock and/or Conversion
Stock representing and/or convertible into a majority of all the Investors'
Shares (as defined below) As used herein, the term "Investors' Shares" shall
-----------------
mean the shares of Common Stock then issuable upon conversion of all then
outstanding shares of Series A Stock issued under the Series A Agreement and all
then outstanding shares of Series B Stock issued under the Series B Agreement
plus all then outstanding shares of Conversion Stock that were issued upon the
conversion of any shares of Series A Stock issued under the Series A Agreement
and shares of Series B Stock issued under the Series B Agreement. Any amendment
or waiver effected in accordance with this Section 4.2 shall be binding upon
each Investor, each Holder, each permitted successor or assignee of such
Investor or Holder and the Company.
5. GENERAL PROVISIONS.
------------------
5.1 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows:
(a) if to an Investor, at such Investor's respective address as set
forth on Exhibit A hereto.
-16-
<PAGE>
(b) if to the Company, at 110 - 110th Avenue NE, Bellevue, Washington
98004, Attention: President.
Any party hereto (and such party's permitted assigns) may by notice so
given change its address for future notices hereunder. Notice shall
conclusively be deemed to have been given when personally delivered or when
deposited in the mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of Washington as
applied to agreements among Washington residents entered into and to be
performed entirely within Washington, excluding that body of law relating to
conflict of laws and choice of law.
5.4 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section 4.1,
----------------------
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
5.7 Captions. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in counterparts, each
------------
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement there
----------------------------------
is a reference to a specific number of shares of Common Stock or Preferred Stock
of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend
-17-
<PAGE>
of such class or series of stock, the specific number of shares so referenced in
this Agreement shall automatically be proportionally adjusted to reflect the
affect on the outstanding shares of such class or series of stock by such
subdivision, combination or stock dividend.
5.11 Aggregation of Stock. All shares held or acquired by affiliated
--------------------
entities or persons shall be aggregated together for the purpose of determining
the availability of any rights under this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY: INVESTORS:
- ----------- ---------
SUPERCEDE, INC. ASYMETRIX CORPORATION
By: By:
------------------------------ ------------------------------
Name: Name:
---------------------------- ----------------------------
Title: Title:
--------------------------- ---------------------------
VULCAN VENTURES INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT
-18-
<PAGE>
EXHIBIT A
List of Investors
- -----------------
<TABLE>
<CAPTION>
Number of Shares Held
---------------------
Name and Address Series A Stock Series B Stock
- ---------------- -------------- --------------
<C> <S> <S>
Asymetrix Corporation 3,500,000
110 110th Avenue N.E., Suite 700
Bellevue, WA 98004
Attention: General Counsel
Vulcan Ventures, Inc. 3,500,000
110 110th Avenue N.E., Suite 700
Bellevue, WA 98004
Attention: General Counsel
</TABLE>
-19-
<PAGE>
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement") is made and entered into as of
---------
September 30, 1997 (the "Effective Date") by and among SuperCede, Inc., a
---------------
Washington corporation (the "Company"), Asymetrix Corporation, a Washington
-------
corporation ("Asymetrix") and Vulcan Ventures Inc. ("Vulcan"). Vulcan, together
with Asymetrix are sometimes hereinafter collectively referred to as the
"Holders".
-------
RECITALS
--------
A. Concurrently herewith Asymetrix is exchanging its Common Stock of the
Company for shares of the Company's Series B Preferred Stock ("Series B
--------
Preferred Stock") pursuant to an Series B Preferred Stock Exchange Agreement
- ---------------
dated of even date herewith between the Company and Asymetrix.
B. Concurrently herewith, Vulcan is purchasing from the Company shares of
its Series A Preferred Stock (the "Series A Preferred Stock") pursuant to a
------------------------
Series A Preferred Stock Purchase Agreement dated of even date herewith between
the Company and Vulcan (the "Purchase Agreement").
------------------
C. As an inducement to (i) Asymetrix to exchange the shares of the
Company's Common Stock owned by it for Series B Preferred Stock pursuant to the
Exchange Agreement and (ii) Vulcan to purchase the Series A Preferred Stock
pursuant to the Purchase Agreement, the Investors, and the Company desire to
enter into this Agreement to set forth their agreements and understandings with
respect to how shares of the Company's capital stock held by them will be voted
on certain matters.
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants made herein, the parties hereby agree as follows:
1. Size of Board of Directors. Unless otherwise agreed by all Holders,
--------------------------
during the term of this Agreement, each Holder agrees to vote all shares of
capital stock of the Company now or hereafter directly or indirectly owned (of
record or beneficially) by such Holder to maintain the authorized number of
members of the Board of Directors of the Company at three (3) directors, and to
oppose any effort by any party to change the authorized number of directors of
the Company from three (3) directors.
2. Election of Board of Directors.
------------------------------
2.1 Voting; Board Composition. During the term of this Agreement,
-------------------------
each Holder agrees to vote all shares of capital stock of the Company now or
hereafter directly or indirectly owned (of record or beneficially) by such
Holder, in such manner as may be necessary to elect (and maintain in office) as
members of the Company's Board of Directors, the following three (3)
individuals:
(a) one (1) individual who at the time in question, is the
Company's Chief Executive Officer (the "CEO"); provided, however, that if at any
---
time that there is a
-1-
<PAGE>
vacancy in the CEO position, such individual shall be the Company's Vice
President and General Manager or other position of similar responsibility;
(b) one (1) individual designated from time to time in a writing
delivered to the Company and signed by the holders of a majority in interest of
the Series B Preferred Stock (the "Asymetrix Designee"); and
------------------
(c) one (1) individual designated from time to time in a writing
delivered to the Company and signed by the holders of a majority in interest of
the Series A Preferred Stock (the "Vulcan Designee").
---------------
For purposes of this Agreement: (i) any individual who is
designated for election to the Company's Board of Directors pursuant to the
foregoing provisions of this Section 2.1 is hereinafter referred to as a
"Board Designee"; and (ii) any individual, entity, or group of individuals
--------------
and/or entities who has the right to designate one or more Board Designees for
election to the Company's Board of Directors pursuant to the foregoing
provisions of this Section 2.1 is hereinafter referred to as a "Designator" or
----------
as "Designators", as applicable.
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2.2 Initial Board Members. The person initially filling the CEO
---------------------
position on the Board shall be Shabbir Dahod, the Company's Vice President and
General Manager; the initial Asymetrix Designee shall be John Atherly; and the
initial Vulcan Designee shall be Ralph Derrickson.
2.3 Changes in Board Designees. From time to time during the term of
--------------------------
this Agreement, a Designator or Designators may, in their sole discretion:
(a) elect to remove from the Company's Board of Directors any
incumbent Board Designee who occupies a Board seat for which such Designator or
Designators are entitled to designate the Board Designee under Section 2.1;
and/or
(b) designate a new Board Designee for election to a Board seat
for which such Designator or Designators are entitled to designate the Board
Designee under Section 2.1 (whether to replace a prior Board Designee or to fill
a vacancy in such Board seat); provided such removal and/or designation of a
--------
Board Designee is approved in a writing signed by Designators who are entitled
to designate such Board Designee under Section 2.1, in which case such election
to remove a Board Designee and/or elect a new Board Designee will be binding on
all such Designators. In the event of such a removal and/or designation of a
Board Designee under this Section 2.3, the Holders shall vote their shares of
the Company's capital stock as provided in Section 2.1 to cause: (a) the
removal from the Company's Board of Directors of the Board Designee or Designees
so designated for removal by the appropriate Designators or Designators; and (b)
the election to the Company's Board Directors of any new Board Designee or
Designees so designated for election to the Company's Board of Directors by the
appropriate Designator or Designators.
2.4 Notice; Cumulative Voting. The Company shall promptly give each
-------------------------
of the Holders written notice of any change in composition of the Company's
Board of Directors and of any proposal by a Designator or Designators to remove
or elect a new Board Designee. In any
-2-
<PAGE>
election of directors pursuant to this Section 2, the Holders shall vote their
shares in a manner sufficient to elect to the Company's Board of Directors the
individuals to be elected thereto as provided in this Section 2.
3. Further Assurances. Each of the Holders and the Company agree not to
------------------
vote any shares of Company stock, or to take any other actions, that would in
any manner defeat, impair, be inconsistent with or adversely affect the stated
intentions of the parties under Sections 1 and 2 of this Agreement.
4. Transferees; Legends on Certificates.
------------------------------------
4.1 Effect on Transferees. Each and every transferee or assignee of
---------------------
any shares of capital stock of the Company from any Holder shall be bound by and
subject to the terms and conditions of this Agreement that are applicable to
such transferee's transferor or assignor, and the Company shall require, as a
condition precedent to the transfer of any shares of capital stock of the
Company subject to this Agreement, that the transferee agrees in writing to be
bound by, and subject to, all the terms and conditions of this Agreement.
4.2 Legend. The Holders agree that all Company share certificates
------
now or hereafter held by them that represent shares of capital stock of the
Company subject to this Agreement will be stamped or otherwise imprinted with a
legend indicating that such shares are subject to the restrictions set forth in
this Agreement.
5. Enforcement of Agreement. Each of the Holders acknowledge and agree
------------------------
that any breach by any of them of this Agreement shall cause the other Holders
irreparable harm which may not be adequately compensable by money damages.
Accordingly, in the event of a breach or threatened breach by a Holder of any
provision of this Agreement, the Company and each other Holder shall each be
entitled to the remedies of specific performance, injunction or other
preliminary or equitable relief, including the right to compel any such
breaching Holder, as appropriate, to vote such Holder's shares of capital stock
of the Company in accordance with the provisions of this Agreement, in addition
to such other rights remedies as may be available to the Company or any Holder
for any such breach or threatened breach, including but not limited to the
recovery of money damages.
6. Term. This Agreement shall commence on the Effective Date and shall
----
terminate upon the first to occur of the following:
(a) September 30, 2007;
(b) The execution by the holders of a majority in interest of each of
the Series A Preferred Stock and the Series B Preferred Stock (or their
permitted assigns) of a written agreement to terminate this Agreement;
(c) The consummation of the first sale of securities of the Company
to the public pursuant to an effective registration statement filed by the
Company under the Securities Act of 1933, as amended;
-3-
<PAGE>
(d) The first date on which the outstanding capital stock of the
Company owned by Asymetrix and Vulcan (or their permitted assigns) (calculated
on an as-converted-into-Common Stock basis) constitutes less than forty percent
(40%) of the number of shares of the Company's Common Stock that would be
outstanding if all then outstanding shares of the Company's convertible
Preferred Stock were then converted into shares of the Company's Common Stock;
or
(e) Immediately prior to the closing of (i) any consolidation or
merger of the Company with or into any other corporation or corporations in
which the holders of the Company's outstanding shares immediately before such
consolidation or merger do not, immediately after such consolidation or merger,
retain stock representing a majority of the voting power of the surviving
corporation of such consolidation or merger or stock representing a majority of
the voting power of a corporation that wholly owns, directly or indirectly, the
surviving corporation of such consolidation or merger; (ii) the sale, transfer
or assignment of securities of the Company representing a majority of the voting
power of all the Company's outstanding voting securities by the holders thereof
to an acquiring party in a single transaction or series of related transactions;
(iii) any other sale, transfer or assignment of securities of the Company
representing over two-thirds (2/3) of the voting power of the Company's then
outstanding voting securities by the holders thereof to an acquiring party; or
(iv) the sale of all or substantially all the Company's assets.
7. Miscellaneous.
-------------
7.1 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the internal laws of the State of Washington applicable to
contracts made among residents of, and wholly to be performed within, the State
of Washington, without regard to principles of conflict of laws or choice of
laws.
7.2 Further Instruments. From time to time, each party hereto shall
-------------------
execute and deliver such instruments and documents as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
7.3 Successors. This Agreement shall be binding upon and shall inure
----------
to the benefit of the executors, administrators, legal representatives, heirs,
successors, and assigns of the parties hereto; provided, however, that any
-------- -------
transferee of any shares of stock of the Company affected by this Agreement
shall be required, as a condition precedent to acquiring such shares, to first
agree in writing to be bound by all the terms and conditions of this Agreement
applicable to such transferee's transferor; and provided further, that no rights
-------- -------
under this Agreement may be assigned apart from the related shares of the
Company' stock.
7.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
7.5 Entire Agreement. This document constitutes and contains the
----------------
entire agreement and understanding of the parties regarding the subject matter
of this Agreement and
-4-
<PAGE>
supersedes any and all prior negotiations, correspondence, understandings and
agreements among the parties respecting the subject matter hereof.
7.6 Amendments and Waivers. Any terms of this Agreement may be
----------------------
amended and the observance of any term of the Agreement may be waived (either
generally or in a particular) instance and either retroactively or
prospectively), with the written consent of the holders of a majority in
interest of each of the Series A Preferred Stock and the Series B Preferred
Stock(or their permitted assigns). Any amendment or waiver effected in
accordance with this Section shall be binding upon the Company, all the Holders
their permitted transferees and assignees.
IN WITNESS WHEREOF, the parties have executed this Agreement on the date
and year first above written.
THE COMPANY: INVESTORS:
- ----------- ---------
SUPERCEDE, INC. ASYMETRIX CORPORATION
By: By:
------------------------------ -------------------------------
Name: Name:
---------------------------- -----------------------------
Title: Title:
--------------------------- ----------------------------
VULCAN VENTURES INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
SIGNATURE PAGE TO VOTING AGREEMENT
-5-
<PAGE>
EXHIBIT 10.09
ASSET TRANSFER, LICENSE AND STOCK ISSUANCE AGREEMENT
This Agreement is made effective as of June 24, 1997 (the "Effective Date") by
and between Asymetrix Corporation, a Washington corporation including its
majority-owned subsidiaries (other than SuperCede) (collectively "Asymetrix"),
having its principal office at 110 - 110th Avenue N.E., Bellevue, Washington
98004, and SuperCede, Inc., a Washington corporation ("SuperCede"), having an
office at 110 - 110th Avenue N.E., Bellevue, Washington 98004.
RECITALS
A. Asymetrix has determined that the business currently conducted by its
Internet Tools Division should be conducted by SuperCede, which will as of the
Effective Date be a wholly-owned subsidiary of Asymetrix but which both
Asymetrix and SuperCede anticipate will become an independent corporation in the
near future.
B. Asymetrix and SuperCede desire to establish the terms under which the
business of the Internet Tools Division will be transferred to SuperCede and the
terms of certain relationships between the two of them which will continue after
such time as SuperCede is no longer a wholly-owned subsidiary of Asymetrix.
AGREEMENT
Therefore, in consideration of the foregoing and the covenants and conditions
hereinafter set forth, Asymetrix and SuperCede agree as follows:
1. DEFINITIONS.
(a) "Assets" means and includes and all of the Assigned Agreements, the
------
SuperCede Technology, the Patents, the Copyrights, the Trademarks, any and all
inventory of or associated with the SuperCede Products (including piece parts,
data sheets and marketing materials), and the tangible assets set forth on
Schedule 1(a) hereto.
(b) "Assigned Agreements" means those agreements of Asymetrix that are
-------------------
related to the SuperCede Technology and/or the SuperCede Products and which are
set forth on Schedule 1(b).
(c) "Assumed Obligations" means any and all obligations or liabilities of
-------------------
Asymetrix under any of the Assigned Agreements as well as certain other
obligations or liabilities of Asymetrix set forth on Schedule 1(c).
(d) "Asymetrix Product" means a product of Asymetrix that incorporates or
-----------------
otherwise utilizes any portion of the SuperCede Technology in combination with
other technology of Asymetrix or third parties such that a majority of the
functionality of such product is derived from technology other than the
SuperCede Technology.
<PAGE>
(e) "Competing Product" means any product that competes with a SuperCede
-----------------
Product; provided, however, that "Competing Product" shall not include any
products in the Asymetrix product line, including any successors to such product
line, whether marketed under their current names and trademarks or not, even if
such products can perform some of the same functions as a SuperCede Product.
(f) "Confidential Information" means (i) any of a party's proprietary
------------------------
technology or computer software in all versions and forms of expression, whether
or not the same has been patented or the copyright thereto registered, is the
subject of a pending patent or registration application, or forms the basis for
a patentable invention; (ii) any manuals, notes, documentation, technical
information, drawings, diagrams, specifications, formulas or know-how related to
any of the foregoing; (iii) any information regarding current or proposed
products, customers, contracts, business methods, financial data or marketing
data; and (iv) any other information that is clearly marked or designated as
confidential or proprietary by such party. Confidential Information includes
unwritten information that is identified by such party as confidential at the
time of disclosure. Confidential Information does not include information which:
(v) was in a party's lawful possession prior to the disclosure and had not been
obtained by such party either directly or indirectly from the other party; (vi)
is lawfully disclosed to such party by a third party without restriction on
disclosure; (vii) is independently developed by such party without reference to
the other party's Confidential Information; or (viii) is publicly disclosed by
the other party.
(g) "Copyrights" means all copyrights throughout the world in any elements
----------
of the SuperCede Technology and the SuperCede Products to the extent that they
have been fixed in a tangible medium of expression, including without limitation
the copyrights in and to source code, object code, user interface design,
documentation, product packaging and marketing materials, whether or not the
same have been registered with any governmental agency, and includes the
copyright registrations and applications set forth in Schedule 1(g).
(h) "Patents" means any issued patents and patent applications (including
-------
any future patents that may be issued to SuperCede pursuant to such
applications), including any foreign equivalents, covering aspects of the
SuperCede Technology now owned or hereafter acquired by SuperCede, and includes
those patent applications set forth in Schedule 1(h).
(i) "SuperCede Products" means the products of SuperCede that incorporate
------------------
or otherwise utilize the SuperCede Technology, either alone or in combination
with other technology of SuperCede or third parties such that a majority of the
functionality of such product is derived from the SuperCede Technology, and
specifically includes all versions of SuperCede Java Edition, SuperCede Java and
ActiveX Edition, SuperCede Database Edition, and the SuperCede Flash Compiler
technology.
(j) "SuperCede Technology" means all original works of authorship,
--------------------
inventions, software source code, algorithms, documentation, know-how, concepts,
techniques and discoveries and all other subject matter which Asymetrix has
developed as of the date of this Agreement or hereafter develops and which are
related to the SuperCede Products and other technology of the
<PAGE>
Internet Tools Division; provided, however, that "SuperCede Technology" shall
not include any know-how, ideas, concepts, techniques or discoveries related to
computer programming or software applications development generally, whether
known to Asymetrix prior to or developed in the course of developing any
particular software.
(k) "Trademarks" means the trademarks created or used in connection the
----------
SuperCede Products (other than the ASYMETRIX trademark and related logos),
together with the goodwill embodied therein, and includes the registrations and
applications for registration set forth on Schedule 1(k).
2. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES.
(a) Assignment. Asymetrix hereby sells, assigns, transfers and conveys to
----------
SuperCede all of its right, title and interest in and to the Assets including
without limitation all documents and files in both printed and electronic form
relating thereto, free and clear of all liens, encumbrances and claims
whatsoever; provided, however, that Asymetrix makes no warranties, either by
grant or implication, as to noninfringement of any third party's intellectual
property rights by any of the Assets. To the extent that Asymetrix may acquire
any rights in and to the SuperCede Technology after the date of this Agreement,
whether pursuant to the terms of any Employee Invention, Confidentiality,
Nonraiding and Noncompetition Agreement (an "Employee Agreement") between
Asymetrix and any employee providing services to SuperCede or otherwise,
Asymetrix shall assign and hereby does assign all such rights to SuperCede.
Asymetrix hereby assigns to SuperCede the right to enforce any Employee
Agreement to the extent it relates to SuperCede Products or SuperCede
Technology, and agrees not to amend or waive any such rights arising under an
Employee Agreement with respect to SuperCede Products or SuperCede Technology
without SuperCede's express written consent.
(b) Registered User and Prospect Lists. Asymetrix shall provide SuperCede
----------------------------------
with all information related to the existing registered users of SuperCede
Products, which SuperCede may use for whatever purpose it deems appropriate.
Asymetrix shall also provide SuperCede with a list of all known qualified
prospective customers for the SuperCede Products, which SuperCede may use for
whatever purpose it deems appropriate. Asymetrix may continue to use such
SuperCede Product registered user and prospect lists for whatever purpose
Asymetrix deems appropriate.
(c) Referrals. Following execution of this Agreement, Asymetrix shall
---------
refer all inquiries regarding the SuperCede Products to SuperCede, including
sales leads and potential strategic partners, and shall cease to sell the
SuperCede Products without the consent of SuperCede.
(d) Assumption of Obligations. SuperCede hereby assumes, and agrees to
-------------------------
pay, perform and discharge when due all of the Assumed Obligations. SuperCede
does not assume or agree to pay, perform, or discharge any obligations, claims,
liabilities, agreements, contracts or commitments of Asymetrix other than the
Assumed Obligations.
<PAGE>
(e) Compliance with Assigned Agreements. In addition to the payment and
-----------------------------------
performance of any Assumed Obligations arising thereunder, SuperCede agrees to
abide by, conform to, and meet all of its obligations under any of the terms and
conditions of the Assigned Agreements. If SuperCede renews or extends the term
of any Assigned Agreement, it shall do so in its own name and not in the name of
Asymetrix.
(f) Technical Support. Following execution of this Agreement, SuperCede
-----------------
shall be responsible for providing technical support to all end users of the
SuperCede product licensed by SuperCede as well as the existing registered user
base originally licensed by Asymetrix. Asymetrix may refer any technical
support calls received after the date hereof to SuperCede's technical support
staff, and such calls shall be given equal priority with calls directly to
SuperCede regardless of whether the end user was licensed a SuperCede Product by
Asymetrix or SuperCede. The parties may execute a separate agreement pursuant to
which Asymetrix will provide such technical support services on behalf of
SuperCede.
(g) Delivery; Further Assurances. Simultaneously with the execution
----------------------------
of this Agreement, Asymetrix shall take such steps as may be required to put
SuperCede in actual possession of the Assets. In addition, Asymetrix shall from
time to time, at SuperCede's request and expense, execute and deliver, or cause
to be executed and delivered, such additional instruments of transfer,
conveyance and assignment and take such other action as SuperCede may reasonably
require, more effectively to transfer, convey and assign to and vest in
SuperCede all right, title and interest in and to the Assets and to put
SuperCede in actual possession of the Assets.
(h) Third-Party Consents. To the extent that the assignment of any
--------------------
Assigned Agreement shall require the consent of the other party thereto, this
Agreement shall not constitute an assignment or agreement to assign the same if
an attempted assignment would constitute a breach thereof. In the event that any
Assigned Agreement cannot be assigned to and assumed by SuperCede without the
consent of a third party, Asymetrix shall use commercially reasonable efforts,
with the cooperation of Buyer to obtain such consent within thirty days of the
date hereof.
(i) Services Agreement. Each party contemplates that Asymetrix will
------------------
continue to provide certain services to or on behalf of SuperCede following the
date of this Agreement. The precise nature of the services to be provided as
well as the terms and conditions related to the provision of such services and
payment with respect thereto are to be negotiated by the parties. Each of
Asymetrix and SuperCede agrees that it will make reasonable good faith efforts
to negotiate and execute a services agreement with respect to such services no
later than October 31, 1997.
(j) Documents and Forms. Asymetrix will provide SuperCede with hard copies
-------------------
and, to the extent available to Asymetrix, electronic copies of all Assigned
Agreements, and will for a period of nine months following the date hereof,
provide SuperCede upon request
<PAGE>
with copies of its general business forms and policies in both hard copy and, to
the extent available to Asymetrix, electronic formats.
3. ISSUANCE OF SUPERCEDE COMMON STOCK.
In consideration of the transfer of the Assets to SuperCede and the covenants
and agreements of Asymetrix hereunder, SuperCede shall, concurrently with the
execution of this Agreement issue to Asymetrix 3,500,000 shares of the $.01 par
value common stock of SuperCede. Upon execution of this Agreement, SuperCede
will deliver to Asymetrix a certificate representing such shares of its common
stock, executed by duly authorized and proper officers of SuperCede, which
certificate shall bear such legends as may be required by Washington law or to
obtain the benefit of an exemption from the registration requirements of state
and federal securities laws.
4. LICENSE TO SUPERCEDE TECHNOLOGY.
(a) Grant and Scope. Subject to the restrictions set forth in Section
---------------
4(b), SuperCede hereby grants to Asymetrix a non-exclusive, royalty-free, world-
wide, perpetual, non-terminable right and license (i) to modify, copy, merge,
and incorporate any portion of the SuperCede Technology into other computer
programs in connection with the design, development, and manufacture of
Asymetrix Products; (ii) to make, have made, duplicate, have duplicated, modify,
use, market, display, perform, sell, license, or otherwise transfer or
distribute object code copies of the SuperCede Technology but only incorporated
into and forming a part of Asymetrix Products, and to authorize Asymetrix's
distributors, resellers, value added resellers, original equipment manufacturers
and other parties authorized by Asymetrix to market or distribute Asymetrix
Products to do any of the foregoing described in this subsection 4(a)(ii); and
(iii) to make and use a reasonable number of copies of Asymetrix Products for
purposes of marketing, training, and demonstrations related to the Asymetrix
Products. SuperCede hereby grants to Asymetrix a non-exclusive, royalty-free,
world-wide, perpetual, non-terminable license under all of the Patents and
Copyrights to allow Asymetrix to fully exercise the rights granted hereby.
(b) Restrictions. Asymetrix shall not be permitted to market, display,
------------
perform, sell, distribute, sublicense or otherwise transfer the SuperCede
Technology (i) on a standalone basis separate and apart from the Asymetrix
Products; (ii) as part of any Competing Product; or (iii) in source code form.
Nothing herein shall prevent Asymetrix from developing, marketing and
distributing Competing Products provided that any such Competing Products do not
incorporate any SuperCede Technology and are developed without reference to
SuperCede Confidential Information.
(c) Survival. The license granted hereby is intended to be perpetual and
--------
shall continue and be binding on the surviving party in any merger or
consolidation of SuperCede or purchaser of all or substantially all of the
assets of SuperCede, and shall inure to the benefit of the surviving party in
any merger or consolidation of Asymetrix or purchaser of all or substantially
all of the assets of Asymetrix.
<PAGE>
(d) Right to Modifications. SuperCede shall own any all modifications,
----------------------
updates, upgrades and future versions of the SuperCede Technology made by
SuperCede following the Effective Date, and Asymetrix shall have no rights with
respect to any of the foregoing pursuant to this Agreement. Any modifications
to the SuperCede Technology made by Asymetrix hereunder shall be owned in their
entirety by SuperCede, and Asymetrix shall have a license to all such
modifications on the terms and conditions of this Section 4.
5. REPRESENTATIONS AND WARRANTIES.
(a) By Asymetrix. Asymetrix hereby represents and warrants to
------------
SuperCede as follows:
(i) Asymetrix has full power and authority to execute and deliver
this Agreement, to consummate the transactions contemplated by this
Agreement, and to carry out its obligations under this Agreement;
(ii) this Agreement has been duly and validly authorized, executed and
delivered by Asymetrix and constitutes the legal, valid and binding
obligation of Asymetrix, enforceable in accordance with its terms;
(iii) Asymetrix has title to the Assets, in all cases free and clear
of all liens, charges and encumbrances; provided, however, that Asymetrix
makes no warranties as to title with respect to the SuperCede Technology;
and
(iv) Asymetrix has provided or will provide true and complete copies
of the Assigned Agreements as well as any consents necessary to the
assignment thereof; provided, however, that Asymetrix shall have thirty
days from the date hereof to obtain and deliver any such consents to
assignment.
(b) By SuperCede. SuperCede hereby represents and warrants to Asymetrix as
------------
follows:
(i) that SuperCede has full power and authority to execute and
deliver this Agreement, to consummate the transactions contemplated by this
Agreement, and to carry out its obligations under this Agreement;
(ii) that this Agreement has been duly and validly authorized,
executed and delivered by SuperCede and constitutes the legal, valid and
binding obligation of SuperCede, enforceable in accordance with its terms;
and
(iii) that upon issuance, the shares of SuperCede common stock to be
issued pursuant to Section 3 shall be duly authorized, validly issued,
fully paid and nonassessable.
<PAGE>
(c) Disclaimer. THE WARRANTIES SET FORTH HEREIN ARE THE SOLE AND EXCLUSIVE
----------
WARRANTIES OF THE PARTIES. EACH PARTY EXPRESSLY DISCLAIMS ANY IMPLIED
WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT. BOTH PARTIES FURTHER AGREE THAT
THE SUPERCEDE TECHNOLOGY IS TRANSFERRED AND LICENSED "AS IS" WITH NO WARRANTIES
WHATSOEVER, EITHER EXPRESS OR IMPLIED.
6. NON-DISCLOSURE.
A party receiving Confidential Information ("Recipient") of the other party
("Discloser") shall not use the Confidential Information for any purpose other
than performing its obligations under this Agreement. Throughout the term of
this Agreement and for a period of five years after the completion thereof,
Recipient shall limit disclosure of Confidential Information within its own
organization to its employees having a need to know and who have agreed to be
bound by the terms of this Agreement. Recipient shall not disclose Confidential
Information to any third party individual, corporation, or other entity without
the prior written consent of Discloser. Recipient shall have satisfied the
foregoing obligations if it uses the same degree of care as Recipient uses to
protect its own Confidential Information of a like nature, but no less than a
reasonable degree of care, to prevent the unauthorized dissemination of
Confidential Information. Recipient shall be entitled to disclose Confidential
Information in a response to a court order or as otherwise required by law,
provided that Recipient shall first give notice to Discloser and make a
reasonable effort to obtain a protective order to protect the confidentiality of
the information. Recipient shall immediately notify Discloser of any actual or
suspected unauthorized use of Confidential Information and will cooperate with
Discloser in obtaining injunctive or other equitable relief. Notwithstanding
the foregoing, this Section 6 shall not require SuperCede to observe any
confidentiality requirements as a Recipient of the SuperCede Technology; but
Asymetrix shall be required to observe all the requirements of this Section 6
relative to the SuperCede Technology as if it were Confidential Information of
SuperCede (disregarding for this purpose Section 1(f)(v) hereof) as if Asymetrix
were a Recipient thereof from SuperCede.
7. EXCLUSIONS OF DAMAGE.
ASYMETRIX SHALL NOT, UNDER ANY CIRCUMSTANCES, BE LIABLE TO SUPERCEDE FOR ANY
DAMAGES RESULTING FROM THE DUPLICATION, MARKETING, USE OR DISTRIBUTION OF ANY
PORTION OF THE SUPERCEDE TECHNOLOGY BY OR UNDER A LICENSE FROM SUPERCEDE.
SUPERCEDE SHALL NOT, UNDER ANY CIRCUMSTANCES, BE LIABLE TO ASYMETRIX FOR ANY
DAMAGES RESULTING FROM THE DUPLICATION, MARKETING, USE OR DISTRIBUTION OF ANY
PORTION OF THE SUPERCEDE TECHNOLOGY BY OR UNDER A LICENSE FROM ASYMETRIX.
NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR CONSEQUENTIAL, INCIDENTAL,
SPECIAL OR EXEMPLARY DAMAGES, EVEN IF SUCH PARTY HAS BEEN APPRISED OF THE
LIKELIHOOD OF SUCH DAMAGES OCCURRING.
<PAGE>
8. INDEMNIFICATION.
(a) By Asymetrix. Asymetrix shall indemnify, defend and hold harmless
------------
SuperCede and its employees, officers and directors from and against any and all
claims, losses, liabilities, causes of action, costs, expenses, damages,
assessments, fines, penalties, and interest, including reasonable legal fees and
expenses through any appeals, which arise out of or result from: (i) the conduct
of any aspect of Asymetrix's business following the date of this Agreement;
provided that in no event shall the business of SuperCede be deemed to be
Asymetrix's business notwithstanding the fact that Asymetrix may own a majority
in interest in SuperCede; or (ii) the duplication, marketing, distribution and
sale of products developed by or any other conduct of the the business of
Asymetrix's Online Learning and Digital Tools Division, including any services,
support or consulting provided in connection therewith, whether before or after
the date of this Agreement.
(b) By SuperCede. SuperCede shall indemnify, defend and hold harmless
------------
Asymetrix and its employees, officers and directors from and against any and all
claims, losses, liabilities, causes of action, costs, expenses, damages,
assessments, fines, penalties, and interest, including reasonable legal fees and
expenses through any appeals, which arise out of or result from: (i) the conduct
of any aspect of SuperCede's business following the date of this Agreement; (ii)
the duplication, marketing, distribution and sale of products developed by or
any other conduct of the the business of Asymetrix's Internet Tools Division,
including any services, support or consulting provided in connection therewith,
whether before or after the date of this Agreement; or (iii) any Assumed
Obligation or Assigned Agreement.
10. INDEPENDENT CONTRACTOR.
The parties hereunder are independent contractors and not an employees of the
other. Neither party shall be subject to the other party's control or direction
over the performance of this Agreement. Neither party's employees shall be
covered by the other's benefit programs, such as health insurance, social
security, workers' compensation or unemployment compensation. Each party shall
be responsible for paying all taxes related to payments made to it hereunder,
and neither party shall be responsible for withholding or payment of those
taxes. Nothing contained herein shall be deemed or construed as creating a joint
venture or a partnership between SuperCede and Asymetrix. Neither SuperCede nor
Asymetrix is by virtue of this Agreement authorized as an agent or other
representative of the other.
11. GENERAL.
(a) Entire Agreement. This Agreement contains all the agreements,
----------------
understandings, representations, conditions, warranties and covenants, and
constitutes the sole and entire agreement between the parties hereto pertaining
to the subject matter hereof and supersede all prior communications or
agreements, written or oral. This Agreement may not be modified except by
written instrument signed by each party.
<PAGE>
(b) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be construed in accordance with and shall be governed by
the internal laws of the State of Washington and applicable federal law. Each
party hereby consents to the jurisdiction and venue of the courts of the State
of Washington, United States of America or of any federal court located in such
state.
(c) Interpretation and Waiver. If any provision of this Agreement is
-------------------------
declared invalid or unenforceable the remaining provisions of this Agreement
shall remain in full force and effect. Waiver by either SuperCede or Asymetrix
of one or more terms, conditions, or defaults of this Agreement shall not
constitute a waiver of the remaining terms and conditions or of any future
defaults of this Agreement.
(d) Assignment. Either party may assign its right and interest in this
----------
Agreement upon written notice to the other party, provided that (i) the assignee
agrees to assume and be bound by all of the obligations of the assignor
hereunder and (ii) the assignor shall be released from its obligations only with
a written release from the other party. Subject to the above limitation, this
Agreement will inure to the benefit and be binding upon the parties, their
successors, and assigns. Unless otherwise specifically agreed to by the non-
assigning party, no assignment by either party shall relieve the assignor from
its obligations pursuant to this Agreement.
(e) Attorney's Fees. The prevailing party in disputes concerning this
---------------
Agreement shall be entitled to the costs of collections and enforcement,
including but not limited to reasonable attorney's fees, court costs and all
necessary expenses, regardless of whether litigation is commenced.
(f) Notices. All notices provided pursuant to this Agreement shall be in
-------
writing and hand delivered or deposited in the United States mail first class,
postage prepaid, and addressed to the addresses set forth above, or such other
address as the party to receive the notice so designates by notice to the other.
(g) Injunctive Relief. Each party acknowledges that the breach, or
-----------------
threatened breach, of Section 6 or any action by Asymetrix with respect to the
SuperCede Technology outside the scope of the license granted in Section 4 could
give rise to irreparable injury to the other party which would be inadequately
compensated in money damages. Accordingly, either party may seek a restraining
order and/or an injunction prohibiting the breach or threatened breach of
Section 6, and SuperCede may seek a restraining order and/or an injunction
prohibiting any action by Asymetrix with respect to the SuperCede Technology
outside the scope of the license granted in Section 4, in all cases in addition
to, and not in limitation of, any other legal remedies which may be available to
such party.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives.
Asymetrix: ASYMETRIX CORPORATION
<PAGE>
By /s/ J. Billmaier
------------------------------------
Name James A. Billmaier
-----------------------------------
Title President & CEO
----------------------------------
SuperCede: SUPERCEDE, INC.
By /s/ Shabbir Dahod
------------------------------------
Name Shabbir Dahod
-----------------------------------
Title Vice President & General Manager
----------------------------------
<PAGE>
SCHEDULE 1(a)
TANGIBLE ASSETS
COMPUTERS
- ---------
<TABLE>
<CAPTION>
MANUFACTURER ASYMETRIX NO. SERIAL NUMBER
- ------------ ------------- -------------
<S> <C> <C>
Micron 13044 512678-0001
Micron 13291 658660-0001
Gateway 11915 180801
DEC 12817 KA507ssvw6
Gateway 11909 1809794
Gateway 10726 7088592
NEC 12936 59023448
Micron 11257 B2893043
Gateway 11911 1809804
NEC 12828 57007228
DEC 12857 KA526bewhd
DEC 12858 KA512psj5
Micron 13042 1513678-0003
Micron 13147 552219-0001
NEC 13160 6201029
DEC 12859 KA526bewhb
Gateway 11145 1208102
Gateway 11582 62200cr0852235b
NEC 13317 59019048
NEC 12814 54008569
Micron 12979
DEC 12862 KA512vpsk2
DEC 12795 KA433ckhk4
DEC 12818 KA507ssvw5
Gateway 10980 107185
Gateway 11290 1380091
DEC 12856 KA512vpssj6
Gateway 11460 1460175
DEC 12861 KA512vpsj4
Gateway 12665 671001
Micron 13624 61994-0001
DEC 12864 KA526bewhe
DEC 12866 KA512vpsc6
DEC 14627 KA507ssvw5
Micron 13334 785457-0001
Gateway 10978 1093184
NEC 13018 5X017204
Micron 13276 6404134-0001
Dell 12895 278sf
Gateway 11354 1417563
DEC 12385 KA34ddmb1
Gateway 13374 T67422
Gateway 12111 2121721
Gateway 11120 1191512
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
Gateway 13394 6010106608
DEC 12865 KA512vpsc5
DEC 12262 KA404jmp06
Gateway 11074 1175955
NEC 11586 37015991
Micron 11942 1865255
DEC 12672 KA40KMK32
Gateway 12673 428466
Olympus 13396 16013541
Gateway 11682 1652950
NEC 11596 37103141b
Micron 13292 65660-0002
DEC 13193 KKa46suh21
<CAPTION>
MONITORS
- --------
MANUFACTURER ASYMETRIX NO. SERIAL NUMBER
<S> <C> <C>
Nanao 11806 C5954083
Nanao 13869 C0367063
MAG 13046 MH2754267466
Nanoa 12918 40093045
Nanao 11123 A4057122
NEC 12744 23k038398
Nanao 11421 B6038053
Nanao 12991 483573-0001
Nanao 12196 D3721113
Nanao 12870 25628025
Nanao 12874 25511025
Nanao 13045 MH27526404
Micron 13146 6100CR208734
Nanao 11386 B6181053
Nanao 12876 25807025
Nanao xxxxx D08672093
Nanao 13021 74318105
Nanao 12595 C6285075
Nanao 12872 25810025
Nanao 12369 D2174093
Nanao 12820 40088045
Nanao 11864 D0421093
Nanao 12868 25506025
Nanao 12986 C6597075
Micron 13293 62500cr064523
Nanao 11401 B6005053
Nanao 11255 B2776043
Nanao 12873 21204015
Nanao 12877 25770025
Nanao 11627 C04140636
Nanao 12869 25659025
Nanao 12829 OOFC118681
Nanao 11073 A2705122
Nanao 12871 25526025
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
NEC 12267 3z025545ca
Nanao 10725 TB9d19942
Nanao 11793 B9595063
Micron 13028 601007r1010703
Nanao 12965 21162015
Nanao 12910 c0187035
Mircon 13268 6100cr2084274
Nanao 11580 c0904063
Mircron 13288 61200crption
<CAPTION>
OTHER OFFICE EQUIPMENT
- ----------------------
DESCRIPTION ASYMETRIX NO. SERIAL NUMBER
<S> <C> <C>
NEC Docking Station 13338 4X028121F
</TABLE>
FURNITURE AND OTHER ASSETS
- --------------------------
<TABLE>
<CAPTION>
DESCRIPTION UNITS
- ----------- -----
<S> <C>
Wall cabinet 17
Desk 24
Return 17
Desk w/return 17
Task chair 52
Guest Chair 52
File cabinet 2 drawer 7
File cabinet 4 drawer 8
File cabinet Lateral 4
Whiteboard Large 30
Whiteboard Small 9
Bulletin board Large 3
Bulletin board Small 5
Side table or CPU stand 16
Telephone 39
Bookcase Tall 39
Bookcase Short 9
Desk lamps 17
Round Tables 2
Refrigerator 1
Microwave 1
Large Teak conference table and chairs 1
</TABLE>
<PAGE>
SCHEDULE 1(b)
ASSIGNED AGREEMENTS
<TABLE>
<CAPTION>
OTHER PARTY CONTRACT NAME DATED
<S> <C> <C>
Toshiba Information Systems (Japan) Software License and Distribution Agreement 31-Jul-96
Corporation
MacMillan Digital Publishing USA, Nonexclusive Original Equipment Manufacturer (OEM) 22-Jul-96
Simon & Schuster, Inc., a Viacom Software License and Distribution Agreement and
company Amendment No. 1 dated April 22, 1997
NEC Corporation Software License and Distribution Agreement 4-Dec-96
NEC Corporation Localization Agreement 4-Dec-96
TVOBJECTS Corporation Software License Agreement 7-Mar-97
Visigenic Software, Inc. Value Added Reseller Agreement for Visigenic 27-Mar-97
Products with Manufacturing Rights
INTERSOLV, Inc. INTERSOLV Distributor License Agreement 13-Feb-97
Lawrence Livermore National Laboratory Software License Agreement SuperCede VM Source Code 14-Jan-97
ObjectSpace, Inc. JGL Bundled Distribution Agreement 23-Dec-96
Netscape Communications Corporation Netscape "Jupiter" License Agreement 19-Jul-96
Object Design Inc. License and Distribution Agreement 10-Dec-96
Rogue Wave Software Inc. Software Distribution Agreement 6-Jan-97
MetaWare Incorporated OEM Software License Agreement 1-Aug-96
KL Group, Inc. Software License Agreement 11-Apr-97
Stingray Software, Inc. Software License and Distribution Agreement 28-Mar-97
Shafir, Inc. Software License and Distribution Agreement 9-May-97
SuperCede Components
ProtoView Development Corporation Software License and Distribution Agreement 6-May-97
SuperCede Components with Royalties
FarPoint (don't have copy of contract)
MindQ Publishing Inc. Software License and Distribution Agreement 11-Dec-96
Amendment No. 1 17-Apr-97
Starbase Software Bundling and Cooperative Marketing Agreement 27-Jan-97
</TABLE>
<PAGE>
SCHEDULE 1(c)
ASSUMED OBLIGATIONS
Any obligations arising under any Assigned Agreements.
All accrued vacation time and salary of former Asymetrix employees becoming
employees of SuperCede, Inc., which amounts do not exceed $180,000 in the
aggregate.
Accrued royalty obligations which do not exceed $30,000 in the aggregate.
<PAGE>
SCHEDULE 1(g)
COPYRIGHT REGISTRATIONS AND APPLICATIONS
No copyrights are currently registered and no applications for registration have
currently been filed.
<PAGE>
SCHEDULE 1(h)
PATENTS AND PATENT APPLICATIONS
<TABLE>
<S> <C>
"Interactive Software Development System" U.S. Serial No. 08/608,820
"Incremental Byte Code Compilation System" U.S. Serial No. 08/645,955
"Data Representation for Mixed-Language
Program Development" U.S. Serial No. 08/662,648
"Interactive Software Development System" PCT No. PCT/US97/02177
"Incremental Byte Code Compilation System" PCT No. Pending
"Data Representation for Mixed-Language
Program Development" PCT No. Pending
</TABLE>
<PAGE>
SCHEDULE 1(k)
TRADEMARK REGISTRATIONS AND APPLICATIONS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
TRADEMARK COUNTRY CLASS SERIAL/REG. NO. STATUS
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BLAZING USA 9 75/081,953 Published
- ------------------------------------------------------------------------------------------------------------------
CAFFEINE USA 9 75/049,579 To be abandoned
- ------------------------------------------------------------------------------------------------------------------
CODE MONSTER USA 9 75/073,865 To be abandoned
- -----------------------------------------------------------------------------------------------------------------------
CODEBLAZER USA 9 75/079,269 To be abandoned
- -----------------------------------------------------------------------------------------------------------------------
FLASH COMPILER USA 9 75/089,753 Pending
- -----------------------------------------------------------------------------------------------------------------------
SUPERCEDE Canada N/A 826,188 Published
- -----------------------------------------------------------------------------------------------------------------------
SUPERCEDE CTM 9, 16 389,197 Pending
- -----------------------------------------------------------------------------------------------------------------------
SUPERCEDE Japan 9 08-088220 Pending
- -----------------------------------------------------------------------------------------------------------------------
SUPERCEDE Japan 42 08-092507 Pending
- -----------------------------------------------------------------------------------------------------------------------
SUPERCEDE Mexico 9 277580 Pending
- -----------------------------------------------------------------------------------------------------------------------
SUPERCEDE USA 9 75,091,828 Statement of Use filed
- -----------------------------------------------------------------------------------------------------------------------
SUPERSEDE USA 9 75/091,826 To be abandoned
- -----------------------------------------------------------------------------------------------------------------------
WEBMEMORY USA 9 75/075,500 Pending
- -----------------------------------------------------------------------------------------------------------------------
WHAT YOU CODE IS USA 9 75/073,864 To be abandoned
WHAT YOU SEE
- -----------------------------------------------------------------------------------------------------------------------
WYCIWYS USA 9 75/073,863 To be abandoned
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT 10.10
SUBLEASE
This Sublease is by and between ASYMETRIX CORPORATION ("Asymetrix") and
SUPERCEDE, INC. ("SuperCede"). Asymetrix, as tenant, entered into a lease dated
May 24, 1991, and amended pursuant to a First Amendment to Lease dated April 16,
1992, a Second Amendment to Lease dated May 20, 1992, a Third Amendment to Lease
dated September 29, 1992, a Fourth Amendment to Lease dated August 27, 1993, a
Fifth Amendment to Lease dated April 29, 1995, a Sixth Amendment of Lease dated
January 26, 1996, and a Seventh Amendment of Lease dated March 31, 1996
(collectively the "Prime Lease"), with DEAN WITTER REALTY INCOME PARTNERSHIP II,
L.P. as landlord ("Prime Landlord"), leasing certain space on the third floor
the building (the "Building") at 110 - 110th Avenue NE, Bellevue, Washington
98004. The Building is located on the real property described on Exhibit A.
---------
The parties hereto have agreed that Asymetrix shall sublet approximately
8,562 square feet of such space to SuperCede. The parties agree as follows:
1. PREMISES.
Asymetrix hereby leases to SuperCede the eight thousand five hundred sixty-two
(8,562) square feet of the space on the third floor of the Building ("Premises")
which is identified on Exhibit B attached hereto and made a part hereof. The
costs and expenses of improvements required to configure the Premises as
identified on Exhibit B shall be borne by SuperCede.
2. PARKING SPACES.
Asymetrix hereby assigns to SuperCede for the term of this Sublease, Asymetrix's
right to lease from Prime Landlord, at the rates determined in accordance with
the Prime Lease, twenty-six (26) parking spaces (the "Parking Spaces") within
the parking garage in the Building.
3. TERM AND POSSESSION.
The term of this Sublease shall commence on June 24, 1997 and shall terminate
upon the termination of the Prime Lease, unless earlier terminated as provided
herein. Asymetrix shall deliver possession of the Premises on such date,
together with all rights to use common areas and Parking Spaces as provided to
Asymetrix under the Prime Lease. SuperCede accepts the Premises as being in
good, sanitary order, condition and repair. SuperCede shall, upon expiration or
termination of this Sublease, surrender the Premises to Asymetrix in the same
condition as when received, excepting ordinary wear and tear, damage by fire,
earthquake, act of God, or the elements, special improvements unique to
SuperCede's business and/or operations made by SuperCede or on SuperCede's
behalf, and improvements made to configure the Premises as identified on Exhibit
B. Asymetrix covenants and agrees that if SuperCede performs all of the
covenants and on SuperCede's part to be observed and performed under this
Sublease, SuperCede shall and peaceably quietly have, hold and enjoy the
Premises. If Asymetrix elects to extend the Prime Lease and such extension
includes the Premises, then SuperCede shall have the right, but not the
obligation, to extend the term hereof to continue for the period of any
extension of the Prime Lease by Asymetrix, or, upon the agreement of SuperCede
and Asymetrix, for any
1
<PAGE>
lesser period thereof. Any such extension shall be on the same terms and
conditions as this Sublease, with the exception of rent, Additional Rent and
other costs payable by Asymetrix under the Prime Lease, which shall be adjusted
in a manner consistent with any adjustment to the foregoing in the extension of
the Prime Lease, and any other conditions which may be agreed to and binding
upon Asymetrix in connection with the extension of the Prime Lease. Asymetrix is
under no obligation to extend the Prime Lease or to include the Premises in any
such extension.
4. RENT.
Commencing with rent due for the period beginning July 1, 1997, SuperCede shall
pay directly to Prime Landlord in accordance with the terms of the Prime Lease
rent at the rate of TWENTY DOLLARS ($20.00) per square foot per annum, plus the
Additional Rent mentioned in paragraph 7 below, plus any amounts due under the
Prime Lease in consideration of the Parking Spaces. SuperCede shall pay the
rent, Additional Rent and amounts due in consideration of the Parking Spaces in
the manner provided for hereunder in monthly installments in accordance with the
Prime Lease. It is hereby agreed between Asymetrix and SuperCede that no
security deposit will be required.
5. USE.
The Premises shall be used for the conduct of SuperCede's business activities
and for no other purpose.
6. ASSIGNMENT.
SuperCede shall not assign this Sublease nor sublet the Premises in whole or in
part and shall not permit SuperCede's interest in this Sublease to be vested in
any third party by operation of law or otherwise without the prior written
consent of Asymetrix and, if required, Prime Landlord.
7. ADDITIONAL CHARGES.
If Asymetrix shall be charged for Additional Rent (as defined in the Prime
Lease) or other sums pursuant to the provisions of the Prime Lease, including
without limitation Article 9 thereof, SuperCede shall be liable for a pro rated
portion of such costs equal to the ratio that the square footage of the space
being subleased hereunder bears to the square footage of all space then being
leased by Asymetrix pursuant to the Prime Lease. Notwithstanding the foregoing,
if any such rent or sums shall be directly allocable to the space being
subleased hereunder or SuperCede's use thereof, or due to additional use by
SuperCede of electrical current in excess of SuperCede's proportionate part of
additional use in the Premises demised under the Prime Lease, then such excess
shall be paid in its entirety by SuperCede. Notwithstanding the foregoing,
SuperCede shall not be liable for such Additional Rent or other sums charged
pursuant to the provisions of the Prime Lease which are directly allocable to
space other than the Premises, due to any special services ordered by a party
other than SuperCede, or due to any additional use by a party other than
SuperCede of electrical current or other utilities. If SuperCede shall procure
any additional services from the Building, such as alterations or after-hour air
conditioning, SuperCede shall pay for such services at the rates charged
therefor by the Prime Landlord and shall make such payment
2
<PAGE>
directly to the Prime Landlord. Any rent or other sums payable by SuperCede
under this paragraph 7 shall be additional rent and collectable as such. If
Asymetrix receives reimbursement or credit for overpayment of Additional Rent or
charges applicable to the Premises and paid by SuperCede, Asymetrix shall
reimburse SuperCede the portion of such reimbursement or credit applicable to
the Premises and paid by SuperCede.
8. PRIME LEASE.
This Sublease is subject and subordinate to the Prime Lease. Except as may be
inconsistent with the terms hereof, all the terms, covenants and conditions in
the Prime Lease shall be applicable to this Sublease with the same force and
effect as if Asymetrix were the landlord under the Prime Lease and SuperCede
were the tenant thereunder and in case of any breach hereof by SuperCede,
Asymetrix shall have all the rights against SuperCede as would be available to
the landlord against the tenant under the Prime Lease if such breach were by the
tenant thereunder. Asymetrix warrants and represents that all consents required
under the Prime Lease to enter into this Sublease have been obtained. Asymetrix
warrants and represents to SuperCede that the Prime Lease as described herein is
the full and complete agreement between the Prime Landlord and Asymetrix
pertaining to the Premises, that there are no further amendments or
modifications not referenced, and that, to the knowledge of Asymetrix, there is
no default or event of default under the Prime Lease nor any event or occurrence
which, with the passage of time, the giving of notice or both, would ripen into
a default or an event of default thereunder.
9. LIMITATION.
Notwithstanding anything herein contained, the only services or rights to which
SuperCede is entitled hereunder are those to which Landlord is entitled under
the Prime Lease, and for all such services and rights SuperCede will look to the
Prime Landlord.
10. INDEMNITY.
SuperCede shall neither do nor permit anything to be done which would cause the
Prime Lease to be terminated or forfeited by reason of any right of termination
or forfeiture reserved or vested in the Prime Landlord, and SuperCede shall
indemnify and hold Asymetrix harmless from and against all claims of any kind
whatsoever by reason of any breach or default of the Prime Lease on the part of
SuperCede.
11. REPRESENTATION.
SuperCede represents that it has read and is familiar with the terms of the
Prime Lease.
12. ENTIRE AGREEMENT.
All prior understandings and agreements between the parties are merged within
this Sublease, which alone fully and completely sets forth the understanding of
the parties and this Sublease may not be changed or terminated orally or in any
manner other than by an agreement in writing and signed by the party against
whom enforcement of the charge or termination is sought.
3
<PAGE>
13. NOTICES.
Any notice or demand which either party may or must give to the other hereunder
shall be in writing and delivered personally or sent by registered mail
addressed, if to Asymetrix, as follows:
Asymetrix Corporation
110-110th Ave N.E.
Suite 700
Bellevue WA 98004
Attn: Steven Esau, General Counsel
and if to SuperCede, as follows:
SuperCede, inc.
110-110th Ave N.E.
Suite ___
Bellevue WA 98004
Attn: President
Either party may, by notice in writing, direct that future notices or demands be
sent to a different address. SuperCede agrees to provide promptly to Asymetrix
copies of any notices received from the Prime Landlord or otherwise relating to
the Prime Lease, and Asymetrix agrees to provide any of the foregoing to
SuperCede if they relate to or affect the Premises.
14. SUCCESSORS AND ASSIGNS.
The covenants and agreements herein contained shall bind and inure to the
benefit of Asymetrix, SuperCede, and their respective executors, administrators,
successors and assigns.
15. MODIFICATIONS AND TERMINATION.
Asymetrix reserves the right to terminate or make modifications to the Prime
Lease subject to the terms of this Section. Asymetrix shall make no change or
modification to the Prime Lease that affects SuperCede's rights under this
Sublease or to the use and enjoyment of the Premises, including without
limitation the termination of the Prime Lease, except with 180 days prior notice
to SuperCede.
Exhibit A: Legal Description
Exhibit B: Floor Plan of Sublet Space
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK.]
4
<PAGE>
Dated this 24th day of June, 1997.
ASYMETRIX: Asymetrix Corporation
By /s/ J. Billmaier
___________________________________
James A. Billmaier
President and CEO
SUPERCEDE: SUPERCEDE, INC.
By /s/ Shabbir Dahod
_____________________________________
Shabbir Dahod
Vice President and General Manager
5
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
That portion of the Southwest quarter of the Northeast quarter of Section 32,
Township 25 North, Range 5 East, W.M., in King County, Washington, described as
follows:
Beginning at the intersection of the East margin of 110th Avenue Northeast, as
now established with a line parallel to and 277.5 feet North of, when measured
at right angles to the East-West centerline of said Section 32; thence Easterly
along said parallel line to a point in line parallel to and 476.8 feet West of,
when measured at right angles, to the East line of said subdivision; thence
Northerly along said parallel line to a point in a line parallel to and 577.5
feet North of, when measured at right angles to, the said center line of said
Section; thence Westerly along said parallel line, 14.09 feet to a point in a
line parallel to and 162.00 feet West of, when measured at right angles to, the
East line of the West three quarters of the South half of said subdivision;
thence Northerly along said parallel line to the South margin of Northeast
Second Street as now established; thence Westerly along said South margin of
Northeast Second Street as to the said East margin of 110th Avenue Northeast;
thence Southerly along said East margin to the point of beginning.
6
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that JAMES A. BILLMAIER is
the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he is authorized to execute the instrument and
acknowledged it as the President and CEO of ASYMETRIX CORPORATION, to be the
free and voluntary act of such corporation for the uses and purposes mentioned
in the instrument.
Dated this 30th day of September 1997
/s/ Kathryn K. Navarro
--------------------------------------
(Signature of Notary)
KATHRYN K. NAVARRO
--------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at Bellevue, Washington
-----------------------------
My appointment expires 9-9-2001
----------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that SHABBIR DAHOD is the
person who appeared before me, and acknowledged that he signed this instrument,
on oath stated that he is authorized to execute the instrument and acknowledged
it as the Vice President and General Manager of SUPERCEDE, INC., to be the free
and voluntary act of such corporation for the uses and purposes mentioned in the
instrument.
Dated this 30th day of September, 1997.
/s/ Kathryn K. Navarro
--------------------------------------
(Signature of Notary)
KATHRYN K. NAVARRO
--------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at Bellevue, Washington
-----------------------------
My appointment expires 9-9-2001
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7
<PAGE>
EXHIBIT 10.11
PROMISSORY NOTE
$18,596,944.00(U.S.) BELLEVUE, WASHINGTON
MARCH 14, 1995
FOR VALUE RECEIVED, the undersigned PAUL G. ALLEN promises to pay ON
DEMAND, in whole or in part, to the order of ASYMETRIX CORPORATION, at
110/110/th/ Ave. N.E., Bellevue, Washington, or at such other place as the
holder of this Note may designate in writing, the sum of EIGHTEEN MILLION FIVE
HUNDRED NINETY-SIX THOUSAND NINE HUNDRED FORTY-FOUR AND NO/100 DOLLARS
($18,596,944.00), in lawful money of the United States, with interest thereon
from the date of this Note until paid at the rate of eight percent (8%) per
annum, compounded monthly as of the first day of each calendar month. This Note
is given by the undersigned in consideration of the issuance of shares of
capital stock of Asymetrix Corporation.
This Note may be prepaid in whole or in part at any time without penalty.
Payments shall be applied: first, to the payment of accrued interest; and
second, to the reduction of principal of this Note.
If default is made in payment of any installment of this Note when due,
then, at the option of holder, the entire debt hereby evidenced, including all
accrued but unpaid interest, shall immediately become due and payable and shall
thereafter bear interest at the rate of ten percent (10%) per annum. Failure to
exercise this option shall not waive the right to exercise the same in the event
of any subsequent default.
Every person or entity at any time liable for the payment of the debt
hereby evidenced waives presentment for payment, demand and notice nonpayment of
this Note. Every such person or entity further hereby consents to any extension
of the time of payment hereof or other modification of the terms of payment of
this Note, the release of all or any part of the security herefor or the release
of any party liable for the payment of the debt hereby evidenced at any time and
from time to time at the request of anyone now or hereafter liable therefor.
Any such extension or release may be made without notice to any of such persons
or entities and without discharging their liability.
This Note is made with reference to and is to be construed in accordance
with the laws of the state of Washington.
/s/ Paul G. Allen
_________________________________________
Paul G. Allen
<PAGE>
EXHIBIT 10.12
INFOMODELER TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
This Agreement is made as of October 7, 1996 (the "Effective Date") by and
between Asymetrix Corporation ("Asymetrix"), a Washington corporation having its
principal office at 110 - 110th Avenue N.E., Suite 700, Bellevue, Washington
98004, and ASX Corporation ("ASX"), a Washington corporation having an office at
110 - 110th Avenue N.E., Suite409, Bellevue, Washington 98004.
In consideration of the covenants and conditions hereinafter set forth,
Asymetrix and ASX agree as follows:
1. DEFINITIONS.
(a) "Asymetrix Product" means a product of Asymetrix that incorporates or
-----------------
otherwise utilizes any portion of the InfoModeler Technology in combination with
other technology of Asymetrix or third parties such that a majority of the
functionality of such product is derived from technology other than the
InfoModeler Technology.
(b) "ASX Product" means a product of ASX that incorporates or otherwise
-----------
utilizes the InfoModeler Technology, either alone or in combination with other
technology of ASX or third parties such that a majority of the functionality of
such product is derived from the InfoModeler Technology.
(c) "Competing Product" means any product that competes with an ASX
-----------------
Product; provided, however, that "Competing Product" shall not include any
products in the ToolBook II or SuperCede product lines, including any successors
to such product lines, whether marketed under the `ToolBook II' or `SuperCede'
names or not, even if such products can perform some of the same functions as an
ASX Product.
(d) "Confidential Information" means (i) any of a party's proprietary
------------------------
technology or computer software in all versions and forms of expression, whether
or not the same has been patented or the copyright thereto registered, is the
subject of a pending patent or registration application, or forms the basis for
a patentable invention; (ii) any manuals, notes, documentation, technical
information, drawings, diagrams, specifications, formulas or know-how related to
any of the foregoing; (iii) any information regarding current or proposed
products, customers, contracts, business methods, financial data or marketing
data; and (iv) any other information that is clearly marked or designated as
confidential or proprietary by such party. Confidential Information includes
unwritten information that is identified by such party as confidential at the
time of disclosure. Confidential Information does not include information which:
(v) was in a party's lawful possession prior to the disclosure and had not been
obtained by such party either directly or indirectly from the other party; (vi)
is lawfully disclosed to such party by a third party without restriction on
disclosure; (vii) is independently developed by such party without reference to
the other party's Confidential Information; or (viii) is publicly disclosed by
the other party. It shall be the receiving party's burden to show information is
not Confidential Information of the other party.
(e) "InfoModeler Technology" means all original works of authorship,
----------------------
inventions, software source code, algorithms, documentation, know-how, concepts,
techniques and discoveries and all other subject matter which Asymetrix has
developed as of the date of this Agreement and which are related to the
InfoModeler and database query projects of the Asymetrix Client/Server Division,
including copyrights and trade secrets covering the foregoing throughout the
world, but not including the Patents; provided, however, that "InfoModeler
Technology" shall not include any know-how, ideas, concepts, techniques or
discoveries related to computer programming or software applications development
generally, whether known to Asymetrix prior to or developed in the course of
developing any particular software.
(f) "Net Revenue" means all revenue to ASX from sales of ASX Products or
-----------
services related to ASX Products, less any amounts for returns, sales taxes
collected by ASX, shipping and handling charges, separately invoiced amounts for
export duties and customs charges, and amounts written off as uncollectable in
accordance with ASX's normal accounting practices, all with respect to sales of
ASX Products or services related to ASX Products only.
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<PAGE>
(g) "Patents" means any issued patents and patent applications (including
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any future patents that may be issued to ASX pursuant to such applications),
including any foreign equivalents, covering aspects of the InfoModeler
Technology now owned or hereafter acquired by ASX.
2. TRANSFER OF INFOMODELER TECHNOLOGY.
(a) Assignment. Asymetrix hereby sells, assigns, transfers and conveys to
----------
ASX all of its right, title and interest in and to the InfoModeler Technology,
including without limitation all documents and files in both printed and
electronic form relating thereto.
(b) Registered User and Prospect Lists. Asymetrix shall provide ASX with
----------------------------------
all information related to the existing registered users of Asymetrix's
InfoModeler product, which ASX may use for whatever purpose it deems
appropriate. Asymetrix shall also provide ASX with a list of all known
qualified prospective customers for the InfoModeler products, which ASX may use
for whatever purpose it deems appropriate. Asymetrix may continue to use such
InfoModeler registered user and prospect lists for whatever purpose Asymetrix
deems appropriate.
(c) Referrals. Following execution of this Agreement, Asymetrix shall
---------
refer all inquiries regarding the InfoModeler products to ASX, including sales
leads and potential strategic partners, and shall cease to sell the InfoModeler
product. Asymetrix shall not be entitled to any compensation for such referrals
beyond the revenue based payments described in Section 6.
(c) Technical Support. Following execution of this Agreement, ASX shall be
-----------------
responsible for providing technical support to all end users of the InfoModeler
product licensed by ASX as well as the existing registered user base originally
licensed by Asymetrix. Asymetrix may refer any technical support calls received
after the date hereof to ASX's technical support staff, and such calls shall be
given equal priority with calls directly to ASX regardless of whether the end
user was licensed InfoModeler by Asymetrix or ASX.
3. LICENSE TO INFOMODELER SOFTWARE.
(a) Grant and Scope. Subject to the restrictions set forth in Section
---------------
3(b), ASX hereby grants to Asymetrix a non-exclusive, royalty-free, world-wide,
perpetual, non-terminable right and license (i) to modify, copy, merge, and
incorporate any portion of the InfoModeler Technology into other computer
programs in connection with the design, development, and manufacture of
Asymetrix Products; (ii) to make, have made, duplicate, have duplicated, modify,
use, market, display, perform, sell, license, or otherwise transfer or
distribute object code copies of the InfoModeler Technology but only
incorporated into and forming a part of Asymetrix Products, and to authorize
Asymetrix's distributors, resellers, value added resellers, original equipment
manufacturers and other parties authorized by Asymetrix to market or distribute
Asymetrix Products to do any of the foregoing described in this subsection
3(a)(ii); and (iii) to make and use a reasonable number of copies of Asymetrix
Products for purposes of marketing, training, and demonstrations related to the
Asymetrix Products. ASX hereby grants to Asymetrix a non-exclusive, royalty-
free, world-wide, perpetual, non-terminable license under all of the Patents to
allow Asymetrix to fully exercise the rights granted hereby.
(b) Restrictions. Asymetrix shall not be permitted to market, display,
------------
perform, sell, distribute, sublicense or otherwise transfer the InfoModeler
Technology (i) on a standalone basis separate and apart from the Asymetrix
Products; (ii) as part of any Competing Product; or (iii) in source code form.
Nothing herein shall prevent Asymetrix from developing, marketing and
distributing Competing Products provided that any such Competing Products do not
incorporate any InfoModeler Technology and are developed without reference to
ASX Confidential Information.
(c) Survival. The license granted hereby is intended to be perpetual and
--------
shall continue and be binding on the surviving party in any merger or
consolidation of ASX or purchaser of all or substantially all of the assets of
ASX.
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<PAGE>
4. RIGHTS TO MODIFICATIONS.
ASX shall own any all modifications, updates, upgrades and future versions of
the InfoModeler Technology made by ASX following the Effective Date, and
Asymetrix shall have no rights with respect to any of the foregoing pursuant to
this Agreement. Any modifications to the InfoModeler Technology made by
Asymetrix hereunder shall be owned in their entirety by Asymetrix, and Asymetrix
shall have no rights with respect to any of the foregoing pursuant to this
Agreement.
5. ASX COMMON STOCK.
In consideration of the transfer of the InfoModeler Technology to ASX and the
covenants and agreements of Asymetrix hereunder, ASX shall, concurrently with
the execution of this Agreement issue to Asymetrix 3,500,000 shares of the $.01
par value common stock of ASX. ASX represents, warrants and agrees that upon
issuance, such shares of ASX common stock shall be duly authorized, validly
issued, fully paid and nonassessable.
6. REVENUE BASED PAYMENTS.
(a) Revenue Based Payments. In consideration of the transfer of the
----------------------
InfoModeler Technology to ASX and the covenants and agreements of Asymetrix
hereunder, ASX shall make revenue based payments to Asymetrix in an amount equal
to 8% of Net Revenues for a period of five years from the Effective Date.
(b) Payment and Reporting. ASX shall provide to Asymetrix a written
---------------------
statement, accompanied by a check for all revenue based payments then payable,
not later than 30 days after the close of each calendar quarter during which
revenue based payments accrued and specifying for such quarter: (i) the Net
Revenues for the calendar quarter; (ii) the amount of any credit against such
revenue based payments for the particular calendar quarter (if applicable); and
(iii) a calculation of the revenue based payments payable to Asymetrix.
(c) Records and Audit. ASX shall keep accurate records and books of account
-----------------
concerning its Net Revenues adequate to determine the amount of the revenue
based payments owed Asymetrix, which shall be preserved by ASX in a safe place
for a period of one year following the five-year period during which such
revenue based payments are payable. Throughout the five-year period during
which revenue based payments are payable to Asymetrix, and during the year
following expiration thereof, Asymetrix or its certified public accountants
shall have the right, upon 30 days prior written notice and at Asymetrix's
expense, to audit ASX's records concerning the distribution of the InfoModeler
Products; provided that such right shall be limited to one audit in any twelve
month period. If an audit reveals that ASX has underpaid the per copy royalties
due Asymetrix, ASX shall promptly pay to Asymetrix the amount of the
underpayment. If such underpayment exceeds five percent of the total amount
actually owed, ASX shall promptly reimburse Asymetrix for its costs and expenses
in performing such audit. All information obtained in the audit shall be kept
confidential by Asymetrix and its certified public accountants, except to the
extent necessary for Asymetrix to enforce its rights under this Agreement. The
certified public accountants conducting any such audit shall execute a non-
disclosure agreement reasonably acceptable to ASX prior to conducting any such
audit.
7. NON-DISCLOSURE.
A party receiving Confidential Information ("Recipient") of the other party
("Discloser") shall not use the Confidential Information for any purpose other
than performing its obligations under this Agreement. Throughout the term of
this Agreement and for a period of five years after the completion thereof,
Recipient shall limit disclosure of Confidential Information within its own
organization to its employees having a need to know and who have agreed to be
bound by the terms of this Agreement. Recipient shall not disclose Confidential
Information to any third party individual, corporation, or other entity without
the prior written consent of Discloser. Recipient shall have satisfied the
foregoing obligations if it uses the same degree of care as Recipient uses to
protect its own Confidential Information of a like nature, but no less than a
reasonable degree of care, to prevent the unauthorized dissemination of
Confidential Information. Recipient shall be entitled to disclose Confidential
Information in a response to a court order or as otherwise required by law,
provided that Recipient shall first give notice to Discloser
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<PAGE>
and make a reasonable effort to obtain a protective order to protect the
confidentiality of the information. Recipient shall immediately notify Discloser
of any actual or suspected unauthorized use of Confidential Information and will
cooperate with Discloser in obtaining injunctive or other equitable relief.
8. DISCLAIMER OF WARRANTIES.
BOTH PARTIES AGREE THAT THE INFOMODELER TECHNOLOGY IS TRANSFERRED AND LICENSED
"AS IS" WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED. EACH PARTY
EXPRESSLY DISCLAIMS ANY IMPLIED WARRANTIES, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT.
9. EXCLUSIONS OF DAMAGE.
ASYMETRIX SHALL NOT, UNDER ANY CIRCUMSTANCES, BE LIABLE TO ASX FOR ANY DAMAGES
RESULTING FROM THE DUPLICATION, MARKETING, USE OR DISTRIBUTION OF ANY PORTION OF
THE INFOMODELER TECHNOLOGY BY OR UNDER A LICENSE FROM ASX. ASX SHALL NOT, UNDER
ANY CIRCUMSTANCES, BE LIABLE TO ASYMETRIX FOR ANY DAMAGES RESULTING FROM THE
DUPLICATION, MARKETING, USE OR DISTRIBUTION OF ANY PORTION OF THE INFOMODELER
TECHNOLOGY BY OR UNDER A LICENSE FROM ASYMETRIX. NEITHER PARTY SHALL BE LIABLE
TO THE OTHER FOR CONSEQUENTIAL, INCIDENTAL, SPECIAL OR EXEMPLARY DAMAGES, EVEN
IF SUCH PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING.
10. INDEPENDENT CONTRACTOR.
The parties hereunder are independent contractors and not an employees of the
other. Neither party shall be subject to the other party's control or direction
over the performance of this Agreement. Neither party's employees shall be
covered by the other's benefit programs, such as health insurance, social
security, workers' compensation or unemployment compensation. Each party shall
be responsible for paying all taxes related to payments made to it hereunder,
and neither party shall be responsible for withholding or payment of those
taxes. Nothing contained herein shall be deemed or construed as creating a joint
venture or a partnership between ASX and Asymetrix. Neither ASX nor Asymetrix
is by virtue of this Agreement authorized as an agent or other representative of
the other.
11. GENERAL.
(a) Entire Agreement. This Agreement contains all the agreements,
----------------
understandings, representations, conditions, warranties and covenants, and
constitutes the sole and entire agreement between the parties hereto pertaining
to the subject matter hereof and supersede all prior communications or
agreements, written or oral. This Agreement may not be modified except by
written instrument signed by each party.
(b) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereunder shall be construed in accordance with and shall be governed by
the internal laws of the State of Washington and applicable federal law. Each
party hereby consents to the jurisdiction and venue of the courts of the State
of Washington, United States of America or of any federal court located in such
state.
(c) Interpretation and Waiver. If any provision of this Agreement is
-------------------------
declared invalid or unenforceable the remaining provisions of this Agreement
shall remain in full force and effect. Waiver by either ASX or Asymetrix of one
or more terms, conditions, or defaults of this Agreement shall not constitute a
waiver of the remaining terms and conditions or of any future defaults of this
Agreement.
(d) Assignment. Either party may assign its right and interest in this
----------
Agreement upon written notice to the other party, provided that (i) the assignee
agrees to assume and be bound by all of the obligations of the assignor
hereunder and (ii) the assignor shall be released from its obligations only with
a written release from the other party. Subject to the above limitation, this
Agreement will inure to the benefit and be binding upon the
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<PAGE>
parties, their successors, and assigns. Unless otherwise specifically agreed to
by the non-assigning party, no assignment by either party shall relieve the
assignor from its obligations pursuant to this Agreement.
(e) Attorney's Fees. The prevailing party in disputes concerning this
---------------
Agreement shall be entitled to the costs of collections and enforcement,
including but not limited to reasonable attorney's fees, court costs and all
necessary expenses, regardless of whether litigation is commenced.
(f) Notices. All notices provided pursuant to this Agreement shall be in
-------
writing and hand delivered or deposited in the United States mail first class,
postage prepaid, and addressed to the addresses set forth above, or such other
address as the party to receive the notice so designates by notice to the other.
(g) Injunctive Relief. Each party acknowledges that the breach, or
-----------------
threatened breach, of Section 7 or any action by Asymetrix with respect to the
InfoModeler Technology outside the scope of the license granted in Section 3
could give rise to irreparable injury to the other party which would be
inadequately compensated in money damages. Accordingly, either party may seek a
restraining order and/or an injunction prohibiting the breach or threatened
breach of Section 7, and ASX may seek a restraining order and/or an injunction
prohibiting any action by Asymetrix with respect to the InfoModeler Technology
outside the scope of the license granted in Section 3, in all cases in addition
to, and not in limitation of, any other legal remedies which may be available to
such party.
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives.
Asymetrix: ASYMETRIX CORPORATION
By /s/ James Billmaier
------------------------------
Name James Billmaier
----------------------------
Title President & CEO
---------------------------
ASX: ASX CORPORATION
By /s/ Lance Delano
------------------------------
Name Lance Delano
----------------------------
Title VP OPS
---------------------------
-5-
<PAGE>
FIRST AMENDMENT TO
INFOMODELER TECHNOLOGY TRANSFER AND LICENSE AGREEMENT
This First Amendment to the InfoModeler Technology Transfer and License
Agreement ("Amendment") is made as of January 14, 1998 (the "Effective Date") by
and between Asymetrix Learning Systems, Inc., a Washington corporation,
previously known as Asymetrix Corporation ("Asymetrix"), having its principal
office at 110 110th Avenue N.E., Suite 700, Bellevue, Washington 98004, and
InfoModelers, Inc. a Washington corporation, previously known as ASX Corporation
("InfoModelers"), having its principal office at 110 110th Avenue N.E., Suite
409, Bellevue, Washington 98004.
Recitals
--------
A. Pursuant to that certain InfoModeler Technology Transfer and License
Agreement (the"Original Agreement") made as of October 7, 1996 ("Original
Effective Date"), Asymetrix transferred certain technology to InfoModelers for
the consideration described in the Original Agreement, and InfoModelers granted
certain licenses to Asymetrix on the terms and conditions set forth in the
Original Agreement.
B. As partial consideration for the transfer of such technology to
InfoModelers, InfoModelers agreed to make certain revenue based payments to
Asymetrix as more fully described in the Original Agreement.
C. The license to such technology granted to Asymetrix pursuant to the
Original Agreement was limited to certain technology as it existed on the
Original Effective Date and Asymetrix was granted no right or license to any
improvements made to such technology after that date.
D. Asymetrix and InfoModelers each desire to modify the Original
Agreement to eliminate the revenue based payments to Asymetrix, to provide
Asymetrix with and a license to the current version of certain technology of
InfoModelers, to grant a license to the current version of certain technology of
Asymetrix to InfoModelers, to make certain other modifications to the Original
Agreement, and to set forth their modified agreements in this Amendment.
Agreement
---------
Therefore, in consideration of the foregoing and the mutual covenants and
conditions hereinafter set forth, Asymetrix and InfoModelers agree to amend the
Original Agreement as follows. Except for such modifications as may be
necessary to make such terms and conditions consistent with this Amendment, the
remainder of the Original Agreement shall continue in full force and effect. In
the event of any inconsistency between the Original Agreement and this
Amendment, the terms and conditions of this Amendment shall control.
<PAGE>
1. Section 1 of the Original Agreement is amended to include the following new
definitions:
(a) Preamble. The preamble Section 1 is deleted in its entirety and
--------
replaced with the following:
"In addition to capitalize terms defined elsewhere in this Agreement, the
following capitalized terms shall, when used in this Agreement, have the
meanings defined herein. To the extent a term is defined in this Amendment and
the Original Agreement, the meaning in this Amendment shall control."
(b) Section 1(c). Section 1(c) of the Original Agreement "Competing
------------
Product" is deleted in its entirety and replaced with the following:
"(c) "Online Learning Product" means a software product of Asymetrix
-----------------------
that (i) is designed for authoring, creating, developing, deploying, tracking,
administering or managing education and training on either stand-alone computers
or over the Internet, intranets, or computer networks; and (ii) incorporates or
otherwise utilizes any portion of the Product in combination with other
technology of Asymetrix or third parties."
(c) Section 1(f). Section 1(f) of the Original Agreement "Net Revenue" is
------------
deleted in its entirety and replaced with the following:
"(f) "InfoAssistant Technology" means the binary and source code developed
------------------------
by Asymetrix, including comments and related documentation and user interface,
and included in Asymetrix's "InfoAssistant" software product, but shall not
include any revisions, enhancements, translations, modifications, adaptations,
refinements, derivatives or improvements thereto made by Asymetrix or any
successor to it, and shall not include any elements of the "InfoAssistant"
product developed by third parties and licensed by Asymetrix."
(d) New Section 1(h). The Original Agreement is amended to include the
----------------
following new Section 1(i);
(h) "Product" means (i) the binary and source code, including comments
-------
and related documentation and user interface, for the "InfoModeler 3.1" software
product and (ii) the binary and source code, including comments and related
documentation and user interface, for the "ActiveQuery" software product, as
they both exist on the date of this Amendment. "Product" shall not include any
revisions, enhancements, translations, modifications, adaptations, refinements,
derivatives or improvements thereto made by or for InfoModelers or any successor
to InfoModelers to the "InfoModeler 3.1" software product or the "ActiveQuery"
software product."
2. Section 2(c) of the Original Agreement "Referrals" is deleted in its
entirety and replaced with the following:
<PAGE>
"(c) Referrals. Asymetrix shall refer all inquires regarding the
---------
InfoModeler Product to InfoModelers, including sales leads and potential
strategic partners, and shall cease to sell the InfoModelers Product. Asymetrix
shall not be entitled to any compensation for such referrals."
3. Section 2(d) of the Original Agreement "Technical Support" is deleted in
its entirety.
4. Section 3 of the Original Agreement is deleted in its entirety and replaced
with the following:
"3. LICENSE TO ASYMETRIX.
(a) Product License. Subject to the restrictions set forth in Section
---------------
3(b) below, InfoModelers hereby grants to Asymetrix (i) a non-exclusive,
royalty-free, world-wide, perpetual, non-terminable (except pursuant to Section
13) right and license to modify (only as set forth below), copy, merge and
incorporate any portion of the Product into the Online Learning Products, and
(ii) to make, have made, duplicate, have duplicated, use, market, display,
perform, sell, sublicense, or otherwise distribute machine-readable object code
copies of the Product, but only as incorporated into and forming as part of an
Online Learning Product, and to authorize Asymetrix's distributors, resellers,
value added resellers, original equipment manufacturers and other parties
authorized by Asymetrix to market or distribute Online Learning Products to do
any of the foregoing described in this Subsection 3(a)(ii). Asymetrix's right to
modify any portion of the Product set forth in Subsection 3(a)(i) above shall be
exclusively limited to any modification of the any of the Product necessary for
bug fixes, maintenance or support or to make any of the Product compatible with,
or able to be incorporated into, any On-Line Learning Product. InfoModelers
herby grants to Asymetrix a non-exclusive, royalty-free, world-wide, perpetual,
non-terminable (except pursuant to Section 13) license under all of the Patents
solely to allow Asymetrix to fully exercise the rights granted in this Section
3.
(b) Restrictions. Asymetrix shall not market, display, perform, sell,
------------
distribute, license, sublicenses, assign or otherwise transfer the Product (i)
on a standalone basis separate and apart from any Online Learning Product; or
(ii) as part of any product other than an Online Learning Product. Nothing
herein shall prevent Asymetrix from developing, marketing and distributing any
products that are not Online Learning Products provided that any such products
do not incorporate any of the Product and are developed without reference to any
of InfoModelers' Confidential Information. Except as expressly permitted in this
Agreement, the Product may not be used, copied, translated, redistributed,
retransmitted, published, sold, rented, leased, marketed, sublicensed, pledged,
assigned, disposed of, encumbered, transferred, altered, modified or enhanced,
whether in whole or in part, nor may Asymetrix create derivative works from or
based upon any portion of the Product. Asymetrix may not remove any proprietary
notices, marks or labels from the Product. Asymetrix shall not request or
authorize anyone else to take any of the foregoing actions. Asymetrix
acknowledges that the Product is licensed "as is" and that InfoModelers shall
not provide any customer, technical or other support, service or maintenance to
Asymetrix or any end user of any Asymetrix Product, including without
limitation, any Online Learning Product.
<PAGE>
(c) Survival. The license granted pursuant to this Section 3 shall
--------
continue and be binding on the surviving party in any merger or consolidation of
InfoModelers or the purchaser of all or substantially all of the assets of
InfoModelers."
5. Section 4 of the Original Agreement is deleted in its entirety and replaced
with the following:
"4. LICENSE TO INFOMODELERS.
(a) InfoAssistant License. Subject to the restrictions set forth in
---------------------
Section 4(b) below, Asymetrix hereby grants to InfoModelers (i) a non-exclusive,
transferable, royalty-free, world-wide, perpetual, non-terminable right and
license to modify, copy, merge and incorporate any portion of the InfoAssistant
Technology into its software products, and (ii) to make, have made, duplicate,
have duplicated, use, market, display, perform, sell, sublicense, or otherwise
distribute machine-readable object code copies of the Product, but only as
incorporated into and forming a part of its software products, and to authorize
InfoModelers' distributors, resellers, value added resellers, original equipment
manufacturers and other parties authorized by InfoModelers to market or
distribute its software products to do any of the foregoing described in this
Subsection4(a)(ii).
(b) Restrictions. InfoModelers shall not market, display, perform,
------------
sell, distribute, license,sublicense, assign or otherwise transfer the Product
on a standalone basis separate and apart from its software products.
InfoModelers may not remove any proprietary notices, marks or labels from the
InfoAssistant Technology. Asymetrix shall not request or authorize anyone else
to take any of the foregoing actions. InfoModelers acknowledges that the
InfoAssistant Technology is licensed "as is" and that Asymetrix shall not
provide any customer, technical or other support, service or maintenance to
InfoModelers or any end user of an InfoModelers software product.
(c) Survival. The license granted pursuant to this Section 4 shall
--------
continue and be binding on the surviving party in any merger or consolidation of
Asymetrix or the purchaser of all or substantially all of the assets of
Asymetrix."
6. Section 6 of the Original Agreement is deleted in its entirety.
7. Section 7 of the Original Agreement is amended to include the following new
subsection:
"(b) Non-Solicitation. For a period of three years from the date of this
----------------
Agreement, neither Asymetrix nor any of its officers, directors, agents or
employees, will solicit, induce or attempt to influence, directly or indirectly,
any programmer who is employed by InfoModelers on the Effective Date to
terminate his or her employment with InfoModelers."
<PAGE>
8. Section 8 of the Original Agreement is deleted in its entirety and replaced
with the following:
"8. DISCLAIMER OF WARRANTIES.
THE PARTIES AGREE THAT THE INFOMODELER TECHNOLOGY, INFOASSISTANT TECHNOLOGY
AND THE PRODUCT ARE ALL TRANSFERRED AND/OR LICENSED "AS IS" WITH NO WARRANTIES
WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE AND NON-INFRINGEMENT."
9. Section 9 of the Original Agreement is deleted in its entirety and replaced
with the following:
"9. EXCLUSIONS OF DAMAGE.
ASYMETRIX SHALL NOT, UNDER ANY CIRCUMSTANCES, BE LIABLE TO INFOMODELERS FOR
ANY DAMAGES RESULTING FROM THE DUPLICATION, MARKETING, USE OR DISTRIBUTION OF
ANY PORTION OF THE INFOMODELERS TECHNOLOGY OR THE INFOASSISTANT TECHNOLOGY BY OR
UNDER A LICENSE FROM INFOMODELERS. INFOMODELERS SHALL NOT, UNDER ANY
CIRCUMSTANCES, BE LIABLE TO ASYMETRIX FOR ANY DAMAGES RESULTING FROM THE
DUPLICATION, MARKETING, USE OR DISTRIBUTION OF ANY PORTION OF THE PRODUCT BY OR
UNDER A LICENSE FROM ASYMETRIX. NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR
CONSEQUENTIAL, INCIDENTAL, PUNITIVE, SPECIAL OR EXEMPLARY DAMAGES, EVEN IF SUCH
PARTY HAS BEEN APPRISED OF THE LIKELIHOOD OF SUCH DAMAGES OCCURRING."
10. The Original Agreement is amended to include the following new sections:
"12. COPYRIGHTS.
Asymetrix acknowledges that the copyright in the Product and in any copies
thereof are owned by InfoModelers and are protected by applicable United States
and foreign copyright, proprietary right, trade secret or similar laws and by
applicable international treaty provisions. No title to or ownership of the
Product is transferred to Asymetrix by this Agreement. Asymetrix will place a
notice setting forth InfoModelers's copyright in the Product in the "About Box"
of each Online Learning Product containing any portion of any of the Product, or
such other location in any Online Learning Product setting forth third-party
copyright rights. Asymetrix will not infringe, violate or contest any such
rights of InfoModelers in the Product and will take reasonable precautions to
protect InfoModelers's rights in the Product; provided, however, that the
foregoing shall not preclude Asymetrix from asserting any defense that may be
available to it in the event a claim is asserted against Asymetrix related to
the Product (other than
<PAGE>
a claim asserted by InfoModelers for breach of this Agreement by Asymetrix).
InfoModelers acknowledges that the copyright in the InfoAssistant Technology
and in any copies thereof are owned by Asymetrix and are protected by applicable
United States and foreign copyright, proprietary right, trade secret or similar
laws and by applicable international treaty provisions. No title to or ownership
of the InfoAssistant Technology is transferred to InfoModelers by this
Agreement. InfoModelers will not infringe, violate or contest any such rights of
Asymetrix in the InfoAssistant Technology and will take reasonable steps and
precautions to protect Asymetrix's rights in the InfoAssistant Technology;
provided, however, that the foregoing shall not preclude InfoModelers from
asserting any defense that may be available to it in the event a claim is
asserted against InfoModelers related to the Product (other than a claim
asserted by Asymetrix for breach of this Agreement by InfoModelers).
13. TERM AND TERMINATION.
(a) Term. Except to the extent set forth in Section 13(b) and 13(c),
----
the term of this Agreement shall continue in perpetuity.
(b) Termination of License. This license set forth in Section 3 may
----------------------
be terminated: by InfoModelers if Asymetrix materially breaches its obligations
under Section 3 or Section 4 or materially fails to perform or comply with any
other provision herein and such failure is not cured within 30 days of written
notice thereof.
(c) Effect of Termination. The following shall occur on termination
---------------------
of the license set forth in Section 3:
i. Asymetrix shall continue to have the right to exercise the rights
and licenses granted in Section 3 until the earlier of: (x) the next
version release of its Online Learning Products or (y) for one hundred
eighty (180) days after the effective date of termination;
ii. Except as otherwise specifically set forth herein, the rights and
remedies as provided in this Section shall not be exclusive and are in
addition to any other rights and remedies provided by law or this
Agreement; and
iii. The provisions of Sections 1, 2, 4, 7, 8, 9, 10, 11 and 12 shall
survive perpetually any termination of the license granted in Section
3".
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment by their duly
authorized representatives as of the Effective Date.
ASYMETRIX LEARNING INFOMODELERS, INC.
SYSTEMS, INC.
/s/ J. Billmaier /s/ Tom Van Horn
- ----------------------- -------------------------
Signature Signature
J. Billmaier Tom Van Horn
- ----------------------- -------------------------
Name Name
CEO President & CEO
- ----------------------- -------------------------
Title Title
<PAGE>
EXHIBIT 10.13
SUBLEASE
This Sublease is by and between ASYMETRIX CORPORATION ("Landlord") and ASX
CORPORATION ("Tenant"). Landlord, as tenant, entered into a lease dated May 24,
1991, and amended pursuant to a First Amendment to Lease dated April 16, 1992, a
Second Amendment to Lease dated May 20, 1992, a Third Amendment to Lease dated
September 29, 1992, a Fourth Amendment to Lease dated August 27, 1993, a Fifth
Amendment to Lease dated April 29, 1995, a Sixth Amendment of Lease dated
January 26, 1996, and a Seventh Amendment of Lease dated March 31, 1996
(collectively the "Prime Lease"), with DEAN WITTER REALTY INCOME PARTNERSHIP II,
L.P. as landlord ("Prime Landlord"), leasing certain space on the Fourth Floor
of the building (the "Building") at 110 - 110th Avenue NE, Bellevue, Washington
98004. The Building is located on the real property described on Exhibit A.
---------
The parties hereto have agreed that Landlord shall sublet approximately 6,350
square feet of such space to Tenant. The parties agree as follows:
1. Premises. Landlord hereby leases to Tenant the six thousand three hundred
--------
fifty (6,350) square feet, more or less, of the space on the fourth floor of
the Building ("Premises") which is identified on Exhibit B attached hereto
and made a part hereof. The costs and expenses of improvements required to
configure the Premises as identified on Exhibit B shall be borne by Tenant.
2. Parking Spaces. Landlord hereby assigns to Tenant for the term of this
--------------
Sublease, Landlord's right to lease from Prime Landlord, at the rates
determined in accordance with the Prime Lease, eighteen (18) parking spaces
(the "Parking Spaces") within the parking garage in the Building.
3. Term and Possession. The term of this Sublease shall commence on October 7,
-------------------
1996 and shall terminate upon the termination of the Prime Lease. Landlord
shall deliver possession of the Premises on such date, together with all
rights to use common areas and Parking Spaces as provided to Landlord under
the Prime Lease. Tenant accepts the Premises as being in good, sanitary
order, condition and repair. Tenant shall, upon expiration or termination of
this Sublease, surrender the Premises to Landlord in the same condition as
when received, excepting ordinary wear and tear, damage by fire, earthquake,
act of God, or the elements, special improvements unique to Tenant's business
and/or operations made by Tenant or on Tenant's behalf, and improvements made
to configure the Premises as identified on Exhibit B. Landlord covenants and
agrees that if Tenant performs all of the covenants and on Tenant's part to
be observed and performed under this Sublease, Tenant shall and peaceably
quietly have, hold and enjoy the Premises.
4. Rent. Tenant shall pay directly to Prime Landlord in accordance with the
----
terms of the Prime Lease rent at the rate of TWENTY DOLLARS ($20.00) per
square foot per annum, plus The Additional Rent mentioned in paragraph 7
below, plus any amounts due under the Prime Lease in consideration of the
Parking Spaces. Tenant shall pay the rent and Additional Rent and amounts due
in consideration of the Parking Spaces in the manner provided for hereunder
in
1
<PAGE>
monthly installments in accordance with the Prime Lease. It is hereby agreed
between Landlord and Tenant that no security deposit will be required.
5. Use. The Premises shall be used for the conduct of Tenant's business
---
activities and for no other purpose.
6. Assignment. Tenant shall not assign this Sublease nor sublet the Premises in
----------
whole or in part and shall not permit Tenant's interest in this Sublease to
be vested in any third party by operation of law or otherwise without the
prior written consent of Landlord and, if required, Prime Landlord.
7. Additional Charges. If Landlord shall be charged for Additional Rent (as
------------------
defined in the Prime Lease) or other sums pursuant to the provisions of the
Prime Lease, including without limitation Article 9 thereof, Tenant shall be
liable a pro rated portion of such costs equal to the ratio that the square
footage of the space being subleased hereunder bears to the square footage of
all space then being leased by Landlord pursuant to this Sublease.
Notwithstanding the foregoing, if any such rent or sums shall be directly
allocable to the space being subleased hereunder or Tenants use thereof, or
due to additional use by Tenant of electrical current in excess of Tenant's
proportionate part of additional use in the Premises demised under the Prime
Lease, then such excess shall be paid in its entirety by Tenant.
Notwithstanding the foregoing, Tenant shall not be liable for such Additional
Rent or other sums charged pursuant to the provisions of the Prime Lease
which are directly allocable to space other than the Premises, due to any
special services ordered by a party other than Tenant, or due to any
additional use by a party other than Tenant of electrical current or other
utilities. If Tenant shall procure any additional services from the Building,
such as alterations or after-hour air conditioning, Tenant shall pay for such
services at the rates charged therefor by the Prime Landlord and shall make
such payment directly to the Prime Landlord. Any rent or other sums payable
by Tenant under this paragraph 7 shall be additional rent and collectable as
such. If Landlord receives reimbursement or credit for overpayment of
Additional Rent or charges applicable to the Premises and paid by Tenant,
Landlord shall reimburse Tenant the portion of such reimbursement or credit
applicable to the Premises and paid by Tenant.
8. Prime Lease. This Sublease is subject and subordinate to the Prime Lease.
-----------
Except as may be inconsistent with the terms hereof, all the terms, covenants
and conditions in the Prime Lease shall be applicable to this Sublease with
the same force and effect as if Landlord were the landlord under the Prime
Lease and Tenant were the tenant thereunder and in case of any breach hereof
by Tenant, Landlord shall have all the rights against Tenant as would be
available to the landlord against the tenant under the Prime Lease if such
breach were by the tenant thereunder. Landlord warrants and represents that
all consents required under the Prime Lease to enter into this Sublease have
been obtained. Landlord warrants and represents to Tenant that the Prime
Lease as described herein is the full and complete agreement between the
Prime Landlord and Landlord pertaining tot he Premises, that there are no
further amendments or modifications not referenced, and that, to the
knowledge of Landlord, there is no default or event of default under the
Prime Lease nor any event or occurrence which, with the passage
2
<PAGE>
of time, the giving of notice or both, would ripen into a default or an event
of default thereunder.
9. Limitation. Notwithstanding anything herein contained, the only services or
----------
rights to which Tenant is entitled hereunder are those to which Landlord is
entitled under the Prime Lease, and for all such services and rights Tenant
will look to the Prime Landlord.
10. Indemnity. Tenant shall neither do nor permit anything to be done which
---------
would cause the Prime Lease to be terminated or forfeited by reason of any
right of termination or forfeiture reserved or vested in the Prime Landlord,
and Tenant shall indemnify and hold Landlord harmless from and against all
claims of any kind whatsoever by reason of any breach or default of the
Prime Lease on the part of Tenant.
11. Representation. Tenant represents that it has read and is familiar with the
--------------
terms of the Prime Lease.
12. Entire Agreement. All prior understandings and agreements between the
----------------
parties are merged within this Sublease, which alone fully and completely
sets forth the understanding of the parties and this Sublease may not be
changed or terminated orally or in any manner other than by an agreement in
writing and signed by the party against whom enforcement of the charge or
termination is sought.
13. Notices. Any notice or demand which either party may or must give to the
-------
other hereunder shall be in writing and delivered personally or sent by
registered mail addressed, if to Landlord, as follows:
Asymetrix Corporation
110-110th Ave N.E.
Suite 700
Bellevue WA 98004
Attn: Steven Esau, General Counsel
and if to Tenant, as follows:
ASX Corporation
110-110th Ave N.E.
Suite 409
Bellevue WA 98004
Attn: President
Either party may, by notice in writing, direct that future notices or
demands be sent to a different address. Tenant agrees to provide promptly to
Landlord copies of any notices received from the Prime Landlord or otherwise
relating to the Prime Lease, and Landlord agrees to provide any of the
foregoing to Tenant if they relate to or affect the Premises.
3
<PAGE>
14. Successors and Assigns. The covenants and agreements herein contained shall
----------------------
bind and inure to the benefit of Landlord, Tenant, and their respective
executors, administrators, successors and assigns.
15. Modifications and Termination. Landlord reserves the right to terminate
-----------------------------
or make modifications to the Prime Lease subject to the terms of this
Section. Landlord shall make no change or modification to the Prime Lease
that affects Tenant's rights under this Sublease or to the use and enjoyment
of the Premises, including without limitation the termination of the Prime
Lease, except with 180 days prior notice to Tenant. Either party may
terminate this Sublease upon 180 days notice to the other party.
Exhibits:
Exhibit A: Legal Description
Exhibit B: Floor Plan of Sublet Space
Dated this 7/th/ day of October, 1995.
----
LANDLORD: Asymetrix Corporation
By /s/ John D. Atherly
___________________________________
John D. Atherly
Vice President, Finance and Administration
TENANT: ASX CORPORATION
By /s/ James A. Billmaier
_____________________________________
James A. Billmaier, President
4
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
That portion of the Southwest quarter of the Northeast quarter of Section 32,
Township 25 North, Range 5 East, W.M., in King County, Washington, described as
follows:
Beginning at the intersection of the East margin of 110th Avenue Northeast, as
now established with a line parallel to and 277.5 feet North of, when measured
at right angles to the East-West centerline of said Section 32; thence Easterly
along said parallel line to a point in line parallel to and 476.8 feet West of,
when measured at right angles, to the East line of said subdivision; thence
Northerly along said parallel line to a point in a line parallel to and 577.5
feet North of, when measured at right angles to, the said center line of said
Section; thence Westerly along said parallel line, 14.09 feet to a point in a
line parallel to and 162.00 feet West of, when measured at right angles to, the
East line of the West three quarters of the South half of said subdivision;
thence Northerly along said parallel line to the South margin of Northeast
Second Street as now established; thence Westerly along said South margin of
Northeast Second Street as to the said East margin of 110th Avenue Northeast;
thence Southerly along said East margin to the point of beginning.
5
<PAGE>
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that JOHN D. ATHERLY is
the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he is authorized to execute the instrument and
acknowledged it as the Vice President of Finance and Administration of ASYMETRIX
CORPORATION, to be the free and voluntary act of such corporation for the uses
and purposes mentioned in the instrument.
Dated this 7/th/ day of October 1996.
/s/ Kathryn K. Navarro
------------------------------------
(Signature of Notary)
Kathryn K. Navarro
------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at Woodinville, Washington
-----------------------
My appointment expires 9/9/97
-----------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that JAMES A. BILLMAIER is
the person who appeared before me, and acknowledged that he signed this
instrument, on oath stated that he is authorized to execute the instrument and
acknowledged it as the President of ASX CORPORATION, to be the free and
voluntary act of such corporation for the uses and purposes mentioned in the
instrument.
Dated this 7/th/ day of October, 1996.
/s/ Kathryn K. Navarro
------------------------------------
(Signature of Notary)
Kathryn K. Navarro
------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of Washington,
residing at Woodinville, Washington
-----------------------
My appointment expires 9/9/97
-----------------
6
<PAGE>
Exhibit 10.14
ASSET PURCHASE AND LOAN AGREEMENT
This Asset Purchase and Loan Agreement (this "Agreement"), dated October 7,
---------
1996, is entered into between Asymetrix Corporation, a Washington corporation
(the "Seller") and ASX Corporation, a Washington corporation (the "Buyer").
------ -----
WHEREAS, the Seller has, among other things, been engaged in the
development of a software product called the InfoModeler (the "Product");
-------
WHEREAS, the Seller wishes to transfer and the Buyer wishes to receive (i)
certain rights to the Product including patents and trademarks issued or pending
in connection therewith, (ii) certain other tangible assets of the Seller and
(iii) certain contracts made by the Seller in connection with the Product; and
WHEREAS, the Buyer wishes to borrow certain funds from Seller, and Seller
is willing to loan such funds to Buyer as set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein, the parties agree as follows:
1. TRANSFER OF ASSETS AND ASSUMPTION OF LIABILITIES.
------------------------------------------------
1.1 Purchase and Sale of Assets. Subject to the terms and conditions
---------------------------
contained herein, the Seller hereby grants, bargains, sells, transfers, assigns,
conveys and delivers to the Buyer, all right, title and interest in and to the
following (collectively the "Assets"), free and clear of all liens, encumbrances
------
and claims whatsoever; provided, that, the Seller makes no warranties, either by
-------- ----
grant or implication, as to noninfringement with respect to the Assets
identified under Sections 1.1(a) and 1.1(b);
(a) the issued patents and patent applications and all patent rights
therein, including any foreign equivalents, described or identified in
Schedule 1.1(a) hereto;
(b) the trademarks, trademark registrations and recordings, and all
applications in connection therewith, whether in the United States Patent
and Trademark Office or in any similar office or agency of any other
country or political subdivision thereof, which are described or identified
in schedule 1.1(b) hereof, together with the goodwill embodied therein;
(c) any and all inventory in or associated with the Product held by or
under the control of Seller;
(d) all contracts of the Seller related to the Product and listed on
Schedule 1.1(d) (the "Contracts"); and
---------
(e) certain tangible assets owned by the Seller and listed on Schedule
1.1(c) hereto.
<PAGE>
1.2 Assumption of Certain Liabilities. Buyer hereby assumes and agrees to
---------------------------------
pay, perform and discharge (i) all Contracts, and (ii) the liabilities and
obligations of Seller set forth on Schedule 1.2. Buyer does not assume or agree
to pay, perform, or discharge any obligations, claims, liabilities, agreements,
contracts or commitments of the Seller other than the Contracts and those
specifically set forth on Schedule 1.2.
1.3 Purchase Price. Subject to the terms and conditions of this
--------------
Agreement, the Buyer shall pay the Seller the sum of $500,000.00 (the "Purchase
--------
Price") for all of the Assets. The Purchase Price shall be paid on the date
- -----
hereof by delivery by the Buyer of a promissory note in the form attached hereto
as Exhibit A.
---------
1.4 Delivery; Further Assurances. Simultaneously with the execution of
----------------------------
this Agreement, the Seller shall take all such steps as may be required to put
the Buyer in actual possession of the Assets. In addition, the Seller shall
from time to time, at the Buyer's request but without further consideration,
execute and deliver, or cause to be executed and delivered, such additional
instruments of transfer, conveyance and assignment and take such other action as
the Buyer may reasonably require, more effectively to transfer, convey and
assign to and vest in the Buyer all right, title and interest in and to the
Assets and to put the Buyer in actual possession of the Assets, provided that
--------
Buyer shall be responsible for the expense of preparation of any such
instruments.
1.5 Third-Party Consents. To the extent that the assignment of any Asset,
--------------------
including, without limitation, any Contract, shall require the consent of the
other party thereto, this Agreement shall not constitute an assignment or
agreement to assign the same if an attempted assignment would constitute a
breach there. In the event that any Asset, including without limitation, any
Contract, to be transferred by the Seller to the Buyer hereunder cannot be
transferred to the Buyer without the consent of a third party, the Seller shall
sue commercially reasonable efforts, with the cooperation of Buyer, to obtain
such consent within thirty days of the date hereof.
1.6 License to Forms, Etc. Seller hereby grants Buyer a perpetual, world-
---------------------
wide, non-terminable, fully-paid, non-exclusive, transferable license to use,
modify and reproduce all of Seller's administrative forms, policies and
procedures, including form contracts, purchase order and invoice terms and
conditions, personnel policies and manuals, accounting policies and other
administrative documents (collectively the "Forms"); provided, that Buyer shall
--------
not use Seller's name or logo in connection with any such use, modification or
reproduction. Seller shall provide such forms upon the request of Buyer in hard
copy or electronic form, as requested by Buyer; provided, that Seller shall have
--------
no obligation to deliver any Forms after eight months following the date of this
Agreement.
2. LOAN.
----
2.1 Agreement to Loan Funds. Seller agrees to loan to Buyer the amount of
-----------------------
$1,000,000.00 (the "Loan"). The Loan proceeds will be disbursed as soon as
possible following execution hereof by Seller to Buyer in cash or readily
available funds, and Buyer shall deliver on
2
<PAGE>
the date hereof its promissory note in the form attached hereto as Exhibit A,
---------
the principal of which may include the Purchase Price referred to in Section
1.3.
2.2 Security Interest. Buyer hereby grants to Seller a first and prior
-----------------
security interest in all of Buyer's assets of any kind whatsoever, owned now and
in the future, and in all proceeds thereof (collectively the "Collateral"), to
secure the repayment in full to Seller of the Purchase Price and the Loan, and
all obligations of Buyer under the promissory note or notes referred to in
Sections 1.3 and 2.1. The Collateral shall include without limitation all of
Buyer's inventory, accounts receivable, contract rights, cash, bank accounts,
general intangibles, personal property, furniture, fixture, equipment,
copyrights, trademarks, trade secrets and patent rights, owned now and in the
future, and all proceeds thereof.
2.3 Perfection; Further Assurances. Buyer shall on Seller's request, at
------------------------------
any time and from time to time, and without further consideration, execute and
deliver, or cause to be executed and delivered, such financing statements and
such additional instruments and documents, and take such other action, as Seller
may reasonably require more effectively to perfect, in any and all jurisdictions
as may be appropriate, Seller's security interest in the Collateral.
3. REPRESENTATIONS AND WARRANTIES OF THE SELLER. The Seller hereby represents
--------------------------------------------
and warrants to the Buyer and covenants with the Buyer as follows:
3.1 Organization and Good Standing. The Seller is a corporation duly
------------------------------
organized, validly existing and in good standing under the laws of the State of
Washington and has all requisite power and authority to enter into this
Agreement and to comply with its terms.
3.2 Authority; Authorization. The Seller has full power and authority to
------------------------
execute and deliver this Agreement, to consummate the transactions contemplated
by this Agreement, and to carry out its obligations under this Agreement. This
Agreement has been duly and validly authorized, executed and delivered by the
Seller and constitutes the legal, valid and binding obligation of the Seller,
enforceable in accordance with its terms.
3.3 Title to Assets. Seller has title to the Assets, in all cases free
---------------
and clear of all liens, charges and encumbrances other than Seller's security
interest provided for in this Agreement; provided, that, the Seller make no
-------- ----
warranties as to the title with respect to the Assets identified under Sections
1.1(a) and 1.1(b).
3.4 Contracts. The Seller has provided or will provide true and complete
---------
copies of the Contracts a well as any consents necessary to the assignment
thereof; provided, that, the Seller shall have thirty days from the date hereof
-------- ----
to obtain and deliver any such consents to assignment.
3.5 No Other Warranties. Except as expressly provided in this Agreement,
-------------------
(i) the Assets and the Contracts are being sold, transferred, assigned, conveyed
and delivered, and the Forms are being licensed, AS IS, WHERE IS; and (ii)
SELLER MAKES NO OTHER WARRANTY OR REPRESENTATION WHATSOEVER, INCLUDING WITHOUT
3
<PAGE>
LIMITATION ANY IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR
PURPOSE, TITLE OR NONINFRINGEMENT.
4. REPRESENTATIONS AND WARRANTIES OF THE BUYER. The Buyer hereby represents,
-------------------------------------------
warrants and covenants as follows:
4.1 Organization. The Buyer is a corporation duly incorporated and
------------
validly existing under the laws of Washington, and possesses the power and
authority to enter into this Agreement and to comply with its terms.
4.2 Authority. The Buyer has full power and authority to execute and
---------
deliver this Agreement, to consummate the transactions contemplated by this
Agreement, and to carry out its obligations under this Agreement. This
Agreement has been duly and validly authorized, executed and delivered by the
Buyer and constitutes the legal, valid and binding obligation of the Buyer,
enforceable in accordance with its terms.
5. OTHER PROVISIONS.
----------------
5.1 Entire Agreement. This Agreement constitutes the entire agreement
----------------
among the undersigned and supersedes all prior agreements and understandings,
oral and written, between the undersigned with respect to the subject matter
hereof. This Agreement may only be modified in writing, signed by the party to
be charged with the modification.
5.2 Notices. All notices, requests, demands, and other communications
-------
hereunder shall be deemed to have been duly given if transmitted by facsimile or
telecopier, with written confirmation delivered, or if mailed, certified or
registered mail with postage prepaid, to:
If to the Buyer: Copy to:
--------------- -------
ASX Corporation Stoel Rives LLP
110 110th Avenue N.E., Ste. 409 One Union Square, Suite 3600
Bellevue, WA 98004 Seattle, WA 98101
Attention: Lance Delano Attention: Douglas Batey
Telecopy: (206) 454-7696 Telecopy: (206) 386-7500
If to the Seller:
----------------
Asymetrix Corporation
110 110th Avenue N.E., Ste. 700
Bellevue, WA 98004
Attention: Steven Esau
Telecopy: (206) 637-1540
5.3 Assignment. Neither party may assign any rights hereunder or delegate
----------
any obligations hereunder, without the prior written consent of the other party,
which consent shall
4
<PAGE>
not be unreasonably withheld. Subject to the foregoing, this Agreement shall be
binding upon and inure to the benefit of the parties named herein and their
respective successors and assigns.
5.4 Invalidity. The invalidity or unenforceability of any term or
----------
provision of this Agreement shall not impair or affect the remainder of this
Agreement and the remaining terms and provisions hereof shall remain in full
force and effect.
5.5 Governing Law; Jurisdiction. This Agreement shall be construed and
---------------------------
interpreted in accordance with the laws of the Sate of Washington. Any suit to
enforce or construe any provision of this Agreement shall be brought only in the
state or federal courts situated in King County, Washington, and each party
agrees that such courts shall have exclusive jurisdiction over any such suit and
each party hereby submits to such jurisdiction.
5.6 Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the day and year
first above written.
ASYMETRIX CORPORATION ASX CORPORATION
By /s/ James Billmaier By /s/ Lance Delano
--------------------------------- -------------------------------
Its President & CEO Its V.P. of Ops.
--------------------------------- -------------------------------
5
<PAGE>
Schedule 1.1(a)
Patents
<TABLE>
<CAPTION>
Name of Patent Country Status Patent/Application
Number
<S> <C> <C> <C>
Method and Apparatus for the Modeling and Query of Database
Using Natural Language-Like Constructs ("InfoModeler") USA Issued Patent No. 5.495.60
Method and Apparatus for the Modeling and Query of Database
Using Natural Language-Like Constructs ("InfoModeler") (Int'l Int'l PCT/US94/09658
Method and Apparatus for the Modeling and Query of Database
Using Natural Language-Like Constructs ("InfoModeler") Canada Pending Serial No. 2,170.235
Method and Apparatus for the Modeling and Query of Database
Using Natural Language-Like Constructs ("InfoModeler") Europe Pending Serial No. 9,492.724
Method and Apparatus for the Modeling and Query of Database
Using Natural Language-Like Constructs ("InfoModeler") Japan Pending App. No. H07-507.76
Method and Apparatus for Specifying a Query to an Information
Using Natural Language-Like Constructs (division of P511- USA Allowed Serial No. 08/488.38
Method and Apparatus for Generating a Query to an Information
Specified Using Natural Language-Like Constructions (division of USA Allowed Serial No. 08/485.21
Method and Apparatus for the Modeling and Query of Database
Using Natural Language-Like Constructs (continuation of P511) USA Allowed Serial No. 08/482.72
Source Code Copyright Registration USA Registered TX4-241-104
Copyright in InfoModeler Courseware Unregistered
</TABLE>
<PAGE>
Schedule 1.1(b)
Trademarks
<TABLE>
<CAPTION>
INFOMODELER
Country Status Class(es)
<S> <C> <C>
U.S. Registered 9, 16
Australia Registered 9, 16
Austria Registered 9, 16
Benelux Registered 9, 16
Canada Published N/A
Denmark Registered 9, 16
Finland Registered 9, 16
France Registered 9, 16
Germany Registered 9, 16
Hong Kong Registered 9, 16
Ireland Registered 9, 16
Italy Pending 9, 16
Japan Published 9, 16
Mexico Registered 9, 16
New Zealand Published 9, 16
Norway Registered 9, 16
Portugal Registered 9, 16
Singapore Pending 9, 16
South Korea Registered 9, 16
Spain Published 9, 16
Sweden Registered 9, 16
Switzerland Pending 9, 16
Taiwan(ROC) Registered 49, 72
U.K. Registered 9, 16
ACTIVEQUERY
U.S. Filed 9
</TABLE>
<PAGE>
Schedule 1.1(d)
Contracts
Distribution Agreement between Asymetrix and ICS Solutions Limited dated as of
January 1, 1994.
<PAGE>
EXHIBIT A
---------
PROMISSORY NOTE
$1,500,000 Bellevue, Washington
October 7, 1996
1. Promise to Pay. FOR VALUE RECEIVED, the undersigned promises to pay in
--------------
lawful money of the United States to the order of ASYMETRIX CORPORATION at 110 -
110th Avenue NE, Bellevue, Washington 98004 or at such other place as the holder
hereof from time to time may designate in writing, the principal sum of ONE
MILLION FIVE HUNDRED THOUSAND DOLLARS ($1,500,000), with interest accruing on
the principal balance at the rate of one half percent per month, from the date
hereof and continuing until all sums due hereunder are paid in full.
2. Payment. The entire unpaid principal balance, plus unpaid interest, and
-------
all other sums due hereunder shall be paid in full on December 7, 1996. Payments
shall be applied first to accrued interest, then to principal. Payments may be
made early without penalty.
3. Attorneys' Fees. If any action, judicial or nonjudicial, is brought on
---------------
this Note, or if it is placed in the hands of an attorney for collection or
advice following the expiration of the cure period for any default, then the
maker promises to pay all of the then holder's costs and expenses in connection
therewith from that point forward, including without limitation the reasonable
attorneys' fees incurred and paid by holder in connection herewith through any
appeal.
4. Liability. The obligations of this Note are joint and several among the
---------
makers, all endorsers, and all persons liable or to become liable hereon. The
undersigned binds itself as principal and not as surety.
5. Waivers. The undersigned, all endorsers, and all persons liable or to
-------
become liable on this Note hereby waive presentment, demand, protest and notice
of demand, protest and nonpayment, and any defense or claim that resort must
first be had to any security or to any other person, and authorize the holder of
this Note, without affecting his, her or its liability hereunder, from time to
time, to renew, extend or change the time for payment or the other terms of this
Note, to take and hold security for the payment of this Note, to release or
exchange the security therefor, to apply any such security to such obligations
as the holder may determine in its sole discretion, and to release, substitute
or add to those liable or to become liable on this Note.
6. Security. This Note is secured by a security interest in all of Buyer's
--------
assets of any kind whatsoever, owned now and in the future, and in all proceeds
thereof which security interest is granted pursuant to an Asset Transfer and
Loan Agreement of even date herewith.
7. Governing Law; Venue. This Note shall be governed by and construed in
--------------------
accordance with the laws of the State of Washington, and venue of any suit to
enforce this Note may be laid in King County, Washington.
MAKER:
ASX CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
- 1 -
<PAGE>
EXHIBIT 10.15
UNITED OLYMPIC LIFE BUILDING
---------------
LEASE AGREEMENT
BETWEEN
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
Lessor
and
ASYMETRIX CORPORATION
Lessee
<PAGE>
UNITED OLYMPIC LIFE BUILDING
LEASE AGREEMENT
THIS LEASE AGREEMENT (The "LEASE"), dated the 24th day of May 1991, is by
-------- --------
and between DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P., A DELAWARE LIMITED
---------------------------------------------
PARTNERSHIP, hereinafter called "Lessor", and ASYMETRIX CORPORATION, A
----------------------------
WASHINGTON CORPORATION hereinafter called "Lessee". As parties hereto, Lessor
- ----------------------
and Lessee agree:
1. LEASE DATA AND EXHIBITS. The following terms as used herein shall have
-----------------------
the meanings provided in this Section 1, unless otherwise specifically modified
by provisions of this Lease:
(a) Building: Known as United Olympic Life Building, Bellevue,
Washington, or such other name as Lessor may designate from time to
time, situated on a portion of the real property more particularly
described in Section 2 hereof.
(b) Premises: Consisting of 25,626 net rentable square feet on the
------
seventh (7) floor, Suite 717 of the Building, as outlined on the floor
----------- ---
plan(s) attached hereto as Exhibit C, including tenant improvements,
if any, as described in Exhibit A.
(c) Floor Areas: The agreed net rentable area of the Premises is 25,626
------
net rentable square feet and of the Building is 213,000 square feet.
(d) Commencement Date: November 1, 1991.
----------------
(e) Expiration Date: October 31, 1996.
----------------
(f) Lease Term: Five (5) years.
--------------
(g) Base Monthly Rent: $ * per month, payable in advance on or
-------
before the first day of each month per Section 3 hereof. The total
monthly rent is based on $ * per square foot per year of net
---------
rentable area and is subject to adjustment as provided in Section 9
hereof.
* See Attachment I; Special Provisions No. 1.
(h) Security Deposit: $ N/A .
------
(i) Notice Addresses:
Lessor: Dean Witter Realty Income Partnership II, L.P.
----------------------------------------------
c/o Koehler, McFadyen & Company
--------------------------------
110-110 Avenue N.E., Suite 300
------------------------------
Bellevue, Washington 98004
--------------------------
1
<PAGE>
Lessee: Asymetrix Corporation
---------------------
110-110 Avenue N.E., Suite 717
------------------------------
Bellevue, Washington 98004
--------------------------
(j) Exhibits: The following exhibits or riders are made a part of this
Lease:
ATTACHEMENT I - SPECIAL PROVISIONS
ATTACHEMENT II - RULES AND REGULATIONS
EXHIBIT A - TENANT IMPROVEMENTS
EXHIBIT B - LESSEE'S PLAN REQUIREMENTS
EXHIBIT C - FLOOR PLAN OF LEASED PREMISES
EXHIBIT D - COMMON AREA IMPROVEMENT WORKLIST
2. PREMISES. Lessor does hereby lease to Lessee, and Lessee does hereby
--------
lease from Lessor, upon the terms and conditions herein set forth, the Premises
described in Section 1 (b) hereof as shown on Exhibit C attached hereto and
incorporated herein, situated on the real property in Bellevue, King County,
Washington, described as follows:
That portion of the Southwest quarter of the Northeast quarter of Section 32,
Township 25 North, Range 5 East, W.M., in King County, Washington, described as
follows:
Benning at the intersection of the East margin of 110th Avenue Northeast,
as now established with a line parallel to and 277.5 North of, when
measured at right angles to the East-West centerline of said Section 32;
thence Easterly along said parallel line to a point in linen parallel to
and 476.8 feet West of, when measured at right angles, to the East line of
said subdivision; thence Northerly along said parallel line to a point in a
line parallel to and 577.5 feet North of, when measured at right angles to,
the said center line of said Section; thence Westerly along said parallel
line, 14.09 feet to a point in a line parallel to and 162.00 feet West of,
when measured at rights angles to, the East line of the West three quarters
of the South half of said subdivision; thence Northerly along said parallel
line to the South margin of Northeast Second Street as now established;
thence Westerly along said South margin of Northeast Second Street as to
the said East margin of 110th Avenue Northeast; thence Southerly along said
East margin to the point of beginning.
3. RENT. Lessee agrees to and shall pay to Lessor, the monthly rental
----
stated in paragraph 1(g) in advance on the first day of each calendar month
during the Lease Term, at the office of Lessor, Suite 1801, 1601 5th Avenue,
Seattle, Washington 98101 or at such other place as Lessor may from time to time
designate in writing. Rent payable for any period of less than one calendar
month shall equal 1/30 of the monthly rental for each day of such period, and
shall be payable on the first day of such period.
4. ACCEPTANCE OF PREMISES. Except for those punchlist items* scheduled by
----------------------
Lessor and Lessee prior to the Lease Commencement Date, Lessee's occupancy of
the Premises shall be deemed to constitute acceptance of same and acknowledgment
by Lessee that Lessor has
2
<PAGE>
fully complied with its obligations hereunder to construct and deliver to Lessee
the Premises. Lessor shall have the right to enter the Premises to complete or
repair any such unfinished items** and entry by Lessor, its agents, servants,
employees or contractors for such purpose shall not constitute an actual or
constructive eviction, in whole or in part, or entitle Lessee to any abatement
or diminution of Rent or relieve Lessee of any of its obligations under this
Lease, or impose any liability upon Lessor or its agents, servants, employees or
contractors.
* and latent defects not evidence at time of inspection,
** or latent defects
5. POSSESSION. If Lessor fails to deliver possession of Premises ready
----------
for occupancy at the Commencement Date of the Lease Term, Lessor shall not be
liable for any damage caused thereby, nor shall this Lease become void or
voidable, but in such event, no Rent shall be payable by Lessee to Lessor for
any portion of the Lease Term until Lessor can deliver possession of Premises to
Lessee ready for occupancy by Lessee. If the Commencement Date of the Lease
Term is delayed, the Expiration Date will be extended by a like period of time.
If Lessee, with Lessor's permission, enters into possession of Premises prior to
Commencement Date of the Lease Term, all of the terms and conditions of this
Lease shall apply during such prior period, including payment of Rent at the
Monthly Rate stated in Section 1(g) and Additional Rent. The expansion area of
the Premises shall be deemed substantially complete and ready for occupancy on
the date the Lessor receives approval from the City of Bellevue for occupancy of
the Premises.
6. SECURITY DEPOSIT. As security for the full and faithful performance of
----------------
every covenant and condition of this Lease to be performed by Lessee, Lessee has
paid to Lessor the Security Deposit as specified in Section 1(h) hereof, receipt
of which is hereby acknowledged. If Lessee shall default with respect to any
covenant or condition of this Lease, including but not limited to the payment of
Rent, Additional Rent or any other payment due under this Lease, Lessor may
apply all or any part of the Security Deposit to the payment of any sum in
default or any other sum which Lessor may be required to spend or incur by
reason of Lessee's default or any other sum which Lessor may in its reasonable
discretion deem necessary to spend or incur by reason of Lessee's default. In
such event, Lessee shall, within five (5) days of written demand therefore by
Lessor, deposit with Lessor the amount so applied. If Lessee shall have fully
complied with all of the covenants and conditions of this Lease, but not
otherwise, the amount of the Security Deposit then held by Lessor shall be
repaid to Lessee (or, at Lessor's option, to the last assignee of Lessee's
interest hereunder) within thirty (30) days after the Expiration Date or sooner
termination of this Lease. In the event of Lessee's default under this Lease,
Lessor's right to retain the Security Deposit shall be deemed to be in addition
to any and all other rights and remedies at law or in equity available to
Lessor. Lessor shall not be required to keep any Security Deposit separate from
its general funds and Lessee shall not be entitled to any interest thereon.
7. USE. Lessee shall use and occupy the Premises only for general office
---
purposes and for no other purposes without Lessor's prior written consent.
Lessee shall not do or permit anything to be done in or about the Premises nor
bring or keep anything therein which will in any way increase the existing rate
of or affect any fire or other insurance upon the Building or any of
3
<PAGE>
its contents, or cause a cancellation of any insurance policy covering said
building or any part thereof or any of its contents. Lessee shall not do or
permit anything to be done in or about the Premises which will in any way
obstruct or interfere with the rights of other tenants or occupants of the
Building or injure or annoy them or use or allow the Premises to be used for any
improper, immoral, unlawful or objectionable purpose, nor shall Lessee cause,
maintain or permit any nuisance in, on or about the Premises. Lessee shall not
commit or suffer to be committed any waste in or upon the Premises.
8. SERVICES AND UTILITIES.
----------------------
a. Standard Services. Lessor shall cause the Premises and the public and
common areas of the Building, such as lobbies, elevators, stairs, corridors and
restrooms, to be maintained in reasonably good order and condition consistent
with the operation and maintenance of the Building as a first-class office
building in Bellevue, except for damage occasioned by any act or omission of
Lessee or Lessee's officers, contractors, agents, invitees, licensees or
employees, the repair of which damage shall be paid for by Lessee.
From 7:00 a.m. to 6:00 p.m. on weekdays and from 8:00 a.m. to 1:00 p.m. on
Saturday, excluding legal holidays ("Normal Business Hours"), Lessor shall
furnish the Premises with electricity for lighting and operation of standard
office machines, water, heat and air conditioning, and elevator service.
During all other hours, Lessor shall furnish such services, including
elevator service as reasonably required to provide access to the Premises,
except for heat and air conditioning. If requested by Lessee, Lessor shall
furnish heat and air conditioning at times other than Normal Business Hours and
the * cost of such services as established by Lessor shall be paid by Lessee as
Additional Rent. Lessor shall also provide lamp replacement services for
building standard fluorescent light fixtures, toilet room supplies, window
washing at reasonable intervals, and customary building janitorial service. No
janitorial service shall be provided on legal holidays. The costs of any
janitorial or other service provided or cause to be provided by Lessor to Lessee
which are in addition to the services ordinarily provided to Building tenants
shall be paid to Lessor in the manner provided for payment of Rent in Section 3
of this Lease.**
* reasonable
** Administration fees resulting from such services shall not exceed 5%
of the cost of the service.
Lessor shall be obligated to provide the services and utilities as outlined
herein only so long as Lessee is not in default per the terms of this Lease.
b. Interruption of Services. Lessor shall not be liable for any loss,
injury or damage to person or property caused by or resulting from any
variation, interruption, or failure of such services due to any cause
whatsoever***, or from failure to make any repairs or perform any maintenance.
No temporary interruption or failure of such services incident to the making of
repairs, alterations, or improvements, or due to accident, strike or conditions
or events beyond Lessor's reasonable control shall be deemed an eviction of
Lessee or relieve Lessee from any of
<PAGE>
Lessee's obligations hereunder. Provided however, that if the Premises should
become not reasonably suitable for Lessee's use as a consequence of the
cessation of utilities or other services required to be provided to the Premises
by Lessor that continues for five successive business days or more (an "Event
Interfering with Lessee's Use"), then Lessee shall be entitled to an abatement
or rent to the extent of the interference with Lessee's use of the Premises
occasioned thereby provided Lessor uses good faith efforts to restore services
as quickly as possible. Provided further, that if the Event Interfering with
Lessee's Use cannot be corrected or the damage resulting therefrom repaired so
that the Premises will be reasonably suitable for Lessee's intended use within
120 days following the occurrence of such event, then in addition to its other
rights, Lessee shall be entitled to terminate this Lease by written notice to
Lessor.****
*** unless caused by Lessor's negligence.
**** See Attachment I, Special Provisions No. 10
c. Additional Services. Lessee will not, without the written consent of
Lessor, use any apparatus or device in the Premises using current in excess of
110 volts; nor connect with electric current, except through existing electrical
outlets in the Premises, or water pipes, any apparatus or device, for the
purposes of using electric current or water. If Lessee shall require water or
electric current in excess of that usually furnished or supplied during Normal
Business Hours or other than Normal Business Hours, for use of the Premises as
general office space, Lessee shall first procure the consent of Lessor to the
use thereof and Lessor may cause a water meter or electric current meter to be
installed in the Premises, so as to measure the amount of water and electric
current consumed for any such other use. The cost of any such meters and of
installation, maintenance and repair thereof shall be paid by the Lessee and
Lessee agrees to pay to Lessor promptly upon demand therefore by Lessor for all
such water and electric current consumed as shown by said meters, at the rates
charged for such services by the City of Bellevue or the local public utility,
as the case may be, furnishing the same, plus any additional expense incurred in
keeping account of the water and electric current so consumed.*****
***** Lessee and Lessor acknowledge that Lessor is currently submetering
Lessee's supplemental HVAC and will continue to submeter consumption
of such non-standard electric usage.
9. * RENTAL ADJUSTMENTS, OPERATING COSTS.
-----------------------------------
* For additional language of this Section, see Attachment I Special
Provisions No. 1.
(a) Definitions. In addition to the Rent provided in Section 1(g) of
this Lease, Lessee shall pay to Lessor increases under this Section 9 as
"Additional Rent," utilizing the following definitions:
(i) "Operating Costs" shall include Costs of Energy, Real Property
Taxes, and Other Operating Costs.
(1) "Real Property Taxes" shall mean taxes on real property and
personal property, and taxes on property of Lessee, as described in Section 9(i)
below, which
5
<PAGE>
have not been paid by Lessee directly to the taxing authority; charges and
assessments (or any installment thereof due during the Lease Year) levied with
respect to the land, the Building, any improvements, fixtures and equipment, and
all other property of Lessor, real or personal, used directly in the operation
of the Building and located in or on the Building; and any taxes levied or
assessed (or any installment thereof due during the Lease Year) in addition to
or in lieu of, in whole or in part, such real property or personal property
taxes, or any other tax upon leasing of the Building or rents collected, but not
included any federal or state income or franchise tax.
(2) "Costs of Energy" shall mean all expenses paid or incurred by
Lessor in the normal operation and maintenance of the Building for electricity,
gas and similar energy sources, including any surcharges imposed.
(3) "Other Operating Costs" shall mean all other expenses paid or
incurred by Lessor for obtaining services and products for maintaining,
operating and repairing the Building and the personal property used in
conjunction therewith, including, without limitation, the costs of refuse
collection, water, sewer and other utilities services (excluding costs included
in the Cost of Energy), supplies, janitorial and cleaning services, window
washing, landscape maintenance, services of independent contractors,
compensation (including employment taxes and fringe benefits) of all persons who
perform duties in connection with the operation, maintenance and repair of the
Building, its equipment and the land upon which it is situated, insurance
premiums, licenses, permits, and inspection fees, customary management fees,
legal and accounting expenses and any other expense or charge whether or not
hereinabove described which in accordance with generally accepted accounting and
management practices would be considered an expense of maintaining, operating or
repairing the Building, excluding or deducting, as appropriate:
(A) Costs of any special services rendered to individual tenants
(including Lessee) for which a special charge is made;
(B) Depreciation or amortization of costs required to be capitalized
in accordance with generally accepted accounting principles (except Other
Operating Costs shall include amortization of capital improvements made
subsequent to the initial development of the Building which are designed with a
reasonable probability of improving the operating efficiency of the Building,
provided that such amortization costs shall not exceed reasonably expected
savings in operating costs resulting from such capital improvements.*
* Said costs to be charged to Lessee based on an amortization over the
useful life of said capital improvements.
(ii) "Lease Year" shall mean the twelve-month period commencing
January 1 and ending December 31, for the purposes of Section 9, Part 3 "Other
Operating Costs".
(iii) "Actual Operating Costs" shall mean the actual expenses paid or
incurred by Lessor for Operating Costs during any Lease Year of the Lease Term
hereof.
6
<PAGE>
(iv) "Actual Operating Costs Allocable to the Premises" shall mean the
Lessee's share of the Actual Operating Costs determining by Lessee's percentage
of the Building.
(v) "Estimated Operating Costs Allocable to the Premises" shall mean
Lessor's estimate of Operating Costs Allocable to the Premises for the following
Lease Year to be given by Lessor to Lessee pursuant to Section 9(c) below.
(b) "Operating Costs Base Amount". For purposes of this Section, the
Operating Costs Base Amount for the initial Lease Term shall be the actual costs
incurred by Lessor in the 1991 calendar year pursuant to Section 9(a) through
9(i) divided by the total building area as described in Section 1(c).
(c) Additional Rent for Estimated Increases in Operating Costs. Prior to
the commencement of each Lease Year during the Lease Term hereof, Lessor shall
furnish Lessee a written statement of the Estimated Operating Costs Allocable to
the Premises, for such Lease Year, and a calculation of the Additional Rent as
follows: One-twelfth (1/12) of the amount, if any, by which such amount exceeds
the Operating Costs Base Amount shall be Additional Rent payable by Lessee as
provided in Section 3 for each month during such Lease Year.
(d) Actual Operating Costs. Approximately 180 days after the close of each
Lease Year during the Lease Term hereof for which an estimated statement was
delivered to Lessee pursuant to subsection (c), or as soon thereafter as
practicable, Lessor shall deliver to Lessee a written statement setting forth
the Actual Operating Costs Allocable to the Premises during the preceding Lease
Year. If such costs for any Lease Year exceed Estimated Operating Costs
Allocable to the Premises paid by Lessee to Lessor pursuant to subsection (c),
Lessee shall pay the amount of such excess to Lessor as added Additional Rent
within thirty (30) days after receipt of such statement by Lessee. If such
statement shows such costs to be less than the amount paid by Lessee to Lessor
pursuant to subsection (c), then the amount of such overpayment by Lessee shall
be directly reimbursed by Lessor to Lessee or shall be credited by Lessor to the
next immediate Rent payable by Lessee.
(e) Determinations. The determination of Actual Operating Costs and
Estimated Operating Costs Allocable to the Premises shall be made by Lessor.
Lessor or its agent shall keep records in reasonable detail showing all
expenditures made for the items enumerated above, which records shall be
available for inspection by Lessee up to * days from receipt of the year end
reconciliation statement.
* one-hundred eighty (180)
(f) Beginning and End of Term. If this Lease shall commence or terminate
on a day other than the first or last day of a Lease Year, the amount of any
adjustment between estimated and Actual Costs Allocable to the Premises with
respect to the Lease Year in which such commencement or termination occurs shall
be prorated on the basis which the number of days of such Lease Year bears to
365; and any amount payable by Lessor to Lessee or Lessee to Lessor with respect
to such adjustment shall be payable within thirty (30) days after delivery by
Lessor
7
<PAGE>
to Lessee of the statement of Actual Costs Allocable to the Premises with
respect to such Lease Year.
(g) Further Adjustment. In the event the average occupancy level of the
Building for any Lease Year was or is not ninety percent (90%) of full
occupancy, then the Estimated Costs and Actual Costs for such year shall be
proportionately adjusted by Lessor to reflect those costs which would have
occurred had the Building been ninety percent (90%) occupied during such year.
Additionally, the Net Rentable Area of Building shall be similarly adjusted.
(h) Base Rent. Notwithstanding anything to the contrary in this Section 9,
the Rent payable by Lessee shall in no event be less than the Rent specified in
Section 1(g) of this Lease.
(i) Personal Property Taxes. Lessee shall pay, prior to delinquency, all
personal property taxes payable with respect to all property of Lessee located
on the Premises or the Building and promptly, upon request of Lessor, shall
provide written proof of such payment.
10. COMPLIANCE WITH LAW. Lessee shall not use the Premises or permit
-------------------
anything to be done in or about the Premises which will in any way conflict with
any law, statute, ordinance or governmental rule or regulation now in force or
which may hereafter be enacted or promulgated. Lessee shall at its sole cost
and expense promptly comply with all laws, statutes, ordinances and governmental
rules, regulations or requirements now in force or which may hereafter be in
force and with the requirements of any board of fire underwriters or other
similar body now or hereinafter constituted relating to or affecting the
condition, use or occupancy of the Premises, excluding structural changes not
related to or affected by Lessee's improvements or acts. The judgement of any
court of competent jurisdiction or the admission of Lessee in an action against
Lessee, whether Lessor be a party thereto or not, that Lessee has violated any
law, statute, ordinance or governmental rule, regulation or requirement, shall
be conclusive of that fact as between Lessor and Lessee.
11. ALTERATIONS. Lessee shall not make or suffer to be made any
-----------
alterations, additions or improvements * to or of the Premises or any part
thereof without the written consent of Lessor, and any alterations, additions or
improvements to or of said Premises, except movable furniture and trade
fixtures, shall at once become a part of the realty and belong to the Lessor.
Any such alterations, additions or improvements shall be made by Lessee at
Lessee's sole cost and expense and any contractor or person selected by Lessee
to make the same must first be approved of in writing by Lessor.
* the cost of which is greater than $5000.
8
<PAGE>
12. REPAIR ** by entry hereunder Lessee accepts the Premises as being in
------
good, sanitary order, condition and repair. Lessee shall at Lessee's sole cost
and expense keep the Premises and every part thereof in good condition and
repair, damage thereto by fire, earthquake, act of God or the elements excepted.
*** Lessee shall upon the Expiration Date or sooner termination of the Lease
Term hereof, surrender the Premises to Lessor in the same condition as when
received, ordinary wear and tear and damage by fire, earthquake, act of God or
the elements excepted. It is specifically understood and agreed that Lessor has
no obligation and has made no promises to alter, remodel, improve, repair,
decorate or paint the Premises or any part thereof and that no representations
respecting the condition of the Premises or the Building of which the Premises
are a part have been made by Lessor to Lessee except as specifically herein set
forth.
** Subject to Section 4, Acceptance of Premises,
*** Except for special improvements, unique to Lessee's business and/or
operations, made by Lessee or on Lessee's behalf in the Premises,
13. ABANDONMENT. Lessee shall not vacate or abandon the *** Premises at
-----------
any time during the Lease Term, and if Lessee shall abandon, vacate or surrender
said Premises, or be dispossessed by process of law, or otherwise, any personal
property belonging to Lessee and left on the Premises shall be deemed to be
abandoned. Any expense incurred by Lessor in moving, storing or disposing of
such property shall be paid by Lessee upon demand of Lessor.
*** majority of the
14. LIENS. Lessee shall keep the Premises and the Building and
-----
surrounding property in which the Premises are situated, free from any liens
arising out of any work performed, materials furnished or obligations incurred
by Lessee.
15. * ASSIGNMENT AND SUBLETTING. ** Lessee shall not assign, transfer,
-------------------------
mortgage, pledge, hypothecate or encumber this Lease, or any interest therein,
and shall not sublet the said Premises, or any part thereof, or any right or
privileged appurtenant thereto, or suffer any other person (the agents and
servants of Lessee excepted) to occupy or use the said Premises, or any portion
thereof, without the written consent of Lessor, *** A consent to one
assignment, subletting, occupation or use by any other person shall not be
deemed to be a consent to any subsequent assignment, subletting, occupation or
use by another person. Any such assignment or subletting without such consent
shall be void, and shall, at the option of Lessor, terminate this Lease or will
be considered a default of this Lease. This Lease shall not, nor shall any
interest therein, be assignable as to the interest of Lessee by operation of
law, without the written consent of Lessor. Any assignment of this Lease by
Lessee shall not relieve Lessee of its obligations hereunder, including its
obligation for payment of Rent and Additional Rent.
* For additional language of this Section see Attachment I; Special
Provisions No. 9
** Except as provided in Attachment I; Special Provisions No. 9
*** which consent shall not be unreasonably withheld.
9
<PAGE>
Without limiting the generality of the foregoing, Lessor may condition its
consent to any transfer upon satisfaction of all or any of the following
conditions:
(a) the net assets of the assignee, licensee, sublessee or other
transferee or permittee (collectively "transferee") immediately prior
to the transfer shall not be less than the greater of the net assets
of Lessee immediately prior to the transfer or the net assets of
Lessee at the time of the signing of this Lease;
(b) such transfer shall not adversely affect the quality and type of
business operation which Lessee has conducted theretofore;
(c) such transferee shall assume in writing, on a form acceptable to
Lessor, all of Lessee's obligations hereunder and Lessee shall provide
Lessor with a copy of such assumption/transfer document;
(d) Lessee shall pay to Lessor **** to reimburse Lessor for costs and
expenses incurred with respect to the transfer, including, without
limitation, review of financial materials, meetings with
representatives of transferor and/or transferee and preparation,
review, approval and execution of the required transfer documentation;
(e) Lessee to which the Premises were initially leased shall continue to
remain liable under this Lease for the performance of all terms,
including, but not limited to, payment of Rent and Additional Rent due
under this Lease;
(f) each of Lessor's Mortgagees shall have consented in writing to such
transfer; and
(g) such other conditions as Lessor may, in its sole and absolute
discretion, deem appropriate.
**** , prior to the effective date of transfer, all actual and reasonable
out-of-pocket expenses up to $1000 without prior approval of Lessee
16. WAIVER OF SUBROGATION. Lessor and Lessee do each herewith and hereby
---------------------
release and relieve the other from responsibility for, and waive their
entire claim of recovery for (i) any loss or damage to the real or personal
property of either located anywhere in the Premises or the Building and
including the Building itself, arising out of or incident to the occurrence
of any of the perils which may be covered by the fire and lightning
insurance policy, with extended coverage endorsement, in common use in the
Bellevue locality, or (ii) loss resulting from business interruption at the
Premises or loss of rental income from the Building, arising out of or
incident to the occurrence of any of the perils which may be covered by the
business interruption insurance policy and by the loss of rental income
insurance policy in common use in the Bellevue locality whether the loss or
damage is due to the negligence of either said parties, their agents or
employees, or any other cause. Each party shall obtain any special
endorsements, if
10
<PAGE>
required by their insurer, to evidence compliance with the aforementioned
waiver to the extent such waivers are reasonably available.
17. ACCIDENT - INDEMNITY. Lessee shall defend and indemnify Lessor and
--------------------
save it harmless from and against any and all liability, damages, costs, or
expenses, including attorneys' fees, arising from any act, omission, or
negligence of Lessee, or the officers, contractors, licensees, agents,
servants, employees, guests, or invitees of Lessee in or about the Premises
or the Building or appurtenances and by whomsoever caused, to any person or
property, occurred in or about the Premises or the Building or
appurtenances thereto provided that the foregoing provisions shall not be
construed to make Lessee responsible for loss, damage liability or expense
resulting from injuries to third parties caused by * negligence of
Lessor, or of any officer, contractor, licensee, agent, servant, employee,
guest ** or invitee of Lessor. Lessee, at its expense, shall obtain and
maintain in effect, as long as this Lease remains in effect and during such
other time as Lessee occupies the Premises or any part thereof, insurance
policies providing at least the following coverage:
* any act, omission or
** , other tenant
(a) Public liability insurance, including insurance against assumed or
contractual liability under this Lease, with respect to the Premises, to afford
protection with limits, per person and for each occurrence, of not less than One
Million Dollars ($1,000,000) combined single limit, with respect to personal
injury and death and property damage, such insurance to provide for no
deductible.
(b) All-risk property and casualty insurance, including theft, written
at replacement cost value and with replacement cost endorsement, covering all of
Lessee's personal property in the Premises; and
(c) If, and to the extent, required by law, worker's compensation or
similar insurance offering statutory coverage and containing statutory limits.
Such policies will be maintained with companies and in form reasonably
acceptable to Lessor and will be written as primary policy coverage and not
contributing with, or in excess of, any coverage which Lessor may carry. Lessee
will deposit the policy or policies of such required insurance or certificates
thereof with Lessor prior to the Commencement Date, which policies shall name
Lessor or its designee as additional named insured and shall also contain a
provision stating that such policy or policies shall not be cancelled or
materially altered except after thirty (30) days written notice to Lessor. All
such policies of insurance shall be effective as of the date Lessee occupies the
Premises and shall be maintained in force at all times during the Lease Term and
all other times during which Lessee shall occupy the Premises. In addition to
the foregoing insurance coverage, Lessee shall require any contractor retained
by it to perform work on the Premises to carry and maintain, at no expense to
Lessor, during such times as contractor is working in the Premises, a non-
deductible (i) comprehensive general liability insurance policy, including, but
not limited to, contractor's liability coverage, contractual liability coverage,
11
<PAGE>
completed operations coverage, broad form property damage endorsement and
contractor's protective liability coverage, to afford protection with limits per
person and for each occurrence, of not less than One Million Dollars
($1,000,000), combined single limit, with respect to personal injury and death
and property damage, such insurance to provide for no deductible, and (ii)
worker's compensation insurance or similar insurance in form and amounts as
required by law.
Lessor shall not be liable for any loss or damage to person or property
sustained by Lessee, or other persons, which may be caused by the Building or
the Premises, or any appurtenances thereto, being out of repair, or by the
busting or leakage of any water, gas, sewer or steam pipe, or rupture or
shorting of any electric line or by theft, or by any act or neglect of any
tenant or occupant of the Building, or of any other person, or by any other
cause of whatsoever nature, * Lessee shall obtain insurance from a company with
a financial rating acceptable to Lessor to protect against the above stated
potential liabilities, with Lessor to be named as an additional insured.
* unless said loss or damage is caused by the act, omission or negligence
of Lessor.
18. PERSONAL PROPERTY TAX. Lessee agrees to pay or cause to be paid,
---------------------
before delinquency, any and all taxes levied or assessed upon all equipment,
furniture, fixtures and other personal property located in the Premises.
19. RULES AND REGULATIONS. Lessee shall faithfully observe and comply
---------------------
with the rules and regulations printed on or annexed to this Lease and all
reasonable modifications of and additions thereto from time to time put into
effect by Lessor notice of which shall be given to Lessee. Lessor shall not be
responsible to Lessee for the nonperformance by any other tenant or occupant of
the Building of any of said rules and regulations. **
** However Lessor shall use its best efforts to enforce the rules and
regulations for all tenants.
20. HOLDING OVER. Lessee agrees to vacate the Premises at the end of the
------------
Lease Term. If, with Lessor's consent, Lessee holds possession of the Premises
after the Lease Term, Lessee shall become a tenant from month to month upon the
terms herein specified but at a monthly rental equivalent to *** of the
then prevailing Rent paid by Lessee at the Expiration Date of the Lease Term
pursuant to all of the provisions of Sections 3 and 9 hereof, payable in advance
on or before or upon the first day of each month, and Lessee shall continue in
possession until such tenancy shall be terminated by Lessor, or until Lessee
shall have given to Lessor a written notice of his intention to terminate at
least one month prior to the date of termination of such monthly tenancy.
*** one-hundred fifty percent (150%)
21. ENTRY BY LESSOR. Lessor reserves and shall at any and all reasonable
---------------
times **** have the right to enter the Premises to inspect same, to supply
janitor service and any other service to be provided by Lessor to Lessee
hereunder, to submit said Premises to prospective purchasers or tenants, to post
notices of non-responsibility, and to alter, improve, or repair the
12
<PAGE>
Premises and any portion of the Building of which the Premises are a part,
without abatement of Rent and Additional Rent, and may for that purpose erect
scaffolding and other necessary structures where reasonably required by the
character of the work to be performed, always providing the entrance to the
Premises shall not be blocked thereby, and further providing that the business
of Lessee shall not be interfered with unreasonably. Lessee hereby waives any
claim for damages for any injury or inconvenience to or interference with
Lessee's business, any loss of occupancy or quiet enjoyment of the Premises, and
any other loss occasioned **** For each of the aforesaid purposes,
Lessor shall at all times have and retain a key with which to unlock all of the
doors in, upon and about the Premises, excluding Lessee's vaults and safes, and
Lessor shall have the right to use any and all means which Lessor may deem
proper to open said doors in an emergency, in order to obtain entry to the
Premises, and any entry to the Premises obtained by Lessor by any of said means,
or otherwise, shall not under any circumstances be construed or deemed to be a
forcible or unlawful entry into, or a detainer of, the Premises, or an eviction
of Lessee from the Premises or any portion thereof.
**** after providing reasonable notice to Lessee except in cases of
emergency or to provide janitorial service.
**** by Lessor's reasonable exercise of the rights granted in this Section
21.
13
<PAGE>
23. INSOLVENCY OR BANKRUPTCY. Either (a) the appointment of a receiver to
------------------------
take possession of all or substantially all of the assets of Lessee; or (b) an
assignment by Lessee for the benefit of creditors; or (c) any action taken or
suffered by Lessee under any insolvency, bankruptcy or reorganization act, shall
constitute a breach of this Lease by Lessee. Upon the happening of any such
event, this Lease shall terminate five (5) days after written notice of
termination from Lessor to Lessee. In no event shall this Lease be assigned or
assignable by operation of law or by voluntary or involuntary bankruptcy
proceedings or otherwise and in no event shall this Lease or any rights or
privileges hereunder be an asset of Lessee under any bankruptcy, insolvence or
reorganization proceedings.
If, despite the foregoing provisions of this Section 23, Lessee shall
voluntarily or involuntarily come under the jurisdiction of the Federal
Bankruptcy Code and thereafter Lessee or its trustee in bankruptcy, under the
authority of and pursuant to applicable provisions thereof, shall determine to
assign this Lease (and be so entitled to assign this Lease), Lessee agrees that
(i) Lessee or its trustee will provide to Lessor sufficient information enabling
it to independently determine whether Lessor will incur actual and substantial
detriment by reason of such assignment and (ii) "adequate assurance of future
performance" under this Lease, as that term is generally defined under the
Federal Bankruptcy Code, will be provided to Lessor by Lessee and its assignee
as a condition of said assignment.
24. DEFAULT. The occurrence of any one or more of the following events
-------
shall constitute a default and breach of this Lease by Lessee: (a) The vacating
or abandonment of the Premises by Lessee. (b) The failure by Lessee to make any
payment of Rent, Additional Rent, or any other payment required to be made by
Lessee hereunder, as and when due, where such failure shall continue for a
period of * days after written notice thereof by Lessor to Lessee. (c) The
failure by Lessee to observe or perform any of the covenants, conditions or
provisions of this Lease to be observed or performed by the Lessee, other than
described in (b) above, where such failure shall continue for a period of thirty
(30) days after written notice thereof by Lessor to Lessee; provided, however,
that if the nature of Lessee's default is such that more than thirty (30) days
are reasonably required for its cure, then Lessee shall not be deemed to be in
default if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
* ten (10)
25. REMEDIES IN DEFAULT. In the event of any such material default or
-------------------
breach by Lessee, Lessor may at any time thereafter, with or without notice or
demand and without
14
<PAGE>
limiting Lessor in the exercise of a right or remedy which Lessor may have by
reason of such default or breach:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall immediately surrender possession of
the Premises to Lessor and Lessor may reenter and occupy the Premises. Reentry
and taking of possession pursuant to this paragraph shall not be construed as an
election to terminate the Lease unless a written notice of intention to so
terminate is provided to Lessee by Lessor. Upon such reentry, Lessor shall have
the right to relet all or any part of the Premises for any such term or terms
and conditions as Lessor in its sole discretion may deem advisable with the
right to complete construction of or make alterations and repairs to the
Premises. Lessee shall pay to Lessor in the event of such reletting, as soon as
ascertained, the costs and expenses incurred by Lessor in such reletting,
completion of construction or in making such alterations and repairs. Rentals
received by Lessor from such reletting shall be applied: first to the payment
of any indebtedness, other than Rent, due hereunder from Lessee to Lessor,
including costs of renovation and alteration of the Premises, reasonable
attorney fees and real estate commissions paid; second, to the payment of Rent
due and payable hereunder to any other payments required to be made by Lessee
hereunder; and the residue, if any, shall be held by Lessor in payment of future
Rent or damages as the same may become due and payable hereunder; and the
balance, if overdue amount), plus any attorneys' fees incurred by Lessor by any,
at the end of the Lease Term shall be retained by Lessor as agreed upon
compensation for its efforts in mitigating damages for Lessee. Should such
rentals received from time to time from such reletting during any month be a
lesser rental than herein agreed to by Lessee, Lessee shall pay such deficiency
to Lessor. Lessee shall pay such deficiency each month as the amount thereof is
ascertained by Lessor.
(c) Lessor shall also have the right upon Lessee's default to
terminate this Lease by giving Lessee written notice thereof, to accelerate all
Rent and Additional Rent payments due hereunder for the remaining Lease Term
hereof, or if any extension option has been exercised, to recover from Lessee
all damages incurred by Lessor by reason of Lessee's default including, but not
limited to, the cost of recovering possession of the Premises; expenses of
reletting, including renovation and alteration of the Premises, reasonable
attorney fees, any real estate commissions paid, along with all past due Rent,
Additional Rent and the worth at the time of the award by the court having
jurisdiction thereof of the amount by which the unpaid Rent and Additional Rent
for the balance of the Lease Term or, if an extension option has been exercised,
for the remainder of such option term, exceeds the amount of such Rent and
Additional Rent for the same period that Lessee proves could be reasonably
avoided; and that portion of the leasing commission paid by Lessor and
applicable to the unexpired term of this Lease. Unpaid installments of Rent,
Additional Rent or other sums shall bear interest from the date due at the rate
of *. In the event Lessee shall have abandoned the Premises, Lessor shall have
the option of (a) taking possession of the Premises and recovering
15
<PAGE>
from Lessee the amounts specified in subparagraph (a) or (c) of this paragraph,
or (b) proceeding under the provisions of the following subparagraph (d).
* equal to Seafirst Bank, or a similar size financial institution,
prime rate plus 2%.
(d) Maintain Lessee's right to possession, in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the Rent
and Additional Rent as it becomes due hereunder.
(e) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decision of the State of Washington in which the Premises
are located.
26. LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
------------
to Lessor of Rent, Additional Rent or other sums due hereunder will cause Lessor
to incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by terms of any mortgage or trust deed covering the Premises.
Accordingly, if any installment of Rent, Additional Rent or any sum due from
Lessee shall not be received by Lessor or Lessor's designee within ** days after
the due date then Lessee shall pay to Lessor a late charge equal to *** The
parties hereby agree that such late charges represent a fair and reasonable
estimate of the cost that Lessor will incur by reason of the late payment by
Lessee. Acceptance of such late charges by the Lessor shall in no event
constitute a waiver of Lessee's default with respect to such overdue amount, nor
prevent Lessor from exercising any of the other rights and remedies granted
hereunder.
* ten (10)
*** the lesser of five percent (5%) or the maximum amount permitted by law
27. RECONSTRUCTION. In the event the Premises or the Building of which
--------------
the Premises are a part are destroyed or damaged by any casualty, Lessor shall
have the option to repair or replace the damaged or destroyed part or to
terminate this Lease by giving written notice of its election to terminate
within * days of such event. If Lessor does not terminate this Lease, Lessor
shall have a period of at least 180 days to complete the repair or replacement
of the damaged or destroyed part from the date of the casualty. If Lessor
does not terminate, this Lease shall remain in full force and effect, except
that Lessee shall be entitled to a proportionate reduction of Rent while such
repairs are being made, such proportionate reduction to be based upon the extent
to which the making of such repairs shall interfere with the business carried on
by Lessee in the Premises.
* thirty (30)
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<PAGE>
Lessor shall not be required to repair any injury or damage by fire or
other cause, or to make any repairs or replacements of any panels, decoration,
office fixtures, railing, ceiling, floor covering, partitions, or any other
property installed in the Premises by Lessee. Any proceeds which may become
payable to Lessor under any policies for fire or other casualty insurance
applicable to the Building in which the Premises are located are to be applied
by Lessor either to repair any damage with respect to which such insurance
proceeds become payable or to reduce any outstanding indebtedness of Lessor
which is secured by a mortgage or deed of trust applicable to the real property
in which the Premises are located.
28. EMINENT DOMAIN. If all or any part of the Premises shall be taken or
--------------
appropriated by any public or quasi-public authority under the power of eminent
domain, Lessor shall have the right, at its option, to terminate this Lease, and
Lessor shall be entitled to any and all income, Rent, Additional Rent, award, or
any interest therein whatsoever which may be paid or made in connection with
such public use or purpose, and Lessee shall have no claim against Lessor for
the value of any unexpired Lease Term **. If a part of the Premises shall be so
taken or appropriated and Lessor shall not elect to terminate this Lease, the
Rent thereafter to be paid shall be equitably reduced. If any part of the
Building other than the Premises shall be so taken or appropriated, Lessor shall
have the right, at its option, to terminate this Lease and shall be entitled to
the entire award, as above provided.
** , Lessor agrees that they will not interfere with Lessee's right to
claim and recover from the condemning authority compensation for any
loss of its leasehold interest, the unamortized value of its tenant
improvements, and for loss to which Lessee may incur for Lessee's
moving expenses, business interruption, or taking of Lessee's personal
property.
29. SUBORDINATION. This Lease is subject and subordinate to the lien,
-------------
operation and effect of any sale/leaseback or lease/subleaseback transaction,
mortgage, or deed of trust to any bank, insurance company or other lending
institution, now in force, and to any first mortgage or first deed of trust
hereafter in force, and to any first mortgage or first deed of trust hereafter
in force, against the land/or Building of which the Premises are a part, and
upon any buildings hereafter placed upon the land of which the Premises are a
part, and to all advances made or hereafter to be made upon the security
thereof. This Lease shall also be subject and subordinate to any ground lease
now or hereinafter in force and applicable to the real property on or in which
the Premises are located. ***
*** If requested by Lessor, Lessee shall promptly execute any certificate
or other document in reasonable form confirming such subordination.
Notwithstanding the foregoing however, no such subordination shall be
effective nor shall Lessee be required to execute any such certificate
or other document unless the holder of the interest being subordinated
to agrees in writing to recognize the Lease and not to disturb
Lessee's quiet enjoyment of the Premises so long as Lessee is not in
default hereunder.
17
<PAGE>
If any person or party shall succeed to all or part of Lessor's interest in
the Premises, whether by purchase, foreclosure, deed in lieu of foreclosure,
power of sale, cancellation or termination of lease (including, without
limitation, ground lease) or otherwise, whether voluntary, involuntary or by
operation of law, and if so requested or required by such successor in interest,
Lessee shall attorn fully and completely to such successor in interest and shall
recognize such successor in interest as Lessor under this Lease for the balance
of the Lease Term upon the same terms and conditions provided herein, and Lessee
shall execute such agreement in confirmation of such attornment as such
successor in interest shall reasonably request.
Notwithstanding anything contained herein to the contrary, the holder of
any mortgage or deed of trust may at any time subordinate the lien of its
mortgage or deed of trust to the operation and effect of this Lease without
obtaining the Lessee's consent thereto, by giving the Lessee written notice
thereof, in which event this Lease shall be deemed to be senior to such mortgage
or deed of trust without regard to the respective dates of execution and/or
recordation of such mortgage or deed of trust and this Lease and thereafter such
holder of such mortgage or deed of trust shall have the same rights as to this
Lease as it would have had were this Lease executed and delivered before the
execution of such mortgage or deed of trust.
The provisions of this Article to the contrary notwithstanding, and so long
as Lessee is not in default hereunder, this Lease shall remain in full force and
effect for the full Lease Term hereof.
30. SALE BY LESSOR. In the event of a sale or conveyance by Lessor of the
--------------
Building containing the Premises, the same shall operate to release Lessor from
any future liability upon any of the covenants or conditions, expressed or
implied, herein contained in favor of Lessee, * and in such event Lessee agrees
to look solely to the responsibility of the successor in the interest of Lessor
in and to this Lease. This Lease shall not be affected by any such sale, and
Lessee agrees to attorn to the purchaser or assignee.
* provided Lessor's successor agrees in writing to recognize the Lease and
not to disturb Lessee's quiet enjoyment of the Premises so long as Lessee
is not in default hereunder,
31. ATTORNEY'S FEES. In the event of any action or proceeding brought by
---------------
either party against the other under this Lease, the prevailing party shall be
entitled to recover its costs of suit and the fees of its attorneys in such
action or proceeding in such amount as the Court may adjudge reasonable.
32. SURRENDER OF PREMISES. The voluntary or other surrender of this Lease
---------------------
by Lessee, or a mutual cancellation thereof, shall not work a merger, and shall,
at the option of the Lessor, terminate all or any existing subleases or
subtenancies, or may, at the option of the Lessor operate as an assignment to it
of any or all such subleases or subtenancies.
33. WAIVER. The waiver by Lessor of any term, covenant or condition
------
herein contained shall not be deemed to be a waiver of such term, covenant or
condition or any subsequent breach of the same of any other term, covenant or
condition herein contained. The subsequent acceptance of Rent hereunder by
Lessor shall not be deemed to be a waiver of any
18
<PAGE>
preceding breach by Lessee of any term, covenant or condition of this Lease,
other than the failure of Lessee to pay the particular Rent so accepted,
regardless of Lessor's knowledge of such preceding breach at the time of
acceptance of such Rent.
34.* NOTICE. All notices and demands which may or are required to be
------
given by either party to the other hereunder shall be in writing**. All notices
and demands by the Lessor to the Lessee shall be sent by United States certified
or registered mail, postage prepaid, addressed to the Lessee at the Premises, or
to such place as the Lessee may from time to time designate in a notice to the
Lessor. All notices and demands by the Lessee to the Lessor shall be sent by
United States certified or registered mail, postage prepaid, addressed to the
Lessor at the address specified in Section 1 (i), c/o Koehler McFadyen &
Company, 110-110th Avenue N.E., Suite 300, Bellevue, WA 98004 and Dean Witter
Realty Income Partnership II, L.P. c/o Dean Witter Realty, 74th Floor, Two World
Trade Center, New York, NY 10048, or to such other person or place as the
Lessor may from time to time designate in a notice to the Lessee. In the event
of a default for which Lessee is claiming against Lessor, Lessee shall not
exercise any of rights until it shall have given notice by certified or
registered mail to the holder of any first lien on the Building and shall have
offered such lienholder a reasonable opportunity to cure such default, including
time to get possession of the Premises by an expeditious or trustee's sale if
this should be necessary to effect a cure.
* For additional language of this Section see Attachment I; Special
Provisions No. 12
** and shall be deemed received on the later of (1) the date of actual receipt
or (2) the third business day following deposit to the U.S. Mail.
35. DEFINED TERMS. The words "Lessor" and "Lessee" as used herein shall
-------------
include the plural as well as the singular. Words used in masculine gender
include the feminine and neuter. If there be more than one Lessee, the
obligations hereunder imposed upon Lessee shall be joint and several.
36. TIME. Time is of the essence of this Lease and each and all of its
----
provisions.
37. SUCCESSOR AND ASSIGNS. The covenants and conditions herein contained
---------------------
shall, subject to the provisions as to assignment, apply to and bind the heirs,
successors, executors, administrators and assigns of the parties hereto.
38. NET RENTABLE AREA. The "Net Rentable Area" shall refer to (i) in the
-----------------
case of each floor all of which is included in the Premises, all area within the
inside finish of the permanent exterior Building walls (measured from the Plane
of the interior surface of glass extended in a straight line or the inside face
of foundation walls) of the Building less all the area constituting Service
Areas of such floor (measured to the midpoint of the walls separating such area
from the Premises); and (ii) in the case of the Premises other than floor
referred to in clause (i) all area or areas on the particular floor measured
from the inside finish of the permanent exterior Building walls of the Building
to the midpoint of the walls separating such Premises from the areas leased by
or held for lease plus a pro rata share of the Common Areas. No deductions
shall be made in determining Net Rentable Area on account of columns or
projections necessary to the Building. "Service Areas" shall refer to areas on
the particular floor occupied by
19
<PAGE>
building stairs, fire towers, elevator shafts, flues, vents, stacks, pipe shafts
and vertical ducts. "Common Areas" shall refer to areas on the particular floor
occupied by corridors accessible to others than Tenants, the common toilets,
vestibules, janitors closets, telephone closets, electrical closets and
mechanical rooms. The Net Rentable Areas of the Premises and the Building will
be determined by final measurements based upon the above. The Net Rentable Area
of the Building may be adjusted from time to time to reflect any modifications
to the building.
39. SEPARABILTY. Any provision of this Lease which shall prove to be
-----------
invalid, void or illegal shall in no way affect, impair or invalidate any other
provision hereof and such other provision shall remain in full force and effect.
40. LENDER PROVISION. Lessee agrees to make reasonable modifications of
----------------
the Lease provisions as maybe requested by lenders with a security interest in
the property, provided such modifications do not materially alter the business
terms of the Lease.
41. ESTOPPEL CERTIFICATE. Lessee agrees to execute from time to time as
--------------------
may be requested by lenders or potential purchases an estoppel certificate,
stating that the Lease is unmodified and in full force and effect, if that is
the case, the dates to which Rent payments are paid in advance and the status of
uncured Lessor defaults, if any.
42. BROKERS. Lessee warrants that it has had no dealings with any real
-------
estate broker or agents in connection with the negotiation of this Lease
excepting only Leibsohn, Boguch & Company and it knows of no other real estate
--------------------------
broker or agent who is entitled to a commission in connection with this Lease.
Lessor shall be held harmless from any claims which arise from dealings by
Lessee with any other brokers in regards to this Lease.
41. SPECIAL PROVISIONS. Special provisions of this Lease numbered 1
------------------
through 13 are attached hereto and made a part hereof.
If none, so state in the following space ____________________________.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Lease as of the
day and year first above written.
LESSOR:
DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P.
A Delaware Limited Partnership
By: DEAN WITTER REALTY INCOME PROPERTIES II, INC.
A Delaware Corporation its General Partner
By: /s/ JOHN J. PREOTLE, JR.
--------------------------
John J. Preotle, Jr.
Its: President
20
<PAGE>
LESSEE:
ASYMETRIX CORPORATION
A Washington Corporation
By: /s/ HUBERT KOLDE
-------------------
Hubert Kolde
Its: Executive Vice President
21
<PAGE>
ACKNOWLEDGMENT OF LESSOR
------------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 15th day of July, 1991, before the undersigned, a Notary Public in
and for the State of New York, personally appeared John J. Preotle, Jr., to me
known to be the President of DEAN WITTER REALTY INCOME PARTNERSHIP II, L.P., and
acknowledged said Lease to be the free and voluntary act and deed of said
corporation and an oath stated that he was authorized and did execute the said
Lease for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ LINDA M. VOGEL
------------------------------------
NOTARY PUBLIC in and for the State
of New York, residing at New York County
22
<PAGE>
ACKNOWLEDGMENT OF LESSEE
------------------------
(Corporate)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this 28th day of June, 1991, before me personally appeared Hubert Kolde
and ________________ to me known to be the EXECUTIVE VICE PRESIDENT and
________________ respectively, of the corporation that executed the within and
foregoing respectively, of the corporation that executed the within and
foregoing Lease, and acknowledged the said instrument to be the free and
voluntary act and deed of said corporation, for the uses and purposes therein
mentioned, and on oath stated that they were authorized to execute said
instrument and that the seal affixed is the corporate seal of said corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my official
seal the day and year first above written.
/s/ NOTARY PUBLIC
---------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at Kirkland
(Individual)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this day personally appeared before me ________________, to me known to
be the individual described in and who executed the foregoing Lease, and
acknowledged that he signed the same as his free and voluntary act and deed, for
the uses and purposes therein mentioned.
GIVEN under my hand and official seal this _____________ day of
_______________, 19___.
---------------------------------------
NOTARY PUBLIC in and for the State
of Washington, residing at
------------
23
<PAGE>
ATTACHMENT I
SPECIAL PROVISIONS
------------------
1. RENTAL RATE
-----------
The base annual rental rate and Base Monthly Rent during the Lease Term
shall be as follows:
NET RENTABLE BASE ANNUAL BASE MONTHLY
MONTHS AREA RENTAL RATE RENT
- ------ ------------ ----------- ------------
1 - 6 19,547 $15.50 $25,248.21
6,079 $ 7.75 $ 3,926.02 $29,174.23
----------
7 - 30 25,626 $15.50 $33,100.25
31 - 60 25,626 $19.50 $41,642.25
2. EARLY OCCUPANCY
---------------
Upon substantial completion of tenant improvements and prior to the
Commencement Date of November 1, 1991, Lessee shall have the right to
occupy the expansion area of 6,079 rentable square fee (until 10/31/91 rent
free) at the northeast corner of the seventh (7) floor at no rental charge.
3. PARKING
-------
Lessee shall have the right to seventy-seven (77) parking spaces in the
Building garage at the following rates:
MONTHS RATE
------ ----
1 - 12 $ 0.00
13 - 60 $42.50
Additional parking spaces shall be provided at the ratio of three (3)
parking spaces per 1,000 usable square feet of expansion space leased.
4. TENANT IMPROVEMENT ALLOWANCE
----------------------------
For the purposes of refurbishing and improving Lessee's currently occupied
space, Lessor shall provide Lessee a tenant improvement allowance of $5.00
per usable square foot on 17,769 usable square feet. This amount is equal
to $88,845 and shall be paid upon certification that substantial completion
of tenant improvements has occurred net of any actual out of pocket costs
paid by Lessor on behalf of Lessee.
24
<PAGE>
Should Lessee's tenant improvements on the currently occupied space cost
less than $88,845 then any such savings shall be paid to Lessee in cash
upon certification that substantial completion of tenant improvements has
occurred.
In addition Lessor shall provide a tenant improvement allowance of $20.00
per usable square foot on the expansion area consisting of 5,527 usable
square feet. This amount is equal to $110,540.
Lessor agrees that it shall competitively bid the tenant improvement work
to be performed, as outlined in Exhibit A, to the contractors of its choice
as well as to contractors of Lessee's choice subject to Lessor's approval
and a maximum of two such contractors each. If Lessee elects to use a
contractor of its choice Lessor agrees to pay such contractor directly
subject to compliance with City of Bellevue codes and the standard finishes
of the United Olympic Life Building as directed by Lessor.
Should Lessee's tenant improvement on the expansion space cost less than
$110,540 then any such savings shall be paid to Lessee in cash upon
certification that substantial completion of tenant improvement has
occurred.
All costs associated with the refurbishment of Lessee's currently occupied
space and the tenant improvements of Lessee's expansion space, including
but not limited to architectural fees, permit fees and tenant improvements
shall be paid for with the tenant improvement allowances described in this
section.
5. COMMON AREA REFURBISHMENT
-------------------------
Lessor at its sole expense, shall repair the common areas of the seventh
floor upon the execution of a mutually agreeable worklist between Lessor
and Lessee. The agreed upon worklist is attached hereto as Exhibit D.
6. EXPANSION RIGHTS
----------------
Lessee and/or its Affiliate(s) shall have the right to the following
expansion area subject to any pre-existing renewal rights of current
tenants by giving Lessor prior written notice on or before the notice dates
given below:
NOTICE
LEASE EXPIRATION DATE DATES SUITE NO. NRA
- --------------------- ------ --------- ---
March 31,1992 July 31, 1991 710 1,043
June 30, 1993 Sept. 30, 1992 705 5,598
In the event any of the above mentioned suites become available prior to
the lease expiration date then Lessee shall have a "Right of First Offer"
as described in Section 7 below.
25
<PAGE>
The lease terms on any expansion space shall be the then prevailing market
rate for comparable office space in the Bellevue Central Business District
not to exceed $19.50 per rentable square foot fully serviced, coterminus
with this Lease and a tenant improvement allowance of $4.00 per usable
square foot per year of the remaining Lease Term, pro-rated for any partial
year.
Should Lessee's tenant improvements on any such expansion space cost less
than $4.00 per usable square foot then any such savings shall be paid to
Lessee in cash upon certification that substantial completion of tenant
improvements has occurred.
7. RIGHT OF FIRST OFFER
--------------------
During the initial Lease Term of this Lease Lessee shall have the Right of
First Offer on any space which becomes available on the sixth (6) and
seventh (7) floors of the United Olympic Life Building.
Lessee may exercise its Right of First Offer in and during any calendar
year by giving Lessor written notice of its desire to lease additional
space. Upon receipt of such notification Lessor shall provide written
notice to Lessee of the anticipated vacancies in that calendar year. Upon
receipt of Lessor's notice Lessee may initiate an offer to lease such
space. However Lessor shall not be obligated to provide such space should
such space not be vacated as originally anticipated. The lease terms shall
be the then prevailing market rate for comparable office space in the
Bellevue Central Business District not to exceed $19.50 per rentable square
foot, coterminus with this Lease and a tenant improvement allowance of
$4.00 per usable square foot per year of the remaining Lease Term, pro-
rated for any partial year.
Should Lessee's tenant improvements on any such expansion space cost less
than $4.00 per usable foot then any such savings shall be paid to Lessee in
cash upon certification that substantial completion of tenant improvements
has occurred.
Lessor shall provide Lessee with a schedule of the expiration dates of the
leases on the sixth (6th) and seventh (7th) floors and shall use its best
effort to keep Lessee informed of any and all anticipated vacancies and
pending negotiations for space on the sixth (6) and seventh (7) floors and
Lessee shall make its best effort to keep Lessor informed of its specific
expansion needs.
Provided Lessor uses reasonable and good faith efforts to compels with
Lessee's requirements then the failure to comply with this provision shall
not constitute a default per the terms of this Lease.
8. RENEWAL OPTION
--------------
Lessee shall have the option to renew this Lease for a period of five (5)
years by providing Lessor with written notification of its intent to renew
no later than nine (9) months prior to the expiration of the initial Lease
Term. The rental rate shall be the then
26
<PAGE>
prevailing rental rate for comparable office space located in the Bellevue
Central Business District. In addition, Lessor shall pay to Lessee a tenant
improvement allowance of $8.00 per usable square foot upon the effective
date of the renewal Lease term.
Should Lessee's tenant improvements on the expansion space cost less than
$8.00 per usable square foot then any such savings shall be paid to Lessee
in cash upon certification that substantial completion of tenant
improvements has occurred.
9. SUBLEASE RIGHTS
---------------
Lessee shall have full and unequivocal rights to sublease any or all of its
space under this Lease to an Affiliate of Lessee without Lessor's prior
approval.
Subleasing rights to any third party are subject to Section 15 of this
Lease. Any profits resulting from such sublease shall be equally divided
between the Lessee and Lessor. For the purposes of this Lease, Affiliate
shall be deemed to be any party under the common control of Lessee or
Lessee's management.
10. SERVICES AND UTILITIES
----------------------
Provided however, that if the Premises should become not reasonably
suitable for Lessee's use as a consequence of the cessation of utilities or
other services required to be provided to the Premises by Lessor that
continues for five (5) successive business days or more (an "Event
Interfering with Lessee's Use"), then Lessee shall be entitled to an
abatement of rent to the extent of the interference with Lessee's use of
the Premises occasioned thereby provided Lessor uses good faith efforts to
restore services as quickly as possible. Provided further, that if the
Event Interfering with Lessee's Use cannot be corrected or the damage
resulting therefrom repaired so that the Premises will be reasonably
suitable for Lessee's intended use within 120 days following the occurrence
of such event, then in addition to its other rights, Lessee shall be
entitled to terminate this Lease by written notice to Lessor.
11. RENTAL ADJUSTMENTS, OPERATING COSTS
-----------------------------------
The following provisions of Section 9 shall apply:
(j) Notwithstanding anything to the contrary in the Lease, in no
event shall Lessee have any obligation to pay directly, or to reimburse
Lessor for all or any portion of the following costs.
(1) Losses Caused by Others. The costs occasioned by the act,
-----------------------
omission, or violation of law by Lessor, or any other occupant of the
Building.
(2) Capital Improvements/Leases. The costs (including lease
---------------------------
payments and acquisition costs) relating to repairs, alterations,
improvements, and
27
<PAGE>
equipment which must be capitalized under generally accepted accounting
principles unless such costs are reasonably anticipated to otherwise reduce
operating costs of the Building. In such a case the Lessor shall be able to
pass through to Lessee such costs over the useful life of the improvement.
Such passthrough amount to be limited to the reasonably estimated savings
achieved.
(3) Reimbursable Expenses. The costs for which Lessor has a
---------------------
right of reimbursement from others.
(4) Construction Defects. The costs to correct any construction
--------------------
defect in the Premises or the Building or to complete with any law or
regulation applicable to the Premises.
(5) Interior Improvement. The costs of any renovation,
--------------------
improvement, painting or redecorating of any portion of the Building not
made available for Lessee's use.
(6) Leasing Expenses. The fees, commissions, attorneys fees, and
----------------
other costs incurred in connection with negotiations or disputes with any
other occupant of the Building and costs arising from the violation by
Lessor or any occupant of the Building of the terms and condition of any
lease or other agreement.
(7) Debt. Interest, charges and fees incurred on debt (including
----
payments on mortgages and rent under ground leases).
(8) Promotion. Advertising or promotional costs.
---------
(9) Insurance. Increases in insurance costs related to the
---------
activities of any other occupant of the Building.
(10) Management. Wages, salaries, compensation, and labor burden
----------
for any employee not stationed at the Building on a full-time basis or any
fee, profit, or compensation retained by Lessor or its affiliates for
management and administration of the Building in excess of a standard
market management fee which would be charged by a professional management
service for the operation of comparable projects in the vicinity.
12. NOTICES
-------
Copies of all notices to Lessee shall also be sent to:
Allen D. Israel
Foster, Pepper & Shefelman
1111 Third Avenue, Suite 3400
Seattle Washington 98101
28
<PAGE>
13. CONSENT/APPROVAL
----------------
No consents or approvals required or permitted pursuant to the terms of the
Lease shall be unreasonably withheld or unreasonably delayed.
29
<PAGE>
ATTACHMENT II
RULES AND REGULATIONS ATTACHED TO
---------------------------------
AND MADE A PART OF THIS LEASE
-----------------------------
1. No advertisement, sign, lettering, notice or device shall be placed in or
upon Premises including windows, walls, and exterior doors except such as
may be approved in writing by Lessor.
2. Lettering upon the directory board and the doors as required by Lessee
shall be made by the sign company designated by Lessor.
3. No additional locks shall be placed upon any doors of Premises, and Lessee
agrees not to have any duplicate keys made without the consent of Lessor.
If more than two keys for any lock are desired, such additional keys shall
be paid for by Lessee. Upon termination of this Lease Lessee shall
surrender all keys.
4. No furniture, freight, supplies not carried by hand or equipment of any
kind shall be brought into or removed from Building without the consent of
Lessor. Lessor shall have the right to limit the weight and size and to
designate the position of all safes and other heavy property brought into
the Building. Such furniture, freight, equipment, safes and other heavy
property shall be moved in or out of Building only at the times and in the
manner permitted by Lessor. Lessor will not be responsible for loss of or
damage to any of the items above referred to, and all damage done to
Premises or Building by moving or maintaining any of such items shall be
repaired at the expense of Lessee. Any merchandise not capable of being
carried by hand shall utilize hand trucks equipped with rubber tires and
rubber side guards.
5. The entrances, corridors, stairways and elevators shall not be obstructed
by Lessee, or used for any other purpose than ingress or egress to and from
Premises. Lessee shall not bring into or keep any animal within Building,
or any bicycle or other type of vehicle.
6. Lessee will not use or permit to be used in said Premises anything that
will increase the rate of insurance on said Building or any part thereof,
nor anything that may be dangerous to life or limb; nor in any manner
deface or injure said Building or any part thereof; nor overload any floor
or part thereof; nor permit any objectionable noise or odor to escape or to
be emitted from said Premises, or do anything or permit anything to be done
upon said Premises in any way tending to create a nuisance or to disturb
any other tenant or occupant of any part of said Building; and Lessee, at
Lessee's expense, will comply with all health, fire and police regulations
respecting said Premises.
7. Lessee shall not mark, drive nails, screw or drill into woodwork or
plaster, or paint or in any way deface Building or any part thereof, or
Premises or any part thereof, or fixtures therein, without written consent
of Lessor. The expense of remedying any breakage, damage or stoppage
resulting from a violation of this rule shall be borne by Lessee.
30
<PAGE>
8. Canvassing, soliciting and peddling in Building are prohibited and each
Lessee shall cooperate to prevent such activity.
9. The requirements of tenant will be attended to only upon application at the
main office of the Lessor. Lessor's employees shall not perform any work
or do anything outside of their regular duties, except on issuance of
special instructions from Lessor. If Lessor's employees are made available
for the assistance of any tenants, Lessor shall be paid for their services
by such tenants at reasonable hourly rates.
10. Lessor reserves the right to close and keep locked all entrance and exit
doors of the Building on Saturdays, Sundays and legal holidays and between
the hours of 6:00 p.m. of any day and 7:00 a.m. of the following day and
during such further hours as Lessor may deem advisable for the adequate
protection of Building and the property of the tenants.
11. Lessor shall at its cost and expense, operate the air conditioning system
from 8:00 a.m. until 6:00 p.m. on business days, except on Saturdays, when
the hours shall be from 8:00 a.m. until 1:00 p.m.
12. Lessee shall exercise care and caution to insure that all water faucets or
water apparatus and electricity are carefully and entirely shut off before
Lessee or its employees leave Building, so as to prevent waste or damage.
Lessee shall be responsible for any damage to Premises or Building and for
all damage or injuries sustained by other tenants or occupants of Building
arising from Lessee's failure to observe this provision.
13. Lessee shall obey all traffic and parking regulations as posted throughout
the Parking Area by Lessor.
14. The toilet rooms, urinals, wash bowls and other apparatus shall not be used
for any purpose other than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation of
this rule shall be borne by the Lessee who, or whose employees or invitees
shall have caused it.
15. Lessee shall not employ any person or persons other than the janitor of
Lessor for the purpose of cleaning the Premises unless otherwise agreed to
by Lessor. Except with the written consent of Lessor, no person or persons
other than those approved by Lessor shall be permitted to enter the
Building for the purpose of cleaning the same. Lessee shall not cause any
unnecessary labor by reason of Lessee's carelessness or indifference in the
preservation of good order and cleanliness. Lessor shall in nowise be
responsible to any Lessee for any loss of property on the Premises, however
occurring, or for any damage done to the effects of any Lessee by the
janitor or any other employee or any other person, except for loss or
damage due to any willful or negligent act of Lessor, its agent, employees
or contractors. Janitor service shall include ordinary dusting and
cleaning by the janitor assigned to such work and shall not include
cleaning of carpets or rugs, except normal vacuuming, or moving of
furniture or other special services.
31
<PAGE>
16. Lessee shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to the Lessor or
other occupants of the Building by reason of noise, odors and/or
vibrations, or interfere in any way with other Lessees or those having
business therein, nor shall any animals or birds be brought in or kept in
or about the Premises or the Building.
17. Lessee shall not use or keep in the Premises or the Building any kerosene,
gasoline or inflammable or combustible fluid or material, or use any method
of heating or air conditioning in other than that supplied by Lessor.
18. Lessee agrees that it shall not, without Lessor's prior written consent,
keep on or around the leased Premises for use, disposal, treatment,
generation, storage or sale, any substances designated as, or containing
components designated as, hazardous, dangerous, toxic or harmful and/or
which are subject to regulation as hazardous substances by any federal,
state or local law. If Lessor does so consent, Lessee shall be fully
liable to Lessor for any and all clean-up costs and other charges imposed
by any government authority with respect to Lessee's use, disposal,
treatment, generation, storage and/or sale of hazardous substances, in or
about the leased Premises. Lessee shall indemnify and save Lessor harmless
from any costs incurred and/or assessed against Lessor as a result of
Lessee's use, disposal, treatment, generation, storage and/or sale of
hazardous substances.
19. Lessor will direct electricians as to where and how telephone and
electrical wires are to be introduced. No boring or cutting for wires will
be allowed without the consent of Lessor. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject
to the approval of Lessor.
20. Each Lessee, upon the termination of the tenancy, shall deliver to the
Lessor the keys of offices, and rooms which shall have been furnished the
Lessee or which the Lessee shall have had made, and in the event of loss of
any keys so furnished, shall pay the Lessor therefor.
21. No Lessee shall lay linoleum, tile, carpet or other similar floor covering
so that the same shall be affixed to the floor of the Premises in any
manner except as approved by the Lessor. The expense of repairing any
damage resulting from a violation of this rule or removal of any floor
covering shall be borne by the Lessee by whom, or by whose contractors,
employees or invitees, the damage shall have been caused.
22. No furniture, packages, supplies, equipment or merchandise will be received
in the Building or carried up or down in the elevators, except between such
hours and in such elevators as shall be designated by the Lessor.
23. On Saturdays, Sundays and legal holidays, and on other days between the
hours of 6:00 p.m. and 7:00 a.m. the following day, access to the Building,
or to the halls, corridors, elevators or stairways in the Building, or to
the Premises may be refused unless the
32
<PAGE>
person seeking access is known to the person or employee of the Building in
charge and he has a pass or is properly identified. The Lessor shall in no
case be liable for damages for any error with regard to the admission to or
exclusion from the Building of any person. In case of invasion, mob, riot,
public excitement, or other commotion, the Lessor reserves the right to
prevent access to the Building during the continuance of the same by
closing the doors or otherwise, for the safety of the Lessees and
protection of property in the Building and the Building.
24. The number and location of vending machine or machines of any description
maintained or operated upon the Premises must be approved by Lessor.
25. The word "Building" as used herein means that building of which the
Premises are a part.
26. Chair floor pads must be used under all chairs with rollers or casters.
27. Lessor reserves the right to make such other and further regulations as in
its judgement may from time to time be needed or desirable for the safety,
care and cleanliness of Premises or Building and the preservation of good
order therein.
33
<PAGE>
April 28, 1991
Mr. John D. Atherly
Controller
Asymetrix Corporation
110-110th Avenue, Suite 717
Bellevue, Washington 98004
Dear John:
Enclosed please find an original and fully executed First Amendment to
Lease for the seventh (7th) floor expansion area.
Please note a couple of items with regards to this document. First, I have
corrected a drafting error that was contained in the original amendment signed
by your organization. This error was located in the Special provisions section
under Item 1 Rental Rate. The original document incorrectly reflected the total
rent for the seventh month of the lease term. With this change the Rental Rate
description now coincides with the written description included in Item 1(d)
Commencement Dates. For your convenience I am enclosing copies of the original
and revised pages to highlight this correction. A second item you should note
is that I have attached Exhibit C to the document. This exhibit outlines the
floor plan given to us by Marvin Stein & Associates and should reflect your
intended design of the expansion premises. Please review this to verify that
such documentation is correct.
Should you have any questions or concerns on the enclosed then please
contact me at your convenience.
Sincerely,
/s/ Robert B. Austin
Robert B. Austin
cc: L.C. Rowe
L.M. Backer
R. Liebsohn
<PAGE>
Page 2
Lessee on said date then the Commencement Dates for Suites 705 and 710
only, shall be delayed one day for each day beyond March 31, 1992 said
space is delivered to Lessee as provided herein.
2. Special Provisions
------------------
The following sections of Attachment I to the Lease ("Special
Provisions) shall be modified as follows:
1. Rental Rate:
-----------
Shall be modified to read as follows:
<TABLE>
<CAPTION>
Net Rentable Base Annual Base
Months Area Rental Rate Monthly Rent
------ ------------ ----------- ------------
<S> <C> <C> <C> <C>
1-6 19,547 $15.50 25,248.21
6,079 7.75 3,926.02 $29,174.23
---------
7-30 25,626 15.50 33,100.25
6,641 17.50 9,684.79 42,785.04
---------
31-60 32,267 19.50 54,433.88
</TABLE>
4. Tenant Improvement Allowance:
-----------------------------
The following terms shall be added to the existing Lease language:
It is agreed between Lessor and Lessee that, for the purposes of
refurbishing and improving the expansion space, incorporated by this First
Amendment to Lease, that the tenant improvement allowances covering said
space shall be $143,977.00.
It is also agreed between Lessor and Lessee that should Lessee's actual
tenant improvement cost, for Suite 705 and 710, be less than $143,977.00
then any actual such savings shall be paid to Lessee, in cash, upon
certification that substantial completion of the tenant improvements has
occurred.
6. Expansion Rights
----------------
2
<PAGE>
Page 3
It is deleted in it's entirety as Lessor, with the execution of this First
Amendment to Lease, has satisfied it's obligations.
14. Third Floor Option:
------------------
This new section shall be added to the Lease:
Lessor and Lessee acknowledge that Lessee has taken occupancy of Suite 390
which encompasses 4,352 net rentable square feet at the Building. Such
occupancy
3
<PAGE>
FIRST AMENDMENT TO LEASE
This First Amendment to Lease is agreed to as of this the 15th day of
April, 1992 by and between Asymetrix Corporation, a Washington Corporation
("Lessee") and Dean Witter Realty Income Partnership II, L. P., a Delaware
limited partnership ("Lessor").
Background
----------
By Agreement of Office Lease, dated the 24th of May 1991 (the "Lease or
"Master Lease") Lessor leased to Lessee 25,626 square feet of office space
("Rentable Area") on the seventh (7th) floor of the office Building, which is
more specifically described in said Lease, located at 110 - 110th Avenues, N.E.,
Bellevue, Washington (the "Building" or the "Property").
Whereas, Lessee and Lessor are desirous of further modifying the terms and
conditions of said Lease:
Now, therefore, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Lessee and Lessor mutually covenant and agree that the above described Lease
shall be modified as follows:
1. Lease Data and Exhibits
-----------------------
The following sections shall be amended and restated in their entirety:
(b) Premises: Consists of 32,267 net rentable square feet on the seventh
-------
(7) floor, to be known as Suite 717, which shall be inclusive of
--- ---
Suite 705 and 710, of the Building, as outlined on the floor plan(s)
attached hereto as Exhibit C.
(c) Floor Areas: The agreed net rentable area of thePremises is 32,267
------
net rentable square feet and of the Building is 213,000 square feet.
(d) Commencement Dates:
<TABLE>
<CAPTION>
Rentable
Suite No. Area
--------- --------
<S> <C> <C>
November 1, 1991 717 25,626
May 1, 1992 705 5,598
May 1, 1992 710 1,043
</TABLE>
However, for Suites 705 and 710 the Commencement Date is subject
to delivery by Lessor of the space, free of existing tenancies by
March 31, 1992. Should Lessor be unable to deliver said space to
Lessee on said date then the Commencement Dates for Suites 705
and 710 only, shall
<PAGE>
be delayed one day for each day beyond March 31, 1992 said space
is delivered to Lessee as provided herein.
2. Special Provisions
------------------
The following sections of Attachment I to the Lease ("Special Provisions")
shall be modified as follows:
<TABLE>
<CAPTION>
<S> <C>
1. Rental Rate:
------------
Shall be modified to read as follows:
Base
Net Rentable Base Annual Monthly
Months Area Rental Rate Rent
- ------ ---- ----------- ----
<S> <C> <C> <C> <C>
1 - 6 19,547 $15.50 25,248.21
6,079 7.75 3,926.02 $29,174.23
---------
7 - 30 25,626 15.50 33,100.25
6,641 17.50 9,684.79 42,785.04
---------
31 - 60 32,267 19.50 52,433.88
</TABLE>
4. Tenant Improvement Allowance:
-----------------------------
The following terms shall be added to the existing Lease language:
It is agreed between Lessor and Lessee that, for the purposes of
refurbishing and improving the expansion space, incorporated by this First
Amendment to Lease, that the tenant improvement allowances covering said space
shall be $143,977.00.
It is also agreed between Lessor and Lessee that should Lessee's actual
tenant improvement cost, for Suite 705 and 710, be less than $143,977.00 then
any such savings shall be paid to Lessee, in cash, upon certification that
substantial completion of the tenant improvements has occurred.
6. Expansion Rights
----------------
Is deleted in it's entirety as Lessor, with the execution of this First
Amendment to Lease, has satisfied it's obligations.
14. Third Floor Option:
------------------
This new section shall be added to the Lease:
2
<PAGE>
Lessor and Lessee acknowledge that Lessee has taken occupancy of Suite 390
which encompasses 4,352 net rentable square feet at the Building. Such
occupancy has been achieved via a Sublease Agreement by Lessee and Candle
Corporation. Pursuant to the original lease and the sublease agreement, Lessee
shall have the right and privilege to occupy said space through July 22, 1995.
As part of this First Amendment to Lease the Lessor herein grants to Lessee
the option to extend it's occupancy in said space for a period effective the
termination date (July 22, 1995) covering Lessor's current occupancy of such
space through October 31, 1996. This right to extend is subject to the receipt
by Lessor from Lessee of written notice of the exercise of this option no later
than October 31, 1994. Such extended occupancy shall be upon the same terms and
conditions of this Lease agreement, which shall be documented by written
instrument between the parties, upon the exercising of this option by Lessee.
15. Temporary Space
---------------
This new section shall be added tot the Lease:
Lessor has agreed to allow Lessee to occupy 2,994 rentable square feet of
office space on the sixth (6th) floor ("Temporary Space") of the Building on a
temporary and short term basis. Tenant has agreed to accept the Temporary Space
on an "as is" basis. Tenant has further agreed to occupy said space in
accordance with all the terms and conditions of the existing Lease Agreement
except for the payment of Basic Monthly Rental and passthrough of Operating
Costs.
With regards to the Basic Monthly Rental and Operating Costs the Landlord
and Tenant agree that Tenant shall be subject to the following payment schedule
for the Temporary Space:
<TABLE>
<CAPTION>
Rate Per Basic
Dates Square Foot Monthly Rental
----- ----------- --------------
<S> <C> <C>
February 1, 1992 - Termination Date $15.50 $3,867.25
</TABLE>
Lessor and Lessee further agree that during the time period the Temporary
Space is occupied that Lessee shall not be subject to the imposition of charges
relating to Operating Costs.
Lessor and Lessee also agree that the terms of occupancy related to the
Temporary Space shall be on a month to month basis subject to termination by
either party thirty (30) days after written notice is delivered by one party to
the other.
Except as expressly provided herein, or that which is inconsistent
herewith, the Lease is hereby ratified by the Landlord and Tenant and all other
terms and conditions of the Lease shall remain in full force and effect.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to Lease the day and year first set forth above.
Lessee: Lessor:
ASYMETRIX CORPORATION DEAN WITTER REALTY INCOME
a Washington corporation PARTNERSHIP II, L. P.
A Delaware limited partnership
/s/ Hubert Kolde
_________________________________ DEAN WITTER REALTY INCOME
Hubert Kolde PROPERTIES II, INC.
Executive Vice President a Delaware corporation
It's General Partner
/s/ John J. Preotle
_______________________________
John J. Preotle, Jr.
President
4
<PAGE>
ACKNOWLEDGMENT OF LESSOR
------------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
On this 22nd day of April, 1992, before that undersigned, a Notary
Public in and for the State of New York, personally appeared John J. Preotle,
---------------
Jr. to me known to be the PRESIDENT of DEAN WITTER REALTY INCOME PROPERTIES
- -- ---------
II, L.P., and acknowledged said Lease to be the free and voluntary act and
deed of said corporation and an oath stated that he was authorized and did
execute the said Lease for the uses and purposes therein mentioned.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed my
official seal the day and year first above written.
/s/ Linda M. Vogel
______________________________________
NOTARY PUBLIC in and for the State of
New York, residing at_________________
ACKNOWLEDGMENT OF LESSEE
------------------------
(Corporate)
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
On this ________ day of ___________, 19__, before me personally
appeared ______________ and _______________, to me known to be the ___________
and ____________________ respectively, of the corporation that executed the
within and foregoing Lease, and acknowledged the said instrument to be the
free and voluntary act and deed of said corporation, for the uses and purposes
therein mentioned, and on oath stated that they were authorized to execute
said instrument and that the seal affixed is the corporation seal of said
corporation.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed by
official seal the day and year first above written.
_____________________________________
NOTARY PUBLIC in and for the State of
Washington, residing at _____________
5
<PAGE>
SECOND AMENDMENT TO LEASE
This Second Amendment to Lease is agreed to as of this the 20 day of May,
1992 by and between Asymetrix Corporation, a Washington Corporation ("Lessee")
and Dean Witter Realty Income Partnership II, L. P., a Delaware limited
partnership ("Lessor").
Background
----------
By Agreement of Office Lease, dated the 24th of May 1991 (the "Lease" or
"Master Lease") and by the First Amendment to Lease dated the 16th day of April,
1992 Lessor has leased to Lessee 32,267 square feet of office space ("Rentable
Area") on the seventh (7th) floor of the office Building, which is more
specifically described in said Lease, located at 110 - 110th Avenues, N.E.,
Bellevue, Washington (the "Building" or the "Property").
Whereas, Lessee and Lessor are desirous of further modifying the terms and
conditions of said Lease:
Now, therefore, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Lessee and Lessor mutually covenant and agree that the above described Lease
shall be modified as follows:
1. Lease Data and Exhibits
-----------------------
The following sections shall be amended and restated in their
entirety:
(b) Premises: Consists of 32,267 net rentable square feet on the
seventh (7th) floor, and 1,887 net rentable square feet on the
third (3rd) floor) (the "Second Amendment Expansion Space"), to
be known as Suite 717 and Suite 300 respectively, of the
Building. The Second Amendment Expansion Space shall be as
outlined on the floor plan(s) attached hereto as Exhibit C.
(c) Floor Areas: The agreed net rentable area of the total Premises
is 34,154 square feet and of the Building is 213,000 square feet.
(d) Commencement Dates:
The following terms shall be added to the existing Lease language:
Rentable
Suite No. Area
--------- --------
June 15, 1992 300 1,887
However, the Commencement Date above is subject to delivery by
Lessor of the space, free of existing tenancies by March 31,
1992. Should Lessor
<PAGE>
be unable to deliver said space to Lessee on said date then the
Commencement Date shall be delayed one day for each day beyond
May 31, 1992 said space is delivered to Lessee.
2. Special Provisions
------------------
The following sections of Attachment I to the Lease ("Special Provisions")
shall be modified as follows:
1. Rental Rate:
------------
Shall be modified to read as follows:
<TABLE>
<CAPTION>
Net Rentable Base Annual Base Monthly
Months Area Rental Rate Rent
- ------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
1 - 6 19,547 $15.50 25,248.21
6,079 7.75 3,926.02 $29,174.23
---------
7 - 8.5 25,626 15.50 33,100.25
6,641 17.50 9,684.79 42,785.04
---------
8.5 - 30 27,513 15.50 35,537.63
6,641 17.50 9,684.79 45,222.42
---------
31 - 60 34,154 19.50 55,500.25
</TABLE>
4. Tenant Improvement Allowance:
-----------------------------
The following terms shall be added to the existing Lease language:
It is agreed between Lessor and Lessee that, for the purposes of
refurbishing and improving the expansion space, incorporated by this Second
Amendment to Lease, that the tenant improvement allowance covering said space
shall be $28,305.00.
It is also agreed between Lessor and Lessee that should Lessee's actual
tenant improvement cost be less than $28,305.00 then any such savings shall be
paid to Lessee, in cash, upon certification that substantial completion of the
tenant improvements has occurred.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to Lease the day and year first set forth above.
Lessee: Lessor:
ASYMETRIX CORPORATION DEAN WITTER REALTY INCOME
a Washington corporation PARTNERSHIP II, L. P.
A Delaware limited partnership
/s/ Hubert Kolde
- ------------------------------ DEAN WITTER REALTY INCOME
Hubert Kolde PROPERTIES II, INC.
Executive Vice President a Delaware corporation
It's General Partner
/s/ John J. Preotle, Jr.
_______________________________
John J. Preotle, Jr.
President
3
<PAGE>
THIRD AMENDMENT TO LEASE
This Third Amendment to Lease is agreed to as of this 29th day of
September, 1992 by and between ASYMETRIX CORPORATION, a Washington Corporation
("Lessee") and DEAN WITTER REALTY INCOME PARTNERSHIP II, L. P., a Delaware
limited partnership ("Lessor").
Background
----------
By Agreement of office Lease, dated the 24th of May 1992 (the "Lease or
"Master Lease") and by the First Amendment to Lease dated the 16th day of April,
1992 and Second Amendment to Lease dated the 20th day of May, 1992, Lessor has
leased to Lessee 34,154 square feet of office space ("Rentable Area") on the
seventh (7th), and third (3rd) floors of the office Building, which is more
specifically described in said Lease, located at 110 - 110th Avenue NE,
Bellevue, Washington (the "Building" or the "Property").
Whereas, Lessee and Lessor are desirous of further modifying the terms and
conditions of said Lease:
Now, therefore, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Lessee and Lessor mutually covenant and agree that the above described Lease
shall be modified as follows:
1. Lease Data and Exhibits
-----------------------
The following sections shall be amended and restated in their
entirety:
(b) Premises: Consists of 32,267 net rentable square feet on the
seventh (7th) floor, 1,887 net rentable square feet on the third
(3rd) floor) (the "Second Amendment Expansion Space"), and 3,017
net rentable square feet on the sixth (6th) floor (Third
Amendment Expansion Space), to be known as Suite 700, Suite 300
and Suite 690 respectively, of the Building. The Third Amendment
Expansion Space shall be as outlined on the floor plan(s)
attached hereto as Exhibit C.
(c) Floor Areas: The agreed net rentable area of the total Premises
is 37,171 square feet and of the Building is 213,000 square feet.
(d) Commencement Dates:
The following terms shall be added to the existing Lease language:
Rentable
Suite No. Area
--------- --------
November 1, 1992 690 3,017
<PAGE>
2. Special Provisions
------------------
The following sections of Attachment I to the Lease ("Special Provisions") shall
be modified as follows:
1. Rental Rate:
------------
Shall be modified to read as follows:
Base
Net Rentable Base Annual Monthly
Dates Months Area Rental Rate Rent
- ----- ------ ---- ----------- -------
11/0/91 - 1 - 6 19,547 $15.50 25,248.21
04/30/92 6,079 7.75 3,926.02 $29,174.23
---------
05/01/92 - 7 - 8.5 25,626 15.50 33,100.25
07/15/92 6,641 17.50 9,684.79 42,785.04
---------
07/15/92 - 8.5 - 12 27,513 15.50 35,537.63
10/31/92 6,641 17.50 9,684.79 45,222.42
---------
11/01/92 - 13 - 18 27,513 15.50 35,537.63
04/30/92 6,641 17.50 9,684.79
1,200 19.50 1,950.00 47,172.42
---------
05/01/93 - 19 - 30 27,513 15.50 35,537.63
04/30/94 6,641 17.50 9,684.79
3,017 19.50 4,902.63 50,125.05
---------
05/01/94 - 31 - 60 37,171 19.50 60,402.88
10/31/96
4. Tenant Improvement Allowance
----------------------------
The following terms shall be added to the existing Lease language:
It is agreed between Lessor and Lessee that, for the purposes of
refurbishing and improving the expansion space, incorporated by this Third
Amendment to Lease, that the tenant improvement allowance covering said
space shall be $43,888 or $16.00 per usable square foot on 2,743 usable
square feet.
It is also agreed between Lessor and Lessee that should Lessee's actual
tenant improvement cost be less than $43,888.00 then any such savings shall
be paid to Lessee,
2
<PAGE>
in cash, upon certification that substantial completion of the tenant
improvements has occurred.
14. Extended Occupancy
------------------
The following section shall be added to the existing Lease language:
Lessor and Lessee acknowledge that Lessee has taken occupancy of Suite 409
which encompasses 9,373 net rentable square feet at the Building. Such
occupancy has been achieved via a Sublease Agreement by Lessee and NCR
Corporation. Pursuant to the original lease, the sublease agreement and
this Lease Agreement, Lessee shall have the right and privilege to occupy
said space through May 5, 1994.
In addition Lessor herein grants to Lessee the option to extend its
occupancy in said space for a period effective the termination date (May 5,
1994) covering Lessor's current occupancy of such space through October 31,
1997. This right to extend is subject to the receipt by Lessor from Lessee
of written notice of the exercise of this option no later than July 31,
1993. Such extended occupancy shall be upon the same terms and conditions
of the Lease Agreement between Lessee and Lessor dated May 24, 1991
including the payment of Rent on a per square foot basis which shall be at
the annual rate of $19.50 per rentable square foot or $15,231.13 per month
for the Extended Occupancy. The exercise of this option shall be
documented by written instrument between parties, upon the exercising of
this option by Lessee.
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
to Lease the day and year first set forth above.
Lessee: Lessor:
ASYMETRIX CORPORATION DEAN WITTER REALTY INCOME
a Washington corporation PARTNERSHIP II, L. P.
a Delaware limited partnership
/s/ HUBERT KOLDE
_________________________________ DEAN WITTER REALTY INCOME
Hubert Kolde PROPERTIES II, INC.
Executive Vice President a Delaware corporation
It's General Partner
/s/ JOHN J. PREOTLE
_______________________________
John J. Preotle, Jr.
President
3
<PAGE>
FOURTH AMENDMENT TO LEASE
-------------------------
THIS FOURTH AMENDMENT TO LEASE (the "Fourth Amendment") is agreed to as of
this the 27 day of August, 1993 by and between ASYMETRIX CORPORATION, a
Washington Corporation ("Lessee") and DEAN WITTER REALTY INCOME PARTNERSHIP II,
L.P., a Delaware limited partnership ("Lessor").
BACKGROUND
----------
BY FOURTH AMENDMENT OF OFFICE LEASE, dated the 24th of May, 1991 (the
"Lease" or "Master Lease") and by the First Amendment to Lease (dated the 16th
of April, 1992) and by the Second Amendment to Lease (dated the 20th of May,
1992) and by the Third Amendment to Lease (dated the 29th of September 1992),
Lessor has leased to Lessee 37,171 square feet of office space ("Rentable Area")
in the office building, which is more specifically described in said Lease,
located at 110-110th Avenue, N.E., Bellevue, Washington (the "Building" or the
"Property").
WHEREAS, Lessee and Lessor are desirous of further modifying the terms and
conditions of said Lease:
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Lessee and Lessor mutually covenant and agree that the above described Lease
shall be modified as follows:
1. Lease Data and Exhibits. The following sections shall be amended and
-----------------------
restated in their entirety:
(b) Premises: Upon the effective date of this Fourth Amendment, the
Premises shall consist of the following specific areas:
<TABLE>
<CAPTION>
Rentable
Square Feet
-----------
<S> <C>
Seventh Floor:
. Initial Space
. First Amendment Expansion Space 25,626
6,641
Sixth Floor:
. Third Amendment Expansion Space
3,017
Fifth Floor:
. Fourth Amendment Expansion Space 8,125 (1)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Fourth Floor:
. Fourth Amendment Expansion Space 9,373
Third Floor:
. Second Amendment Expansion Space 1,887
. Fourth Amendment Expansion Space 4,352
. Fourth Amendment Expansion Space 7,689
------
TOTAL Rentable Area 66,710 (1)
======
</TABLE>
(1) NOTE: Lessor and Lessee acknowledge that this amount is an estimated
figure which will be subject to additional planning and a final measurement with
the exact amount to be agreed upon between Lessor and Lessee.
The areas indicated above as the Fourth Amendment Expansion Spaces are
documented on the attached Exhibit(s) C, C-1 and C-2.
(c) Floor Areas: Upon the effective date of this Fourth Amendment, the
agreed Net Rentable Area of the Premises is 66,710 square feet and of the
Building is 213,000 square feet.
(d) Commencement Dates: The following terms shall be added to the existing
Lease language:
The effective date of this Fourth Amendment to Lease shall be the
earlier of the date of substantial completion of the Tenant Improvements
related to the Fourth Amendment Expansion Space or November 1, 1993.
Lessee and Lessor agree that upon establishment of the effective date
of this Fourth Amendment, such date, along with the final agreed upon
rentable square feet, will be memorialized by the parties through a
Commencement Date Letter Agreement.
(e) Expiration Date: Shall remain at October 31, 1996 for the 37,171 RSF
leased and occupied pursuant to the initial Lease and the First, Second and
Third Amendments to Lease. For the space leased pursuant to this Fourth
Amendment (the "Fourth Amendment Expansion Space") comprising 29,539 RSF,
the Expiration Date shall be October 31, 1998.
42. Brokers. The following shall be added to the existing Lease document:
-------
Lessee and Lessor warrant to each other that they have had no dealings
with any real estate broker or agents in connection with the negotiation of
this Fourth Amendment to Lease excepting only Leibsohn & Company and CB
------------------ --
Commercial and it knows of no other real estate broker or agent who is
----------
entitled to a commission in connection with this
-2-
<PAGE>
lease. Lessee and Lessor shall be held harmless from any claims which arise
from dealings by Lessee or Lessor with any other brokers in regards to this
Lease.
43. Special Provisions. The following language shall be added to the
------------------
existing Lease document.
The Special Provisions of the Lease have been modified in certain
instances and such modifications are attached hereto as Attachment I and
are incorporated hereby and made a part of the overall Lease. Lessor and
Lessee agree that any such modifications shall supersede the prior Lease
terms.
Except as expressly provided herein, or that which is inconsistent
herewith, the Lease is hereby ratified by the Lessor and Lessee and all other
terms and conditions of the Lease shall apply during the remaining Lease Term.
LANDLORD: TENANT:
DEAN WITTER REALTY INCOME ASYMETRIX CORPORATION
PARTNERSHIP II, L.P., a Delaware limited a Washington corporation
partnership
DEAN WITTER REALTY INCOME
PROPERTIES II, INC. /s/ Hubert Kolde
a Delaware corporation, ------------------------
its General Partner Hubert Kolde
President
/s/ E. Davisson Hardman, Jr.
____________________________
E. Davisson Hardman, Jr.
President
-3-
<PAGE>
LANDLORD ACKNOWLEDGMENT
-----------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
I certify that I know or have satisfactory evidence that E. Davisson
Hardman, Jr. is the person who appeared before me, and said person acknowledged
that said person signed this instrument, on oath stated that said person was
authorized to execute the instrument and acknowledged it as the President of
Dean Witter Realty Income Properties II, Inc., the general partner of DEAN
WITTER REALTY INCOME PARTNERSHIP II, L.P., a Delaware limited partnership, to be
the free and voluntary act of such partnership for the uses and purposes
mentioned in the instrument.
Dated this 20th day of September, 1993.
/s/ Leinaala E. Burger
----------------------
(Signature of Notary)
LEINAALA E. BURGER
Notary Public, State of New York
No. 31-4982798
Qualified in New York County
Commission Expires June 10, 1995
--------------------------------
Notary public in and for the state of Washington,
residing at _____________________________________
My appointment expires __________________________
-4-
<PAGE>
TENANT ACKNOWLEDGMENT
---------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that Hubert Kolde
is the person who appeared before me, and said person acknowledged that said
person signed this instrument, on oath stated that said person was authorized to
execute the instrument and acknowledged it as the President of ASYMETRIX
CORPORATION, a Washington corporation, to be the free and voluntary act of such
corporation for the uses and purposes mentioned in the instrument.
Dated this 27th day of August, 1993.
/s/ Julie Geiger
-------------------------------
(Signature of Notary)
JULIE GEIGER
-------------------------------
Notary public in and for the state of Washington,
residing at Bellevue ___________________________
My appointment expires 12-9-95
-------------------------
-5-
<PAGE>
ATTACHMENT 1
------------
SPECIAL PROVISIONS
Upon the effective date of this Fourth Amendment, the following sections of
Attachment I to the Lease ("Special Provisions") shall be modified as follows:
1. Rental Rate. Shall be modified as follows:
-----------
<TABLE>
<CAPTION>
Total
Net Base Base Base
Rentable Annual Rate/ Monthly Monthly
Date Area SF Rent Rate
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
effective date to 27,513 $15.50 $35,537.63
April 30, 1994 6,641 17.50 9,684.79
3,017 19.50 4,902.63
4,352 14.00 5,077.33
9,373 0.00 0.00(a)
15,814 18.25 24,050.46
------ ---------
66,710 $79,252.84
====== ==========
May 1, 1994 to 37,171 $19.50 $60,402.88
July 31, 1995 4,352 14.00 5,077.33
25,187 18.25 38,305.23 $103,785.44
------ ---------- ===========
66,710
======
August 1, 1995 to 37,171 $19.50 $60,402.88
October 31, 1996 29,539 18.25
------ 44,923.90 $105,326.78
66,710 ---------- ===========
======
November 1, 1996 29,539 $18.25 $44,923.90
to October 31, 1998 ====== ==========
</TABLE>
(a) Base monthly Rent on said space to be received by Lessor from Teradata
Corporation, until April 30, 1994, in accordance with an existing lease
between these two parties.
3. Parking. The following terms shall be added to the existing Lease
-------
language:
Upon the effective date of this Fourth Amendment to Lease, Lessor grants to
Lessee the right to eighty-nine (89) additional parking spaces (limited to 45
spaces through May 31, 1994) in the Building parking garage. From the effective
date of this Fourth Amendment until October 31, 1996, except that Landlord
agrees to provide the 44 passes associated with the Teradata space
-6-
<PAGE>
free for the month of May 1994, said spaces shall be provided at the monthly
rate of $47.50 per space.
Subsequent to October 31, 1996, such spaces shall be provided at the
prevailing fair market rate for said spaces which rate shall not exceed the
rates established for covering parking at comparable Bellevue CBD mid-rise
office buildings.
4. Tenant Improvement Allowance. The following terms shall be added to
----------------------------
the existing Lease language:
It is agreed between Lessor and Lessee that, for the purposes of
refurbishing and improving the expansion space, incorporated by this Fourth
Amendment to Lease, that Lessor's sole obligation shall be to provide a
tenant improvement allowance covering said space in the amount of
$441,125.00 (the "Tenant Improvement Allowance") computed in the following
manner:
<TABLE>
<S> <C> <C>
Currently Occupied:
Third Floor Space: 3,956 USF (4,352 RSF) x $3.00 x 3.25 years = $ 38,571.00
Fourth Floor Space: 8,521 USF (9,373 RSF) x $3.00 x 4.50 years = 115,034.00
New Space:
Third Floor Space: 6,990 USF (7,689 RSF) x $4.00 x 5 years = 139,800.00
Fifth Floor Space 7,386 USF (8,125 RSF) x $4.00 x 5 years = 147,720.00
$441,125.00
===========
</TABLE>
It is also agreed between Lessor and Lessee that should Lessee's
actual tenant improvement cost be less than the Tenant Improvement
Allowance then any such savings shall be paid to Lessee, in cash, upon
certification that substantial completion of the tenant improvements has
occurred.
7. Right of First Offer. The following language shall be added to and
--------------------
shall replace the existing Lease language:
During the initial Lease Term of this Lease, Lessee shall have the
Right of First Offer on any space which becomes available within the
Building.
Lessee may exercise its Right of First Offer in and during any
calendar year by giving Lessor written notice of its desire to lease
additional space. Upon receipt of such notification Lessor shall provide
written notice to Lessee of the anticipated vacancies in that calendar
year. Upon receipt of Lessor's notice, Lessee may initiate an offer to
lease such space. However, Lessor shall not be obligated to provide such
space should such space not be vacated as originally anticipated. The
lease terms shall be the then prevailing market terms for comparable office
space in the Bellevue Central Business District with a termination date of
October 31, 1998. Lessor shall grant Lessee a Tenant
-7-
<PAGE>
Improvement Allowance of $3.00 per usable square foot per year of the
remaining Lease term, pro-rated for any partial year.
Should Lessee's tenant improvements on any such expansion space cost
less than the $3.00 per usable square foot allowance, then any such savings
shall be paid to Lessee in cash upon certification that substantial
completion of tenant improvements has occurred.
Upon request by Lessee, Lessor shall provide Lessee or its agents with
a schedule of the expiration dates of the leases within the Building and
shall use its best effort to keep Lessee informed of any and all
anticipated vacancies and pending negotiations for space in the Building
and Lessee shall make its best effort to keep Lessor informed of its
specific expansion needs.
Lessee agrees that any additional space leased and occupied pursuant
to this provision shall have an expiration date of October 31, 1998 and
shall not be subject to the Right of Cancellation as outlined in Item #16
of this Special Provision section. Lessor agrees that the above statement
is subject to two specific exceptions, these being Suite 340 comprising
1,656 RSF and Suite 385 comprising 2,179 RSF. It is agreed that should
Lessee expand and occupy said space by June 30, 1994 then such space shall
be subject to the existing terms and conditions of the Lease, as modified
through the Fourth Amendment to Lease, including the following:
Base Rent $18.25/RSF
Tenant Improvement Allowance $3.00/USF/Year
Expiration Date October 31, 1998
Subject to Right of Cancellation Option Yes
16. Right of Cancellation Option. Lessor hereby grants to Lessee the
----------------------------
option to cancel its longer term commitment (October 31, 1998) pertaining to the
Fourth Amendment Expansion Space as of October 31, 1996 upon the following terms
and conditions:
Lessee agrees that it shall provide Lessor with written notice of its
intent to exercise this option not later than January 31, 1996.
Lessee agrees to reimburse Lessor for 40% of the Tenant Improvement
Allowance and lease commission costs associated with the space leased and
occupied pursuant to this Fourth Amendment, covering the initial 29,539 RSF
plus 50% of any Tenant Improvement Allowance and lease commission costs for
Suite 340 and Suite 385 if such are leased subject to the provisions of
Section 7 above. Lessee agrees that it shall provide such reimbursement
not later than September 1, 1996.
17. After Hours HVAC.
----------------
Lessor agrees to provide after hours HVAC to Lessee upon request provided
such request is made by Lessee not later than 1:00 p.m. on a normal business
day, not later than 1:00 p.m. on
-8-
<PAGE>
the day preceding a recognized holiday or not later than 1:00 p.m. on Friday for
additional service on a Saturday or Sunday.
To compensate Lessor for the cost of providing such after hours HVAC
service, Lessee agrees to reimburse Lessor at the rate of $17.00 per hour for
such service during the months of October through May, of any given year and at
the rate of $23.00 per hour for any such service required during the months of
June through September.
18. Superseding/Reaffirmation Provision. Lessor and Lessee acknowledge
-----------------------------------
that the following areas of the Building, which are addressed in the Fourth
Amendment, are presently subject to existing lease Fourth Amendments as follows:
<TABLE>
<C> <C> <S>
Suite 390 4,352 RSF Direct Lease between Lessor and Lessee dated July
16, 1992.
Suite 490 9,373 RSF Direct Lease between Lessor and Teradata
Corporation dated March 3, 1989, and;
Sublease Fourth Amendment between Lessee (as
Tenant) and NCR Corporation, successor in interest to
Teradata Corporation (as "Landlord")
</TABLE>
With regards to the above noted Rentable Square Feet of the Building, the
Lessor and Lessee agree to the following:
<TABLE>
<C> <S>
Suite 390 It is agreed that upon the effective date of this Fourth
Amendment to Lease, such Lease agreement shall
terminate and be superseded by this Lease agreement
as modified by this Fourth Amendment.
Suite 490 It is agreed that the existing Lease agreement and
sublease agreement will remain in effect until the
natural expiration of said documents.
It is further agreed that immediately upon said
expiration of the direct lease between Lessor and
Teradata Corporation dated March 3, 1989 the terms
and conditions of this Lease agreement as modified by
this Fourth Amendment shall be in full force and
effect with respect to such space.
</TABLE>
-9-
<PAGE>
FIFTH AMENDMENT TO LEASE
------------------------
THIS FIFTH AMENDMENT TO LEASE (THE "Fifth Amendment") is agreed to as of
this the 29th day of April, 1995 by and between ASYMETRIX CORPORATION, a
Washington Corporation ("Lessee") and DEAN WITTER REALTY INCOME PARTNERSHIP II,
L.P., a Delaware limited partnership ("Lessor").
BACKGROUND
----------
By Agreement of office Lease, dated the 24th of May, 1991 (the "Lease" or
"Master Lease") and subsequent amendments, as indicated below, Lessor leased to
Lessee 66,832 square feet of office space ("Rentable Area") on floors three (3),
four (4), five (5), six (6) and seven (7) of the office building, which is more
specifically described in said Lease, located at 110-110th Avenue, N.E. in
Bellevue, Washington (the "Building" or the "Property").
Subsequent to the initial Lease agreement, Lessor and Lessee have entered
into the following Lease Amendment(s):
Hereinafter referred to as: Dated:
-------------------------- ------
First Amendment to Lease April 16, 1992
Second Amendment to Lease May 20, 1992
Third Amendment to Lease September 29, 1992
Fourth Amendment to Lease August 27, 1993
WHEREAS, Lessee and Lessor are desirous of further modifying the terms and
conditions of said Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Lessee and Lessor mutually covenant and agree that the above described Lease
shall be modified as follows:
1. Lease Data and Exhibits. The following sections shall be amended and
-----------------------
restated in their entirety:
(b) Premises: Upon the Effective Date of this Fifth Amendment, the
Premises shall consist of the following specific areas:
Rentable
Square Feet
-----------
Seventh Floor:
. Initial Space 25,626
. First Amendment Expansion Space 6,641
Fifth Floor:
. Fourth Amendment Expansion Space 8,247
<PAGE>
Fourth Floor:
. Fourth Amendment Expansion Space 9,373
Third Floor:
. Second Amendment Expansion Space 1,887
. Fourth Amendment Expansion Space 4,352
. Fourth Amendment Expansion Space 7,689
------
TOTAL Rentable Area 63,815
======
Lessee and Lessor acknowledge that the effect of this Fifth Amendment is to
return to Lessor and relieve Lessee of its obligation on 3,017 rentable square
feet on the sixth (6th) floor of the Building which had been previously
identified as the ""Third Amendment Expansion Space."
(c) Floor Areas: Upon the effective date of this Fifth Amendment, the
agreed Net Rentable Area of the Premises shall be 63,815 square feet and of
the Building is 213,000 square feet.
(d) Commencement Dates: The following terms shall be added to the
existing Lease language:
The effective date of this Fifth Amendment to Lease shall be May
1, 1995 (the "Effective Date").
(e) Expiration Date: Shall remain at October 31, 1996 for the 34,154
RSF leased and occupied pursuant to the initial Lease and the First, Second
and third Amendments to Lease. For the space leased pursuant to the Fourth
Amendment, comprising a total of 29,661 RSF, the Expiration Date shall be
October 31, 1998.
43. Special Provisions. The following language shall be added to the
------------------
existing Lease document:
The Special Provisions of the Lease have been modified in certain
instances and such modifications are attached hereto as Attachment I and
are incorporated hereby and made a part of the overall Lease. Lessor and
Lessee agree that any such modifications shall supersede the prior Lease
terms.
2
<PAGE>
Except as expressly provided herein, or that which is inconsistent
herewith, the Lease is hereby ratified by the Lessor and Lessee and all other
terms and conditions of the Lease shall apply during the remaining Lease Term.
LESSOR: LESSEE:
DEAN WITTER REALTY INCOME ASYMETRIX CORPORATION
PARTNERSHIP II, L.P. a Washington corporation
a Delaware limited partnership
/s/ JOHN D. ATHERLY
DEAN WITTER REALTY INCOME _____________________________
PROPERTIES II, INC. John D. Atherly
a Delaware corporation Executive Vice President
its General Partner
/s/ E. DAVISSON HARDMAN
________________________
E. Davisson Hardman, Jr.
President
3
<PAGE>
ATTACHMENT I
------------
SPECIAL PROVISIONS
Upon the Effective Date of this Fifth Amendment, the following sections of
Attachment I to the Lease ("Special Provisions") shall be modified as follows:
1. Rental Rate. Shall be modified as follows:
-----------
<TABLE>
<CAPTION>
Net Rentable Base Annual Base Monthly Total Base
Date Area Rate/SF Rent Monthly Rent
- ---- ---- ------- ---- ------------
<S> <C> <C> <C> <C>
May 1, 1995 to
July 31, 1995 34,154 $19.50 $55,500.25
4,352 14.00 5,077.33
25,309 18.25 38,490.77
------ ---------
63,815 $99,068.35
====== =========
August 1, 1995 to
October 31, 1996 34,154 $19.50 $55,500.25
29,661 18.25 45,109.44
------ ----------
63,815 $100,609.69
====== ==========
November 1, 1996
to October 31, 1998 29,661 $18.25 $45,109.44
====== =========
</TABLE>
3. Parking. The following terms shall be added to the existing Lease
--------
language:
Upon the Effective Date of this Fifth Amendment to Lease, Lessor's
grant to Lessee for parking shall be reduced by twelve (12) parking spaces.
4
<PAGE>
SIXTH AMENDMENT TO LEASE
------------------------
THIS SIXTH AMENDMENT TO LEASE (the "Sixth Amendment") is agreed to as of
this the 26th day of January, 1996 by and between ASYMETRIX CORPORATION, a
Washington Corporation ("Lessee") and DEAN WITTER REALTY INCOME PARTNERSHIP II,
L.P., a Delaware limited partnership ("Lessor").
BACKGROUND
----------
By Agreement of Office Lease, dated the 24 of May, 1991 and subsequent
amendments (collectively the "Lease" or "Master Lease"), as indicated below,
Lessor leased to Lessee 65,815 square feet of office space ("Rentable Area") on
floors three (3), four (4), five (5), six (6) and seven (7) of the office
building, which is more specifically described in said Lease, located at 110-
110th Avenue, N.E. in Bellevue, Washington (the "Building" or the "Property").
Subsequent to the initial Lease agreement, Lessor and Lessee have entered
into the following Lease Amendment(s):
Hereinafter referred to as: Dated:
-------------------------- -----
First Amendment to Lease April 16, 1992
Second Amendment to Lease May 20, 1992
Third Amendment to Lease September 29, 1992
Fourth Amendment to Lease August 27,1993
Fifth Amendment to Lease April 29,1995
WHEREAS, Lessee and Lessor are decisions of further modifying the terms and
conditions of said Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Lessee and Lessor mutually covenant and agree that the above described Lease
shall be modified as follows:
ATTACHMENT 1
------------
SPECIAL PROVISIONS
Upon the date of this Sixth Amendment, the following section of Attachment
I of the Lease shall be modified as follows:
8. Renewal Option. Lessee shall have the option to renew this lease for a
--------------
period of five (5) years by providing Lessor with written notification of its
intent to renew no later than March 31, 1996. The rental rate shall be the then
prevailing rental rate for comparable office space located in the Bellevue
Central Business District. In addition, Lessor shall pay to Lessee a tenant
improvement allowance of $8.00 per usable square foot upon the effective date of
the renewal Lease term.
<PAGE>
Should Lessee's tenant improvements cost less than $8.00 per usable square
foot then any such savings shall be paid to Lessee in cash upon certification
that substantial completion of all tenant improvements has occurred.
16. Right of Cancellation Option. Lessor hereby grants to Lessee the
----------------------------
option to cancel its longer term commitment (for office space expiring October
31, 1998) pertaining to the Fourth Amendment Expansion Space as of October 31,
1996 upon the following terms and conditions:
Lessee agrees that it shall provide Lessor with written notice of its
intent to exercise this option not later than March 31, 1996.
Lessee agrees to reimburse Lessor for 40% of the Tenant Improvement
Allowance and lease commission costs associated with the space leased and
occupied pursuant to the Fourth Amendment, covering the initial 29,539 RSF
plus 50% of any Tenant Improvement Allowance and lease commission costs for
Suite 340 and Suite 385 if such are leased subject to the provisions of
Section 7 of the Special Provisions and documented in the Fourth Amendment.
Lessee further agrees that it shall provide such reimbursement not later
than September 1, 1996.
Except as expressly provided herein, or that which is inconsistent
herewith, the Lease is hereby ratified by the Lessor and Lessee and all other
terms and conditions of the Lease shall apply during the remaining Lease Term.
LANDLORD: TENANT:
Dean Witter Realty Income Partnership II, L.P. Asymetrix Corporation
a Delaware limited partnership a Washington corporation
/s/ JOHN D. ATHERLY
Dean Witter Realty Income Properties II, Inc. --------------------------
a Delaware corporation,
its General Partner
/s/ ROBERT B. AUSTIN
- ------------------------------
Robert B. Austin
Vice President
2
<PAGE>
LESSOR ACKNOWLEDGMENT
---------------------
STATE OF NEW YORK )
) ss.
COUNTY OF NEW YORK )
I certify that I know or have satisfactory evidence that Robert B. Austin
is the person who appeared before me, and said person acknowledged that said
person signed this instrument, on oath stated that said person was authorized to
execute the instrument and acknowledged it as the Vice President of Dean Witter
Realty Income Partnership II, L.P., a Delaware limited partnership, to be the
free and voluntary act of such partnership for the uses and purposes mentioned
in the instrument.
Dated this 26th day of January, 1996.
---------------------------------------
/s/ LEINAALA E. EL HOUSHY
---------------------------------------
(Signature of Notary Public)
LEINAALA E. EL HOUSHY
---------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of New
York, residing at New York.
My appointment expires 10/19/97 .
-----------
3
<PAGE>
LESSEE ACKNOWLEDGMENT
---------------------
STATE OF WASHINGTON )
) ss.
COUNTY OF KING )
I certify that I know or have satisfactory evidence that John D. Atherly is
the person who appeared before me, and said person acknowledged that said person
signed this instrument, on oath stated that said person was authorized to
execute the instrument and acknowledged it as VP Finance/OPS of Asymetrix
Corporation, to be the free and voluntary act of such partnership for the uses
and purposes mentioned in the instrument.
Dated this 24th day of January, 1996.
---------------------------------------
/s/ JULIE GEIGER
---------------------------------------
(Signature of Notary Public)
JULIE GEIGER
---------------------------------------
(Legibly Print or Stamp Name of Notary)
Notary public in and for the state of
Washington, residing at Bellevue.
My appointment expires 12-9-99.
4
<PAGE>
702352
SEVENTH AMENDMENT TO LEASE
--------------------------
THIS SEVENTH AMENDMENT TO LEASE (the "Seventh Amendment") is agreed to as
of this the 31st day of March, 1996 by and between Asymetrix Corporation, a
Washington Corporation ("Lessee") and Dean Witter Realty Income Partnership II,
L.P., a Delaware limited partnership ("Lessor").
BACKGROUND
----------
By Agreement of Office Lease, dated the 24th of May, 1991 and subsequent
amendments (collectively the "Lease" or "Master Lease"), as indicated below,
Lessor leased to Lessee 63,815 square feet of office space ("Rentable Area") on
floors three (3), four (4), five (5) and seven (7) of the office building, which
is more specifically described in said Lease, located at 110-110th Avenue, N.E.
in Bellevue, Washington (the "Building" or the "Property").
Subsequent to the initial Lease agreement, Lessor and Lessee have entered
into the following Lease Amendment(s):
<TABLE>
<CAPTION>
Hereinafter referred to as: Dated:
- --------------------------- ------
<S> <C>
First Amendment to Lease April 16, 1992
Second Amendment to Lease May 20, 1992
Third Amendment to Lease September 29, 1992
Fourth Amendment to Lease August 27, 1993
Fifth Amendment to Lease April 29, 1995
Sixth Amendment to Lease January 26, 1996
</TABLE>
WHEREAS, Lessee and Lessor are desirous of further modifying the terms and
conditions of said Lease;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements herein contained, and other good and valuable consideration, the
Lessee and Lessor mutually covenant and agree that above described Lease shall
be modified as follows:
1. Lease Data and Exhibits. The following section shall be amended and
-----------------------
restated in their entirety:
(b) Premises: Upon the Effective Date of this Seventh Amendment, the
Premises shall consist of the following specific areas:
<TABLE>
<CAPTION>
Rentable Premises
Square Feet Expiration Date
----------- ---------------
<S> <C> <C> <C>
Seventh Floor . Initial Space 25,626 10/31/99
. First Amendment Space 6,641 10/31/99
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Fifth Floor . Fourth Amendment Space 8,247 10/31/98
Fourth Floor: . Fourth Amendment Space 9,373 10/31/98
Third Floor . Second Amendment Space 1,887 10/31/99
. Fourth Amendment Space 4,352 10/31/98
. Fourth Amendment Space 7,689 10/31/98
-----
TOTAL Rentable Area 63,815
======
</TABLE>
(c) Floor Areas: Upon the effective date of this Seventh Amendment,
the agreed Net Rentable Area of the Premises shall be 63,815 square feet
and of the Building shall be 213,000 square feet.
(d) Commencement Dates: The following terms shall be added to and
where applicable supersede the existing Lease language:
The effective date of this Seventh Amendment to Lease shall be April
1, 1996 (the "Effective Date").
(e) Expiration Date: Shall be October 31, 1999 for the 34,154 RSF
leased as identified above in 1(b). For the remaining space leased,
comprising a total of 29,661 RSF also as indicated in 1(b) above, the
Expiration Date shall be October 31, 1998.
15. Assignment and Subletting. The following language will be added to
-------------------------
this Section of the Lease and shall take effect as of the date of this Seventh
Amendment:
Lessee's right to assign its interests under the Lease or sublease all
or a part of the Premises are documented in this Section 15 of the Lease. It is
agreed between Lessor and Lessee that in addition to the terms previously
documented the following shall be added:
Should Lessee desire to assign the Lease or sublease all or any
portion of the Premises during the Term to a party other than an Affiliate of
Lessee, upon Lessee's request to Lessor for Lessor's approval of such assignment
or subletting in accordance with the provisions of Section 15 of the Lease,
Lessor may, in addition to its other rights under this Section elect to
terminate the Lease for the portion of the Premises noted in Lessee's request as
of the proposed effective date of such assignment or subletting. If Lessor so
desires, it shall also have the right to enter into direct negotiations with
such proposed assignee or subtenant for the achievement of a direct lease with
said group.
In the event the Premises or any part thereof has been vacated by
Lessee during the final twelve (12) months of the Term, Lessor shall have the
right to market the Premises to third party tenants and shall be entitled to
enter into a new lease agreement with such new tenant for all or any portion of
the Premises. In such event, Lessor shall be entitled to access to the Premises
during such period to construct improvements for such new tenant and the Lease
2
<PAGE>
obligation of Lessee shall terminate as of the commencement date of such new
lease to the extent only that any part of the Premises is so re-leased.
Lessor and Lessee acknowledge that if Lessee vacates its Premises
early that it is in the best interest of the both the Lessor and the Lessee to
undertake the effort to achieve an immediate and early re-lease of the premises
whether it be in whole or in part. It is understood and agreed that both
parties may be simultaneously marketing the Premises and agree to cooperate with
one another and keep one another informed of their marketing activities.
Additionally, Lessee agrees that upon abandoning the Premises or any clearly
defined part thereof, that it will immediately notify the Lessor of such.
Lessor and Lessee shall reasonably cooperate with one another so as to
accommodate Lessee's potential need to vacate the Premises and obtain a
replacement tenant to offset its rental obligations under the Lease and Lessor's
desire to find a long term tenant for the Premises.
43. Special Provisions. The following language shall be added to the
------------------
existing Lease document:
The Special Provisions of the Lease have been modified in certain
instances and such modifications are attached hereto as Attachment I and
are incorporated hereby and made a part of the overall Lease. Lessor and
Lessee agree that any such modifications shall supersede the prior Lease
terms upon the Effective Date of this Seventh Amendment.
Except as expressly provided herein, or that which is inconsistent
herewith, the Lease is hereby ratified by the Lessor and Lessee and all other
terms and conditions of the Lease shall apply during the remaining and extended
Lease Term.
LESSOR: TENANT:
Dean Witter Realty Income Partnership II, L.P. Asymetrix Corporation
a Delaware limited partnership a Washington corporation
Dean Witter Realty Income Properties II, Inc. /s/ John D. Atherly
a Delaware corporation, _________________________
its General Partner John D. Atherly
Vice President
/s/ Robert B. Austin
______________________________________
Robert B. Austin
Vice President
3
<PAGE>
ATTACHMENT I
------------
SPECIAL PROVISIONS
Upon the Effective Date of this Seventh Amendment, the following sections
of Attachment I to the Lease ("Special Provisions") shall be modified as
follows:
1. Rental Rate.
------------
Net Rentable Base Annual Base Monthly Total Base
Date Area Rate/SF Rent Monthly Rent
- ---- ---- ------- ---- ------------
August 1, 1995 to
October 31, 1996 34,154 $19.50 $55,500.25
29,661 18.25 45,109.44
------ ----------
63,815 $100,609.69
====== ===========
November 1, 1996
to October 31, 1998 63,815 $20.00 $106,358.33
====== ===========
November 1, 1998
to October 31, 1999 34,154 $20.00 $56,923.33
====== ==========
7. Right of First Offer. Lessor and Lessee agree that this Section of
--------------------
the Special Provisions to the Lease shall be deleted and shall no
longer be in effect as of the Effective Date of the Seventh Amendment.
8. Renewal Option. Lessee shall have the option to extend this Lease for
---------------
a period of five (5) years for all of its leased Premises (34,154 RSF
to October 31, 2004 and 29,661 RSF to October 31, 2003) by providing
Lessor with written notification of its intent to renew no later than
January 31, 1998. The rental rate shall be the then prevailing rental
rate for comparable office space located in the Bellevue Central
Business District. In addition, Lessor shall pay to Lessee a tenant
improvement allowance of $8.00 per usable square foot upon the
effective date of the renewal Lease term.
Should Lessee's tenant improvements cost less than $8.00 per usable square
foot then any such savings shall be paid to Lessee in cash upon certification
that substantial completion of all tenant improvements has occurred.
16. Right of Cancellation Option. It agreed by Lessor and Lessee that
----------------------------
this section of the Lease have no further force or effect and is therefore
deleted in its entirety.
<PAGE>
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into as of September 30,
1997 (the "Effective Date") between ASYMETRIX CORPORATION, a Washington
corporation with its principal offices located at 110-110th Avenue N.E.,
Bellevue, Washington 98004-5840, and/or one or more subsidiaries of Asymetrix
Corporation (collectively the "Company"), and KEVIN OAKES ("Employee").
In consideration of the promises and the terms and conditions set forth in this
Agreement, the parties agree as follows:
1. POSITION.
During the term of this Agreement, Company will employ Employee and Employee
will serve as President of the Company, and General Manager of the Company's
Professional Services business unit. Employee will report directly to the Chief
Executive Officer of the Company.
2. DUTIES.
Employee will be responsible for all aspects of the business of the Professional
Services business unit, and will have such other duties as are reasonably
determined by the Chief Executrive Officer and/or the Board of Directors.
Employee will comply with and be bound by Company's operating policies,
procedures, and practices from time to time in effect during Employee's
employment. Employee will perform his duties under this Agreement at the
offices of Company in Needham, Massachusetts. Employee hereby represents and
warrants that he is free to enter into and fully perform this Agreement and the
agreements referred to herein without breach of any agreement or contract to
which he is a party or by which he is bound.
3. EXCLUSIVE SERVICE.
Employee will devote his full professional time and efforts exclusively to this
employment and apply all his skill and experience to the performance of his
duties and advancing the Company's interests in accordance with Employee's
experience and skills. In addition, Employee will not engage in any consulting
activity except with the prior written approval of Company, or at the direction
of Company, and Employee will otherwise do nothing incompatible with the
performance of his duties hereunder.
4. TERM OF AGREEMENT.
This Agreement will commence on the Effective Date, and will continue until the
earlier of one year after the Effective Date or when terminated pursuant to
Section 7 hereof. The expiration or termination of this Agreement will not
result in the termination of Employee's employment, but Employee will become an
"at will" employee upon such termination or expiration.
5. COMPENSATION AND BENEFITS.
-1-
<PAGE>
(a) Base Salary. The Company agrees to pay Employee an initial base salary
-----------
of $150,000 per year, Employee's salary will be payable as earned in accordance
with Company's customary payroll practice, which currently is to pay salary on a
bi-weekly basis.
(b) Additional Benefits. Employee will be eligible to participate in
-------------------
Company's employee benefit plans of general application, including without
limitation the Company's 401(k) Plan and those plans covering life, health,
disability, and dental insurance in accordance with the rules established for
individual participation in any such plan and applicable law. Employee will
receive such other benefits, including health club membership, vacation,
holidays and sick leave, as the Company generally provides to its employees
holding similar positions as that of Employee.
(c) Bonus Plan. Employee shall be eligible to participate in the Asymetrix
----------
1997 Bonus Plan and any future bonus plans adopted by the Board of Directors.
Bonuses are determined based on several factors including corporate revenue and
operating income, business unit revenue and operating income, and individual
performance. Individual performance goals will be established shortly after
beginning employment. As President, Employee's target bonus is 35% of annual
base salary, with a maximum bonus of 100% of base salary. The terms of future
bonus plans will be as determined by the Board of Directors.
(d) Business Expenses. The Company will reimburse Employee for all
-----------------
reasonable and necessary expenses incurred by Employee in connection with the
Company's business, provided that such expenses are deductible to the Company,
are in accordance with the Company's applicable policy and are properly
documented and accounted for in accordance with the requirements of the Internal
Revenue Service.
(e) Stock Options. Effective as of the date of employment, Employee shall
-------------
be granted under the Company's Stock Option Plan an incentive stock option to
purchase 23,000 shares of Common Stock at the fair market value as determined by
the Company's Board on the date of grant, which is subject to ratification by
the Board of Directors. Such options shall become exercisable ("vest") one-
fourth (1/4) on the first anniversary of Employee's employment and one-thirty-
sixth (1/36) of the remainder on the same day of the month for the next 36
months.
6. PROPRIETARY RIGHTS.
Employee hereby agrees to execute an Employee Invention, Confidentiality, Non-
raiding and Noncompetition Agreement (the "Invention Agreement") with the
Company in substantially the form attached hereto as Exhibit A.
---------
7. TERMINATION.
(a) Events of Termination. Employee's employment with the Company shall
---------------------
terminate upon any one of the following:
-2-
<PAGE>
(i) the Company's determination made in good faith that it is
terminating the Employee for "cause" as defined under Section 7(b) below
------------
("Termination for Cause"); or
---------------------
(ii) the effective date of a written notice sent to Employee stating
that the Company is terminating his employment, without cause, which notice can
be given by the Company at any time after the Effective Date at the Company's
sole discretion, for any reason or for no reason ("Termination Without Cause");
-------------------------
or
(iii) the effective date of a written notice sent to the Company from
Employee stating that Employee is electing to terminate his employment with the
Company ("Voluntary Termination").
---------------------
(b) "Cause" Defined. For purposes of this Agreement, "cause" for
---------------
Employee's termination will exist at any time after the happening of one or more
of the following events:
(i) a failure or refusal to comply in any material respect with the
reasonable policies, standards or regulations of the Company;
(ii) a good faith determination by the Company's Chief Executive
Officer and/or Board of Directors that Employee's performance is unsatisfactory
after reasonable notice of the ways in which performance is unsatisfactory and
an opportunity to correct any such deficiencies;
(iii) a failure or refusal in any material respect to perform his
duties determined by the Company in accordance with this Agreement or the
customary duties of Employee's employment (except for any failure due to ill
health or disability);
(iv) unprofessional, unethical or fraudulent conduct or conduct that
materially discredits the Company or is materially detrimental to the
reputation, character or standing of the Company;
(v) dishonest conduct or a deliberate attempt to do an injury to
the Company;
(vi) Employee's material breach of a term of this Agreement or the
Invention Agreement, including, without limitation, Employee's unauthorized
disclosure or theft of the Company's proprietary information;
(vii) an unlawful or criminal act which would reflect badly on the
Company in the Company's reasonable judgment; or
(viii) Employee's death.
8. EFFECT OF TERMINATION.
(a) Termination for Cause or Voluntary Termination. In the event of any
----------------------------------------------
termination of this Agreement pursuant to Sections 7(a)(i) or 7(a)(iii), the
Company shall pay Employee the
-3-
<PAGE>
compensation and benefits otherwise payable to Employee under Section 5 through
the date of termination. Employee's rights under the Company's benefit plans of
general application shall be determined under the provisions of those plans.
(b) Termination Without Cause. In the event of any termination of this
-------------------------
Agreement pursuant to Section 7(a)(ii) during the period ending one year after
the Effective Date:
(i) The Company shall pay Employee the compensation and benefits
otherwise payable to Employee under Section 5 through the date of termination
(including a pro rata portion of any bonus compensation that may become payable
for the calendar quarter that includes the date of termination, which bonus
compensation shall be paid following the end of such calendar quarter);
(ii) for a period ending on the later of one year after the Effective
Date or six months following the date of termination, the Company shall continue
to pay Employee his base salary under Section 5(a) above at Employee's then-
------------
current salary, less applicable withholding taxes, payable on the Company's
normal payroll dates during that period;
(iii) Employee's rights under the Company's benefit plans of general
application shall be determined under the provisions of those plans.
9. MISCELLANEOUS.
(a) Arbitration. Employee and the Company shall submit to mandatory
-----------
binding arbitration in Boston, Massachusetts any controversy or claim arising
out of, or relating to, this Agreement or any breach hereof, provided, however,
-------- -------
that the Company retains its right to, and shall not be prohibited, limited or
in any other way restricted from, seeking or obtaining equitable relief from a
court having jurisdiction over the parties. Such arbitration shall be conducted
in accordance with the commercial arbitration rules of the American Arbitration
Association in effect at that time, and judgment upon the determination or award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
(b) Severability. If any provision of this Agreement shall be found by any
------------
arbitrator or court of competent jurisdiction to be invalid or unenforceable,
then the parties hereby waive such provision to the extent that it is found to
be invalid or unenforceable and to the extent that to do so would not deprive
one of the parties of the substantial benefit of its bargain. Such provision
shall, to the extent allowable by law and the preceding sentence, be modified by
such arbitrator or court so that it becomes enforceable and, as modified, shall
be enforced as any other provision hereof, all the other provisions continuing
in full force and effect.
(c) Remedies. The Company and Employee acknowledge that the service to be
--------
provided by Employee is of special, unique, unusual, extraordinary and
intellectual character, which gives it peculiar value the loss of which cannot
be reasonably or adequately compensated in damages in an action at law.
Accordingly, Employee hereby consents and agrees that for any breach or
violation by Employee of any of the provisions of this Agreement including,
without limitation, Section 3, a restraining order and/or injunction may be
issued against Employee, in
-4-
<PAGE>
addition to any other rights and remedies the Company may have, at law or
equity, including without limitation the recovery of money damages.
(d) No Waiver. The failure by either party at any time to require
---------
performance or compliance by the other of any of its obligations or agreements
shall in no way affect the right to require such performance or compliance at
any time thereafter. The waiver by either party of a breach of any provision
hereof shall not be taken or held to be a waiver of any preceding or succeeding
breach of such provision or as a waiver of the provision itself. No waiver of
any kind shall be effective or binding, unless it is in writing and is signed by
the party against whom such waiver is sought to be enforced.
(e) Assignment. This Agreement and all rights hereunder are personal to
----------
Employee and may not be transferred or assigned by Employee at any time. The
Company may assign its rights, together with its obligations hereunder, to any
parent, subsidiary, affiliate or successor, or in connection with the sale,
transfer or other disposition of all or substantially all of its business and
assets, provided, however, that any such assignee assumes the Company's
-------- -------
obligations hereunder.
(f) Withholding. All sums payable to Employee hereunder shall be reduced
-----------
by all federal, state, local and other withholding and similar taxes and
payments required by applicable law.
(g) Entire Agreement. This Agreement and the Invention Agreement
----------------
constitute the entire and only agreement between the parties relating to
employment of Employee with the Company, and this Agreement and the Invention
Agreement supersede and cancel any and all previous contracts, arrangements or
understandings with respect thereto.
(h) Amendment. This Agreement may be amended, modified, superseded,
---------
canceled, renewed or extended only by an agreement in writing executed by both
parties hereto.
(i) Notices. All notices and other communications required or permitted
-------
under this Agreement shall be in writing and hand delivered, sent by telecopier,
sent by certified first class mail, postage prepaid, or sent by nationally
recognized express courier service. Such notices and other communications shall
be effective upon receipt if hand delivered or sent by telecopier, five days
after mailing if sent by U.S. mail, and one day after dispatch if sent by
express courier, to the following addresses, or such other addresses as any
party shall notify the other parties:
If to the Company: Asymetrix Corporation
110-110th Avenue N.E., Suite 700
Bellevue, WA 98004-5840
Telecopier: 206-637-1540
Attention: Chief Executive Officer
If to Employee: ____________________________
____________________________
____________________________
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Telecopier: _____________________________
Attention: _____________________________
(j) Binding Nature. This Agreement shall be binding upon, and inure to the
--------------
benefit of, the successors and personal representatives of the respective
parties hereto.
(k) Governing Law. This Agreement and the rights and obligations of the
-------------
parties hereto shall be construed in accordance with the laws of the State of
Massachusetts, without giving effect to the principles of conflict of laws;
provided, however, that if Employee is relocated to another jurisdiction then
the laws of such jurisdiction shall apply, and in the event of any claim made
following termination the laws of the jurisdiction where Employee was located on
the date of termination shall apply.
IN WITNESS WHEREOF, the Company and Employee have executed this Agreement
as of the date first above written.
"COMPANY" "EMPLOYEE"
ASYMETRIX CORPORATION
/s/ Kevin Oakes
-----------------------------
KEVIN OAKES
By: /s/ J. Billmaier
-------------------------------------
Name: James Billmaier
----------------------------------
Title: Chief Executive Officer
-----------------------------------
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EXHIBIT A
---------
EMPLOYEE INVENTION, CONFIDENTIALITY,
NONRAIDING AND NONCOMPETITION AGREEMENT
ASYMETRIX CORPORATION and each of its subsidiary corporations (collectively
"Asymetrix") and I, the undersigned employee, agree as follows.
Asymetrix is in the business of, among other activities, developing and
publishing computer software for creating and managing computer based training
and on-line learning applications as well as providing consulting services and
both customized and standard online learning content.
During the course of my employment and/or engagement as a consultant or
independent contractor by Asymetrix, I, the undersigned employee of Company
("Employee"), acknowledge that I have been and will be exposed to and become
familiar with various aspects of software programming, concepts, designs,
procedures, processes and other forms of information proprietary to Company.
In consideration of the terms of my Employment Agreement with Company,
effective on the Closing Date including the salary, fringe benefits and bonus
payments made and to be made to me under that agreement; and other good and
valuable consideration; I hereby agree on behalf of myself, my heirs, executors,
legal representatives and assigns:
1. DEFINITIONS.
For purposes of this Agreement:
(a) "Company" means Asymetrix Corporation, its subsidiary corporations and
its and their successors and assigns.
(b) "Confidential Information" means any type of information or material
disclosed to or known by me as a consequence of or through my employment or
other retention by Company (including information conceived, originated,
discovered, or developed in whole or in part by me), which is not generally
known by non-Company personnel and including but not limited to information
which relates to Company research, development, trade secrets, know how,
Inventions, technical data, software, manufacture, purchasing, accounting,
engineering, marketing, merchandising or selling, and information entrusted to
Company or its principal officers and employees by third parties. INFORMATION
GENERALLY KNOWN OR READILY ASCERTAINABLE BY PROPER MEANS AT OR AFTER THE TIME
THE UNDERSIGNED FIRST LEARNS OF SUCH INFORMATION, OR GENERAL INFORMATION OR
KNOWLEDGE WHICH I WOULD HAVE LEARNED IN THE COURSE OF SIMILAR EMPLOYMENT OR WORK
ELSEWHERE IN THE TRADE, SHALL NOT BE DEEMED TO BE CONFIDENTIAL INFORMATION. In
any dispute over whether information is Confidential Information or not, it
shall be my burden to show that such information is not Confidential
Information.
-7-
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(c) "Inventions" means original works of authorship, discoveries,
concepts, ideas and improvements to existing technology, and all other subject
matter ordinarily comprehended by the term "invention", whether or not
copyrightable or patentable, including, but not limited to, computer programs,
processes, machines, products, compositions of matter, formulae, algorithms, and
techniques, as well as improvements thereof, and expressions thereof, which, in
whole or in part, are conceived, discovered or developed by me, either alone or
with others, and which (i) relate directly to the business of Company or to
Company's actual or demonstrably anticipated research or development; or (ii)
incorporate, are developed using, or are otherwise based upon any Confidential
Information; or (iii) are made, conceived, discovered or developed during times
other than my own time or with the use of any Company equipment, supplies or
facilities, including Company resources or personnel; or (iv) result from any
work performed by me for Company.
2. RECORDS OF INVENTIONS AND CONFIDENTIAL INFORMATION.
I shall promptly, in such form and detail as is prescribed by Company, record
and keep a complete and permanent written record of information relating to the
conception, origination, discovery or development of Confidential Information
and Inventions.
3. OBLIGATIONS OF EMPLOYEE REGARDING INVENTIONS.
(a) I shall disclose to Company promptly and fully and by a written report
completely describing each in detail all of my original works of authorship,
discoveries, concepts, ideas and improvements to existing technology, and all
other subject matter ordinarily comprehended by the term "invention", whether or
not within the definition of Inventions.
(b) With respect to Inventions, and without additional or further
consideration, (i) I shall apply, at Company's request and expense, for United
States and foreign design or letters patent or other legal protection of
intellectual property either in my name or otherwise as Company shall direct;
and (ii) I shall assign (and do hereby assign) to Company all of my rights to
such Inventions, and to applications for United States copyright and foreign
design or letters patent or other legal protection of intellectual property
granted upon such Inventions, and hereby agree that Company and/or its
authorized agent shall have full control over all such applications for patents
or other legal protection of intellectual property, including without limitation
the right to amend or abandon the same; and (iii) I shall sign and deliver
promptly to Company such written instruments, testify in any legal proceedings,
and do such other acts, as may be necessary in the opinion of Company to secure
and maintain for Company exclusive rights in United States and foreign
copyrights, design or letters patent or other legal protection of intellectual
property for all such Inventions; and (iv) I shall waive (and hereby do waive)
any moral rights I have or may have in Inventions.
Except as provided in Section 3(a) above, this Agreement does not apply to an
invention for which no equipment, supplies, facility, or Confidential
Information of Company was used and which was developed entirely on my own time,
unless (a) the invention relates (i) directly to the business of Company, or
(ii) to Company's actual or demonstrably anticipated research or development, or
(b) the invention results from any work performed by me for the Company.
-8-
<PAGE>
(c) With respect to any invention which does not constitute an Invention,
upon the written request of Employee, Company will acknowledge in writing that
Company does not have any interest in such invention as described in the
request.
4. RIGHTS OF COMPANY REGARDING INVENTIONS.
Company shall have the exclusive right to all Inventions, without additional or
further consideration to me, including but not limited to the right to own,
make, use, sell, have made, rent, lease or lend, copy, prepare derivative works
of, perform or display publicly all Inventions.
5. CONFIDENTIALITY.
(a) Except as required in my duties to Company, I shall never directly or
indirectly use, disseminate, lecture upon, publish articles concerning, make
known, or otherwise disclose or make available to any person, firm, corporation
or other entity not confidentially bound to Company, any Confidential
Information (including Confidential Information related to Inventions) without
written permission from Company. If I am served with any subpoena or other
compulsory judicial or administrative process calling for production of
Confidential Information, I will immediately notify Company in order that it may
take such action as it deems necessary to protect its interest.
(b) I understand it is Company's policy not to improperly obtain or use
confidential, proprietary or trade secret information that belongs to third
parties (including my former employers and anyone who entrusted confidential,
proprietary or trade secret information to me or my former employers). I shall
never knowingly improperly obtain, attempt to obtain, use, disseminate, disclose
or transfer to Company confidential, proprietary or trade secret information
that belongs to third parties. This paragraph shall not limit my right to use
my general knowledge and experience, whether or not gained while employed by any
third party.
6. NONRAIDING OF EMPLOYEES.
I recognize that Company's workforce is a vital part of its business.
Therefore, so long as I am an employee of Company, or am retained by Company as
an independent contractor or consultant, and for twenty-four (24) months after
my employment, independent contractor and/or consulting relationships with
Company terminate (regardless of the reason they terminate), I will not solicit,
directly or indirectly, any employee to leave his or her employment with
Company. For the purposes of this Agreement, the phrase "shall not solicit,
directly or indirectly," includes, without limitation, that I (a) shall not
disclose to any third party the names, backgrounds or qualifications of any
Company employees or otherwise identify them as potential candidates for
employment; (b) shall not personally or through any other person approach,
recruit or otherwise solicit employees of Company to work for any other
employer; and (c) shall not participate in any pre-employment interviews with
any person who was employed by Company while I was employed or retained by
Company.
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<PAGE>
7. NONCOMPETITION.
I recognize and agree that Company has many substantial, legitimate business
interests that can be protected only by my agreeing not to compete with Company
under certain circumstances. These interests include, without limitation, the
Company's protection of and rights in its Confidential Information. Therefore,
subject to the limitations of applicable state law regarding the enforceability
of covenants not to compete, I agree as follows:
(a) Noncompetition While Related to Company. So long as I am an employee
---------------------------------------
of Company, or am retained by Company as an independent contractor or
consultant, I will not, directly or indirectly, compete with Company in any way.
(b) Noncompetition After Relationships with Company Terminate. After
---------------------------------------------------------
Voluntary Termination or Temination With Cause (both as defined in my Employment
Agreement) of my employment, independent contractor and/or consulting
relationships with Company, and for the length of time provided in subparagraph
7(f) below, I will not, directly or indirectly, in any geographic area where
Company's software products or services are then marketed, sold or distributed:
(a) publish or propose to publish Competing Software or provide or propose to
provide Competing Services, (b) design or develop Competing Software or
Competing Services, or (c) work for or with, or provide services or information
to, any person or entity that (i) publishes or proposes to publish Competing
Software, or (ii) is designing or developing Competing Software or (iii) is
providing or proposes to provide Competing Services.
(c) Competing Software. For purposes of this Agreement, Competing Software
------------------
means computer software that competes or will compete with any of Company's then
existing or reasonably anticipated software products with which I have personal
involvement in the course of my employment and/or retention as a consultant or
independent contractor by Asymetrix.
(d) Competing Software. For purposes of this Agreement, Competing Services
------------------
means consulting services that competes or will compete with any of Company's
then existing or reasonably anticipated consulting services.
(e) Competing Companies with Multiple Divisions. Companies that (i)
-------------------------------------------
publish or propose to publish Competing Software, or (ii) are designing or
developing Competing Software or (iii) provide or propose to provide Competing
Services are referred to as "Competing Companies." Where a Competing Company
has multiple divisions, business units or product work groups, the
noncompetition provisions of subparagraph 7(b) above shall apply only to those
divisions, business units or product work groups that are involved with
Competing Software or Competing Services, provided that I provide written
assurances satisfactory to Company that the information and work product I
provide to other divisions, business units or product work groups of the
competitor will not be shared, directly or indirectly, with the divisions,
business units or product work groups involved with Competing Software or
Competing Services.
(f) Term of Noncompetition. The noncompetition provisions of subparagraph
----------------------
7(b) above shall apply for a period of twelve (12) months after my relationships
with Company terminate, regardless of the reasons they terminate.
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<PAGE>
(g) Other Rights. I understand that in cases where the noncompetition
------------
provisions of this paragraph 7 do not apply, I am still subject to all other
obligations I have to the Company, including my obligations related to the
Company's Inventions, copyrights and Confidential Information.
8. DISCLOSURE OF PROPOSED EMPLOYMENT.
Before I undertake or agree to undertake any other employment, consultancy or
independent contractor relationship, for myself or with or for a Competing
Company, I shall give Company reasonable advance notice and fully disclose the
proposed employment, consultancy or independent contractor relationship to
Company. My duty to give notice and disclose under this paragraph shall apply
during my employment or retention as an employee, independent contractor or
consultant by Company, and during the period of time the noncompetition
provisions of subparagraph 7(b) above are in effect.
9. OWNERSHIP OF RECORDS.
Upon termination of my employment, independent contractor or consulting
relationship(s) with Company, or earlier if Company requests, I will deliver to
and leave with Company any and all objects, materials, devices, or substances
(including without limitation all documents, records, notebooks, recordings,
drawings, prototypes, models, schematic diagrams, computer programs (regardless
of the media on which they are stored) and similar repositories or objects)
which describe, depict, contain, constitute, reflect or record Confidential
Information, and all copies thereof, then in my possession or under my control,
whether or not prepared by me.
10. SAVING PROVISION.
I agree that the terms of this Agreement, including the duration, scope and
geographic extent of the nonraiding and noncompetition provisions, is fair and
reasonably necessary to protect Company's client relationships, employee
relationships, goodwill, Confidential Information and other protectable
interests in light of all of the facts and circumstances of my relationship with
Company. In the event a court declines to enforce any of the terms of this
Agreement they shall be deemed to be modified to restrict me to the maximum
extent that the court finds enforceable.
11. INJUNCTIVE RELIEF.
I acknowledge that the breach or threatened breach of this Agreement would cause
irreparable injury to Company that could not be adequately compensated by money
damages. Accordingly, Company may obtain a restraining order and/or injunction
prohibiting my breach or threatened breach of this Agreement, in addition to any
other legal or equitable remedies that may be available. I acknowledge that, if
my employment or other relationships with Company end, my experience and
capabilities are such that I can obtain employment in business activities that
do not violate this Agreement, and that an injunction to enforce this Agreement
will not prevent me from earning a reasonable livelihood.
-11-
<PAGE>
12. NO GUARANTEE OF EMPLOYMENT.
This Agreement may not be construed as an employment agreement, as a guarantee
of continued employment, or as a limitation upon Company's discretion with
respect to the termination of my employment, it being understood that my
employment is terminable at will by either myself or Company, subject to the
terms of the Employment Agreement of even date herewith (the "Employment
Agreement").
13. CONSENT TO NOTIFICATION.
I consent to Company giving notification to third parties of the existence and
terms of this Agreement (but not of my Employment Agreement).
14. LEGAL EXPENSE.
In any dispute between us arising out of or relating to this Agreement or our
employment relationship, the prevailing party shall be entitled to recover from
the other party reasonable sums as attorneys' fees and expenses, including
expert witness fees, at trial and on appeal.
15. WAIVER OF BREACH.
The waiver of any breach of this Agreement or failure to enforce any provision
of this Agreement shall not waive any later breach.
16. MISCELLANEOUS.
(a) This Agreement may be modified, supplemented and/or amended only by a
writing that both the Company and I sign. This Agreement, as it may be so
amended, together with the Employment Agreement are the complete and final
expression of my agreement with Company on the subjects covered, and shall
control over any other statement, representation or agreement on these subjects.
(b) The headings of the sections and paragraphs of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of its provisions.
(c) The rights and obligations under this Agreement shall be governed by
the internal laws of the state in which I will be based while providing services
to Company, without regard to the provisions thereof related to choice of laws
or conflict of laws. If I am based in more than one state during the term of
this Agreement then "the state in which I will be based while providing services
to Company" shall mean the state in which I was based at the earlier of (i) the
time the claim in issue hereunder arose or (ii) termination of my employment
with Company.
(d) Venue and jurisdiction of any lawsuit involving this Agreement or my
employment shall exist exclusively in state and federal courts in the county and
state in which I will be based while providing services to Company (as
determined pursuant to paragraph 16(c)), unless
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<PAGE>
injunctive relief is sought by Company and, in Company's judgment, may not be
effective unless obtained in some other venue.
(e) My obligations under this Agreement supplement and do not supersede or
limit other obligations I have to Company or other rights or remedies available
to Company, including without limitation under the Trade Secrets Acts of any
applicable jurisdiction.
(f) The existence of any claim or cause of action by myself against Company
shall not constitute a defense to the enforcement of this Agreement or excuse
performance of the obligations I have assumed hereunder.
(g) In case any one or more of the provisions contained in this Agreement
shall, for any reason, be held to be totally invalid, illegal or unenforceable
in any respect, such invalidity, illegality or unenforceability shall not
affect any other provisions of this Agreement, but this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
(h) This Agreement shall survive the termination of my relationship with
Company, however caused.
IN WITNESS WHEREOF, the Company and Employee have executed this Agreement
as of the date first above written.
"COMPANY" "EMPLOYEE"
ASYMETRIX CORPORATION
/s/ KEVIN OAKES
___________________________________
KEVIN OAKES
By: /s/ J. Billmaier
____________________________________
Name: James Billmaier
__________________________________
Title: Chief Executive Officer
___________________________________
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EXHIBIT 10.17
STOCK PURCHASE AND SALE AGREEMENT
THIS AGREEMENT is made as of March 27th, 1998 by and between Asymetrix
Learning Systems, Inc., a Washington corporation with an address for purposes of
this Agreement at 110 - 110th Avenue NE, Bellevue, Washington 98004
("Asymetrix"), and Vulcan Ventures Inc., a Washington corporation with an
address for purposes of this Agreement at 110 - 110th Avenue NE, Bellevue,
Washington 98004 ("Vulcan").
RECITALS
A. Asymetrix is the holder of record of 700,000 shares of the Series A
Preferred Stock of Infomodlers, Inc. (the "Series A Shares") and is the holder
of record of 19 shares of the Common Stock of Infomodlers, Inc. (the "Common
Shares").
B. Asymetrix has certain rights with respect to the Series A Shares
pursuant to the terms of a Registration Rights Agreement among Infomodlers,
Inc., Asymetrix and Informix Corporation dated as of November 5, 1996 (the
"Registration Rights Agreement").
C. Vulcan desires to purchase from Asymetrix and Asymetrix desires to sell
to Vulcan, all of the Series A Shares and 16 of the Common Shares (the Series A
Shares and such portion of the Common Shares being collectively referred to as
the "Shares") on the terms and conditions in this Agreement.
Therefore, in consideration of the foregoing and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, and
the mutual promises contained in this Agreement, Asymetrix and Vulcan agree as
follows:
1. PURCHASE AND SALE OF SHARES.
(a) Purchase and Sale; Calculation of Purchase Price. Subject to the terms
------------------------------------------------
and conditions of this Agreement, Asymetrix hereby agrees to sell the Shares to
Vulcan, and Vulcan hereby agrees to purchase the Shares from Asymetrix. The
per share purchase price for each of the Series A Shares shall be $2.8259. The
per share purchase price for each of the Common Shares shall be $24,346.39. The
total aggregate purchase price for all of the Shares is $2,367,662.21.
(b) Taxes. Vulcan shall be required to pay any sales or transfer taxes
-----
imposed on the sale of the Shares to Vulcan, other than income or capital gains
taxes based on any appreciation in the value of the Shares. Asymetrix shall pay
any income or capital gains taxes resulting from the sale of the Shares to
Vulcan.
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<PAGE>
2. REPRESENTATIONS AND WARRANTIES OF ASYMETRIX.
Asymetrix hereby represents and warrants to Vulcan as follows:
(a) Good Title. Except for rights pursuant to the Registration Rights
----------
Agreement, Asymetrix has good title (both record and beneficial) to the Shares,
free and clear of all claims, pledges, security interests, liens or encumbrances
of every nature whatsoever, and Asymetrix has the right to sell, assign,
transfer and convey the Shares to Vulcan.
(b) Authorization. This Agreement has been duly executed and delivered by
-------------
Asymetrix and constitutes the valid and binding obligation of Asymetrix,
enforceable in accordance with its terms. The execution, delivery and
performance of this Agreement and the sale and transfer of the Shares and
compliance with the provisions of this Agreement will not conflict with any
provision of, or constitute the breach of or default under, any agreement,
indenture or other instrument to which Asymetrix is a party or by which
Asymetrix is bound or affected.
3. REPRESENTATIONS AND WARRANTIES OF VULCAN.__
Vulcan represents and warrants to Asymetrix as follows:
(a) Authorization. This Agreement has been duly executed and delivered by
-------------
Vulcan and constitutes the valid and binding obligation of Vulcan, enforceable
in accordance with its terms. The execution, delivery and performance of this
Agreement and the purchase of the Shares and compliance with the provisions of
this Agreement will not conflict with any provision of, or constitute the breach
of or default under, any agreement, indenture or other instrument to which
Vulcan is a party or by which Vulcan is bound or affected.
(b) Investment Representations. Vulcan is acquiring the Shares for
--------------------------
Vulcan's own account, for investment purposes only and not with a view to
distribution thereof; and none of the Shares will be sold or distributed in
violation of the Securities Act of 1933 (the "Securities Act") or applicable
state securities laws or the rules or regulations under either. Vulcan has no
present intention of selling or otherwise disposing of any portion of the Shares
and no one other than Vulcan has any beneficial interest in the Shares. Vulcan
understands and acknowledges that the Shares have not been registered with the
Securities and Exchange Commission ("SEC") under the Securities Act, nor have
the Shares been registered under any state securities laws but instead were
issued under one or more exemptions from the registration and qualification
requirements of the Securities Act and any state securities laws.
(c) Restrictions on Transfer. Vulcan understands and acknowledges the
------------------------
Shares must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act and applicable state securities law or
unless, in the opinion of counsel for Infomodelers, Inc., exemption from
registration and qualification are available. Vulcan understands that only
Infomodelers, Inc. may file a registration statement with the SEC or any state
authorities, and that Infomodelers, Inc. is under no obligation to do so.
Vulcan understands that exemptions from
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<PAGE>
registration or qualification may not be available or may not permit Vulcan to
transfer the Shares in the amounts or at the times proposed by Vulcan. The
financial condition of Vulcan is such that Vulcan is able to bear all risks of
holding the Shares for an indefinite period of time.
(d) Due Diligence. Vulcan has been afforded an opportunity to ask
--------------
questions of and receive answers from Asymetrix concerning the Shares, and the
opportunity to obtain any additional information necessary to verify the
accuracy of information otherwise furnished by Asymetrix hereunder. Vulcan
acknowledges that Vulcan has investigated acquisition of the Shares to the
extent Vulcan deems necessary or desirable, and Asymetrix has provided Vulcan
with any assistance, including full access to all material information in
Asymetrix's possession or reasonably available to Asymetrix in connection
therewith that was requested by Vulcan. Vulcan has also consulted such tax,
legal and other professional advisors as Vulcan deems appropriate. As a result,
Vulcan is fully aware of (i) the highly speculative nature of the Shares; (ii)
the financial hazards involved; (iii) the lack of liquidity of the Shares and
restrictions on the transfer of the Shares; (iv) the qualifications and
background of the management of Infomodelers, Inc.; and (iv) the tax
consequences of the issuance and holding of the Shares.
(e) Sophisticated Purchaser. By reason of Vulcan's business and financial
-----------------------
experience, Vulcan has the capacity to protect its own interests in connection
with the purchase of the Shares. In addition, Vulcan has such knowledge and
experience in financial and business matters that Vulcan is capable of
evaluating the merits and risks of acquisition of the Shares and of making an
informed investment decision with respect thereto. In addition, Vulcan is an
accredited investor, as "accredited investor" is defined in Regulation D adopted
by the U.S. Securities and Exchange Commission and the regulations adopted under
the Securities Acts of the State of Washington.
(f) Private Negotiation. This Agreement was privately negotiated between
-------------------
Asymetrix and Vulcan and involved no advertising, publicity or general
solicitation. No communications between Vulcan and Asymetrix relating to the
purchase of the Shares were received or originated by Vulcan outside the state
of Washington. Vulcan has not employed any broker or finder in connection with
the transactions contemplated by this Agreement.
4. DELIVERY, ASSIGNMENT AND ASSUMPTION.
(a) Delivery of Certificates. At the Closing, Asymetrix will deliver to
------------------------
Vulcan Certificate No. AP-1 representing the Series A Shares, accompanied by a
fully executed Stock Power and Assignment Separate from Certificate in the form
attached hereto as Exhibit A. Asymetrix has not received from Infomodelers,
Inc. any certificate representing the Common Shares. The parties will execute
such documents and take such actions as may be required to enable Infomodelers,
Inc. to promptly issue new certificates to Vulcan representing the Series A
Shares and the 16 Common Shares sold to it pursuant to this Agreement, and to
Asymetrix representing the 3 Common Shares being held by Asymetrix.
(b) Assignment and Assumption Rights. Asymetrix hereby sells, assigns,
--------------------------------
transfers and conveys to Vulcan, effective immediately, all of its rights under
each of the Registration
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<PAGE>
Rights Agreement. Vulcan hereby assumes, from and after the date hereof, and
agrees to perform or discharge when due, any obligations of Asymetrix under the
Registration Rights Agreement. Asymetrix will indemnify and hold Vulcan harmless
from and against all actions or causes of action, liabilities, claims,
obligations, damages, and expenses (including reasonable attorneys' fees), which
arise out Asymetrix's failure to comply with any provision of the Registration
Rights Agreement prior to the date hereof. Vulcan will indemnify and hold
Asymetrix harmless from and against all actions or causes of action,
liabilities, claims, obligations, damages, and expenses (including reasonable
attorneys' fees), which arise out Vulcan's failure to comply with any provision
of the Registration Rights Agreement on or after the date hereof.
5. MISCELLANEOUS.
(a) Governing Law. This Agreement shall be governed in all respects by the
-------------
laws of the State of Washington as such laws are applied to agreements between
Washington residents entered into and to be performed entirely within
Washington. Venue of any action to enforce this Agreement shall be in the state
or federal courts located in King County, Washington, and the parties hereby
submit to the jurisdiction of such courts.
(b) Survival. The representations, warranties, covenants and agreements
--------
made in this Agreement shall survive the issuance of the Shares and any
investigation made by Vulcan or Asymetrix.
(c) Successors and Assigns. Except as otherwise expressly provided in this
----------------------
Agreement, the provisions of this Agreement shall inure to the benefit of, and
be binding upon, the successors, heirs, permitted assigns, transferees and
administrators of the parties to this Agreement.
(d) Entire Agreement. This Agreement contains all the agreements,
----------------
understandings, representations, conditions, warranties and covenants, and
constitutes the sole and entire agreement between the parties hereto pertaining
to the subject matter hereof and supersedes all prior communications or
agreements, written or oral, other than any confidentiality or non-disclosure
agreements. This Agreement may not be modified except by written instrument
signed by each party.
(e) Notices. All notices, requests, demands or other communications which
-------
are required or may be given pursuant to the terms of this Agreement shall be in
writing and shall be deemed to have been duly given (i) on the date of delivery
if delivered by hand or by confirmed facsimile, (ii) upon the third day after
such notice is deposited in the United States mail, if mailed by registered or
certified mail, postage prepaid, return receipt requested, or (iii) upon the
date of the courier's verification of delivery at the specified address if sent
by a nationally recognized overnight express courier.
(f) Delays or Omissions. It is agreed that no delay or omission to
-------------------
exercise any right, power or remedy accruing to either party upon any breach of
default of the other party under this
-4-
<PAGE>
Agreement shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach or default, or any acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
ASYMETRIX LEARNING SYSTEMS, INC. VULCAN VENTURES INC.
By /s/ John Atherly By /s/ William D. Savoy
---------------------------------- ---------------------------------
Name John Atherly Name William D. Savoy
-------------------------------- -------------------------------
Title V.P. Finance and Title Vice President
------------------------------- ------------------------------
Administration
-5-
<PAGE>
EXHIBIT A
STOCK POWER AND ASSIGNMENT
FOR VALUE RECEIVED, and pursuant to that certain Stock Purchase and Sale
Agreement dated as of March 24th, 1998 executed in connection herewith (the
"Agreement"), the undersigned hereby sells, assigns, transfers and coveys unto
Vulcan Ventures, Inc. pursuant to the Agreement, the following shares of the
capital stock of Infomodelers, Inc. (the "Shares"):
(1) 700,000 shares of the Series A Preferred Stock of Infomodelers, Inc.
represented by Certificate number AP - 1; and
(2) 13 shares of the Common Stock of Infomodelers, Inc. (originally
represented by Certificate number 173 prior to the 1 for 35,647 reverse stock
split of Infomodelers, Inc.)
The undersigned does not sell, assign, transfer or covey, and expressly
retains all right, title or interest in, 3 shares of the Common Stock of
Infomodelers, Inc. (also originally represented by Certificate number 173).
The undersigned hereby irrevocably appoints the Secretary of Infomodelers,
Inc., as attorney-in-fact, with full power of substitution and re-substitution,
to transfer the Shares and cancel the above described Certificates on the books
and records of Infomodelers, Inc.
Dated: March 24, 1998.
ASYMETRIX LEARNING SYSTEMS, INC.
By: /s/ John Atherly
------------------------------
Name: John Atherly
----------------------------
Title: V.P. Finance and
---------------------------
Administration
-6-
<PAGE>
EXHIBIT 10.18
DIRECTED ENGINEERING AGREEMENT
This Agreement is made as of March 20, 1998 by and between Asymetrix Learning
Systems, Inc. ("Asymetrix") and Vulcan Northwest, Inc., d/b/a Advanced Placement
Excellence ("APEX"). The purpose of this Agreement is to set forth the terms
under which Asymetrix will, for the consideration herein, make certain
enhancements to its Librarian product. Asymetrix and APEX hereby agree as
follows:
1. CREATION OF ENHANCEMENTS.
Asymetrix will modify the commercially available version of its Asymetrix
Librarian learning management system to include the following additional
functionality (the "Enhancements"): (1) an offline content facility that
enables the digital submission, tracking and management of offline assignments,
and (2) enhanced lesson duration properties. The detailed specifications for
the Enhancements and the schedule for completion of the Enhancements will be
specified by the parties in one or more mutually agreed-upon statements of work,
which may be modified by the mutual agreement of the parties. Asymetrix will
retain sufficient qualified engineering personnel to complete Enhancements
within the agreed-upon schedule.
2. OWNERSHIP AND INTELLECTUAL PROPERTY.
APEX acknowledges and agrees that the creation of the Enhancements is NOT a work
for hire and all rights in and to the Enhancements, including any intellectual
property rights therein, shall remain the sole and exclusive property of
Asymetrix. APEX acknowledges and agrees that Asymetrix is the exclusive owner
of all copyrights and all other proprietary rights in the Enhancements
regardless of any payments to Asymetrix hereunder, and acknowledges that the
Enhancements may be included in future versions of Librarian. To the extent APEX
may acquire any rights in the Enhancements, APEX hereby assigns such rights to
Asymetrix. This Agreement conveys to APEX no rights or licenses to use,
duplicate, distribute, market, sublicense or sell the Enhancements in any manner
whatsoever. Any license to use the
3. COMPENSATION.
In consideration of the creation of the Enhancements, APEX shall pay Asymetrix
$250,000, which shall be payable in non-refundable installments upon the
achievement of milestones as follows:
<TABLE>
<CAPTION>
Payment Amount Milestone
-------------- ---------
<S> <C>
$ 150,000 Completion of the initial specification
$ 50,000 Completion of specification for user interface
$ 50,000 Delivery of beta version of Librarian with Enhancements
$ 50,000 Delivery of final version of Librarian with Enhancements
</TABLE>
4. WARRANTY AND LIMITATIONS.
Asymetrix warrants that the Enhancements will conform to the agreed upon
specifications. Asymetrix disclaims any implied warranties of merchantability,
fitness for a particular purpose, title and noninfringement. Neither party
shall be liable for consequential, incidental, special or exemplary damages,
even if apprised of the likelihood of such damages occurring. in no event shall
the liability of either party relating to this Agreement or the enhancements
exceed the total amount payable to Asymetrix hereunder.
ASYMETRIX LEARNING SYSTEMS, INC. VULCAN NORTHWEST, INC.
By /s/ J. Billmaier By /s/ Bryan Barnett
------------------------------ -------------------------------
Name James Billmaier Name Bryan Barnett
---------------------------- -----------------------------
Title CEO Title Project Manager
--------------------------- ----------------------------
-1-
<PAGE>
EXHIBIT 21.01
SUBSIDIARIES OF THE REGISTRANT
JURISDICTION OF
INCORPORATION
Acorn Associates Incorporated
Massachusetts
Aimtech Corporation
Delaware
Asymetrix GmbH
Germany
Asymetrix Limited
United Kingdom
Asymetrix SARL
France
Communications Strategies, Incorporated
Texas
Massachusetts
Oakes Interactive Incorporated
Washington
SuperCede, Inc. (50% owned)
Massachusetts
TopShelf Multimedia, Inc.
<PAGE>
EXHIBIT 23.2
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the captions "Selected
Historical Consolidated Financial Data", "Changes in Accountants", and
"Experts" and to the use of our reports dated April 23, 1997, in the
Registration Statement (Form S-1) and related Prospectus of Asymetrix Learning
Systems, Inc. to be filed with the Securities and Exchange Commission on March
31, 1998.
/s/ Ernst & Young LLP
Seattle, Washington
March 31, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report, dated May 9, 1997; covering the audited financial statements of
Aimtech Corporation as of December 31, 1996 and for the year then ended, and
to all references to our Firm included in or made a part of this registration
statement.
Arthur Andersen LLP
Boston, Massachusetts
March 31, 1998
<PAGE>
EXHIBIT 23.04
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Asymetrix Learning Systems, Inc.:
We consent to the inclusion of our report dated December 19, 1997, with
respect to the balance sheets of Communication Strategies, Inc. as of December
31, 1996 and September 30, 1997, and the related statements of income and
retained earnings and cash flows for the year ended December 31, 1996 and the
nine-month period ended September 30, 1997, which report appears in the Form
S-1 of Asymetrix Learning Systems, Inc. dated March 31, 1998, and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
March 31, 1998
<PAGE>
Exhibit 23.05
WHEN THE TRANSACTION REFERRED TO IN NOTE 12 OF THE NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS HAS BEEN CONSUMMATED, WE WILL BE IN A POSITION TO RENDER
THE FOLLOWING CONSENT.
/S/ KPMG PEAT MARWICK LLP
-------------------------
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
Asymetrix Learning Systems, Inc.:
We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Historical Consolidated Financial Data"
and "Experts" in the prospectus.
Seattle, Washington
March 31, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
FINANCIAL STATEMENTS OF ASYMETRIX LEARNING SYSTEMS, INC. AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1996 DEC-31-1997
<CASH> 3,763 2,454
<SECURITIES> 0 0
<RECEIVABLES> 5,139 8,253
<ALLOWANCES> 3,346 1,148
<INVENTORY> 720 480
<CURRENT-ASSETS> 16,264 10,760
<PP&E> 4,587 6,494
<DEPRECIATION> 3,405 4,660
<TOTAL-ASSETS> 18,727 21,564
<CURRENT-LIABILITIES> 6,417 10,153
<BONDS> 0 0
0 0
8 43
<COMMON> 59 66
<OTHER-SE> 12,243 9,653
<TOTAL-LIABILITY-AND-EQUITY> 18,727 21,564
<SALES> 14,300 17,481
<TOTAL-REVENUES> 17,255 24,064
<CGS> 3,082 2,654
<TOTAL-COSTS> 5,182 6,791
<OTHER-EXPENSES> 35,294 30,200
<LOSS-PROVISION> 246 227
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (23,359) (13,077)
<INCOME-TAX> 196 38
<INCOME-CONTINUING> (23,555) (13,115)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (23,555) (13,115)
<EPS-PRIMARY> (4.01) (2.17)
<EPS-DILUTED> (4.01) (2.17)
</TABLE>
