<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
------------------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number 000-24289
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ASYMETRIX LEARNING SYSTEMS, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its chapter)
Delaware 91-1276003
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110-110th Avenue NE, Bellevue, Washington 98004
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(Address of principal executive offices) (Zip Code)
(425) 462-0501
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No [X]
--- ---
The number of shares outstanding of the issuer's Common Stock, par value $0.01,
as of June 30, 1998 was 13,280,453 shares.
1
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TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION PAGE NO.
- ----------------------------- --------
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk. 16
PART II - OTHER INFORMATION
- --------------------------
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
EXHIBITS 23
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PART I--FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The condensed consolidated financial statements included under this item are as
follows:
ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
------------------ ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products $ 2,505 $ 1,648 $ 4,574 $ 3,051
Other products 730 2,639 2,270 5,450
------- ------- ------- -------
Total product revenue 3,235 4,287 6,844 8,501
Services revenue 4,879 1,105 9,065 1,875
------- ------- ------- -------
Total revenue 8,114 5,392 15,909 10,376
------- ------- ------- -------
Cost of revenue:
Product revenue:
Online learning products 230 108 426 168
Other products 288 456 577 937
------- ------- ------- -------
Total cost of product revenue 518 564 1,003 1,103
Services revenue 3,031 648 5,777 1,138
------- ------- ------- -------
Total cost of revenue 3,549 1,212 6,780 2,241
------- ------- ------- -------
Gross margin 4,565 4,180 9,129 8,135
------- ------- ------- -------
Operating expenses:
Research and development 1,405 2,159 2,840 4,405
Sales and marketing 3,244 3,241 6,495 6,684
General and administrative 1,283 847 2,695 1,744
Amortization of goodwill 195 - 379 -
------- ------- ------- -------
Total operating expenses 6,127 6,247 12,409 12,833
------- ------- ------- -------
Loss from operations (1,562) (2,067) (3,280) (4,698)
Other income(loss), net 33 (39) 2,206 37
------- ------- ------- -------
Net loss (1,529) (2,106) (1,074) (4,661)
Accretion of redemption value of redeemable common stock (604) - (1,370) 0
------- ------- ------- -------
Net loss attributable to common stockholders' $(2,133) $(2,106) $(2,444) $(4,661)
======= ======= ======= =======
Net loss per share, basic and diluted $ (0.27 $ (0.36) $ (0.33) $ (0.79)
======= ======= ======= =======
Weighted average common shares outstanding, basic and diluted 8,036 5,932 7,350 5,932
======= ======= ======= =======
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
3
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ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- -----------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $ 28,124 $ 2,454
Accounts receivable, net of allowance for returns and
doubtful accounts of $1,289 and $1,903 8,009 7,105
Inventories 346 480
Prepaid royalties and licenses 118 79
Receivables from related companies 193 299
Other current assets 1,040 343
----------- -----------
Total current assets 37,830 10,760
----------- -----------
Property and equipment, net 2,222 1,834
Goodwill and other intangible assets, net 10,138 8,641
Other assets 130 329
----------- -----------
Total assets $ 50,318 $ 21,564
=========== ===========
Liabilities and Stockholders' Equity:
Current liabilities:
Notes payable $ 422 $ 762
Accounts payable 1,770 1,956
Accrued liabilities 2,273 2,164
Deferred revenue 2,070 2,981
Other current liabilities 2,527 2,290
----------- -----------
Total current liabilities 9,062 10,153
Other noncurrent liabilities 161 181
----------- -----------
Total liabilities 9,223 10,334
----------- -----------
Redeemable common stock -- 1,468
Stockholders' equity:
Class B stock -- 43
Common stock 134 66
Additional paid-in capital 203,553 169,075
Accumulated deficit (161,706) (159,261)
Deferred stock compensation (690) --
Accumulated other comprehensive loss (196) (161)
----------- -----------
Total stockholders' equity 41,095 9,762
----------- -----------
Total liabilities and stockholders' equity $ 50,318 $ 21,564
=========== ===========
</TABLE>
See the accompanying notes to Condensed Consolidated Financial Statements
4
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ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended June 30,
------------------------
1998 1997
------------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (1,074) $ (4,661)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 817 527
Write-off property and equipment 8 --
Stock compensation expense 203 --
Accrued interest on note receivable from principal
stockholder -- (329)
Accrued interest on Class B stock subscription
receivable -- (28)
Equity in income (losses) from Infomodelers, Inc. (2,169) 337
Changes in assets and liabilities:
Accounts receivable (688) (1,459)
Inventories 134 114
Prepaid royalties and licenses (39) (40)
Receivables from related companies 106 9
Other current assets (692) (564)
Accounts payable (397) (371)
Accrued liabilities 61 (435)
Deferred revenue (911) 149
Other current liabilities (139) 407
----------- ----------
Net cash used in operating activities (4,780) (6,344)
----------- ----------
Cash flows from investing activities:
Purchase of property and equipment (649) (87)
Cash received in acquisition 45 --
Disposal of (investment in) Infomodelers, Inc. 2,373 --
Disposal of other assets -- 10
----------- ----------
Net cash provided by investing activities 1,769 (77)
----------- ----------
Cash flows from financing activities:
Repayments of capital lease obligations (18) --
Proceeds from (repayment) of notes payable (774) --
Payments received on notes receivable from principal
stockholder -- 2,900
Payments received on Class B stock subscription receivable -- 500
Proceeds from exercise of stock options 177 100
Proceeds from initial public offering 29,331 --
----------- ----------
Net cash provided by financing activities 28,716 3,500
----------- ----------
Effect of foreign exchange rate changes on cash (35) 15
----------- ----------
Net increase(decrease) in cash and
cash equivalents 25,670 (2,906)
Cash and cash equivalents at beginning of period 2,454 3,763
----------- ----------
Cash and cash equivalents at end of period $ 28,124 $ 857
=========== ==========
</TABLE>
See the accompanying notes to Condensed Consolidated Financial Statements
5
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ASYMETRIX LEARNING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998 AND 1997
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements of
Asymetrix Learning Systems, Inc., and subsidiaries (the "Company") include the
accounts of the Company and its wholly-owned subsidiaries. All significant
intercompany transactions have been eliminated in consolidation. These
statements reflect all normal recurring adjustments which are, in the opinion of
management, necessary for a fair presentation of the financial position and
results of operations for the periods presented. The condensed consolidated
financial statements and notes thereto should be read in conjunction with the
Company's audited consolidated financial statements as of and for the year ended
December 31, 1997 included in the Company's Prospectus, dated June 12, 1998,
filed as part of a Registration Statement on Form S-1 (Registration No. 333-
49037), as amended (the "Registration Statement") in connection with the
Company's initial public offering ("IPO"). Certain information and footnote
disclosures normally included in financial statements prepared in conformity
with generally accepted accounting principles have been condensed or omitted
pursuant to the rules and regulations of the Securities and Exchange Commission.
Interim results of operations for the six months ended June 30, 1998 are not
necessarily indicative of the operating results for the full fiscal year.
Factors that may affect such operating results, include, but are not limited to,
those discussed in "FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS".
INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
-------- ------------
<S> <C> <C>
Raw materials $200 $351
Finished goods 218 180
Less obsolescence reserve (72) (51)
---- ----
$346 $480
==== ====
</TABLE>
6
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STOCKHOLDERS' EQUITY
On June 12, 1998, the Company completed its IPO and issued 3,000,000 shares
of its Common Stock at an initial public offering price of $11.00 per share. The
net proceeds to the Company from the IPO, after deducting underwriting discounts
and offering expenses incurred by the Company, were approximately $29.3 million.
Concurrent with the IPO, each outstanding share of the Company's Class B Stock
was automatically converted into approximately 0.75 shares of Common Stock.
NET LOSS PER SHARE
Basic earnings per share is computed by dividing the sum of net loss plus
accretion of redemption value of redeemable common stock by the weighted average
number of common shares outstanding during the period. Diluted earnings per
share is computed by dividing the sum of net loss plus accretion of redemption
value of redeemable common stock by the weighted average number of common and
dilutive common equivalent shares outstanding during the period. As the Company
had a net loss attributable to common stockholders 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 the three
and six months ended June 30, 1998, are options to acquire approximately
3,643,000 and 3,745,000 shares, respectively, of Common Stock because their
effects would be anti-dilutive.
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. 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 to its customers. 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.
Effective January 1, 1998, the Company adopted Statement of Position 97-2
("SOP 97-2"), Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants. 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. The adoption of SOP 97-2 did not have a material effect on
revenue recognition for the three and six months ended June 30, 1998.
7
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COMPREHENSIVE LOSS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income
("Statement 130"), which 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 is
effective for fiscal years beginning after December 15, 1997 and 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 its annual financial
statements for the year ending December 31, 1998. The Company's total
comprehensive loss for the three months and six months ended June 30, 1998 was
approximately $1,650,000 and $1,195,000, respectively.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, Disclosure About Segments of an
Enterprise and Related Information ("Statement 131"). Statement 131 established
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.
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 included in equity
in earnings of Infomodelers approximately $2.2 million, which represents its
share of the gain which Infomodelers realized on this transaction. In March
1998, the Company sold to its principal stockholder Infomodelers shares, with an
aggregate book value of $2.4 million, for cash of $2.4 million.
ACQUISITIONS
In May 1998, the Company acquired Strategic Systems Associates, Inc.
("SSA"), an Illinois-based provider of custom development and consulting
services for the online learning market. The acquisition of SSA was accounted
for using the purchase method of accounting. The Company issued 102,000 shares
of Common Stock valued at approximately $1.1 million in connection with this
acquisition and granted options to purchase 150,000 shares of Common Stock. 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):
Property and equipment and other assets $ 400,000
Goodwill 1,700,000
Net current liabilities (1,000,000)
-----------
$ 1,100,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto contained herein.
8
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In addition to historical information, this Quarterly Report on Form 10-Q
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 below in the "FACTORS THAT MAY
AFFECT FUTURE RESULTS OF OPERATIONS."
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.
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 approximately $3.1
million (which have been converted into an aggregate of 1,637,853 shares of
Common Stock). These shares include 2,111,795 shares issued in exchange for all
of Aimtech's outstanding capital stock (which have been converted into an
aggregate of 1,583,780 shares of Common Stock), 44,171 shares issued as a
financial advisory fee (which have been converted into an aggregate of 33,128
shares of Common Stock) and 27,928 shares issued under Aimtech's "Change of
Control" severance policy (which have been converted into an aggregate of 20,945
shares of Common Stock). On September 30, 1997, the Company acquired Oakes
Interactive Incorporated, Acorn Associates Incorporated and TopShelf Multimedia,
Inc. (collectively referred to as 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
approximately $2.1 million (which have been converted 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 Communication
Strategies, Inc. ("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 approximately $4.8 million. The Company has also
acquired four other small businesses, Socha Computing, Inc. ("Socha") in July
1997, Graham-Wright Interactive, Inc. in December 1997, Adams Consulting Group,
Inc. in March 1998 and SSA in May 1998. All of these 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 approximately $4.1 million for
1997 and, in connection with all of its acquisitions from July 1, 1997 through
June 30, 1998, has recorded an aggregate of approximately $10.2 million in
goodwill, approximately $1.5 million of which will be amortized on a straight-
line basis over a five year period and the remainder (approximately $8.7
million) of which will be
9
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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 any future acquisitions, the Company's business, operating
results and financial condition could be materially and adversely affected. In
July 1998, the Company acquired Meliora Systems, Inc., an online learning
product and consulting company.
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, which price included approximately $2.0 million for shares of
Infomodelers Series A Preferred Stock and approximately $390,000 for shares of
Infomodelers Common Stock. 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.
The Company incurred net losses of $23.6 million and $13.1 million in 1996
and 1997, respectively, and an operating loss of $1.7 million in the three
months ended March 31, 1998, and has yet to achieve operating income under its
new business model. The Company's limited operating history under its new
business model, and the emerging nature of the market for online enterprise
learning 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 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.
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>
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
1998 1997 1998 1997
---- ---- ---- ----
Unaudited Unaudited
<S> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products 31% 31% 29% 29%
Other products 9 49 14 53
---- ---- ---- ----
Total product revenue 40 80 43 82
Services revenue 60 20 57 18
---- ---- ---- ----
Total revenue 100 100 100 100
Cost of Revenue:
Product revenue:
Online learning products 3 2 3 2
Other products 4 8 4 9
---- ---- ---- ----
Total cost of product revenue 6 10 6 11
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Services revenue 37 12 36 11
---- ---- ---- ----
Total cost of revenue 44 22 43 22
---- ---- ---- ----
Gross Margin 56 78 57 78
Operating Expenses:
Research and development 17 40 18 42
Sales and marketing 40 60 41 64
General and administrative 16 16 17 17
Amortization of goodwill 2 0 2 0
---- ---- ---- ----
Total operating expenses 76 116 78 124
---- ---- ---- ----
Loss from operations -19 -38 -21 -45
---- ---- ---- ----
Other income (expense), net 0 -1 14 0
Net income (loss) -19% -39% -7% -45%
---- ---- ---- ----
</TABLE>
THREE AND SIX MONTHS ENDED JUNE 30, 1998 COMPARED TO THREE AND SIX MONTHS ENDED
JUNE 30, 1997
Revenue. Total revenue increased 50% from $5.4 million in the three
months ended June 30, 1997 to $8.1 million in the three months ended June 30,
1998. Total revenue increased 53% from $10.4 million in the six months ended
June 30, 1997 to $15.9 million in the six months ended June 30, 1998.
Online learning product revenue increased 52% from $1.6 million in the
three months ended June 30, 1997 to $2.5 million in the three months ended June
30, 1998. Online learning product revenue increased 50% from $3.0 million in the
six months ended June 30, 1997 to $4.6 million in the six months ended June 30,
1998. The increase in online learning product revenue for both periods 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 72% from $2.6 million in the three months ended June 30, 1997
to $730,000 in the three months ended June 30, 1998. Other product revenue
decreased 58% from $5.5 million in the six months ended June 30, 1997 to $2.3
million for the six months ended June 30, 1998. Other product revenue consists
of revenue from the Company's products which are not targeted at the online
learning market, and also includes revenue from SuperCede products prior to its
spin-off by the Company. Included in other product revenue in the three months
and six months ended June 30, 1997 was approximately $851,000 and $1,541,000,
respectively, from sales of SuperCede products. Total product revenue decreased
25% from $4.3 million in the three months ended June 30, 1997 to $3.2 million in
the three months ended June 30, 1998. Total product revenue decreased 19% from
$8.5 million in the six months ended June 30, 1997 to $6.8 million in the six
months ended June 30, 1998. 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 continue to decrease.
Services revenue increased 342% from $1.1 million in the three months ended
June 30, 1997 to $4.9 million in the three months ended June 30, 1998. Services
revenue increased 383% from $1.9 million for the six months ended June 30, 1997
to $9.1 million for the six months ended June 30, 1998. The increases in
services revenue for each of these periods were due primarily to the expansion
of the Company's professional services business.
Cost of Revenue. Cost of product revenue includes costs of media, manuals
and distribution costs. Gross margin from the Company's online learning products
is generally higher than that of its other products because these products are
typically sold by the Company's direct sales force, as compared with other
products sold through indirect channels, such as OEMs and resellers. 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.
11
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Total cost of revenue increased 193% from $1.2 million in the three months
ended June 30, 1997 to $3.5 million in the three months ended June 30, 1998.
Total cost of revenue increased 203% from $2.2 million in the six months ended
June 30, 1997 to $6.8 million in the six months ended June 30, 1998.
Cost of online learning products revenue increased 113% from $108,000 in
the three months ended June 30, 1997 to $230,000 in the three months ended June
30, 1998. Cost of online learning products revenue increased 157% from $166,000
for the six months ended June 30, 1997 to $426,000 for the six months ended June
30, 1998. The increase for both periods was due primarily to increased sales of
the Company's online learning products. Cost of other products revenue decreased
37% from $456,000 in the three months ended June 30, 1997 to $288,000 in the
three months ended June 30, 1998. For the six months ended June 30, 1998 cost of
other product revenue declined 38% from $937,000 for the six months ended June
30, 1997 to $577,000 for the six months ended June 30, 1998. The respective
declines were due primarily to decreased sales of the Company's other products.
Cost of other products revenue attributable to sales of SuperCede products were
$71,000 and $203,000 in the three and six months ended June 30, 1997. Total cost
of product revenue decreased 8% from $564,000 in the three months ended June 30,
1997 to $518,000 in the three months ended June 30, 1998. Total cost of product
revenue decreased 9% from $1.1 million for the six months ended June 30, 1997 to
$1.0 million for the six months ended June 30, 1998.
Online learning products gross margin was 93% and 91% in the three months
ended June 30, 1997 and 1998, respectively. Online learning products gross
margin was 95% and 91% in the six months ended June 30, 1997 and 1998,
respectively. Other products gross margin decreased from 83% in the three months
ended June 30, 1997 to 61% in the three months ended June 30, 1998. This
decrease was primarily due to a decrease in revenue from OEM arrangements, which
typically yield higher gross margins. Other products gross margin for the six
months ended June 30, 1998 was 75% compared to 83% in the prior year period.
Total product gross margin fell from 87% in both the three and six months ended
June 30, 1997 to 84% and 85%, respectively, in the three and six months ended
June 30, 1998.
Cost of services revenue increased 368% from $648,000 in the three months
ended June 30, 1997 to $3.0 million in the three months ended June 30, 1998.
Cost of services revenue increased 408% from $1.1 million for the six months
ended June 30, 1997 to $5.8 million for the six months ended June 30, 1998. The
increase for each of these periods was due primarily to increased professional
service projects in 1998.
Services gross margin decreased from 41% in the three months ended June 30,
1997 to 38% in the three months ended June 30, 1998. For the six months ended
June 30, 1998 services gross margin decreased to 36% from 39% in the prior year
period. 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 35% from $2.2 million in the three months ended June 30, 1997 to $1.4
million in the three months ended June 30, 1998. Research and development
expenses decreased 36% from $4.4 million to $2.8 million for the six months
ended June 30, 1997 and 1998. Research and development expenses as a percentage
of total revenue decreased from 40% in the three months ended June 30, 1997 to
17% in the three months ended June 30, 1998. Research and development expenses
as a percent of total revenue were 42% and 18% in the six months ended June 30,
1997 and 1998. The decrease in each of these periods was due to the spin-off of
SuperCede. Research and development expenses related to SuperCede were $905,000
and $1.7 million in the three and six months ended June 30, 1997. The Company
expects research and development expenses to increase in absolute dollars in the
future.
12
<PAGE>
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 were unchanged
from $3.2 million in the three months ended June 30, 1997 and 1998. Sales and
marketing expenses decreased 3% from $6.7 million to $6.5 million in the six
months ended June 30, 1997 and 1998. Sales and marketing expenses as a
percentage of total revenue decreased from 60% and 64% in the three and six
months ended June 30, 1997, respectively, to 40% and 41% in the three and six
months ended June 30, 1998 respectively. Selling expense increased in absolute
dollars, due to the adoption of a direct sales model and marketing expense
declined because of the spin off of Supercede in September 1997. Sales and
marketing expenses related to SuperCede were $697,000 and $1.6 million in the
three and six months ended June 30, 1997, respectively. The Company expects that
sales and marketing expenses will increase in absolute dollars in the future as
the Company continues to increase its sales and marketing efforts in the online
learning market.
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 52% from $847,000 for
the three months ended June 30, 1997 to $1.3 million in the three months ended
June 30, 1998. General and administrative expenses increased 55% from $1.7
million to $2.7 million in the six months ended June 30, 1997 and 1998. Both the
three and six month increase was due primarily to increased overhead due to the
Company's increased size. General and administrative expenses as a percentage of
total revenue were consistent at 16% and 17% in the three and six months ended
June 30, 1997 and 1998, respectively. General and administrative expenses
related to SuperCede were $337,000 and $653,000 in the three and six months
ended June 30, 1997. The Company expects that general and administrative
expenses will increase in absolute dollars in the future as the Company incurs
additional costs (including directors' and officers' liability insurance,
investor relations programs and increased professional fees) related to being a
public company.
AMORTIZATION OF GOODWILL
Amortization of goodwill expenses relates to the amortization of excess
purchase price over net assets, from acquired companies booked under the
purchase method of accounting. For the three and six months ended June 30, 1997
the Company did not have amortization of goodwill expenses. For the three and
six months ended June 30, 1998, $195,000 and $379,000 of expense was recorded.
These amounts reflect the amortization of goodwill acquired in connection with
the acquisitions of Aimtech, the Oakes Companies, CSI, Graham-Wright
Interactive, Inc., Adams Consulting Group, Inc. and SSA.
OTHER INCOME (EXPENSE)
The Company recorded no other expense in the three or six months ended June
30, 1997 and 1998. Interest income from principal stockholder was $147,000 and
$329,000 in the three and six months ended June 30, 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 full in
October 1997. Other interest income, net was $2,000 and $33,000 in the three
months ended June 30, 1997 and 1998, respectively. For the six months ended June
30, 1997 and 1998, other interest income, net was $46,000 and $55,000
respectively. Equity in income (losses) from Infomodelers was $(188,000) and
$(338,000) in the three and six months ended June 30, 1997, respectively, and $0
and $2.2 million, respectively, in the three and six months ended June 30, 1998,
representing the Company's equity in the net income (losses) from Infomodelers
in such periods. Equity in income (losses) from Infomodelers in 1998 resulted
from the sale by Infomodelers of substantially all of its assets to Visio
Corporation. 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 income (losses) from Infomodelers in future periods.
13
<PAGE>
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.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1998, the Company had cash and cash equivalents totaling $28.1
million, an increase of $25.7 million from December 31, 1997. The increase in
cash and cash equivalents was due primarily to net proceeds of $29.3 million
generated from the Company's IPO, $177,000 from the exercise of employee
options, and $2.4 million from the sale of Infomodelers shares, offset by $4.8
million used in operating activities, $649,000 used in investing activities and
$792,000 net, used to repay notes payable and capital lease obligations. At June
30, 1998, the principal sources of liquidity for the Company were $28.8 million
in working capital and a $5.0 million bank line of credit. Borrowings under the
Company's line of credit will bear interest at the bank's reference rate or
LIBOR plus 1.0% per annum, and this line of credit expires on December 31, 1998.
The Company's obligations under this line of credit are secured by the Company's
accounts receivable. As of June 30, 1998, the Company had no outstanding
borrowings under this line of credit.
The Company anticipates that the net proceeds received from its IPO,
together with cash and cash equivalents 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. In addition, the
Company from time to time evaluates potential acquisitions of businesses,
products or technologies that compliment the Company's business. 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.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
Limited Operating History In Online Learning Market. 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
14
<PAGE>
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; 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.
Fluctuations in Quarterly Operating Results. 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 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.
Acquisitions. The Company has acquired ten companies since July 1997 and
is continuing to pursue a strategy of growth through acquisition. 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
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
15
<PAGE>
inability of the Company to maintain customers or goodwill of an acquired
business; the need to divest unwanted assets or products; 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. Moreover, in
pursuing acquisition opportunities, the Company may compete for acquisition
targets with other companies with similar growth strategies that may have
greater resources than the Company, which could result in increased prices of
acquisition targets and a diminished pool of companies available for
acquisition. 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
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
16
<PAGE>
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
From time to time, the Company is involved in legal proceedings and
litigation arising in the ordinary course of business. Except as described
below, the Company is not a party to any material litigation or legal
proceedings.
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. Although the Company believes that it
does not infringe this patent and that the patent is invalid, and although the
Company intends to vigorously defend this action, 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.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In connection with the Company's IPO, the Company registered 3,000,000
shares of its Common Stock, all of which were sold by the Company. The
Registration Statement was declared effective by the Securities and Exchange
Commission on June 11, 1998. NationsBanc Montgomery Securities LLC was the
managing underwriter of the IPO. The IPO commenced on June 12, 1998, and
terminated following the sale of all of the securities registered under the
Registration Statement, plus an additional 25,000 shares pursuant to the
exercise of the underwriters' over-allotment option. The Common Stock was
offered and sold to the public at $11.00 per share, for aggregate consideration
of $33,275,000, of which the Company received net proceeds of $30,945,750, and
the remaining $2,329,250 was the underwriting discount.
As a result of the IPO and a 3-for-4 reverse split effected immediately
prior to the IPO, all shares of each Series of the Company's Class B Stock were
converted into Common Stock. The conversion into Common Stock was as follows:
37,500 shares of the Company's Series 1 Class B Stock were converted into 28,125
shares of Common Stock; 388,395 shares of the Company's Series A Preferred Stock
were converted into 291,296 shares of Common Stock; 2,382,994 shares of the
Company's Series 4 Class B Stock were converted into 1,785,099 shares of Common
Stock; an option to purchase 19,431 shares of the Company's Series 4 Class B
Stock was converted into an option to purchase 14,573 shares of Common Stock;
and 1,512,500 shares of the Company's Series 5 Class B Stock were converted into
1,134,371 shares of Common Stock.
On May 22, 1998 the Company issued 102,000 shares of Common Stock in
exchange for all of the issued and outstanding capital stock of SSA. The shares
were issued to three individual shareholders of SSA in exchange for all of such
shareholders' capital stock of SSA. The proceeds were used to acquire all of the
capital stock of SSA. The issuance of such securities was exempt pursuant to
Section 4(2) of the Securities Act of 1933 under Rule 506 of Regulation D in
that there were three individuals who received securities in the transaction,
each of whom was capable of evaluating the merits and risks of the transaction.
During the three months ended June 30, 1998, the Company issued 51,378
shares of Common Stock (as adjusted to reflect the 3-for-4 reverse stock split)
pursuant to the exercise of employee stock options. The issuance of such
securities was exempt pursuant to Section 4(2) of the Securities Act of 1933
and/or under Rule 701.
From the effective date of the Registration Statement through June 30,
1998, the Company has incurred an estimated $3,758,000 in expenses for the
Company's account in connection with the issuance and distribution of the Common
Stock, including underwriting discounts and commissions of $2,329,250
17
<PAGE>
and other expenses of $1,428,750. No finders' fees or expenses were paid to or
for the underwriters. None of these payments were made, directly or indirectly,
to: (i) directors or officers of the Company, or their associates; (ii) persons
owning ten percent or more of any class of equity securities of the Company; or
(iii) affiliates of the Company.
From the effective date of the Registration Statement through June 30,
1998, the Company has applied approximately $2.6 million of the Offering
proceeds to working capital requirements. None of these payments were made,
directly or indirectly, to: (i) directors or officers of the Company, or their
associates; (ii) persons owning ten percent or more of any class of equity
securities of the Company; or (iii) affiliates of the Company. To date, the
Company believes that it has used the Offering proceeds in a manner consistent
with the use of proceeds described in the Registration Statement. The remaining
$28.1 million of the Offering proceeds is invested in short-term marketable debt
securities, money market funds and other cash equivalents.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.
A special meeting of the shareholders of Asymetrix Learning Systems, Inc.,
a Washington corporation and predecessor to the Company ("Asymetrix
Washington"), was held on May 7, 1998 at the Company's office in Bellevue,
Washington. The meeting was held pursuant to a Notice of Special Meeting of
Shareholders mailed to the shareholders on April 10, 1998.
Six proposal were submitted to the shareholders and approved at the special
meeting, as follows (all share and vote numbers are prior to the Company's
3-for-4 reverse split as described in Proposal 5):
Proposal 1: Approval of the reincorporation of Asymetrix Washington
corporation under the laws Delaware by means of a merger of the Asymetrix
Washington into the Company, which was at that time a wholly-owned subsidiary of
Asymetrix Washington organized under the laws of Delaware. The number of votes
cast for, cast against or abstaining from Proposal 1, both in person and by
proxy was as follows:
<TABLE>
<CAPTION>
CLASS B STOCK
COMMON ------------------------------------------------------
STOCK SERIES 1 SERIES A SERIES 4 SERIES 5
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
VOTES FOR 8,615,038 37,500 388,395 2,120,915 1,512,500
VOTES AGAINST 16,326 0 0 16,093 0
ABSTAIN 7,595 0 0 200 0
</TABLE>
Proposal 2: Approval of adoption of a form of Indemnity Agreement to be
entered into by the Company with its officers and directors. Votes cast by
officers, directors and their affiliates were not counted in determining the
outcome on Proposal 2. The number of votes counted, cast for, cast against or
abstaining from Proposal 2, both in person and by proxy was as follows:
<TABLE>
<CAPTION>
CLASS B STOCK
COMMON -------------------------------------------------------
STOCK SERIES 1 SERIES A SERIES 4 SERIES 5
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
VOTES COUNTED 839,621 37,500 388,395 1,727,816 151,250
VOTES FOR 820,426 37,500 388,395 1,725,681 151,250
VOTES AGAINST 14,333 0 0 1,421 0
ABSTAIN 1,100 0 0 674 0
</TABLE>
18
<PAGE>
Proposal 3: Approval of adoption by the Company of a 1998 Equity Incentive
Plan and the reservation for issuance thereunder of: (a) 1,500,000 shares of
Common Stock (following the 3-for-4 reverse split described in Proposal 5) plus
(b) any authorized shares not issued or subject to outstanding grants under the
Company's 1995 Combined Incentive and Nonqualified Stock Option Plan ("the 1995
Plan"); plus (c) any shares issuable upon exercise of options granted pursuant
to the 1995 Plan that expire or are cancelled for any reason without having been
exercised in full. The number of votes cast for, cast against or abstaining from
Proposal 3, both in person and by proxy was as follows:
<TABLE>
<CAPTION>
CLASS B STOCK
COMMON ----------------------------------------------------
STOCK SERIES 1 SERIES A SERIES 4 SERIES 5
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
VOTES FOR 8,617,876 37,500 388,395 2,129,907 1,512,500
VOTES AGAINST 10,916 0 0 2,368 0
ABSTAIN 10,167 0 0 4,933 0
</TABLE>
Proposal 4: Approval of adoption by the Company a 1998 Directors Stock
Option Plan and the reservation of 187,500 shares of Common Stock (following the
3-for-4 reverse split described in Proposal 5) for issuance thereunder. The
number of votes cast for, cast against or abstaining from Proposal 4, both in
person and by proxy was as follows:
<TABLE>
<CAPTION>
CLASS B STOCK
COMMON ----------------------------------------------------
STOCK SERIES 1 SERIES A SERIES 4 SERIES 5
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
VOTES FOR 8,605,265 37,500 388,395 2,129,433 1,512,500
VOTES AGAINST 16,920 0 0 2,842 0
ABSTAIN 16,774 0 0 4,933 0
</TABLE>
Proposal 5: Approval of an amendment of the Company's Certificate of
Incorporation to be filed upon the effectiveness of the Registration Statement
relating to the IPO to authorize a three-for-four reverse stock split of the
Company's Common Stock. The number of votes cast for, cast against or abstaining
from Proposal 5, both in person and by proxy was as follows:
<TABLE>
<CAPTION>
CLASS B STOCK
COMMON ----------------------------------------------------
STOCK SERIES 1 SERIES A SERIES 4 SERIES 5
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
VOTES FOR 8,606,643 37,500 388,395 2,108,290 1,512,500
VOTES AGAINST 22,149 0 0 28,718 0
ABSTAIN 10,167 0 0 200 0
</TABLE>
Proposal 6: Approval of the amendment and the restatement of the Company's
Certificate of Incorporation after the conversion of the outstanding Class B
Stock of Asymetrix into Common Stock upon the closing of the IPO to eliminate
all shares of Preferred Stock and to authorize the Company's Board of Directors
to issue "blank check" preferred stock. The number of votes cast for, cast
against or abstaining from Proposal 6, both in person and by proxy was as
follows:
<TABLE>
<CAPTION>
CLASS B STOCK
COMMON ----------------------------------------------------
STOCK SERIES 1 SERIES A SERIES 4 SERIES 5
--------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
VOTES FOR 8,620,493 37,500 388,395 2,120,915 1,512,500
VOTES AGAINST 7,199 0 0 16,093 0
ABSTAIN 11,267 0 0 200 0
</TABLE>
19
<PAGE>
ITEM 5. OTHER INFORMATION.
In July 1998, the Company acquired Meliora Systems, Inc. ("Meliora"), an
online learning software developer and provider of consulting services based in
Rochester, New York. The acquisition of Meliora was accounted for using the
pooling of interests method of accounting. The Company issued 268,000 shares of
Common Stock in connection with this acquisition and granted options to purchase
270,000 shares of Common Stock.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
2.1 Agreement and Plan of Reorganization dated May 22, 1998 by and
between the Company and Strategic Systems Associates, Inc.
2.2 Agreement and Plan of Reorganization dated June 22, 1998 by and
between the Company and Meliora Systems, Inc.
27 Financial Data Schedule
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months ended June
30, 1998.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ASYMETRIX LEARNING SYSTEMS, INC.
August 13, 1998 /s/ John D. Atherly
- --------------------------- ---------------------------------------------
Date John D. Atherly
Vice President, Finance and Administration
and Chief Financial Officer
(Duly Authorized Officer and Chief Accounting
Officer)
21
<PAGE>
EXHIBIT INDEX
2.1 Agreement and Plan of Reorganization dated May 22, 1998 by and
between the Company and Strategic Systems Associates, Inc.
2.2 Agreement and Plan of Reorganization dated June 22, 1998 by and
between the Company and Meliora Systems, Inc.
27 Financial Data Schedule
22
<PAGE>
Exhibit 2.1
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into
as of May 22, 1998, by and among Asymetrix Learning Systems, Inc., a Washington
corporation ("Asymetrix"), Asymetrix Acquisition Corp., a Delaware corporation
that is wholly-owned subsidiary of Asymetrix ("Merger Sub"), Strategic Systems
Associates, Inc., an Illinois corporation ("SSA"), and Gary A. Johnson, Richard
M. Johnson and Mike Spingola (each of whom is a stockholder of SSA, 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 SSA in a statutory merger, with SSA to
be the corporation surviving the Merger (as defined below), all pursuant to the
terms and conditions of this Agreement and Plan of Merger in the form of Exhibit
A attached hereto (the "Plan of Merger") and the applicable provisions of the
law of the State of Illinois and the State of Delaware.
Upon the effectiveness of the Merger, all of the outstanding capital stock
of SSA will be converted into shares of Asymetrix Common Stock, as provided in
this Agreement and the Plan 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 SSA as provided in Section 11.3.
1.3 "SSA Common Stock" means the Common Stock of SSA, no par value per
share.
1.4 "Effective Time" means the time and date on which (i) Articles of
Merger (the "Articles of Merger") have been filed with the Illinois Secretary of
State, (ii) a Certificate of Merger (the "Certificate of Merger") conforming to
the requirements of Section 252 of the Delaware General Corporation Law has been
filed with the Delaware Secretary of State and (iii) the Merger becomes
effective under Illinois law and Delaware law.
<PAGE>
1.5 "Merger" means the statutory merger of Merger Sub with and into SSA in
a reverse triangular merger pursuant to this Agreement and the Plan 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 Merger. At the Effective Time, Merger Sub will be merged with and
into SSA pursuant to this Agreement, the Articles of Merger and the Certificate
of Merger and in accordance with applicable provisions of the laws of the State
of Illinois and the State of Delaware. Each share of SSA 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 136,000 shares divided by
the total number of shares of SSA 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 SSA 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 SSA Common Stock who would otherwise be entitled to receive a fraction of a
share of Asymetrix Common Stock will receive one 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 SSA Common Stock or with respect to any other equity
securities of SSA (including warrants), other than SSA 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 SSA, and SSA will be the surviving corporation of the Merger, pursuant to
the terms of the Articles of Merger and the Certificate of Merger; (b) the
Articles of Incorporation and Bylaws of SSA 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 SSA Common Stock outstanding immediately prior
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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.
2.6 Further Assurances. Each of SSA 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 SSA,
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 SSA 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, or 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. SSA and the Principals shall
furnish to Asymetrix all information known to SSA or the Principals (or
reasonably ascertainable by SSA or the Principals) concerning each of SSA 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 SSA Common Stock, to be surrendered
in exchange therefor. The Asymetrix Common Stock issued in the Merger will be
issued solely in exchange for SSA 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 SSA 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 SSA's historic business or use a significant portion of
SSA's business assets in a business. At the Effective Time, officers of each of
Asymetrix and SSA 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.
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3. REPRESENTATIONS AND WARRANTIES OF SSA AND PRINCIPALS
Each of the Principals and SSA, jointly and severally, hereby represents
and warrants as follows, except as set forth in the SSA Schedule of Exceptions
(in numbered paragraphs that correspond to the Section numbers below)
simultaneously delivered to Asymetrix with the execution of this Agreement:
3.1 Organization, Good Standing and Qualification. SSA is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Illinois, 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 SSA Schedule of Exceptions. SSA 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 SSA (for purposes
of this Section 3 and Section 5, a "Material Adverse Effect").
3.2 Power, Authorization and Validity.
3.2.1 SSA 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 SSA 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 "SSA Ancillary Agreements").
The execution, delivery and performance of this Agreement and the SSA Ancillary
Agreements to which SSA is a party have been duly and validly approved and
authorized by the Board of Directors of SSA. The Merger has been approved by
all of the stockholders of SSA.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable SSA and the Principals to enter into, and to
perform his, her or its obligations under, this Agreement and the SSA Ancillary
Agreements, except for (a) the filing of the Articles of Merger with the
Illinois Secretary of State, (b) the filing of the Certificate of Merger with
the Delaware Secretary of State, (c) the filing of appropriate documents with
the relevant authorities of other states in which SSA is qualified to do
business, if any, and (d) such filings as may be required to comply with federal
and state securities laws.
3.2.3 This Agreement and the SSA Ancillary Agreements are, or when
executed by SSA and/or the Principals, as applicable, will be, valid and binding
obligations of SSA 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 Articles of Merger and
Certificate of Merger will not be effective until the Effective Time.
3.3 Capitalization. As of the date hereof, the authorized capital stock
of SSA consists of 100,000 shares of SSA Common Stock, of which 10,000 shares
are issued and outstanding as of the date hereof. All issued and outstanding
shares of SSA Common Stock have been duly
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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
SSA, in compliance with all registration or qualification requirements (or
applicable exemptions therefrom) of applicable federal and state securities
laws. Schedule 3.3 of the SSA Schedule of Exceptions sets forth a true, correct
and complete list of all holders of SSA Common Stock and the number of shares of
SSA Common Stock held by each such shareholder. There are no options, warrants,
calls, commitments, conversion privileges or preemptive or other rights or
agreements outstanding to purchase or otherwise acquire any of SSA's authorized
but unissued capital stock or any securities convertible into or exchangeable
for shares of SSA capital stock or obligating SSA 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 SSA's outstanding securities. The Buy-Sell
Agreement dated September 15, 1993 and the Shareholders Agreement dated December
31, 1996 among SSA and Gary A. Johnson, Richard M. Johnson and Tim Schorr have
each been terminated and are no further force and effect. SSA 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 SSA
Common Stock reside in the States of Illinois and Idaho.
3.4 Subsidiaries. SSA 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 SSA 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 SSA, as currently in
effect, (b) any Material Agreement (as defined in Section 3.11) to which SSA is
a party or by which SSA or the Principals or his, her or its assets or
properties are bound, or (c) to the knowledge of SSA and the Principals, any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to SSA 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 SSA or any Principal before any federal, state, municipal,
foreign or other court or administrative agency, department, board or
instrumentality that, if concluded adversely to SSA or a Principal, would have a
Material Adverse Effect, and, to the best of SSA's and the Principals'
knowledge, no such action, proceeding, claim or investigation has been
threatened. There is, to the best of SSA's and the Principals' knowledge, no
reasonable basis for any stockholder or former stockholder of SSA, or any other
person, firm, corporation or entity, to assert a claim against SSA, any
Principal or Asymetrix based upon: (a) ownership or rights to ownership of any
shares of SSA Common Stock, (b) any rights as or to become a holder of
securities of SSA, including any option or preemptive rights or rights to notice
or to vote, or (c) any rights under any
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agreement among SSA 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
SSA with respect to its income, assets or operations.
3.7.1 SSA 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. SSA and the Principals have provided or made available to
Asymetrix copies of all material Returns actually filed by SSA during the three-
year period ending on the date hereof.
3.7.2 SSA has paid or deposited in full all taxes due and owing or
shown to be due on the Returns filed by SSA (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. SSA has established a proper
and adequate accrual or reserve on the SSA 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 SSA 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 SSA by any taxing authority. SSA 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 SSA 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 SSA.
3.7.4 There are no material liens, pledges, charges, claims, security
interests or other encumbrances covering the assets of SSA 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 SSA 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").
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3.7.6 SSA is not party to a tax sharing or tax allocation agreement,
and SSA does not owe any amount under any such agreement.
3.7.7 SSA 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 SSA 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 SSA.
3.7.9 None of SSA's assets constitute "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
3.8 Financial Statements. SSA has delivered to Asymetrix as Schedule 3.8
of the SSA Schedule of Exceptions SSA's (a) balance sheet as of December 31,
1997 (the "1997 Balance Sheet") and income statement and statement of cash flows
for the 12 month period then ended (collectively, the "1997 Financial
Statements"), and (b) balance sheet as of March 31, 1998 (the "March 31 Balance
Sheet") and income statement for the three month period then ended
(collectively, the "SSA March Financial Statements") (the 1997 Financial
Statements and the SSA March Financial Statements are collectively referred to
herein as the "SSA Financial Statements"). The SSA Financial Statements (a) are
in accordance with the books and records of SSA, (b) fairly present the
financial condition of SSA 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 SSA March Financial Statements, to normal
recurring year-end adjustments and the absence of any notes thereto. SSA 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 SSA Financial Statements,
except for those that may have been incurred after the date of the SSA 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. SSA has good and marketable title to all of its
tangible assets as shown on the 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 SSA is a party are fully effective. To the knowledge of SSA
and each of the Principals, SSA 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 March 31, 1998, other than actions required by this Agreement (including,
without limitation, the
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incurrence of legal and accounting fees and expenses in connection therewith),
there has not been with respect to SSA:
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of SSA 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 SSA and the Principals, will
have a Material Adverse Effect;
(b) any contingent liability incurred by SSA 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 SSA, 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 SSA, 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 SSA,
any split, combination or recapitalization of the capital stock of SSA or any
direct or indirect redemption, purchase or other acquisition of the capital
stock of SSA;
(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 SSA'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 March 31 Balance Sheets or incurred in the ordinary
course of business thereafter; or
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(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 SSA Schedule of Exceptions and other than this Agreement
and the SSA Ancillary Agreements, neither SSA 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 SSA (each a "Material Agreement"), including, but
not limited to any:
(a) Contract, commitment, letter contract or purchase order providing
for payments by or to SSA in an aggregate amount of (1) $25,000 or more in the
ordinary course of business to any one vendor or customer; or (2) $10,000 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 $25,000 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 SSA IP
Rights Agreement (as defined in Section 3.12);
(c) Consulting, development or similar agreement under which SSA
currently provides or will provide any custom software development, training,
documentation, personnel placements, advice, consulting services or other
products or services to a customer of SSA (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 SSA or in
which SSA 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 SSA,
or license of software to SSA, which software is used or incorporated in any
products distributed or services provided by SSA or is contemplated to be used
or incorporated in any products to be distributed or services to be provided by
SSA (other than software generally available to the public at a per copy license
fee of less than $2,000 per copy);
(f) Contract or commitment for the employment of any officer, employee
or consultant of SSA or any other type of contract or understanding with any
officer, employee or consultant of SSA which is not immediately terminable by
SSA without cost or other liability;
(g) Agreement for the lease of real or personal property involving
payments by or to SSA in an aggregate amount of $10,000 or more;
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(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 SSA ;
(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 SSA Financial Statements;
(k) Contract containing covenants purporting to limit SSA'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 SSA nor the Principals is, nor, to the best knowledge
of SSA 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 SSA 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. SSA has no material liability for renegotiation of
government contracts or subcontracts, if any.
3.12 Intellectual Property. SSA 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 " SSA 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 SSA IP Right or materially impair the right of SSA to use,
sell or license any SSA IP Right or portion thereof. There are no royalties,
honoraria, fees or other payments payable by SSA to any person by reason of the
ownership, use, license, sale or disposition of any SSA 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 SSA (whether on a stand-alone basis or as part of services offered by
SSA) or currently under development by SSA violates any license or agreement
between SSA 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
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SSA and the Principals, threatened claim or litigation contesting the validity,
ownership or right to use, sell, license or dispose of any SSA IP Right; nor, to
the best knowledge of SSA and the Principals without any independent
investigation thereof, is there any basis for any such claim; nor has SSA
received any notice asserting that any SSA 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 SSA and the Principals, is there any
basis for any such assertion. SSA 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 SSA IP Rights.
SSA is not using any Intellectual Property Rights of any past or present
officers, employees or consultants. Schedule 3.12 of the SSA 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 SSA
to perfect or protect its interest in SSA IP Rights, including, without
limitation, all patents, patent applications, copyrights, copyright
registrations, trademarks, trademark applications and service marks and all SSA
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 " SSA IP Rights Agreement"
shall mean any instrument or agreement governing any SSA IP Right.
3.13 Compliance with Laws. SSA 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 SSA'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.
SSA 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
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or investigations pending or threatened, that, if enacted or determined
adversely to SSA 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 SSA (each, an "Insider") nor any member of their immediate
families is or has been directly or indirectly interested in any contract or
informal arrangement with SSA within the last three years, except for
compensation as an officer, director or employee of SSA. 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 SSA, except for the normal rights of a stockholder.
3.15 Employees, ERISA and Other Compliance.
3.15.1 SSA 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 SSA (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. SSA and the
Principals have no knowledge that a material number of employees intend to leave
the employ of SSA or that any employees intend to leave the employ of SSA and
which departures would prevent SSA from fully performing on schedule any
Customer Agreement.
3.15.3 Schedule 3.15.3 of the SSA 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
SSA under which SSA or any ERISA Affiliate (as defined below) thereof has any
present or future obligation or liability (collectively, the " SSA 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 SSA. Copies of all SSA
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 SSA
Employee Plan. All SSA Employee Plans which individually or collectively would
constitute an "employee pension benefit plan," as defined in Section 3(2) of
ERISA (collectively, the "SSA Pension Plans"), are identified as such in
Schedule 3.15.3 of the SSA Schedule of Exceptions. As of the date hereof, all
contributions due and previously required to be made on or
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before the date hereof from SSA with respect to any of the SSA Employee Plans
have been made as required under ERISA or have been accrued on the SSA Financial
Statements. To the knowledge of SSA and the Principals, each SSA 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
SSA 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 SSA Employee
Plan which is covered by Title I of ERISA which would result in a material
liability to SSA 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 SSA
Employee Plan has made or will make SSA or any officer or director of SSA
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 SSA Pension Plan which is intended to be qualified under
Section 401(a) of the Code (an "SSA 401(a) Plan") has received a favorable
determination from the Internal Revenue Service as to its qualifications, and
SSA and the Principals are not aware of any reason why such determination may
not be relied upon by such plan. SSA 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
SSA 401(a) Plan.
3.15.6 Schedule 3.15.6 of the SSA 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 SSA Employee Plan, (B) is entered
into, maintained or contributed to, as the case may be, by SSA and (C) covers
any employee or former employee of SSA. Such contracts, plans and arrangements
as are described in this Section 3.15.6 are herein referred to collectively as
the "SSA Benefit Arrangements." Each SSA 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 SSA Benefit Arrangement. SSA has delivered or made available
to Asymetrix or its counsel a complete and correct copy or description of each
SSA Benefit Arrangement.
3.15.7 SSA 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
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defined in Section 4980B(f)(3) of the Code) under any SSA 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 SSA.
3.15.8 No benefit payable or which may become payable by SSA pursuant
to any SSA Employee Plan or any SSA 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 To the knowledge of SSA and the Principals and except for
matters which would not have a Material Adverse Effect, no employee of SSA 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 SSA
to any material liability.
3.15.10 A list of all employees, officers and consultants of SSA and
their current compensation, bonus plans, commission plans, vacation rights and
severance rights is set forth on Schedule 3.15.10 of the SSA Schedule of
Exceptions. SSA is currently paying all amounts that are currently required to
be paid to such parties shown in such Schedule.
3.15.11 SSA is not a party to any (a) agreement with any executive
officer or other key employee of SSA (i) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving SSA in the nature of any of the transactions contemplated
by this Agreement and the Plan 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
Plan 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
Plan of Merger. SSA 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.
3.15.12 Any employment agreements, consulting agreements, letter
agreements or other agreements between SSA and any of the Principals have been
terminated and are of no further force and effect, including without limitation
the following: Employment Agreement dated December 31, 1996 with Gary A.
Johnson; Consulting Contract dated January 7, 1997 with Gary A. Johnson;
Employment Agreement dated December 31, 1996 with Richard M.
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Johnson; Employment Agreement dated January 31, 1997 with Mike Spingola; and
Letters of Agreement dated January 23, 1998 with each of Richard Johnson and
Mike Spingola.
3.16 Corporate Documents. SSA has made available to Asymetrix for
examination all documents and information listed in the SSA 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 SSA 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 SSA; (c) the stock ledger and journal reflecting all stock
issuances and transfers of SSA; (d) all material permits, orders, and consents
issued by any regulatory agency with respect to SSA, or any securities of SSA,
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.
3.17 No Brokers. Neither SSA 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
SSA Ancillary Agreements or in connection with any transaction contemplated
hereby or thereby. Except as otherwise provided in this Agreement, SSA 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 SSA and the Principals, neither this
Agreement, its exhibits and schedules, nor any of the certificates or documents
to be delivered by SSA 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. SSA 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 SSA Schedule of Exceptions.
3.20 Environmental Matters.
3.20.1 During the period that SSA 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 SSA, or to SSA'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. SSA 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
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have occurred prior to SSA 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 SSA 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 SSA has owned or leased its
properties and facilities, neither SSA nor, to SSA'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 SSA has owned or leased its respective
properties and facilities, there has been no litigation brought or, to the
knowledge of SSA and the Principals, threatened against SSA by, or any
settlement reached by SSA 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 SSA (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 SSA, and (d) accurately
and fairly reflect the basis for the SSA 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 SSA 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 in the Registration Statement on Form S-1 (File
No. 333-49037) filed by
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Asymetrix with the Securities and Exchange Commission on April 1, 1998, as
amended to date (the "Form S-1"), or on the Asymetrix Schedule of Exceptions (in
numbered paragraphs that correspond to the Section numbers below) simultaneously
delivered to SSA 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 Delaware
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 May 1998 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 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 Illinois Secretary of State, (b) the filing of the Certificate
of Merger with the Delaware Secretary of State, (c) the filing of appropriate
documents with the relevant authorities of other states in which Asymetrix is
qualified to do business, if any, and (d) 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 Articles of Merger and the Certificate of Merger will not be effective
until the Effective Time.
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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 2,382,994 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 9,207,891 shares are
outstanding as of May 19, 1998. 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 qualification requirements (or applicable
exemptions therefrom) of applicable federal and state securities laws.
4.3.2 Asymetrix Options, Warrants, Reserved Shares. As of May 19,
1998, 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
4,888,158 shares of Asymetrix Common Stock and a like number of shares of
Asymetrix Common Stock reserved for issuance upon the exercise thereof, (iii)
118,771 additional shares of Asymetrix Common Stock reserved for future issuance
under the Asymetrix 1995 Combined Incentive and Nonqualified Stock Option Plan
(the "Asymetrix Option Plan"), (iv) an option to purchase 19,431 shares of
Series 4 Stock, (v) the proposed public offering of shares of Asymetrix Common
Stock pursuant to the Form S-1, (vi) 2,000,000 additional shares of Asymetrix
Common Stock reserved for future issuance under the Asymetrix 1998 Equity
Incentive Plan, which is to become effective upon the closing of the initial
public offering of Asymetrix Common Stock, (vii) 250,000 additional shares of
Asymetrix Common Stock reserved for future issuance under the Asymetrix 1998
Directors Stock Option Plan, which is to become effective upon the closing of
the initial public offering of Asymetrix Common Stock and (viii) 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 11,100 shares of
Common Stock and to 37,500 shares of Series 1 Stock (the "Stock Issuance and
Restriction Agreements"),
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(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 Asymetrix,
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, (vii) a
Voting and Co-Sale Agreement and Registration Rights Agreement dated as of
September 30, 1997 among Asymetrix, Gordon Oakes, Kevin Oakes and Doug Foster
and (viii) a Registration Rights Agreement dated as of December 22, 1997 among
Asymetrix and the former shareholders of Communication Strategies, Incorporated,
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 thousand (1,000) authorized shares
of Common Stock, $0.001 par value per share for Merger Sub, one hundred (100) of
which are 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.
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,
Communication Strategies, 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.
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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
Asymetrix 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.
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 SSA and the
Principals as Schedule 4.8 of the Asymetrix Schedule of Exceptions Asymetrix's
(a) audited balance sheet as of December 31, 1997 (the "Asymetrix 1997 Balance
Sheet") and income statement and statement of cash flows for the 12 month period
then ended (collectively, the "Asymetrix 1997 Financial Statements"), and (b)
balance sheet as of March 31, 1998 (the "Asymetrix March 31 Balance Sheet") and
income statement for the three month period then ended (collectively, the
"Asymetrix March Financial Statements") (the Asymetrix 1997 Financial Statements
and Asymetrix March Financial Statements are collectively referred to herein as
the "Asymetrix Financial Statements"). Asymetrix has also delivered to SSA and
the Principals a copy of the Form S-1. 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
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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 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 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 March 31, 1998 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;
(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;
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(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 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 made
available for inspection to counsel for SSA 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,
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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, and are 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 (i) SOFTVEN No. 2 Investment Enterprises
Partnership, or its designated director, (ii) the designated director of the
former stockholders of Aimtech corporation (iii) Kevin Oakes or (iv) Cynthia
Boyd and James Boyd) 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.
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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.
4.17 Corporate Documents. Asymetrix has made available to SSA 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 SSA and the Principals' or their 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.
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.
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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 SSA 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.
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 SSA 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
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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 SSA 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.
5. SSA 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 SSA and the Principals covenants and agrees as follows:
5.1 Advice of Changes. SSA will, and the Principals will cause SSA 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
SSA 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 SSA that could reasonably be expected to have a Material Adverse
Effect.
5.2 Conduct of Business. SSA will, and the Principals will cause SSA 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 SSA 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 SSA
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 SSA in excess of $10,000,
or which obligates SSA for a period exceeding six months;
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(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 SSA with a value
exceeding $5,000 (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 SSA in
good working condition and repair according to the standards SSA 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 SSA
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 Incorporation or Bylaws;
(q) issue or sell any shares of its capital stock of any class;
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(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
SSA 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 SSA 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 SSA;
(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 $5,000 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).
5.3 Regulatory Approvals. SSA will, and the Principals will cause SSA 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. SSA will, and
the Principals will cause SSA to, use its best efforts to obtain all such
authorizations, approvals and consents.
5.4 Necessary Consents. SSA will, and the Principals shall cause SSA 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 SSA's business after the Closing.
5.5 Litigation. SSA 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 SSA,
or known by SSA or the Principals to be threatened against SSA.
5.6 No Other Negotiations. From the date hereof until the earlier of the
termination of this Agreement or consummation of the Merger, SSA will not, and
the Principals will not permit SSA to, and will not authorize any officer or
director of SSA or any other person on its behalf to,
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directly or indirectly, solicit, encourage, negotiate or accept any offer from
any party concerning the possible disposition of all or any substantial portion
of SSA'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 SSA, or any
transaction in which SSA contemplates issuing equity or debt securities. SSA 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 SSA and the
Principals will allow Asymetrix and its agents reasonable access to the files,
books, records and offices of SSA, including, without limitation, any and all
information relating to SSA's taxes, commitments, contracts, leases, licenses,
and real, personal and intangible property (including its intellectual property)
and financial condition. SSA will and the Principals will cause SSA'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. SSA 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. SSA 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. SSA 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 SSA 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 promptly inform SSA in
writing if it does any of the following (other than action required by this
Agreement, as required by law or in
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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 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 in connection with the proposed public offering of Asymetrix
Common Stock pursuant to the Form S-1 or upon the exercise of options to
purchase Asymetrix Common Stock 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 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 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.
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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 SSA
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 SSA
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 May 30, 1998, or, if all conditions to closing
have not been satisfied or waived by such date, such other place, time and date
as SSA and Asymetrix may mutually select (the "Closing Date"). Concurrently
with the Closing, the Articles of Merger will be filed in the office of the
Illinois Secretary of State and the Certificate of Merger will be filed 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 SSA 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 SSA Common Stock will surrender the certificate(s) for such shares
(the "Certificates"), duly endorsed as requested by Asymetrix or accompanied by
stock powers in a form acceptable to 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
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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 SSA
Common Stock in accordance with the terms hereof will be deemed to have been
delivered in full satisfaction of all rights pertaining to such SSA Common
Stock. There will be no further registration of transfers on the stock transfer
books of SSA or the transfer agent of such SSA 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 SSA 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 SSA 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 SSA AND THE PRINCIPALS
SSA'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 which may be waived by SSA and the Principals,
but only in a writing signed by SSA 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 SSA 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.
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8.5 Opinion of Asymetrix's Counsel. SSA 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 Employment Agreements. Asymetrix shall have executed and delivered (i)
an employment agreement with Gary A. Johnson in the form of Exhibit 8.7A (the
"Gary Johnson Employment Agreement"), (ii) an employment agreement with Richard
M. Johnson in the form of Exhibit 8.7B (the "Richard Johnson Employment
Agreement") and (iii) an employment agreement with Mike Spingola in the form of
Exhibit 8.7C (the "Mike Spingola 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 SSA 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.
9.2 Covenants. SSA 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 SSA 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 SSA
and the Principals, an opinion as to the matters described in Exhibit 9.5.
9.6 Consents. SSA shall have received duly executed copies of all
material third party consents, approvals, assignments, waivers, authorizations
or other certificates contemplated by this Agreement or SSA 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 SSA (including without limitation, the consents as to Material
Contracts
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hereto and the Customer Agreements) and for SSA 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 SSA and the Principals shall have agreed shall not be obtained. A
list of such required consents is set forth on Schedule 9.6.
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
Plan of Merger shall have been approved and adopted by the holders of all of the
SSA Common Stock outstanding, and by a majority of the Board of Directors of
SSA.
9.9 Resignation of Directors. The directors of SSA in office immediately
prior to the Effective Time shall have resigned as directors of SSA effective as
of the Effective Time.
9.10 Investment Representation Letter. Asymetrix shall have received from
each of the holders of SSA Common Stock an executed Investment Representation
Letter substantially in the form of Exhibit 9.10 hereto.
9.11 Employment Agreements. Asymetrix shall have received the Gary
Johnson Employment Agreement executed by Gary A. Johnson, the Richard Johnson
Employment Agreement executed by Richard M. Johnson and the Mike Spingola
Employment Agreement executed by Mike Spingola.
9.12 Employees. SSA 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 SSA.
9.15 Termination of Certain Agreements. The following agreements shall
have been terminated in writing: Buy-Sell Agreement dated September 15, 1993 and
the Shareholders Agreement dated December 31, 1996 among SSA and Gary A.
Johnson, Richard M. Johnson and Tim Schorr; Employment Agreement dated December
31, 1996 with Gary A. Johnson; Consulting Contract dated January 7, 1997 with
Gary A. Johnson; Employment Agreement dated December 31, 1996 with Richard M.
Johnson; Employment Agreement dated January 31, 1997 with Mike Spingola; and
Letters of Agreement dated January 23, 1998 with each of Richard Johnson and
Mike Spingola; and any other agreements between SSA and any of the Principals.
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9.15 Amendment to Corporate Documents. SSA shall have amended its
Articles of Incorporation and Bylaws as specified by Asymetrix or its counsel in
writing.
9.16 Shareholder Indebtedness. The amount reflected on the December 31,
1997 Balance Sheet of SSA as "Due from Shareholder" shall have been either paid
in full or forgiven in writing and treated as compensation to such shareholder.
9.17 Release from Tim Shorr. Tim Shorr shall have acknowledged in writing
that he is not entitled to any consideration in the Merger or otherwise from SSA
except as are set forth in the letter dated February 3, 1998 and in the Business
Partner Program Agreement dated December 5, 1997, and shall have executed a
release of SSA and the principals in a form satisfactory to Asymetrix and its
counsel.
10. TERMINATION OF AGREEMENT
10.1 Termination of Agreement. Asymetrix on the one hand and SSA 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 SSA and the Principals in the event SSA or the Principals is in
breach, and SSA 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 SSA and the Principals if the Closing shall not have occurred on or
before May 31, 1998 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 SSA and the Principals may terminate this Agreement by giving
written notice to Asymetrix if the Closing shall not have occurred on or before
May 31, 1998 by reason of the failure of any condition precedent under Section 8
hereof (unless the failure results primarily from a breach by SSA 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 SSA dated
May 1, 1998, other than any liability of any party for breaches of this
Agreement, which will survive termination of this Agreement. SSA and the
Principals on the one hand and Asymetrix on the other will use commercially
reasonable efforts to cause the Merger to be consummated.
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11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
covenants of SSA, 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 corporation of the Merger and their officers, directors, and employees
(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 SSA 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 SSA 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 SSA has provided
any training, documentation, placements, advice, consulting services or other
products and services to a customer of SSA (which agreements are not Current
Service Agreements as defined in Section 3.11(c)), 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 (as
defined in Section 3.11(d)).
The Principals' maximum aggregate liability under paragraphs (a), (b) and
(c) of this subsection 11.2.1 shall be $1,000,000 (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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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 $50,000 (the
"Basket") and then only to the extent that aggregate Damages exceed the Basket.
The Basket shall not apply to any Damages arising from the breach of the
representations and warranties set forth in Section 3.7. Asymetrix will use
commercially resaonable 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
"SSA 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 $1,000,000.
11.2.4 Any Asymetrix Indemnified Person or any SSA 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 SSA
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
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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 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 1998 Equity Incentive Plan, and as soon
as reasonably practicable following the closing of the initial public offering
of Asymetrix Common Stock, grant Asymetrix Options to purchase the number of
shares of Asymetrix Common Stock as set forth on Schedule 11.3 to employees of
SSA who become Asymetrix employees. The grant of such options to any particular
employee shall be contingent upon such employee executing Asyemtrix's standard
form of Employee Invention, Confidentiality, Nonraiding and Noncompetition
Agreement.
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
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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 shareholders of SSA but, after such
approval, no amendment will be made which by applicable law requires the further
approval of the shareholders of SSA 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, except that the
Principals shall pay such expenses and fees of SSA to the extent that they
exceed $20,000.
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:
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(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:
---------------
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Facsimile: (650) 494-1417
Attention: Mark C. Stevens, Esq.
(ii) If to SSA or the Principals:
----------------------------
Strategic Systems Associates, Inc.
2800 River Road, Suite 260
Des Plains, IL 60018
Facsimile: (847) 635-7870
Attention: Gary A. Johnson
With a copy to:
--------------
Weil & Associates, P.C.
60 Revere Drive, Suite 820
Northbrook, IL 60062
Facsimile: (847) 509-0021
Attention: Sandra Weil, 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
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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 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, SSA and Asymetrix.
12.16 Confidentiality. Asymetrix, SSA 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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"ASYMETRIX" "SSA"
Asymetrix Learning Systems, Inc. Strategic Systems Associates, Inc.
By: /s/ J. Billmaier By: /s/ Gary A. Johnson
---------------------------- ------------------------------
Name: J. Billmaier Name: Gary A. Johnson
-------------------------- ----------------------------
Its: Chief Executive Officer Its: President
--------------------------- -----------------------------
"MERGER SUB" "PRINCIPALS"
Asymetrix Acquisition Corp.
By: /s/ J. Billmaier /s/ Gary A. Johnson
----------------------------- -------------------------------
Gary A. Johnson
Name: J. Billmaier /s/ Richard M. Johnson
--------------------------- -------------------------------
Richard M. Johnson
Its: President /s/ Mike Spingola
--------------------------- -------------------------------
Mike Spingola
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
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LIST OF EXHIBITS AND SCHEDULES
- ------------------------------
Exhibit A Plan of Merger
Exhibit 2.9A Asymetrix Officers' Certificate
Exhibit 2.9B SSA Officers' Certificate
Exhibit 3.0 SSA Schedule of Exceptions
Schedule 3.1 States where Qualified
Schedule 3.3 List of Shareholders
Schedule 3.8 Financial Statements
Schedule 3.10 Changes to Financials
Schedule 3.11 Material Agreements
Schedule 3.12 IP Registrations and Apps
Schedule 3.15.3 Employee Benefit Plans
Schedule 3.15.6 Benefit Arrangements
Schedule 3.55.10 Employees, etc
Schedule 3.19 Insurance Policies
Exhibit 4.0 Asymetrix Schedule of Exceptions
Schedule 4.8 Asymetrix Financial Statements
Exhibit 8.5 Form of Opinion of General Counsel of Asymetrix
Exhibit 8.6 Registration Rights Agreement
Exhibit 8.7A Gary Johnson Employment Agreement
Exhibit 8.7B Richard Johnson Employment Agreement
Exhibit 8.7C Mike Spingola Employment Agreement
Schedule 9.6 Required Consents
Exhibit 9.5 Form of Opinion of Weil & Associates, P.C., Counsel to SSA and
Principals
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Exhibit 9.10 Investment Representation Letter
Schedule 9.12 SSA Employees
Schedule 11.3 Stock Options
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Exhibit 2.2
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION (the
"Agreement") is made effective as of June 22, 1998, by and among Asymetrix
---------
Learning Systems, Inc., a Delaware corporation ("Asymetrix"), Asym Merger Corp.,
---------
a Delaware corporation and a wholly-owned subsidiary of Asymetrix ("Merger
------
Sub"), Meliora Systems, Inc., a New York corporation ("MSI"), and Gordon A.
---
Rogers and Veda C. Storey (each of whom is a stockholder of MSI, 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 MSI in a statutory merger, with MSI 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 "Plan of Merger") and the applicable provisions
- --------- --------------
of the law of the State of New York and the State of Delaware.
Upon the effectiveness of the Merger, all of the outstanding capital stock
of MSI will be converted into shares of Asymetrix Common Stock, as provided in
this Agreement and the Plan 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 is intended to be treated as
a "pooling of interests" 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 MSI as provided in Section 11.3.
1.3 "MSI Common Stock" means the Common Stock of MSI, without par value
----------------
per share.
1.4 "Effective Time" means the time and date on which a Certificate of
--------------
Merger (the "Certificate of Merger") has been filed with the New York Secretary
of State and a Certificate of Merger has been filed with the Delaware Secretary
of State, and the Merger becomes effective under New York and Delaware law.
<PAGE>
1.5 "Merger" means the statutory merger of Merger Sub with and into MSI in
------
a reverse triangular merger pursuant to this Agreement and the Plan 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 Merger. At the Effective Time, Merger Sub will be merged with and
----------
into MSI pursuant to this Agreement and the Plan of Merger and in accordance
with applicable provisions of the laws of the States of New York and Delaware.
In consideration of the Merger and the conversion into equity of amounts owed to
Gordon A. Rogers by MSI, Asymetrix will issue 268,000 shares of Asymetrix Common
Stock. Each share of MSI 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 268,000 shares minus the portion thereof allocated to the conversion
into equity of amounts owed to Gordon A. Rogers by MSI pursuant to Section 2.2,
then dividing the difference by the total number of shares of MSI Common Stock
issued and outstanding immediately prior to the Effective Time.
2.2 Conversion of Certain Debt into Equity. At the Effective Time the
--------------------------------------
aggregate amount owed to Gordon A. Rogers by MSI (including all accrued but
unpaid compensation, if any, and the principal amount of all loans and accrued
interest thereon made to MSI by Gordon Rogers) shall be converted into
Asymetrix Common Stock. The number of shares of Asymetrix Common Stock into
which the amounts owed by MSI to Gordon A Rogers shall be converted shall be
determined by dividing the aggregate total of the amounts owed by MSI to Gordon
A Rogers at the Effective Time by the closing price of Asymetrix Common Stock
on NASDAQ on the last trading day preceding the Effective Time and rounding to
the nearest whole share. Mr. Rogers acknowledges and agrees that the issuance
of such shares of Asymetrix Common Stock pursuant to this Section 2.2 shall be
in full and complete satisfaction of all amounts owed by MSI to him as of the
Effective Time, and hereby agrees that, effective as of the Effective Time, he
releases and forever discharges MSI and Asymetrix from and against any claims
for payment of any amounts owed to him by MSI at or prior to the Effective Time.
2.3 Adjustments for Capital Changes. If, prior to the Effective Time,
-------------------------------
Asymetrix or MSI 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.
2.4 Fractional Shares. No fractional shares of Asymetrix Common Stock
-----------------
will be issued in connection with the Merger, but in lieu thereof, the holders
of MSI Common Stock who
-2-
<PAGE>
would otherwise be entitled to receive a fraction of a share of Asymetrix Common
Stock will receive an additional share of Asymetrix Common Stock.
2.5 Escrow Agreement. Asymetrix will withhold from the holders of shares
----------------
of MSI Common Stock (the "MSI Shareholders") at the Effective Time that number
----------------
of shares of Asymetrix Common Stock issuable to the MSI Shareholders upon
conversion of their shares of MSI Common Stock under Section 2.1 that is equal
to 10% of the difference between 268,000 shares minus the portion thereof
allocated to the conversion into equity of amounts owed to Gordon A. Rogers
pursuant to Section 2.2,, and deliver such withheld shares (the "Escrow Shares")
-------------
to Commerce Bank (or a similar institution), as escrow agent (the "Escrow
------
Agent"), to be held by Escrow Agent as collateral for the indemnification
obligations under Section 11.2 and pursuant to the provisions of an escrow
agreement (the "Escrow Agreement") in substantially the form of Exhibit 2.5.
---------------- -----------
The number of Escrow Shares withheld from each MSI Shareholder shall be equal to
the product obtained by multiplying the total number of Escrow Shares by a
fraction (i) whose numerator is the total number of issued and outstanding
shares of MSI Common Stock that were owned of record by such MSI Shareholder
immediately prior to the Effective Time and (ii) whose denominator is the total
number of shares of MSI Common Stock that were issued and outstanding and held
of record by all MSI Shareholders immediately prior to the Effective Time. The
Escrow Shares will be represented by duly authorized stock certificates issued
in the name of the respective MSI Shareholders. Subject to the terms and
conditions of the Escrow Agreement, the Escrow Shares will be held by the Escrow
Agent until the first anniversary of the Effective Time. By their approval of
the Merger, each of the MSI Shareholders shall, without any further act of any
MSI Shareholder, be conclusively deemed to have consented to and approved (i)
the use of the Escrow Shares as collateral for the indemnification obligations
under Section 11.2 in the manner set forth in the Escrow Agreement, (ii) the
authorization of a majority in interest of MSI Stockholders to act for and on
behalf of each MSI Stockholder, and the taking by such majority in interest of
MSI 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 MSI
Stockholders for the accomplishment of the foregoing), and (iii) all of the
other terms, conditions and limitations in the Escrow Agreement.
2.6 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 MSI, and MSI will be the surviving corporation of the Merger, pursuant to
the terms of the Plan of Merger; (b) the Certificate of Incorporation and Bylaws
of MSI will continue to be the Certificate 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 be converted into
one share of MSI; (d) the directors and certain officers of Asymetrix shall
become the directors and officers of the surviving corporation as set forth in
the Plan of Merger; (e) each share of MSI Common Stock outstanding immediately
prior to the Effective Time will be converted into the
-3-
<PAGE>
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.
2.7 Further Assurances. Each of MSI 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 MSI,
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 MSI or
otherwise.
2.8 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, or 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. MSI and the Principals shall
furnish to Asymetrix all information known to MSI or the Principals (or
reasonably ascertainable by MSI or the Principals) concerning each of MSI and
the Principals, as may be reasonably requested in connection with any action
contemplated by this Section.
2.9 Pooling Accounting. The parties acknowledge that, as a material
------------------
inducement to Asymetrix to enter into this Agreement and consummate the Merger,
the Merger is intended to qualify as a "pooling of interests" for accounting and
financial reporting purposes. Accordingly, concurrently with the Closing, each
MSI Shareholder and each officer and director of MSI shall execute and deliver
to Asymetrix an Affiliate Agreement in the form of Exhibit 2.9 hereto (the
-----------
"Affiliate Agreement").
- --------------------
2.10 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 to the value of the MSI Common Stock to be surrendered in exchange
therefor. The Asymetrix Common Stock issued in the Merger will be issued in
exchange for an amount of MSI Common Stock representing "control" of MSI as
defined in Section 368(c) of the Code and no other transaction other than the
Merger represents, provides for or is intended to be an adjustment to the
consideration paid for the MSI 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 2.10. In addition, Asymetrix
represents now, and as of the Effective Time, that it presently intends to
continue MSI's historic business or use a significant portion of MSI's business
assets in a business. At the Effective Time, officers of each of Asymetrix and
MSI shall execute and deliver officers' certificates in the forms of Exhibits
--------
2.10A and 2.10B attached hereto. The provisions and
- ---------------
-4-
<PAGE>
representations contained or referred to in this Section 2.10 shall survive
until the expiration of the applicable statute of limitations.
3. REPRESENTATIONS AND WARRANTIES OF MSI AND PRINCIPALS
Each of the Principals and MSI, jointly and severally, hereby represents
and warrants as follows, except as set forth in the MSI Schedule of Exceptions
(in numbered paragraphs that correspond to the Section numbers below)
simultaneously delivered to Asymetrix with the execution of this Agreement:
3.1 Organization, Good Standing and Qualification. MSI is a corporation
---------------------------------------------
duly organized, validly existing and in good standing under the corporation and
franchise tax laws of the State of New York, 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 MSI Schedule of
------------
Exceptions. MSI 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 (for purposes of this Section 3 and Sections 4 and 5, a "Material
--------
Adverse Effect") of MSI.
- --------------
3.2 Power, Authorization and Validity.
---------------------------------
3.2.1 MSI and each Principal has the corporate or other right, power,
legal capacity and authority to enter into and perform his, her or its
respective obligations under this Agreement and all agreements to which MSI 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 "MSI Ancillary
-------------
Agreements"). The execution, delivery and performance of this Agreement and the
- ----------
MSI Ancillary Agreements to which MSI is a party have been duly and validly
approved and authorized by the Board of Directors of MSI. The Merger has been
approved by all of the stockholders of MSI.
3.2.2 No filing, authorization or approval, governmental or
otherwise, is necessary to enable MSI and the Principals to enter into, and to
perform his, her or its obligations under, this Agreement and the MSI Ancillary
Agreements, except for (a) the filing of the Certificate of Merger with the New
York Secretary of State, (b) the filing of a Certificate of Merger with the
Delaware Secretary of State, (c) the filing of appropriate documents with the
relevant authorities of other states in which MSI is qualified to do business,
if any, and (d) such filings as may be required to comply with federal and state
securities laws.
3.2.3 This Agreement and the MSI Ancillary Agreements are, or when
executed by MSI and/or the Principals, as applicable, will be, valid and binding
obligations of MSI 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.
-5-
<PAGE>
3.3 Capitalization. As of the date hereof, the authorized capital stock
--------------
of MSI consists of 200 shares of MSI Common Stock, of which 200 shares are
issued and outstanding. All issued and outstanding shares of MSI Common Stock
have been duly authorized and validly issued, are fully paid and nonassessable
(except as provided in Section 630 of the NYBCL with respect to unpaid services
performed after the Effective Time), are not subject to any right of rescission,
and have been offered, issued, sold and delivered by MSI, in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws. Schedule 3.3 of the MSI
------------
Schedule of Exceptions sets forth a true, correct and complete list of all
holders of MSI 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 MSI's authorized but unissued capital stock
or any securities convertible into or exchangeable for shares of MSI capital
stock or obligating MSI 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 MSI's outstanding securities. MSI 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 MSI
Common Stock reside in the State of Georgia.
3.4 Subsidiaries. MSI 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 MSI 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 MSI, as currently
in effect, (b) any Material Agreement (as defined in Section 3.11) to which MSI
is a party or by which MSI or the Principals or his, her or its assets or
properties are bound, or (c) to the knowledge of MSI and the Principals, any
federal, state, local or foreign judgment, writ, decree, order, statute, rule or
regulation applicable to MSI 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 MSI or any Principal before any federal, state, municipal,
foreign or other court or administrative agency, department, board or
instrumentality that, if concluded adversely to MSI or a Principal, would have a
Material Adverse Effect, and, to the best of MSI's and the Principals'
knowledge, no such action, proceeding, claim or investigation has been
threatened. There is, to the best of MSI's and the Principals' knowledge, no
reasonable basis for any stockholder or former stockholder of MSI, or any other
person, firm, corporation or entity, to assert a claim against MSI, any
Principal or Asymetrix based upon: (a) ownership or rights to ownership of any
shares of MSI Common Stock, (b) any rights as or to become a holder of
securities of MSI, including any option or preemptive rights or rights to notice
or to vote, or (c) any rights under any
-6-
<PAGE>
agreement among MSI 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
MSI with respect to its income, assets or operations.
3.7.1 MSI 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. MSI and the Principals have provided or made available to
Asymetrix copies of all material Returns actually filed by MSI during the three-
year period ending on the date hereof.
3.7.2 MSI has paid or deposited in full all taxes due and owing or
shown to be due on the Returns filed by MSI (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. MSI has established a proper
and adequate accrual or reserve on the MSI 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 MSI 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 MSI by any taxing authority. MSI 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 MSI 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 MSI.
3.7.4 There are no material liens, pledges, charges, claims, security
interests or other encumbrances covering the assets of MSI 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 [Intentionally omitted.]
3.7.6 MSI is not party to a tax sharing or tax allocation agreement,
and MSI does not owe any amount under any such agreement.
-7-
<PAGE>
3.7.7 MSI 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 MSI 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 MSI .
3.7.9 None of MSI's assets constitute "tax-exempt use property"
within the meaning of Section 168(h) of the Code.
3.8 Financial Statements. MSI has delivered to Asymetrix as Schedule 3.8
-------------------- ------------
of the MSI Schedule of Exceptions MSI's (a) balance sheet as of December 31,
1997 (the "1997 Balance Sheet") and income statement and statement of cash flows
------------------
for the 12 month period then ended (collectively, the "1997 Financial
--------------
Statements"), and (b) balance sheet as of March 31, 1998 (the "March 31 Balance
- ---------- ----------------
Sheet") and income statement for the three month period then ended
- -----
(collectively, the "MSI March Financial Statements") (the 1997 Financial
------------------------------
Statements and the MSI March Financial Statements are collectively referred to
herein as the "MSI Financial Statements"). The MSI Financial Statements (a) are
------------------------
in accordance with the books and records of MSI, (b) fairly present the
financial condition of MSI 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 MSI March Statements, to normal recurring
year-end adjustments and the absence of any notes thereto. MSI 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 MSI Financial Statements, except for
those that may have been incurred after the date of the MSI 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. MSI has good and marketable title to all of its
-------------------
tangible assets as shown on the 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 MSI is a party are fully effective. To the knowledge of MSI
and each of the Principals, MSI 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 March 31, 1998, 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 MSI:
-8-
<PAGE>
(a) any change in the financial condition, properties, assets,
liabilities, business or operations of MSI 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 MSI and the Principals, will
have a Material Adverse Effect;
(b) any contingent liability incurred by MSI 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 MSI, 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 MSI, 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 MSI,
any split, combination or recapitalization of the capital stock of MSI or any
direct or indirect redemption, purchase or other acquisition of the capital
stock of MSI;
(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 MSI'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 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.
-9-
<PAGE>
3.11 Material Agreements, Contracts and Commitments. Except as set forth
----------------------------------------------
on Schedule 3.11 of the MSI Schedule of Exceptions and other than this Agreement
-------------
and the MSI Ancillary Agreements, neither MSI 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 MSI (each a "Material Agreement"), including, but
------------------
not limited to any:
(a) Contract, commitment, letter contract or purchase order providing
for payments by or to MSI in an aggregate amount of (1) $25,000 or more in the
ordinary course of business to any one vendor or customer; or (2) $10,000 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 $25,000 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
MSI IP Rights Agreement (as defined in Section 3.12);
(c) Consulting, development or similar agreement with fees exceeding
$5,000 for any one customer under which MSI currently provides or will provide
any custom software development, training, documentation, personnel placements,
advice, consulting services or other products or services to a customer of MSI
(collectively with any such agreements with fees less than $5,000 for any one
customer not required to be listed on Schedule 3.11, the "Current Service
---------------
Agreements");
- ----------
(d) Contract for the current or future sale, provision or manufacture
of products (including computer software), material or supplies from MSI or in
which MSI 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 MSI,
or license of software to MSI, which software is used or incorporated in any
products distributed or services provided by MSI or is contemplated to be used
or incorporated in any products to be distributed or services to be provided by
MSI (other than software generally available to the public at a per copy license
fee of less than $2,500 per copy);
(f) Contract or commitment for the employment of any officer,
employee or consultant of MSI or any other type of contract or understanding
with any officer, employee or consultant of MSI which is not immediately
terminable by MSI without cost or other liability;
(g) Agreement for the lease of real or personal property involving
payments by or to MSI in an aggregate amount of $10,000 or more;
(h) Joint venture contract or arrangement or any other agreement that
involves a sharing of profits with other persons;
-10-
<PAGE>
(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 MSI ;
(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 MSI Financial Statements;
(k) Contract containing covenants purporting to limit MSI'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 MSI nor the Principals is, nor, to the best knowledge
of MSI 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 MSI 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. MSI has no material liability for renegotiation of
government contracts or subcontracts, if any.
3.12 Intellectual Property. MSI 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 " MSI 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 MSI IP Right or materially impair the right of MSI to use,
sell or license any MSI IP Right or portion thereof. There are no royalties,
honoraria, fees or other payments payable by MSI to any person by reason of the
ownership, use, license, sale or disposition of any MSI 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 MSI (whether on a stand-alone basis or as part of services offered by
MSI) or currently under development by MSI violates any license or agreement
between MSI 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 MSI and the Principals,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, license or dispose of any MSI IP Right; nor, to the best knowledge of
MSI and the
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<PAGE>
Principals without any independent investigation thereof, is there any basis for
any such claim; nor has MSI received any notice asserting that any MSI 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 MSI
and the Principals, is there any basis for any such assertion. MSI 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
MSI IP Rights. MSI is not using any Intellectual Property Rights of any past or
present officers, employees or consultants. Schedule 3.12 of the MSI 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 MSI to perfect or protect its interest in MSI IP Rights, including, without
limitation, all patents, patent applications, copyrights, copyright
registrations, trademarks, trademark applications and service marks and all MSI
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 "MSI IP Rights Agreement"
-----------------------
shall mean any instrument or agreement governing any MSI IP Right.
3.13 Compliance with Laws. MSI 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 MSI'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.
MSI 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 MSI or any Principal, would result in any Material
Adverse Effect.
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<PAGE>
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 MSI (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 MSI within the last three years, except for
compensation as an officer, director or employee of MSI. 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 MSI, except for the normal rights of a stockholder.
3.15 Employees, ERISA and Other Compliance.
-------------------------------------
3.15.1 MSI 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 MSI (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. MSI and the
Principals have no knowledge that a material number of employees intend to leave
the employ of MSI or that any employees intend to leave the employ of MSI and
which departures would prevent MSI from fully performing on schedule any
Customer Agreement.
3.15.3 Schedule 3.15.3 of the MSI 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
MSI under which MSI or any ERISA Affiliate (as defined below) thereof has any
present or future obligation or liability (collectively, the " MSI 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 MSI. Copies of all MSI
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 MSI
Employee Plan. All MSI Employee Plans which individually or collectively would
constitute an "employee pension benefit plan," as defined in Section 3(2) of
ERISA (collectively, the "MSI Pension Plans"), are identified as such in
-----------------
Schedule 3.15.3 of the MSI Schedule of Exceptions. As of the date hereof, all
- ---------------
contributions due and previously required to be made on or before the date
hereof from MSI with respect to any of the MSI Employee Plans have been made as
required under ERISA or have been accrued on the MSI Financial Statements. To
the knowledge of MSI and the Principals, each MSI Employee Plan has been
maintained
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<PAGE>
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 MSI 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 MSI Employee
Plan which is covered by Title I of ERISA which would result in a material
liability to MSI 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 MSI
Employee Plan has made or will make MSI or any officer or director of MSI
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 MSI Pension Plan which is intended to be qualified under
Section 401(a) of the Code (a "MSI 401(a) Plan") has received a favorable
---------------
determination from the Internal Revenue Service as to its qualifications, and
MSI and the Principals are not aware of any reason why such determination may
not be relied upon by such plan. MSI 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
MSI 401(a) Plan.
3.15.6 Schedule 3.15.6 of the MSI Schedule of Exceptions lists each
---------------
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 MSI Employee Plan, (B) is entered
into, maintained or contributed to, as the case may be, by MSI and (C) covers
any employee or former employee of MSI. Such contracts, plans and arrangements
as are described in this Section 3.15.6 are herein referred to collectively as
the "MSI Benefit Arrangements." Each MSI 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 MSI Benefit Arrangement. MSI has delivered or made available
to Asymetrix or its counsel a complete and correct copy or description of each
MSI Benefit Arrangement.
3.15.7 MSI 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 MSI 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 MSI.
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<PAGE>
3.15.8 No benefit payable or which may become payable by MSI
pursuant to any MSI Employee Plan or any MSI 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 To the knowledge of MSI and the Principals and except for
matters which would not have a Material Adverse Effect, no employee of MSI 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 MSI
to any material liability.
3.15.10 A list of all employees, officers and consultants of MSI and
their current compensation, bonus plans, commission plans, vacation rights and
severance rights is set forth on Schedule 3.15.10 of the MSI Schedule of
----------------
Exceptions. MSI is currently paying all amounts that are currently required to
be paid to such parties shown in such Schedule.
3.15.11 MSI is not a party to any (a) agreement with any executive
officer or other key employee of MSI (i) the benefits of which are contingent,
or the terms of which are materially altered, upon the occurrence of a
transaction involving MSI in the nature of any of the transactions contemplated
by this Agreement and the Plan 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
Plan 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
Plan of Merger.
3.16 Corporate Documents. MSI has made available to Asymetrix for
-------------------
examination all documents and information listed in the MSI 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 Certificate of Incorporation and Bylaws of MSI 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 MSI; (c) the stock ledger and journal reflecting all stock
issuances and transfers of MSI; (d) all material permits, orders, and consents
issued by any regulatory agency with respect to MSI, or any securities of MSI,
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
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<PAGE>
purchase prices, grant dates, vesting dates, exercise dates, expiration dates
and all other relevant data necessary for Asymetrix to issue the Asymetrix
Common Stock .
3.17 No Brokers. Neither MSI 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
MSI Ancillary Agreements or in connection with any transaction contemplated
hereby or thereby. Except as otherwise provided in this Agreement, MSI 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 MSI and the Principals, neither this
----------
Agreement, its exhibits and schedules, nor any of the certificates or documents
to be delivered by MSI 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. MSI 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 MSI Schedule of Exceptions.
-------------
3.20 Environmental Matters.
---------------------
3.20.1 During the period that MSI 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 MSI, or to MSI'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. MSI 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 MSI 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.
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<PAGE>
3.20.2 None of the properties or facilities of MSI 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 MSI has owned or leased its
properties and facilities, neither MSI nor, to MSI'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 MSI has owned or leased its respective
properties and facilities, there has been no litigation brought or, to the
knowledge of MSI and the Principals, threatened against MSI by, or any
settlement reached by MSI 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 MSI (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 MSI, and (d) accurately
and fairly reflect the basis for the MSI 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 MSI Common Stock outstanding immediately
prior to the Effective Time.
3.23 Company Debt. The aggregate principal amount of, and accrued
------------
interest upon, the amounts due under a Commercial Promissory Note dated July 1,
1997, a U.S. Small Business Administration Note dated July 30, 1997 and the
Commercial Term Note dated April 20, 1998, each between MSI and First National
Bank of Rochester, are equal to $40,000, $271,153.11 and $26,775, respectively,
as of June 1, 1998, and there has been no increase in the principal amount of
such debt since June 1, 1998. The aggregate amount owed to Gordon A. Rogers by
MSI (including all accrued but unpaid compensation, if any, and the principal
amount of all loans and accrued interest thereon made to MSI by Gordon Rogers)
is equal to $276,342.08 as of June 1, 1998, and there has been noincrease in the
principal amount of such debt since June 1, 1998.
3.24 Loans to Roy Haythorn. The aggregate principal amount of, and
---------------------
accrued interest upon, all loans and advances of salary and bonus to, and other
indebtedness to MSI of, Roy Haythorn (the "Haythorn Debt") is equal to
-------------
$136,975.83 as of June 1, 1998, and since June 1, 1998 no additional loans or
advances of salary or bonus have been made to, and no additional indebtedness to
MSI has been incurred by Roy Haythorn, except for interest accruing on the
unpaid balance of the Haythorn Debt since June 1, 1998, and except for personal
expenses charged to MSI's American Express account since June 1, 1998.
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<PAGE>
3.25 Prior Agreements. MSI has no liability arising out of, related to,
----------------
in connection with or otherwise resulting from any Prior Agreement whatsoever.
For purposes of the foregoing, "Prior Agreements" means (i) all consulting,
----------------
development or similar agreement under which MSI has provided any training,
documentation, placements, advice, consulting services or other products and
services to a customer of MSI (which agreements are not Current Service
Agreements as defined in Section 3.11(c)), 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 as defined in
Section 3.11(d))
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 in the Registration Statement on Form S-1 (File
No. 333-49037) filed by Asymetrix with the Securities and Exchange Commission on
April 1, 1998, as amended to date (the "Form S-1"), or on the Asymetrix Schedule
--------
of Exceptions (in numbered paragraphs that correspond to the Section numbers
below) simultaneously delivered to MSI 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
corporation and franchise tax laws of the State of Delaware 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 Delaware 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 May 1998 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 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 Certificate of
Merger with the New York Secretary of State, (b) the filing
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of a Certificate of Merger with the Delaware Secretary of State, (c) the filing
of appropriate documents with the relevant authorities of other states in which
Asymetrix is qualified to do business, if any, and (d) 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 2,000,000 authorized
-----------------------
shares of Preferred Stock, $0.01 par value per share, none of which are
outstanding. A total of 40,000,000 authorized shares of Asymetrix Common Stock,
of which 13,277,781 shares are outstanding as of June 18, 1998. The rights,
preferences and privileges of the Preferred Stock and the Asymetrix Common
Stock, are as stated in Asymetrix's Certificate 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. As of June 18,
--------------------------------------------
1998, except for: (i) options to purchase 3,725,673 shares of Asymetrix Common
Stock and a like number of shares of Asymetrix Common Stock reserved for
issuance upon the exercise thereof under the Asymetrix 1995 Combined Incentive
and Nonqualified Stock Option Plan (the "1995 Option Plan"), (ii) options to
----------------
purchase 112,500 shares of Asymetrix Common Stock and a like number of shares
of Asymetrix Common Stock reserved for issuance upon the exercise thereof under
the Asymetrix 1998 Equity Incentive Plan (the "1998 Equity Plan"), 1,387,998
additional shares of Asymetrix Common Stock reserved for future issuance under
the 1998 Equity Plan, (iv) an option to purchase14,573 shares of Asymetrix
Common Stock, and (v) 187,500 additional shares of Asymetrix Common Stock
reserved for future issuance under the Asymetrix 1998 Directors Stock Option
Plan, which became effective upon the effective date of the initial public
offering of Asymetrix Common Stock and of which options to purchase30,000 shares
have been granted to eligible directors, effective June 11, 1998, 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,
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<PAGE>
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) 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. (ii) 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"), (iii) the rights granted in that certain Acquisition Agreement,
- ---------
dated as of July 17, 1997 by and among Asymetrix, Socha Computing, Inc.,
Asymocha Merger Corporation and John Socha, (iv) a Voting Agreement and
Registration Rights Agreement dated as of September 11, 1997 entered into in
connection with the acquisition of Aimtech Corporation, (v) a Voting and Co-Sale
Agreement and Registration Rights Agreement dated as of September 30, 1997 among
Asymetrix, Gordon Oakes, Kevin Oakes and Doug Foster, (vii) a Registration
Rights Agreement dated as of December 22, 1997 among Asymetrix and the former
shareholders of Communication Strategies, Incorporated, and (vii) a Registration
Rights Agreement dated as of May 22, 1998 among Asymetrix and the former
Shareholders of Strategic Systems Associates, Inc., 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 thousand (1,000) authorized shares
----------
of Common Stock, $0.001 par value per share for Merger Sub, one hundred (100) of
which are 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.
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,
Communication Strategies, Incorporated, Strategic Systems Associates, Inc.,
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 Certificate 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
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<PAGE>
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 Asymetrix 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. 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 MSI and the
--------------------
Principals as Schedule 4.8 of the Asymetrix Schedule of Exceptions Asymetrix's
------------
(a) audited balance sheet as of December 31, 1997 (the "Asymetrix 1997 Balance
----------------------
Sheet") and income statement and statement of cash flows for the 12 month period
- -----
then ended (collectively, the "Asymetrix 1997 Financial Statements"), and (b)
-----------------------------------
balance sheet as of March 31, 1998 (the "Asymetrix March 31 Balance Sheet") and
--------------------------------
income statement for the three month period then ended (collectively, the
"Asymetrix March Financial Statements") (the Asymetrix 1997 Financial Statements
- -------------------------------------
and Asymetrix March Financial Statements are collectively referred to herein as
the "Asymetrix Financial Statements"). Asymetrix has also delivered to MSI and
------------------------------
to each of the Principals a copy of the Form S-1. 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
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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 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 March 31, 1998, 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;
(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;
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<PAGE>
(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 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 made
available to counsel for MSI 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
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<PAGE>
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, and are 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 (i) SOFTVEN No. 2 Investment Enterprises
Partnership, or its designated director, (ii) the designated director of the
former stockholders of Aimtech corporation, (iii) Kevin Oakes or (iv) Cynthia
Boyd and James Boyd) 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
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<PAGE>
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.
4.17 Corporate Documents. Asymetrix has made available to MSI 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 MSI 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,
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<PAGE>
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 MSI 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
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.
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<PAGE>
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 MSI 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 MSI 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.
5. MSI 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 MSI and the Principals covenants and agrees as follows:
5.1 Advice of Changes. MSI will, and the Principals will cause MSI 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
MSI 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 MSI that could reasonably be expected to have a Material Adverse
Effect.
5.2 Conduct of Business. MSI will, and the Principals will cause MSI 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 MSI 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 MSI
Schedule of Exceptions):
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<PAGE>
(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 MSI in excess of $10,000,
or which obligates MSI 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 MSI with a value
exceeding $5,000 (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 MSI in
good working condition and repair according to the standards MSI 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 MSI
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 or make any advance of salary or bonus
compensation 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;
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<PAGE>
(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
MSI 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 MSI 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 MSI;
(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) permit the use of any MSI corporate credit card or charge card be
used for the personal expenses of any employee or to pay for any other non-MSI
expenses or charges; or
(y) agree to do any of the things described in the preceding clauses
5.2(a) through (x).
5.3 Regulatory Approvals. MSI will, and the Principals will cause MSI 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. MSI will, and
the Principals will cause MSI to, use its best efforts to obtain all such
authorizations, approvals and consents.
5.4 Necessary Consents. MSI will, and the Principals shall cause MSI 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 MSI's business after the Closing.
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<PAGE>
5.5 Litigation. MSI 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 MSI,
or known by MSI or the Principals to be threatened against MSI.
5.6 No Other Negotiations. From the date hereof until the earlier of the
---------------------
termination of this Agreement or consummation of the Merger, MSI will not, and
the Principals will not permit MSI to, and will not authorize any officer or
director of MSI 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 MSI'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 MSI, or any transaction in which MSI
contemplates issuing equity or debt securities. MSI 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 MSI and the
---------------------
Principals will allow Asymetrix and its agents, upon reasonable prior notice,
reasonable access to the files, books, records and offices of MSI, including,
without limitation, any and all information relating to MSI's taxes,
commitments, contracts, leases, licenses, and real, personal and intangible
property (including its intellectual property) and financial condition. MSI will
and the Principals will cause MSI'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. MSI 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 required on their
part in order to effect the transactions contemplated hereby. MSI 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. MSI 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:
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6.1 Advice of Changes; Conduct of Business. Asymetrix and Merger Sub will
--------------------------------------
promptly advise MSI 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 promptly inform MSI in
writing if it does any of the following (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, except that Asymetrix may conduct negotiations regarding the
acquisition of other entities, and may enter into agreements to acquire other
entities and perform its obligations under such agreements;
(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 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 (i) the grant or
exercise of stock options to employees or contractors under the 1998 Equity Plan
or the 1995 Option Plan (ii) or in connection with an acquisition of another
entity; or
(f) 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.
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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 MSI 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 MSI
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 July 1, 1998, or, if all conditions to closing
have not been satisfied or waived by such date, such other place, time and date
as MSI and Asymetrix may mutually select (the "Closing Date"). Concurrently
------------
with the Closing, the Certificate of Merger will be filed in the office of the
New York Secretary of State and a Certificate of Merger will be filed 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 MSI 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 and 2.5.
7.2.2 As soon as practicable after the Effective Time, each holder of
shares of MSI Common Stock will surrender the certificate(s) for such shares
(the "Certificates"), duly endorsed as requested by Asymetrix or accompanied by
------------
stock powers in a form acceptable to 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
less the
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Escrow Shares to be held in escrow pursuant to Section 2.5, and certificates
representing the Escrow Shares will be delivered to the Escrow Agent.
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 MSI
Common Stock in accordance with the terms hereof will be deemed to have been
delivered in full satisfaction of all rights pertaining to such MSI Common
Stock. There will be no further registration of transfers on the stock transfer
books of MSI or the transfer agent of such MSI 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 MSI 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 MSI Common Stock will have
been converted pursuant to Sections 2.1 hereof less any shares withheld as
Escrow Shares pursuant to Section 2.5.
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 MSI AND THE PRINCIPALS
MSI'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 which may be waived by MSI and the Principals,
but only in a writing signed by MSI 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 MSI shall receive a certificate to such effect
signed by Asymetrix's Chief Executive Officer and Chief Financial Officer.
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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. MSI 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 on an opinion 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 Escrow Agreement. Asymetrix shall have executed and delivered the
----------------
Escrow Agreement in the form of Exhibit 2.5.
-----------
8.8 Employment Agreements. Asymetrix shall have executed and delivered (i)
---------------------
an employment agreement with Gordon A. Rogers in the form of Exhibit 8.8A (the
------------
"Rogers Employment Agreement"), and (ii) an employment agreement with Roy
- ----------------------------
Haythorn in the form of Exhibit 8.8B (the "Haythorn Employment Agreement").
------------ -----------------------------
8.9 Absence of Material Adverse Changes. There shall not have been any
-----------------------------------
material adverse change in the financial conditions, properties, assets,
liabilities, business, prospects or results of operations of Asymetrix.
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 MSI 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.
9.2 Covenants. MSI 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 MSI and
by the Principals.
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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 MSI
------------------
and the Principals, an opinion as to the matters described in Exhibit 9.5.
-----------
9.6 Consents. MSI 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 MSI 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 MSI (including without limitation, the consents as to Material
Contracts hereto and the Customer Agreements) and for MSI 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 MSI and the Principals shall have agreed shall not be obtained. A
list of such required consents is set forth on Schedule 9.6.
------------
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 MSI Common Stock outstanding, and by a majority of the Board of Directors
of MSI.
9.9 Resignation of Officers and Directors. The officers and directors of
-------------------------------------
MSI in office immediately prior to the Effective Time shall have resigned as the
officers and directors of MSI effective as of the Effective Time.
9.10 Investment Representation Letter. Asymetrix shall have received from
--------------------------------
all of the holders of MSI Common Stock an executed Investment Representation
Letter substantially in the form of Exhibit 9.10 hereto.
------------
9.11 Escrow Agreement. Asymetrix shall have received a copy of the Escrow
----------------
Agreement executed by each holder of MSI Common Stock.
9.12 Employment Agreements. Asymetrix shall have received the Rogers
---------------------
Employment Agreement executed by Gordon A. Rogers, and the Haythorn Employment
Agreement executed by Ray Haythorn.
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9.13 Employees. MSI 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.
-------------
9.14 Affiliate Agreements. Each MSI Shareholder and each officer and
--------------------
director of MSI will have executed and delivered to Asymetrix an Affiliate
Agreement in the form of Exhibit 2.9.
-----------
9.15 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.
9.16 Escrow Shares Free of Liens. All shares of Asymetrix Common Stock
---------------------------
that are Escrow Shares shall be free and clear of any and all pledges, liens,
security interests or other rights or claims of any party.
9.17 Absence of Material Adverse Changes. There shall not have been any
------------------------------------
material adverse change in the financial conditions, properties, assets,
liabilities, business, prospects or results of operations of MSI.
9.18 Roy Haythorn Loan Documents. Roy Haythorn shall have executed and
---------------------------
delivered to Asymetrix (i) a Promissory Note in form of Exhibit 9.18A evidencing
-------------
the then current balance of the Haythorn Debt, rate of interest thereon and
repayment schedule and (ii) a Stock Pledge Agreement in the form of Exhibit
-------
9.18B, pledging any shares of Asymetrix Common Stock acquired by Roy Haythorn to
- -----
Asymetrix as security for the repayment of the Haythorn Debt.
9.19 Pooling Opinion. Asymetrix shall have received a letter from KPMG
---------------
Peat Marwick concurring with management's conclusion that the Merger qualifies
for treatment as "pooling of interests" for financial reporting purposes under
generally accepted accounting principals and the related published rules and
regulations of the SEC.
10. TERMINATION OF AGREEMENT
10.1 Termination of Agreement. Asymetrix on the one hand and MSI 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
MSI and the Principals in the event MSI or the Principals is in breach, and MSI
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
MSI and the Principals if the Closing shall not have occurred on or before July
1, 1998 by reason of the failure of any condition precedent under Section 9
hereof (unless the failure results primarily
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for a breach by Asymetrix of any representation, warranty or covenant contained
in this Agreement); or
10.1.3 MSI and the Principals may terminate this Agreement by giving
written notice to Asymetrix if the Closing shall not have occurred on or before
July 1, 1998 by reason of the failure of any condition precedent under Section 8
hereof (unless the failure results primarily from a breach by MSI 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 (but for purposes of this Section 10.2, only to the extent such obligations
relate to claims of third parties), or as provided in Sections 12.8 and 12.16
and in the Letter of Intent between Asymetrix and MSI dated May 15, 1998, other
than any liability of any party for breaches of this Agreement, which will
survive termination of this Agreement. MSI and the Principals on the one hand
and Asymetrix on the other will use commercially reasonable efforts to cause the
Merger to be consummated.
11. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES, CONTINUING
COVENANTS
11.1 Survival of Representations. All representations, warranties and
---------------------------
covenants of MSI, 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) one
(1) year after the Closing Date, whereupon such representations, warranties and
covenants will expire (except that if the breach of any representations and
warranties are subject to resolution through the audit process, then such
representations and warranties shall expire upon the first public release of
audited financial statements following the Closing) ); 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
MSI Shareholders (during the time period specified below) indemnify Asymetrix
and the surviving corporation of the Merger and their officers (other than any
Principal), directors and employees (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 MSI or
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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 MSI Shareholders
to have good, valid and marketable title to the issued and outstanding MSI
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.
The maximum aggregate liability under paragraphs (a), (b) and (c) of this
subsection 11.2.1 of any MSI Shareholder who is not a Principal shall be limited
to the remedies of Asymetrix with respect to the Escrow Shares and any other
assets deposited in escrow pursuant to the Escrow Agreement with respect to such
MSI Shareholder, and the maximum aggregate liability under paragraphs (a), (b)
and (c) of this subsection 11.2.1 of the Principals shall be $2,000,000 (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
otherwise apply to any indemnification obligations arising under this subsection
11.2.1 which result from intentional fraud or willful misconduct. For purposes
of satisfying any Damages hereunder, the parties agree that the Principals shall
be able to choose, at his or her sole discretion, to satisfy his or her portion
of such Damages by (i) tendering shares of Asymetrix Common Stock equal to the
amount of such Damages with such shares of Asymetrix Common Stock being assigned
a value per share equal to the closing price of the Asymetrix Common Stock on
NASDAQ on the Closing Date, regardless of the value per share at which such
stock may then be trading, (ii) paying such Damages in legal tender of the
United States of America in an amount calculated by multiplying the number of
shares of Asymetrix Common Stock determined under (i) by the closing price of
the Asymetrix Common Stock on NASDAQ on the last trading day preceding the
payment date, or (iii) any combination of (i) and (ii).
11.2.2 The indemnification provided for in paragraphs (a) and (b) 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) and (b), exclusive of legal fees, exceeds $100,000 (the "Basket")
------
and then only to the extent that aggregate Damages exceed the Basket. The
Basket shall not apply to any Damages arising from the breach of the
representations and warranties set forth in Section 3.7. In seeking
indemnification for Damages under Section 11.2.1, the Asymetrix Indemnified
Persons shall be entitled to exercise their remedies with respect to the Escrow
Shares and any other assets deposited in escrow pursuant to the Escrow
Agreement. The exercise of remedies with respect to the Escrow Shares shall be
Asymetrix's only remedy as against the MSI Shareholders who are not Principals,
but as against the Principals shall be in addition to any and all other remedies
available to the Asymetrix Indemnified Persons at law or in equity.
11.2.3 Subject to the limitations set forth in this Section 11,
Asymetrix will indemnify and hold harmless the Principals (collectively, the
"MSI Indemnified Persons") from and against any and all Damages:
- ------------------------
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<PAGE>
(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 $2,000,000 (the "Cap"), provided, however, that
---
any indemnification obligations arising under this subsection 11.2.3 which
result from intentional fraud or willful miscount shall be excluded from the
calculation of the Cap and the Cap shall not otherwise apply to any
indemnification obligations arising under this subsection 11.2.3 which result
from intentional fraud or willful misconduct. Asymetrix may satisfy any Damages
hereunder solely by tendering shares of Asymetrix Common Stock equal to the
amount of such Damages with such shares of Asymetrix Common Stock being assigned
a value per share equal to the closing price of the Asymetrix Common Stock on
NASDAQ on the Closing Date, regardless of the value per share at which such
stock may then be trading.
11.2.4 Any Asymetrix Indemnified Person or any MSI 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 MSI
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 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
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<PAGE>
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 or the Escrow Agreement shall be
treated as a reduction in the merger consideration.
11.2.6 Exclusivity. The indemnification provided for in this Section
-----------
11.2 shall be the Exclusive remedy of any Indemnified Person for any
misrepresentation or breach of or default in connection with any of the
representations, warranties and covenants herein or in any certificate, document
or instrument delivered pursuant hereto, except in the case of intentional fraud
or willful misconduct.
11.3 Employee Stock Options. Asymetrix shall take all action necessary to
----------------------
reserve for issuance under the Asymetrix 1998 Equity Plan and concurrently with
the 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 MSI who
-------------
become Asymetrix employees. All such options shall have exercise prices equal
to the fair market value of Asymetrix Common Stock at the date of grant, as
determined in accordance with the terms of the 1998 Plan. The grant of such
options to any particular employee shall be contingent upon such employee
executing Asymetrix's standard form of Employee Invention, Confidentiality,
Nonraiding and Noncompetition Agreement.
11.4 Repayment of Debt; Indemnification for Personal Guaranty. At the
--------------------------------------------------------
Effective Time, Asymetrix will repay the outstanding principal amount of, and
accrued interest upon, Commercial Promissory Note dated July 1, 1997, a U.S.
Small Business Administration Note dated July 30, 1997 and the Commercial Term
Note dated April 20, 1998, each between MSI and First National Bank of Rochester
(the "Bank Debt"), not to exceed to $40,000, $271,153.11 and $26,775 and
---------
$26,775, respectively (plus interest thereon since June 1, 1998). Following the
Effective Time, Asymetrix will indemnify and hold harmless Gordon A. Rogers from
and against any and all liability arising under the personal Guaranty of the
Bank Debt entered into by Mr. Rogers; provided, however, that Asymetrix will not
indemnify Mr. Rogers against any penalty, charges or default interest in excess
of principal and normal interest if arising from a breach of Mr. Rogers under
the Guaranty.
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
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<PAGE>
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 shareholders of MSI but, after such approval, no
amendment will be made which by applicable law requires the further approval of
the shareholders of MSI 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, except that the
Principals will bear such expenses and fees with respect to Meliora to the
extent they exceed $45,000.
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.
-41-
<PAGE>
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: (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: (650) 494-1417
(ii) If to MSI or the Principals:
---------------------------
Meliora Systems, Inc.
95 Allens Creek Road
Rochester, NY 14618
Facsimile: (716) 461-1901
Attention: Gordon A. Rogers
With a copy to:
--------------
Robert F. Mechur, Esq.
Underberg & Kessler
1800 Chase Square
Rochester, NY 14604
Facsimile: (716) 258-28210
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,
-42-
<PAGE>
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 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, MSI and Asymetrix.
12.16 Confidentiality. Asymetrix, MSI 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.
-43-
<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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
"ASYMETRIX" "MSI"
Asymetrix Learning Systems, Inc. Meliora Systems, Inc.
By: /s/ James A. Billmaier By: /s/ Gordon A. Rogers
----------------------------- -------------------------------
Name: James A. Billmaier Name: Gordon A. Rogers
--------------------------- -----------------------------
Its: Chief Executive Officer Its: President
---------------------------- ------------------------------
"MERGER SUB" "PRINCIPALS"
Asym Merger Corp.
By: /s/ James A. Billmaier /s/ Gordon A. Rogers
------------------------------- -----------------------------------
Gordon A. Rogers
Name: James A. Billmaier
----------------------------- /s/ Veda C. Storey
___________________________________
Its: President Veda C. Storey
------------------------------
[SIGNATURE PAGE FOR AGREEMENT AND PLAN OF REORGANIZATION]
-44-
<PAGE>
List of Exhibits and schedules
------------------------------
Exhibit A Plan of Merger
Exhibit 2.5 Escrow Agreement
Exhibit 2.9 Affiliate Agreement
Exhibit 2.10A Asymetrix Officers' Certificate
Exhibit 2.10B MSI Officers' Certificate
Exhibit 3.0 MSI Schedule of Exceptions
Schedule 3.1 States where Qualified
Schedule 3.3 List of Shareholders
Schedule 3.8 MSI Financial Statements
Schedule 3.10 Schedule of Changes
Schedule 3.11 Material Agreements, Contracts and Commitments
Schedule 3.12 MSI IP Registrations and Applications
Schedule 3.15.3 MSI Employee Benefit Plans
Schedule 3.15.6 MSI Benefit Arrangements
Schedule 3.15.10 MSI Employees, Compensation, Bonus, etc.
Schedule 3.19 Insurance Policies
Exhibit 4.0 Asymetrix Schedule of Exceptions
Exhibit 4.8 Asymetrix Financial Statements
Exhibit 8.5 Form of Opinion of General Counsel of Asymetrix
Exhibit 8.6 Registration Rights Agreement
Exhibit 8.8A Rogers Employment Agreement
Exhibit 8.8B Haythorn Employment Agreement
Exhibit 9.5 Form of Opinion of Counsel to MSI and Principals
Schedule 9.6 Required Consents
<PAGE>
Exhibit 9.10 Investment Representation Letter
Schedule 9.13 MSI Employees
Exhibit 9.18A Roy Haythorn Promissory Note
Exhibit 9.18B Roy Haythorn Stock Pledge
Schedule 11.3 Stock Options
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<PAGE>
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS AND RELATED NOTES
CONTAINED IN THIS FILING AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
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<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 28,124
<SECURITIES> 0
<RECEIVABLES> 9,298
<ALLOWANCES> 1,289
<INVENTORY> 346
<CURRENT-ASSETS> 37,830
<PP&E> 6,967
<DEPRECIATION> 4,745
<TOTAL-ASSETS> 50,318
<CURRENT-LIABILITIES> 9,062
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<COMMON> 134
<OTHER-SE> 40,960
<TOTAL-LIABILITY-AND-EQUITY> 50,318
<SALES> 6,844
<TOTAL-REVENUES> 15,909
<CGS> 1,003
<TOTAL-COSTS> 6,780
<OTHER-EXPENSES> 18,121
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 65
<INCOME-PRETAX> (1,074)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,074)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
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<NET-INCOME> (1,074)
<EPS-PRIMARY> (.33)
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