<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 September 30, 1999
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 000-24289
ASYMETRIX LEARNING SYSTEMS, INC.
(Exact name of registrant as specified in its chapter)
DELAWARE 91-1276003
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
110-110TH AVENUE NE, BELLEVUE, WASHINGTON 98004
(Address of principal executive offices) (Zip Code)
(425) 462-0501
(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 X No
-------- --------
The number of shares outstanding of the issuer's Common Stock, par value $0.01,
as of September 30, 1999 was 14,719,257 shares.
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1999
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of September 30, 1999 and
December 31, 1998 3
Condensed Consolidated Statements of Operations for the three months and
nine months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the three months and
nine months ended September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Changes in Securities and Use of Proceeds 19
Item 3. Defaults upon Senior Securities 20
Item 4. Submission of Matters to a Vote of Securities Holders 20
Item 5. Other Information 20
Item 6. Exhibits and Reports on Form 8-K 20
SIGNATURES 21
EXHIBIT INDEX 22
</TABLE>
2
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,144 $ 21,713
Accounts receivable, net of allowance for returns and
doubtful accounts of $931 and $1,397 11,223 7,917
Inventories 336 370
Prepaid royalties and licenses 178 66
Receivables from related companies 62 193
Other current assets 2,786 998
------------ -------------
Total current assets 28,729 31,257
Property and equipment, net 2,637 2,320
Goodwill and other intangible assets, net 10,651 9,917
Other assets 246 128
------------ -------------
Total assets $ 42,263 $ 43,622
------------ -------------
------------ -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,402 $ 1,494
Accrued liabilities 2,620 1,637
Deferred revenue 1,252 1,401
Other current liabilities 1,679 1,812
------------ -------------
Total current liabilities 7,953 6,344
Other noncurrent liabilities 220 268
------------ -------------
Total liabilities 8,173 6,612
------------ -------------
Stockholders' equity:
Common stock 148 140
Additional paid-in capital 207,086 203,249
Accumulated deficit (172,301) (165,522)
Deferred stock compensation (501) (580)
Accumulated other comprehensive loss (342) (277)
------------ -------------
Total stockholders' equity 34,090 37,010
------------ -------------
Total liabilities and stockholders' equity $ 42,263 $ 43,622
------------ -------------
------------ -------------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
3
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products $ 3,370 $ 2,811 $ 9,388 $ 7,704
Other products 513 1,683 1,219 3,953
----------- ---------- ---------- ----------
Total product revenue 3,883 4,494 10,607 11,657
Services revenue 5,206 4,635 14,494 14,042
----------- ---------- ---------- ----------
Total revenue 9,089 9,129 25,101 25,699
----------- ---------- ---------- ----------
Cost of revenue:
Product revenue:
Online learning products 258 231 662 709
Other products 254 208 512 785
----------- ---------- ---------- ----------
Total cost of product revenue 512 439 1,174 1,494
Services revenue 3,730 3,282 10,497 9,274
----------- ---------- ---------- ----------
Total cost of revenue 4,242 3,721 11,671 10,768
----------- ---------- ---------- ----------
Gross margin 4,847 5,408 13,430 14,931
----------- ---------- ---------- ----------
Operating expenses:
Research and development 1,884 1,568 5,042 4,638
Sales and marketing 3,873 3,559 11,052 10,620
General and administrative 1,357 1,352 4,013 4,296
Amortization of goodwill 239 213 678 592
----------- ---------- ---------- ----------
Total operating expenses 7,353 6,692 20,785 20,146
----------- ---------- ---------- ----------
Loss from operations (2,506) (1,284) (7,355) (5,215)
Other income, net 137 281 577 2,447
----------- ---------- ---------- ----------
Net loss (2,369) (1,003) (6,778) (2,768)
Accretion of redemption value of redeemable common stock 0 0 0 (1,370)
----------- ---------- ---------- ----------
Net loss attributable to common stockholders $ (2,369) $ (1,003) $ (6,778) $ (4,138)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Net loss per share, basic and diluted $ (0.16) $ (0.07) $ (0.48) $ (0.43)
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
Weighted average common shares outstanding, basic and
diluted 14,447 13,565 14,145 9,724
----------- ---------- ---------- ----------
----------- ---------- ---------- ----------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
4
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-----------------------------
1999 1998
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,778) $ (2,768)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 1,601 1,244
Write-off property and equipment - 8
Stock compensation expense 79 250
Equity in income from Infomodelers, Inc. - (2,169)
Changes in assets and liabilities:
Accounts receivable (3,282) (9)
Inventories 34 107
Prepaid royalties and licenses (112) (13)
Receivables from related companies (129) (21)
Other current assets (1,786) (606)
Accounts payable 898 (1,121)
Accrued liabilities 970 (544)
Deferred revenue (149) (2,293)
Other current liabilities (269) (928)
------------ ----------
Net cash used in operating activities (8,923) (8,863)
------------ ----------
Cash flows from investing activities:
Purchase of property and equipment (1,707) (955)
Payments related to acquisitions, net of cash acquired (126) 45
Disposal of investment in Infomodelers, Inc. - 2,373
Disposal (purchase) of other assets (118) 3
------------ ----------
Net cash (used in)/provided by investing activities (1,951) 1,466
------------ ----------
Cash flows from financing activities:
Repayment of notes payable (74) (1,530)
Proceeds from exercise of stock options 475 521
Net proceeds from private placement 2,970 -
Net proceeds from initial public offering - 29,331
------------ ----------
Net cash provided by financing activities 3,371 28,322
------------ ----------
Effect of foreign exchange rate changes (66) (75)
------------ ----------
Net increase(decrease) in cash and cash equivalents (7,569) 20,850
Cash and cash equivalents at beginning of period 21,713 2,541
------------ ----------
Cash and cash equivalents at end of period $ 14,144 $ 23,391
------------ ----------
------------ ----------
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements
5
<PAGE>
ASYMETRIX LEARNING SYSTEMS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999 AND 1998
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying unaudited condensed consolidated financial statements
of Asymetrix Learning Systems, Inc. ("Asymetrix") include the accounts of
Asymetrix 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. These condensed consolidated financial statements and
notes should be read in conjunction with Asymetrix's audited consolidated
financial statements included in Asymetrix's Annual Report on Form 10-K for the
fiscal year ended December 31, 1998. 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 three months and nine months ended
September 30, 1999 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
RESULTS OF OPERATIONS".
ACQUISITION
In July 1999, Asymetrix acquired Pixelmedia Visual Communications, Inc.
("Pixelmedia"), an online learning development firm based in Richmond, British
Columbia. The acquisition of Pixelmedia was accounted for using the purchase
method of accounting. Asymetrix issued 100,000 shares of Common Stock, and paid
approximately $500,000 to acquire all of the issued and outstanding Pixelmedia
capital stock, and to repay debts owed by Pixelmedia to its principal
shareholders.
INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
------------- ------------
<S> <C> <C>
Raw materials $247 $247
Finished goods 154 226
Less obsolescence reserve (65) (103)
------------- ------------
$336 $370
------------- ------------
------------- ------------
</TABLE>
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
Asymetrix 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 nine months ended September 30, 1999 are options to acquire
approximately 4,344,570 shares of Common Stock with a weighted average exercise
price of $4.90 and warrants to acquire 428,571 shares of Common Stock with an
exercise price of $7.00, and for the three and nine months ended September 30,
1998 are options to acquire approximately 4,097,729 shares of Common Stock
with a weighted average exercise price of $5.03 because their effects would be
anti-dilutive.
6
<PAGE>
REVENUE RECOGNITION
Asymetrix recognizes revenue in accordance with Statement of Position
97-2, SOFTWARE REVENUE RECOGNITION ("SOP 97-2"), which provides specific
industry guidance and stipulates that revenue recognized from software
arrangements is to be allocated to each element of the arrangement based on the
relative fair values of the elements, such as software products, upgrades,
enhancements, post contract customer support, installation, or training. Under
SOP 97-2, the determination of fair value is based on objective evidence, which
is specific to the vendor. If such evidence of fair value for each element of
the arrangement does not exist, all revenue from the arrangement is deferred
until such time that evidence of fair value does exist or until all elements of
the arrangement are delivered.
Revenue from sales of software products to end-users, resellers, and
distributors is recognized when the products are delivered provided all the
requirements of SOP 97-2 have been met. Asymetrix'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, if no significant obligations of Asymetrix
remain, Asymetrix 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. Asymetrix recognizes revenue associated with technical support
agreements over the life of the contract.
Asymetrix 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.
In December 1998, the AICPA issued Statement of Position 98-9,
"MODIFICATION OF SOP 97-2, SOFTWARE REVENUE RECOGNITION, WITH RESPECT TO CERTAIN
TRANSACTIONS" ("SOP 98-9") which amends certain elements of SOP 97-2 and is
effective for fiscal years beginning after March 15, 1999. Asymetrix believes
that the adoption of SOP 98-9 will not have a material effect on results of
operations or financial position.
COMPREHENSIVE INCOME
Asymetrix has adopted the provisions of Statement of Financial
Accounting Standards No. 130, REPORTING COMPREHENSIVE INCOME ("Statement 130").
Statement 130 establishes revenues for reporting and disclosure of comprehensive
income and its components (revenues, expenses, gains, and losses) in a full set
of general-purpose financial statements. The following table sets forth the
components of comprehensive loss for the periods presented below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ ------------------------
1999 1998 1999 1998
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net loss $(2,369) $(1,003) $(6,778) $(2,768)
Foreign currency translation adjustment 49 (40) (65) (74)
-------- ------- ------- -------
Total comprehensive loss $(2,320) $(1,043) $(6,843) $(2,842)
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
7
<PAGE>
NEW ACCOUNTING PRONOUNCEMENTS
In March 1998, the Accounting Standards Executive Committee issued
Statement of Position No. 98-1, ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE
DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP 98-1"). SOP 98-1 established
guidance on accounting for the costs incurred related to internal used software.
SOP 98-1 is effective for fiscal years beginning after December 15, 1998.
Asymetrix adopted SOP 98-1 effective January 1, 1999. Adoption of SOP 98-1 did
not have a material impact on the consolidated financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES ("Statement 133"). Statement 133 provides a comprehensive
and consistent standard for the recognition and measurement of derivatives and
hedging activities. Statement 133 is effective for fiscal years beginning after
June 15, 2000. Asymetrix does not expect the adoption of Statement 133 to have a
material impact on its consolidated financial statements.
SEGMENT INFORMATION
Asymetrix has adopted the provisions of Statement of Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION ("Statement 131"). Statement 131 establishes standards for
the reporting by public business enterprises about operating segments, products
and services, geographic areas, and major customers. The method for determining
what information to report is based on the way that management organizes the
operating segments within Asymetrix for making operating decisions and assessing
financial performance.
Asymetrix's chief operating decision-maker is considered Asymetrix's
Chief Executive Officer ("CEO"). The CEO reviews financial information on a
consolidated basis with disaggregated information about revenues by product
categories and geographic region for purposes of making operating decisions and
assessing financial performance. The product categories reviewed by the CEO are
on-line learning products and other products. These categories are identical to
those in the accompanying consolidated statements of operations. The
consolidated financial information reviewed by the CEO does not include
information regarding profitability of Asymetrix's different products or
services. Therefore, prior to click2learn.com, Asymetrix operates in a single
operating segment, on-line learning.
Revenue and long-lived asset information regarding operations in the
United States and International primarily Europe is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30, ENDED SEPTEMBER 30,
-------------------------- -----------------------------
1999 1998 1999 1998
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Revenue:
Domestic $7,936 $8,421 $20,611 $21,658
International - primarily Europe 1,153 707 4,489 4,041
----------- ---------- ---------- -----------
$9,089 $9,128 $25,100 $25,699
----------- ---------- ---------- -----------
----------- ---------- ---------- -----------
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30,
------------------------
1999 1998
------- --------
<S> <C> <C>
Long-lived assets:
Domestic operations $13,215 $8,979
International operations - primarily Europe 73 76
------- --------
$13,288 $9,055
------- --------
------- --------
</TABLE>
No single customer accounted for greater than 10% of total revenues in
any period presented.
SUBSEQUENT EVENTS
On September 30, 1999, Asymetrix entered into a securities purchase
agreement with Marshall Capital Management, Inc. and Vulcan Ventures to
purchase Series A Convertible Stock. Marshall Capital Management, Inc. has
agreed to purchase 6,000 shares for $6 million and Vulcan Ventures has agreed
to purchase 4,000 shares for $4 million. The funds were received on October 6,
1999. These shares converted to an aggregate total 1.29 million shares of
common stock when the S-3 registration statement became effective.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE FOLLOWING DISCUSSION OF THE FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF ASYMETRIX SHOULD BE READ IN CONJUNCTION WITH ASYMETRIX'S CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED NOTES THERETO INCLUDED ELSEWHERE
IN THIS REPORT. THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE
RISKS AND UNCERTAINTIES. ASYMETRIX'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY
FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY
CAUSE SUCH A DIFFERENCE INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN
"FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS."
OVERVIEW
Asymetrix provides a variety of learning solutions designed to help
organizations more effectively organize, manage, increase and use knowledge as a
competitive advantage. These solutions make up two primary lines of business:
(1) a comprehensive "behind the firewall" enterprise learning solution that
consists of a technology platform and related professional services; and (2)
click2learn.com, an Internet learning portal announced in July 1999 and
providing a single source for both Internet-delivered online learning content
and more traditional forms of learning such as books, video tapes, CD-ROMs, and
instructor-led courses, as well as a means to create and publish online learning
courses.
Asymetrix's enterprise learning technology platform includes (1)
ToolBook II Instructor and ToolBook II Assistant, which enable customers to
author online learning applications, (2) Librarian and Ingenium, learning
management and skills assessment systems designed to enable customers to deploy
and manage all aspects of their training needs, and (3) a library of learning
content published by third parties. Asymetrix's professional services include
strategic consulting, custom development of learning content, systems
integration and training services to enable organizations to develop, implement
and maintain a learning solution that is tailored to its unique needs.
Click2learn.com is an Internet learning portal that provides a single
source where organizations or individuals can obtain learning content from a
variety of well-known vendors for online delivery over the Internet or in
tangible formats such as books, videos and CD-ROMs, as well as the ability to
register online for instructor-led training provided by a variety of vendors.
Click2learn.com also includes click2learn.publisher, a free server-based
authoring tool with which users can create their own online learning courses,
publish and distribute them through click2learn.com, and earn royalties on any
purchases of such courses. The click2learn.com site can be customized to include
the look and feel of customers' intranets or of other high-traffic Internet
sites, allowing it to be adopted as the integrated "training channel" for these
sites.
Click2learn.com will formally launch in the fourth quarter of 1999.
Therefore, no significant revenue from click2learn.com is expected in 1999.
Asymetrix will incur incremental marketing and site development expenses
associated with the learning portal during the remainder of 1999. To reflect the
strategic importance of the click2learn.com learning portal and the planned
integration of its current products and services with click2learn.com, Asymetrix
began doing business as "click2learn.com, inc." in October, 1999, and has begun
the process of amending its Certificate of Incorporation to formally change its
corporate name.
Since July 1997, Asymetrix has completed ten acquisitions that were
accounted for using the purchase method of accounting, including the acquisition
of Pixelmedia Visual Communications, Inc. ("Pixelmedia"), an online learning
development firm based in Richmond, British Columbia, in July 1999. In
connection with that acquisition, Asymetrix issued 100,000 shares of common
stock and paid approximately $500,000 to acquire all of the issued and
outstanding capital stock of Pixelmedia and to retire debts owed by Pixelmedia
to its principal shareholders.
Because these acquisitions were accounted for using the purchase method
of accounting, Asymetrix'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 connection with
these ten acquisitions, Asymetrix has recorded an aggregate of approximately
$11.4 million in goodwill, of which approximately $1.5 million will be amortized
on a straight-line basis over a five-year life and approximately $9.7 million
will be amortized over a fifteen-year life. If Asymetrix were to incur
additional charges for acquired in-process research and development
9
<PAGE>
and amortization of goodwill with respect to any future acquisitions,
Asymetrix's business, operating results and financial condition could be
materially and adversely affected.
In July 1998, Asymetrix acquired Meliora Systems Inc., which was
accounted for under the pooling of interests method. The consolidated financial
statements of Asymetrix have been restated to give effect to the combination as
if the companies had been combined since their inception.
Asymetrix incurred net losses of $13.7 million in 1997, $5.2 million in
1998 and a net loss of $6.8 million in the nine months ended September 30, 1999,
and has yet to achieve operating income or net income under its online learning
business model. Asymetrix's limited operating history under this business model,
and the emerging nature of the market for online learning among other factors,
make prediction of Asymetrix's future operating results difficult. Although
Asymetrix has experienced revenue growth in certain recent periods, those growth
rates may not be sustainable or indicative of future growth rates and,
therefore, they should not be considered indicative of future operating results.
In addition, Asymetrix intends to continue to invest in various aspects of its
online learning business, and in particular in its click2learn.com learning
portal. As a result, Asymetrix expects to continue to incur operating losses at
least through 1999. Asymetrix may not achieve profitability or, if profitability
is achieved, it may not be sustained.
RESULTS OF OPERATIONS
The following table presents Asymetrix's results of operations as a
percentage of total revenue for the periods indicated.
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
---------------------------- --------------------------
1999 1998 1999 1998
----------- --------- ----------- ---------
% % % %
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Product revenue:
Online learning products 37 31 37 30
Other products 6 18 5 15
----------- --------- ----------- ---------
Total product revenue 43 49 42 45
Services revenue 57 51 58 55
----------- --------- ----------- ---------
Total revenue 100 100 100 100
Cost of revenue:
Product revenue:
Online learning products 3 3 3 3
Other products 3 2 2 3
----------- --------- ----------- ---------
Total cost of product revenue 6 5 5 6
Services revenue 41 36 41 36
----------- --------- ----------- ---------
Total cost of revenue 47 41 46 42
Gross margin 53 59 54 58
Operating expenses:
Research and development 21 17 20 18
Sales and marketing 42 39 44 41
General and administrative 15 15 16 17
Amortization of goodwill 3 2 3 2
----------- --------- ----------- ---------
Total operating expenses 81 73 83 78
----------- --------- ----------- ---------
Loss from operations -28 -14 -29 -20
Other income(loss), net 2 3 2 9
----------- --------- ----------- ---------
Net loss -26 -11 -27 -11
----------- --------- ----------- ---------
</TABLE>
10
<PAGE>
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO THREE AND NINE MONTHS
ENDED SEPTEMBER 30, 1998
REVENUE. Total revenue of $9.1 million was unchanged for the three
months ended September 30, 1998 and 1999. Total revenue decreased 2% from $25.7
million in the nine months ended September 30, 1998 to $25.1 million in the nine
months ended September 30, 1999.
Online learning product revenue increased 20% from $2.8 million in the
three months ended September 30, 1998 to $3.4 million in the three months ended
September 30, 1999. Online learning product revenue increased 22% from $7.7
million in the nine months ended September 30, 1998 to $9.4 million in the nine
months ended September 30, 1999. The increase in online learning product revenue
was due primarily to increased demand for Asymetrix's online learning products
because of Asymetrix's focus on the online learning market. Other product
revenue decreased 70% from $1.7 million in the three months ended September 30,
1998 to $513 thousand in the three months ended September 30, 1999. Other
product revenue decreased 69% from $4.0 million in the nine months ended
September 30, 1998 to $1.2 million in the nine months ended September 30, 1999.
Other product revenue consists of revenue from Asymetrix's products that are not
targeted at the online learning market, many of which have been discontinued or
divested over the past years. Total product revenue decreased 14% from $4.5
million in the three months ended September 30, 1998 to $3.9 million in the
three months ended September 30, 1999, reflecting the increase in online
learning product revenue. Total product revenue decreased 9% from $11.7 million
in the nine months ended September 30, 1998 to $10.6 million in the nine months
ended September 30, 1999, reflecting the decrease in other product revenue. As a
result of Asymetrix's strategy to focus on the online learning market, Asymetrix
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 in the future.
Services revenue increased 12% from $4.6 million in the three months
ended September 30, 1998 to $5.2 million in the three months ended September 30,
1999. Services revenue increased 3% from $14.0 million in the nine months ended
September 30, 1998 to $14.5 million in the nine months ended September 30, 1999.
During the quarter, sales and marketing agreements were signed
separately with Go2Net, Inc. and VerticalNet, Inc. Both firms will use
co-branded, customized version of our click2learn.com learning portal to make
training available to millions of their users. Revenues from content and
advertising sales generated by each of these implementations will be shared
between click2learn.com and each partner. Both implementations are scheduled
to go live during the fourth quarter 1999. These agreements do not include
minimum revenue guarantees to the company therefore, it is uncertain whether
they will contribute to future revenue growth.
COST OF REVENUE. Cost of product revenue includes costs of media,
manuals and distribution costs. Gross margin from Asymetrix's online learning
products is generally higher than that of its other products because these
products are typically sold by Asymetrix'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.
Total cost of revenue increased 14% from $3.7 million in the three
months ended September 30, 1998 to $4.2 million in the three months ended
September 30, 1999. Total cost of revenue increased 8% from $10.8 million in the
nine months ended September 30, 1998 to $11.7 million in the nine months ended
September 30, 1999.
Cost of online learning products revenue increased 12% from $231,000 in
the three months ended September 30, 1998 to $258,000 in the three months ended
September 30, 1999. Cost of online learning products revenue decreased 7% from
$709,000 in the nine months ended September 30, 1998 to $662,000 in the nine
months ended September 30, 1999. The decrease was due primarily to lower per
unit costs. Cost of other products revenue increased 22% from $208,000 in the
three months ended September 30, 1998 to $254,000 in the three months ended
September 30, 1999. Cost of other products revenue decreased 35% from $785,000
in the nine months ended September 30, 1998 to $512,000 in the nine months ended
September 30, 1999. The decline was due to decreased sales of Asymetrix's other
products. Total cost of product revenue increased 17% from $439,000 in the three
months ended September 30, 1998 to $512,000 in the three months ended September
30, 1999. Total cost of product revenue decreased 21% from $1.5 million in the
nine months ended September 30, 1998 to $1.2 million in the nine months ended
September 30, 1999.
Total products gross margin decreased from 90% in the three months
ended September 30, 1998 to 87% in the three months ended September 30, 1999.
Total products gross margin increased from 87% in the nine months ended
September 30, 1998 to 89% in the nine months ended September 30, 1999.
Cost of services revenue increased 14% from $3.3 million in the three
months ended September 30, 1998 to $3.7 million in the three months ended
September 30, 1999. Cost of services revenue increased 13% from $9.3 million in
the nine months ended September 30, 1998 to $10.5 million in the nine months
ended September 30,
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1999. The increase was due primarily to increased personnel costs associated
with over capacity throughout most of the nine months.
Services gross margin decreased from 29% in the three months ended
September 30, 1998 to 28% in the three months ended September 30, 1999. Services
gross margin decreased from 34% in the nine months ended September 30, 1998 to
28% in the nine months ended September 30, 1999. Asymetrix anticipates that cost
of services revenue will increase in absolute dollars if 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
increased 20% from $1.6 million in the three months ended September 30, 1998 to
$1.9 million the three months ended September 30, 1999. Research and development
expenses as a percentage of total revenue increased from 17% in the three months
ended September 30, 1998 to 21% in the three months ended September 30, 1999.
Research and development expenses as a percentage of total revenue increased
from 18% in the nine months ended September 30, 1998 to 20% in the nine months
ended September 30, 1999. The increase was attributable to incremental expenses
associated with the click2learn.com learning portal initiative. Asymetrix
expects research and development expenses to increase in absolute dollars in the
future.
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 increased 9%
from $3.6 million in the three months ended September 30, 1998 and $3.9 million
in the three months ended September 30,1999. Sales and marketing expenses as a
percentage of total revenue increased from 39% in the three months ended
September 30, 1998 to 43% in the three months ended September 30, 1999. Sales
and marketing expenses as a percentage of total revenue increased from 41% in
the nine months ended September 30, 1998 to 44% in the nine months ended
September 30, 1999. The increase in sales and marketing expense was attributable
to increases in the size of Asymetrix's direct selling organization. Asymetrix
expects that sales and marketing expenses will increase in absolute dollars in
the future, as Asymetrix 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 Asymetrix's
administrative, executive and finance personnel as well as outside legal and
audit costs. General and administrative expenses were unchanged at $1.4 million
for the three months ended September 30, 1998 and for the three months ended
September 30, 1999. General and administrative expenses decreased 7% from $4.3
million for the nine months ended September 30, 1998 to $4.0 million for the
nine months ended September 30, 1999. General and administrative expenses as a
percentage of total revenue was unchanged at 15% for the three months ended
September 30, 1998 compared to the three months ended September 30, 1999.
General and administrative expenses as a percentage of total revenue decreased
from 17% to 16% in the nine months ended September 30, 1998 compared to the nine
months ended September 30, 1999. Asymetrix expects that general and
administrative expenses will increase in absolute dollars in the future as
Asymetrix 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 expense relates to the amortization of excess
purchase price over net assets from acquired companies recorded under the
purchase method of accounting. For the three months ended September 30, 1998,
Asymetrix recognized $213,000 of amortization of goodwill and for the three
months ended September 30, 1999, recognized $239,000 of amortization of
goodwill. For the nine months ended September 30, 1998, Asymetrix recognized
$592,000 of amortization of goodwill and for the nine months ended September 30,
1999, recognized $678,000 of amortization of goodwill. The acquisition of
Pixelmedia in July of 1999 is expected to generate approximately $15,000 of
additional amortization of goodwill expense per quarter for the next 15 years.
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OTHER INCOME
Asymetrix recorded no other expense in the three months ended September
30, 1998 and in the three months ended September 30, 1999. Asymetrix recorded no
other expense in the nine months ended September 30, 1998 and in the nine months
ended September 30, 1999. Other interest income, net was $281,000 in the three
months ended September 30, 1998 and $137 thousand in the three months ended
September 30, 1999. Other interest income, net was $280,000 in the nine months
ended September 30, 1998 and $577,000 in the nine months ended September 30,
1999. The increase was due to interest earned on Asymetrix's higher cash and
cash equivalents balance as a result of its initial public offering. Equity in
income (losses) from Infomodelers was $2.2 million in the nine months ended
September 30, 1998, representing Asymetrix's equity in the net income (losses)
from Infomodelers in such periods and $0 in the nine months ended September 30,
1999. Equity in income (losses) from Infomodelers in 1998 resulted from the sale
by Infomodelers of substantially all of its assets to Visio Corporation.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1999, Asymetrix had cash and cash equivalents totaling
$14.1 million, a decrease of $7.6 million from December 31, 1998. The net
decrease in cash and cash equivalents was due primarily to $8.9 million used
in operating activities, $2.0 million used in investing activities, and $3.4
million provided by financing activities. At September 30, 1999, the principal
source of liquidity for Asymetrix was $20.8 million in working capital.
Asymetrix anticipates that its cash and cash equivalents will be
sufficient to meet its working capital needs and capital expenditures for at
least the next 12 months. Asymetrix's long-term liquidity will be affected by
numerous factors, including acquisitions of businesses or technologies, demand
for Asymetrix'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 Asymetrix 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, Asymetrix from time to time evaluates potential acquisitions of
businesses, products or technologies that complement Asymetrix's business. To
the extent that resources are insufficient to fund Asymetrix's activities,
Asymetrix may need to raise additional funds. There can be no assurance that
such additional funding, if needed, will be available on terms attractive to
Asymetrix, or at all. If adequate funds are not available on acceptable terms,
Asymetrix 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 Asymetrix's
business, operating results and financial condition.
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.
Asymetrix has designed and tested the most current versions of its
products to be year 2000 compliant. However, some of Asymetrix's customers may
be using older versions of its products that are not year 2000 compliant.
Asymetrix has been encouraging its customers to upgrade to current product
versions, and Asymetrix has been required by certain of its customers to warrant
that the current versions of its products and custom development applications
are year 2000 compliant. Although Asymetrix believes the current versions of its
products are year 2000 compliant, the current product versions may contain
undetected errors or defects associated with year 2000 date functions. These
undetected date functions may result in material costs to Asymetrix, as well as
claims against Asymetrix for breach of its warranties of year 2000 compliance.
Furthermore, although Asymetrix has not made any express representations or
warranties with respect to year 2000 compliance of older versions of its
products and has included clauses disclaiming any implied warranties and
limiting its liability for product defects in the agreements under which those
older versions were licensed to customers, Asymetrix may still face claims or
litigation based on older versions of its products. Asymetrix is aware of a
growing number of lawsuits against other software vendors related to year 2000
compliance, including lawsuits based on those
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companies charging their customers for new versions of their products that are
year 2000 compliant rather than providing such versions for free. Because of the
unprecedented nature of such litigation, Asymetrix is uncertain of the extent to
which it may be affected. If Asymetrix is affected by such litigation, it could
have a material adverse effect on Asymetrix's business, operating results and
financial condition. Asymetrix is not currently a party to any such litigation.
With respect to Asymetrix's internal information technology systems,
Asymetrix's year 2000 internal readiness program primarily covers the following
activities: (1) taking inventory of hardware and software systems, (2)
determining those systems' level of year 2000 compliance, (3) assessing the
business and customer satisfaction risks associated with those systems, (4)
creating action plans to address known risks, (5) executing and monitoring its
action plans, and (6) contingency planning.
At this time Asymetrix has substantially completed its review of both
its mission critical information technology systems (including finance, order
processing, customer service, project management, and sales management) and its
second tier information technology systems (including its network servers,
network software and widely used software applications), and believes that those
systems are substantially year 2000 compliant. Asymetrix expects to continue
final implementation and testing of year 2000 compliance activities throughout
calendar 1999. Asymetrix has no current plans to perform an assessment of
imbedded technology outside of its information technology systems, and believes
that the failure of any such imbedded technology to be year 2000 compliant will
not have a material effect on Asymetrix's business. Asymetrix has no current
plan to retain any outside consultants to assist in its year 2000 compliance
activities.
Asymetrix will not send detailed questionnaires to vendors and service
providers to certify year 2000 readiness, but Asymetrix has obtained or relied
upon published assurances of year 2000 compliance in relation to purchases of
new information technology systems and Asymetrix has conducted its own internal
year 2000 analysis of its vendors and service providers. While Asymetrix has not
broadly surveyed its vendors and service providers for year 2000 compliance,
Asymetrix has reviewed publicly available information related the year 2000
compliance status of its material vendors to help determine their level of year
2000 compliance. Asymetrix does not rely on products and services provided by
any single vendor in the conduct of its business, and believes that even if the
ability of one of its suppliers to provide goods or services was negatively
impacted by a year 2000 problem, alternative sources would be available to
supply such goods and services on commercially reasonable terms.
Asymetrix will not send questionnaires to its customers to
independently verify its customers' level of year 2000 compliance. However, most
of Asymetrix's significant customers are large business enterprises and
government agencies which Asymetrix believes are devoting significant resources
to ensuring their own internal year 2000 compliance. Asymetrix has received and
responded to a large number of detailed year 2000 questionnaires from its
customers as a part of their own year 2000 compliance programs, and many of
Asymetrix's customers are required to file reports with the SEC disclosing their
own year 2000 readiness. Although Asymetrix anticipates that its significant
customers will be year 2000 compliant, Asymetrix believes that its customers' or
potential customers' year 2000 compliance efforts have affected their purchasing
patterns as these companies or agencies expend significant resources and focus
personnel on ensuring their own internal year 2000 compliance. Devoting
resources and personnel to year 2000 compliance may result in reduced funds
available to purchase other products or services and may delay the
implementation of new information technology systems such as those offered by
Asymetrix, either of which could have a material adverse effect on Asymetrix's
business, operating results and financial condition.
The software, systems and content used in connection with the
click2learn.com learning portal were acquired or developed during 1999 with
particular attention to year 2000 compliance. All software and systems used
in connection with the click2learn.com learning portal and maintained at
Asymetrix have been tested for year 2000 compliance. Asymetrix has also
received contractual warranties of year 2000 compliance from the providers of
key components or services used in connection with click2learn, as well as
from the providers of content distributed through click2learn.com.
Asymetrix estimates that the total cost of evaluating and addressing
its year 2000 issues will be approximately $100,000. Asymetrix has spent $9,500
and $19,000 in the three and nine months ending September 30, 1999 and to date,
$66,500 in connection with evaluating and addressing year 2000 issues. Such
expenditures represented 6% of Asymetrix's total information technology budget.
All funds used for evaluating and addressing year 2000 issues are from
Asymetrix's information technology budget and no additional budget dollars were
allocated specifically to address year 2000 compliance. Therefore, resources
devoted to year 2000 compliance are not available for other information
technology systems or projects.
Although Asymetrix does not believe that it will incur any material
costs or experience material disruptions in its business associated with
preparing its internal systems for the year 2000, Asymetrix may experience
serious unanticipated negative consequences and material costs caused by
undetected errors or defects
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in the technology used in its internal systems, which are composed of third
party software, third party hardware and internally developed software, or in
the internal systems of its vendors or customers. The most reasonably likely
worst case scenarios would include: (1) loss or corruption of data contained in
Asymetrix's internal information systems, (2) hardware failure, (3) the failure
of infrastructure services provided by government agencies and other third
parties (e.g., electricity, phone service, water transport, internet services,
etc.); and (4) the failure of the internal systems of Asymetrix's vendors or
customers, resulting in problems with providing services or making payments to
Asymetrix. Asymetrix is undertaking contingency planning at this time and
expects its contingency plans to include, among other things, manual
work-arounds for software and hardware failures, as well as substitution of
systems or vendors, if necessary.
FACTORS THAT MAY AFFECT FUTURE RESULTS OF OPERATIONS
ASYMETRIX HAS A LIMITED OPERATING HISTORY IN ITS CURRENT MARKETS. Until
early 1995, Asymetrix was engaged in various research and development activities
and in developing and marketing multimedia authoring products, database and
Internet tools, web publishing products and other ancillary products, most of
which Asymetrix does not currently sell. Starting in 1995, Asymetrix began to
focus its development and marketing efforts on products and services for the
enterprise learning market. Asymetrix announced its click2learn.com web site in
July 1999, and has not previously hosted, operated and managed an e-commerce web
site. Accordingly, Asymetrix has a limited operating history on which to
evaluate its current business and prospects.
Risks Asymetrix faces under its new business models include, but are
not limited to, the demand for technology-based training and online learning
applications, demand for online learning products and services, broad and timely
acceptance of the click2learn.com web site, competition and those other risks
described in this section. To address these risks, Asymetrix must, among other
things:
- successfully introduce and build the click2learn.com web site;
- attract user traffic and establish relationships with
corporate customers and generate revenues from such customers;
- continue to establish relationships with leading providers of
learning content to sell content over the click2learn web
site;
- continue to establish relationships with high-traffic Internet
sites and corporate customers for the use of click2learn.com
as the "learning channel" for their web sites;
- respond to competitive developments;
- attract, integrate, retain and motivate qualified personnel;
- successfully introduce new products and services; and
- address and establish new technologies and technology
standards.
Although Asymetrix intends to derive revenue from the click2learn.com
web site, the pricing, expense and revenue model for this site has not been
broadly tested in the marketplace. If the pricing, expense and revenue model is
not acceptable to users, customers, content providers or advertisers, the
click2learn.com web site may not be commercially successful. This would
seriously harm Asymetrix's business, particularly if it experiences a decline in
the growth of revenues from its enterprise learning products and services.
ASYMETRIX'S OPERATING RESULTS COULD VARY SIGNIFICANTLY FROM QUARTER TO
QUARTER. Asymetrix'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 Asymetrix's control. Factors
that may adversely affect Asymetrix's quarterly operating results include:
- the demand for technology-based training and demand for online
learning solutions;
- 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 ability to meet client project milestones;
- market acceptance of Asymetrix's or its competitors' products
and services;
- Asymetrix's ability to develop and market new or enhanced
products, and services in a timely manner and the market
acceptance of these products and services;
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- timing of revenues and expenses relating to click2learn.com;
and
- the timing of revenue recognition.
Asymetrix's future revenues are difficult to predict and Asymetrix may
not be able to adjust spending in response to revenue shortfalls. Asymetrix's
limited operating history under its current business model, including
click2learn.com, possible acquisitions and the emerging nature of the market
make prediction of future revenue and expenses difficult. Expense levels are
based, in part, on expectations as to future revenue and to a large extent
are fixed in the short term. If Asymetrix is not able to predict future
revenue accurately, it may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall.
ASYMETRIX IS IN A DEVELOPING MARKET. Corporate training and education
has historically been conducted primarily through classroom instruction and has
traditionally been performed by a company's internal personnel. Many companies
have invested heavily in their current training solutions. Although
technology-based training applications have been available for several years,
they currently account for only a small portion of the overall training market.
Accordingly, the future success of Asymetrix will depend upon, among
other factors, the extent to which companies adopt technology-based solutions
and use the Internet in connection with their training activities, and the
extent to which companies utilize the services or purchase products of
third-party providers. Many companies that have already invested substantial
resources in traditional methods of corporate training may be reluctant to adopt
a new strategy that may limit or compete with their existing investments. Even
if companies implement technology-based training or online learning solutions,
they may still choose to design, develop, deliver or manage all or a part of
their education and training internally. If technology-based learning and the
use of the Internet for learning do not become widespread, or if companies do
not use the products and services of third parties to develop, deliver or manage
their training needs, then Asymetrix's products and services, including our
click2learn.com web site, may not achieve commercial success.
COMPETITION. The online learning market is highly fragmented and
competitive, rapidly evolving and subject to rapid technological change, with no
single competitor accounting for a dominant market share. Because of the lack of
significant barriers to entry in its market, Asymetrix expects that new
competitors will enter this market in the future. Asymetrix's competitors vary
in size and scope and the breadth of products and services offered. Asymetrix
faces competition from:
- developers of multimedia authoring tools with respect to its
authoring and authoring support products,
- sellers of off-the-shelf technology-based training courses
that sell management systems with their titles with respect to
its learning management systems,
- many small, regional online learning and technology-based
training services businesses,
- other web sites focused on learning and education, such as
learn2.com, headlight.com, fatbrain.com and smartforce.com,
with respect to click2learn.com, as well developers or
resellers of training content who make their content available
over the Internet; and
- large professional consulting firms and in-house training
departments, with respect to all aspects of its enterprise
learning solutions.
Several of Asymetrix's current and potential competitors have longer
operating histories and significantly greater financial, technical, marketing
and other resources and therefore may be able to respond more quickly to new or
changing opportunities, technologies, standards and customer requirements. Many
of these competitors also have broader and more established distribution
channels that may be used to establish strategic alliances or deliver competing
products or services directly to customers. If these competitors were to bundle
competing products or services for their customers, the demand for Asymetrix's
products and services might be substantially reduced and its ability to market
and sell products and services successfully may be substantially diminished. In
addition, the existence or announcement of strategic relationships involving
Asymetrix's competitors could adversely affect its ability to attract and retain
customers.
DEPENDENCE ON THIRD PARTY RELATIONSHIPS. Asymetrix must pursue
distribution relationships with high-traffic web sites in an effort to attract
traffic to private-labeled areas of the click2learn.com web site, as well as to
the click2learn.com branded areas. There is intense competition for placements
on these sites, and Asymetrix may
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not be able to enter into these relationships on commercially reasonable
terms, or at all. Even if Asymetrix enters into distribution relationships
with these web sites, they themselves may not attract significant numbers of
users. Therefore, Asymetrix may not receive additional users from these
relationships. Moreover, Asymetrix may have to pay significant fees to
establish these relationships or issue securities to companies that operate
these web sites, even if click2learn.com does not receive additional users as
a result.
Asymetrix uses licensed third party technology in its products and in
the click2learn.com web site and it licenses content from third parties for the
click2learn.com web site. Asymetrix may not be able to continue to license
technology or content from third parties. Future licenses to this technology and
content may not be available to Asymetrix on commercially reasonable terms or at
all. The loss of or inability to obtain or maintain any of these technology or
content licenses could result in delays in introduction of new products or could
force Asymetrix to discontinue permitting access to portions of the
click2learn.com web site until equivalent technology or content, if available,
is identified, licensed and integrated. Furthermore, Asymetrix may be subjected
to legal claims related to licensed technology or content based on defamation,
negligence, product liability, infringement of intellectual property or other
legal theories.
CUSTOMER REQUIREMENTS AND FIXED PRICE ENGAGEMENTS. Asymetrix could face
liability from customers if it does not meet their expectations. Many of
Asymetrix's professional services engagements require it to develop learning
applications to suit unique customer requirements. The failure or inability to
meet a customer's expectations or requirements in the performance of services
could injure Asymetrix's business reputation or result in a claim for damages,
regardless of Asymetrix's responsibility for the failure. Asymetrix attempts to
limit contractually its liability for damages arising from product defects,
negligent acts, errors, mistakes or omissions in rendering professional
services, however, these contractual protections are not always obtained and may
not be enforced or otherwise protect Asymetrix from liability for damages.
Asymetrix's insurance may not be sufficient to cover one or more claims.
Many professional services projects are performed on a fixed-price
basis rather than on a time and materials basis. If Asymetrix does not
accurately predict the costs of these projects, it could incur unexpected costs.
If Asymetrix does not complete fixed-price engagements within budget, on time
and to clients' satisfaction, Asymetrix would bear the risk of cost overruns.
KEY PERSONNEL. Asymetrix's future success depends on the performance of
senior management team and other key employees, and on its ability to attract,
integrate, motivate and retain additional highly skilled technical, sales and
marketing, and professional services personnel. There is intense competition for
these personnel. Asymetrix does not have employment agreements with most of its
executives or other key employees. In addition, Asymetrix does not maintain key
person life insurance for any officers or key employees.
INTELLECTUAL PROPERTY. Despite Asymetrix's precautions, it may be
possible for a third party to copy or otherwise obtain and use its intellectual
property or trade secrets without authorization. In addition, others could
independently develop substantially equivalent intellectual property. Litigation
may be necessary in the future to enforce Asymetrix's intellectual property
rights, to protect trade secrets or to determine the validity and scope of the
proprietary rights of others. This litigation could result in substantial costs
and diversion of management and technical resources.
From time to time Asymetrix has received, and may in the future
receive, notice of claims of infringement of other parties' proprietary rights.
Infringement or other claims could be asserted or prosecuted against Asymetrix
in the future. Any such claims, with or without merit, could be time-consuming,
and result in costly litigation and diversion of technical and management
personnel. They could also cause product shipment delays or require Asymetrix to
develop non-infringing technology or enter into royalty or licensing agreements.
These royalty or licensing agreements, if required, may not be available on
reasonable terms, or at all.
GENERAL ECONOMIC CONDITIONS. Asymetrix's revenues are subject to
fluctuation as a result of general economic conditions. A significant portion of
Asymetrix's revenues are derived from the sale of products and services to
Fortune 1000 companies or government agencies, which historically have adjusted
their expenditures for education and training during economic downturns. Should
the economy weaken in any future period, these organizations may not increase or
may reduce their expenditures on education and training, which could have an
adverse effect on Asymetrix's business
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STOCK PRICE VOLATILITY. The market price of Asymetrix common stock has
been highly volatile since its initial public offering. The stock market in
general, and the stock prices of technology companies in particular, has
experienced significant price and volume fluctuations. Factors that may have an
impact on the price of our stock include:
- fluctuations in our operating results;
- announcements of technological innovations or new products or
services by us or our competitors;
- analysts' reports and projections; and
- general market conditions.
In the past, following periods of volatility in the market price of a
company's securities, securities class action litigation has often been
instituted against such a company. This type of litigation could result in
substantial costs and a diversion of management's attention and resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Asymetrix holds its assets primarily in cash and cash equivalents,
such as short-term marketable debt securities, money market funds and other cash
equivalents. Asymetrix minimizes its risk by investing in financial instruments
with a maturity of three months or less. Asymetrix does not use derivative
financial instruments.
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PART II-OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
PROEDUCATION INTERNATIONAL, INC. V. ASYMETRIX CORP. ET AL, cause no.
1999-32584 District Court, 125th Judicial District, Harris County, Texas. This
lawsuit was filed in July 1999 and alleges that Asymetrix conspired with several
other named defendants to misappropriate certain intellectual property of the
plaintiff and engaged in other tortuous activities to the detriment of the
plaintiff. Asymetrix has undertaken an investigation of the allegations in the
suit and believes that they are without merit. Asymetrix intends to conduct a
vigorous defense of the suit and to seek to have the suit dismissed as soon
as possible.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 1, 1999 the Company issued 100,000 shares of common stock and
paid approximately $500,000 to acquire all of the issued and outstanding capital
stock of Pixelmedia Visual Communications, Inc. ("Pixelmedia") and to repay
debts owed by Pixelmedia to its principal stockholders. The shares were
issued to two individual shareholders of Pixelmedia as partial consideration for
such shareholders' capital stock in Pixelmedia. The issuance of common stock was
a private placement in an offshore transaction pursuant to Regulation S,
as amended (the "Act"), in that the shares were issued to two individuals who
certified to Asymetrix that they are not U.S. persons and were not acquiring
the shares for the account or benefit of any U.S. persons and who agreed to
resell such shares only in accordance with the provisions of Regulation S or
pursuant to a registration statement or exemption from registration, and the
certificates representing the shares bear restrictive legends to that effect.
On August 18, 1999 Asymetrix sold 428,571 shares of common stock to
Go2Net, Inc. for an aggregate purchase price of $3,000,000 in cash, and issued
Go2Net, Inc. warrants for the purchase of an additional 428,571 shares of common
stock at an exercise price of $7.00 per share. The sale of shares and warrants
was made pursuant to Rule 506 of Regulation D and/or Section 4(2) under the
Securities Act of 1933 as amended ("the Act") and was therefore exempt under
Section 4(2) of the Act. The shares and warrants were sold to a single
accredited investor, there was no general solicitation or advertising in
connection with the sale of the shares and warrants, and Asymetrix exercised
reasonable care to assure that the purchaser was not an underwriter with the
meaning of Section 2(11) of the Act. The proceeds will be used for working
capital requirements.
The warrants are exercisable at any time prior to 5:00 p.m. Pacific
time on August 18, 2004 in whole or in part upon the payment of the exercise
price for the number of shares with respect to which the warrants are being
exercised. In addition, the warrants may be exercised on a net exercise base,
pursuant to which the exercise price for an exercise of warrants is paid by the
cancellation of a portion of the shares being exercised having a fair market
value equal to the exercise price for all the shares being exercised. However, a
net exercise may only be made if there is not an effective registration
statement in place on the date of such exercise covering the resale of the
warrant shares. A registration statement on Form S-3 is currently effective for
the resale of the shares of common stock purchased by Go2Net and issuable upon
exercise of the warrants.
In connection with Asymetrix's initial public offering, it registered
for public sale 3,000,000 shares of common stock, all of which were sold by
Asymetrix. The Securities and Exchange Commission, as amended, declared the
Registration Statement on Form S-1 (Registration No. 333-49037), effective 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 Asymetrix received net proceeds of $29,331,000.
From the effective date of the Registration Statement through September
30, 1999, Asymetrix has incurred an estimated $3,944,000 in expenses in
connection with the issuance and distribution of the common stock, including
underwriting discounts and commissions of $2,329,250 and other expenses of
$1,614,750. No finders' fees or expenses were paid to or for the underwriters.
None of these payments were made, directly or
19
<PAGE>
indirectly, to: (1) directors or officers of Asymetrix, or their associates; (2)
persons owning ten percent or more of any class of equity securities of
Asymetrix; or (3) affiliates of Asymetrix.
From the effective date of the Registration Statement through September
30, 1999, Asymetrix has applied approximately $18 million of the offering
proceeds to working capital requirements. None of these payments were made,
directly or indirectly, to: (1) directors or officers of Asymetrix, or their
associates; (2) persons owning ten percent or more of any class of equity
securities of Asymetrix; or (3) affiliates of Asymetrix. To date, Asymetrix
believes that it has used the offering proceeds in a manner consistent with the
use of proceeds described in the Registration Statement. The remaining 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
Not applicable.
ITEM 5. OTHER INFORMATION.
Asymetrix intends to hold a stockholder meeting on November 23, 1999
to approve an amendment of its Certificate of Incorporation to change its
name to click2learn.com, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
2 Share Purchase Agreement dated July 1, 1999 by and
among Asymetrix and the shareholders of Pixelmedia
Visual Communications, Inc.
10-1 Securities Purchase Agreement dated August 18, 1999
by and between Asymetrix and Go2Net Inc.*
10-2 Common Stock Purchase Warrant dated August 18, 1999
issued to Go2Net, Inc.*
27 Financial Data Schedule
* These exhibits are incorporated herein by reference to Asymetrix's
Registration Statement on Form S-3 (Registration no. 333-87425)
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the three months
ended September 30, 1999.
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.
November 15, 1999 /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 Share Purchase Agreement dated July 1, 1999 by and
among Asymetrix and the shareholders of Pixelmedia
Visual Communications, Inc.
27 Financial Data Schedule
22
<PAGE>
-1-
SHARE PURCHASE AGREEMENT
THIS AGREEMENT (the "Agreement") is entered into as of June 25, 1999 (the
"Agreement Date"), by and among Asymetrix Learning Systems, Inc., a Delaware
corporation ("Asymetrix") and Fred Kit Ming Lam, Ivan Kit Leung Lam and
Guinevere King Fong Kwong (collectively referred to herein as the "Shareholders"
and each individual referred to as a "Shareholder"). In consideration of the
mutual promises and undertakings herein, the parties 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,
$0.01 par value per share.
1.2 "Asymetrix Shares" means 100,000 shares of Asymetrix Common
Stock to be issued pursuant to this Agreement.
1.3 "Closing" means the completion of the sale to and purchase by
Asymetrix of the Purchased Shares under this Agreement.
1.4 "Dollars" or "$" means Canadian dollars.
1.5 "Encumbrance" means any pledge, lien, charge, security
agreement, lease, title retention agreement, mortgage,
encumbrance, option or adverse claim, of any kind or character
whatsoever.
1.6 "Purchased Shares" means all of the issued and outstanding
Class "A" Voting Common Shares, the Class "B" Voting Common
Shares and the Class "C" Voting Common Shares of Pixelmedia.
1.7 "Purchase Price" shall have the meaning given in Section 2.1.
1.8 "Pixelmedia" means Pixelmedia Visual Communications, Inc. a
British Columbia corporation.
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. PURCHASE AND SALE
2.1 PURCHASE AND SALE OF PURCHASED SHARES. The Shareholders are
the registered holders and beneficially own and control all of
the issued and outstanding Purchased Shares. At the Closing
and subject to the terms and conditions of this Agreement, the
Shareholders shall sell and Asymetrix shall purchase the
Purchased Shares for the Purchase Price payable as provided in
this Agreement.
2.2 PURCHASE PRICE. Subject to adjustment as provided in Section
2.3, the amount payable by Asymetrix for the Purchased Shares
(the "Purchase Price") shall, exclusive of all applicable
sales and transfer taxes, consist of the following:
<PAGE>
-2-
(a) 100,000 shares of Asymetrix Common Stock; and
(b) cash in an amount equal to $700,000 less (i) the
amount required for Pixelmedia to repay in full all
loans from Fred Lam and Guin Kwong (not including any
amounts owed for deferred compensation); plus (ii) an
amount equal to the lesser of the actual attorneys'
and accountants' fees incurred by the Shareholders in
connection with the sale of the Purchased Shares and
other transactions contemplated by this Agreement or
$10,000.
The Purchase Price shall be allocated among the Class "A"
Voting Common Shares, the Class "B" Voting Common Shares and
the Class "C" Voting Common Shares as set forth in Exhibit
2.2.
2.3 REDUCTION OF THE PURCHASE PRICE IN CERTAIN CIRCUMSTANCES. The
Shareholders acknowledge that the Purchase Price is based in
part on the expectation that the Shareholders will continue to
remain employed by Pixelmedia and that the value of the
Purchased Shares will decrease substantially if the
shareholders do not remain employed by Pixelmedia for a period
of at least 18 months following the Closing (as defined
herein). Accordingly, the Shareholders agree that for each
Shareholder whose employment is terminated voluntarily or for
cause during the 18 months following the Closing, the
Shareholders shall repay to Asymetrix a portion of the cash
element of the Purchase Price determined as follows: (a) if
such termination occurs during the first six months following
the closing, 1/3 of the cash portion of the Purchase Price;
(b) if such termination occurs between six and 12 months
following the closing, 1/4 of the cash portion of the Purchase
Price; and (c) if such termination occurs between 12 and 18
months following the closing, 1/6 of the cash portion of the
Purchase Price. The obligation to repay such amount will be
evidenced by a Promissory Note and secured by a Stock Pledge
and Option Right Assignment Agreement in a form acceptable to
Asymetrix and the Shareholders. All such payments shall reduce
the Purchase Price on a dollar for dollar basis. The foregoing
shall not apply to any termination resulting from a
Shareholder's death or disability which renders him or her
incapable of carrying out his or her duties. If a
Shareholder's termination for cause is disputed by such
Shareholder, this obligation shall not apply until a final
ruling of an arbitrator is issued upholding the termination
for cause, in accordance with the arbitration procedures set
forth in such Shareholder's Employment Agreement.
2.4 U.S. SECURITIES LAW COMPLIANCE. Asymetrix will issue the
Asymetrix Shares pursuant to the exemption from registration
under Regulation S ("Regulation S") promulgated under, the
SECURITIES ACT OF 1933, as amended (the "Securities Act"), and
the Asymetrix Shares received by the Shareholders will
therefore be restricted securities within the meaning of Rule
144 under the Securities Act and will not be eligible for
resale into the United States for a period of one year
following the issuance to the Shareholders, and certificates
evidencing such shares will bear a restrictive legend
evidencing that fact. Asymetrix shall also take any reasonable
action that is required to be taken under any applicable state
securities or Blue Sky laws in connection with the issuance of
Asymetrix Shares. The Shareholders shall furnish to Asymetrix
all information known to the Shareholders (or reasonably
ascertainable by the Shareholders) concerning Pixelmedia and
the Shareholders, as may be reasonably requested in connection
with any action contemplated by this Section.
2.5 PURCHASE MAY BE MADE BY CANADIAN SUBSIDIARY. Provided that
there is no adverse effect on the Purchase Price or on the
rights of the Shareholders hereunder, the purchase of the
Purchased Shares may be made by a Canadian subsidiary of
Asymetrix.
<PAGE>
-3-
3. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each of the Shareholders, jointly and severally, hereby represents and
warrants as follows, except as set forth in the Shareholder Schedule of
Exceptions (in numbered paragraphs that correspond to the Section
numbers below) simultaneously delivered to Asymetrix with the execution
of this Agreement and attached hereto as Exhibit 3.0:
3.1 INCORPORATION AND REGISTRATION. Pixelmedia is a corporation
duly incorporated and validly existing under the laws of the
Province of British Columbia and has all necessary corporate
power, authority and capacity to own its property and assets
and to carry on its business as presently conducted. Neither
the nature of its business nor the location or character of
the property owned or leased by Pixelmedia requires it to be
registered, licensed or otherwise qualified as an
extra-provincial or foreign corporation in any jurisdiction
other than British Columbia (where it is duly registered,
licensed or otherwise qualified for such purpose) and other
than jurisdictions where failure to be so registered, licensed
or otherwise qualified would not have a material adverse
effect on Pixelmedia's business, operations, financial
condition or prospects (for purposes of this Section 3 a
"Material Adverse Effect") .
3.2 DUE AUTHORIZATION. Each Shareholder has all necessary power,
authority and capacity to enter into this Agreement and all
other agreements to which such Shareholder is or will be a
party that are required to be executed at the Closing pursuant
to this Agreement (the "Shareholder Ancillary Agreements").
3.3 REGULATORY APPROVALS. No consent, approval, order or filing
with, any government, regulatory authority, court,
governmental department, agency, commission, board, tribunal,
crown corporation or other governmental authority or
instrumentality or other law, rule or regulation authority
having or purporting to have jurisdiction on behalf of any
nation, or province or state or other subdivision thereof or
any municipality, district or other subdivision thereof (each
a "Governmental Entity"), is required to be obtained by the
Shareholders in connection with the execution and delivery of
this Agreement, the Shareholder Ancillary Agreements or the
consummation of the transactions contemplated hereby or
thereby, except that the Shareholders make no representations
or warranties regarding the application of any securities laws
or regulations to the issuance and delivery of the Asymetrix
Shares as provided herein.
3.4 ENFORCEABILITY OF OBLIGATIONS. This Agreement and the
Shareholder Ancillary Agreements are, or when executed by the
Shareholders will be, valid and binding obligations of the
Shareholders, enforceable in accordance with their respective
terms.
3.5 CAPITALIZATION. The issued and outstanding share capital of
Pixelmedia is as set forth in Schedule 3.5. All of the
Purchased Shares have been duly and validly issued and are
outstanding as fully paid and nonassessable shares of
Pixelmedia. No options, warrants or other rights to purchase
shares or other securities of Pixelmedia and no securities or
obligations convertible into or exchangeable for shares or
other securities of Pixelmedia have been authorized or agreed
to be issued or outstanding. Schedule 3.5 sets forth a true,
correct and complete list of all holders of the Purchased
Shares and the Purchased Shares held by each such shareholder.
3.6 ABSENCE OF CONFLICTING AGREEMENTS. The Shareholders are not a
party to, bound or affected by or subject to any indenture,
mortgage, lease, agreement, obligation, instrument, charter or
by-law provision, statute, regulation, order, judgment,
decree, licence, permit or law which would be violated,
contravened, breached by, or under which default would occur
or an Encumbrance
<PAGE>
-4-
would be created as a result of the execution and delivery of
this Agreement or any Shareholder Ancillary Agreement, or the
performance by the Shareholders of any of their obligations
provided for under this Agreement or any Shareholder Ancillary
Agreement.
3.7 LITIGATION. There is no suit, action, litigation, proceeding,
claim, complaint, grievance or investigation, including
appeals and applications for review, in progress, pending
against Pixelmedia or any Shareholder before any federal,
state, provincial, municipal, foreign or other court or
administrative agency, department, board, bureau, commission
or arbitration panel or instrumentality and Pixelmedia and the
Shareholders have no knowledge of any existing ground on which
any suit, action, litigation, proceeding, claim, complaint,
grievance or investigation might be commenced with any
reasonable likelihood of success.
3.8 TAXES.
(a) Pixelmedia has duly and timely filed its Tax Returns (as
defined below) with the appropriate Governmental Entity and
has duly, completely and correctly reported all income and all
other amounts and information required to be reported thereon
and has duly and timely withheld and paid all Taxes (as
defined below), including all installments on account of Taxes
for the current year that are due and payable by it whether or
not assessed by the appropriate Governmental Entity, and has
otherwise complied with all registration requirements, rules,
regulations or statutes imposed or adopted by any Governmental
Agency and relating to any Taxes.
(b) Pixelmedia has established reserves that are reflected
on the Balance Sheet that are adequate for the payment
by Pixelmedia of all Taxes that are not yet due and
payable (and that will not be due and payable by the
Closing) and that relate to periods ending on or prior
to the Closing.
(c) As used in this Agreement, "Tax" and "Taxes" includes,
all taxes, duties, fees, premiums, assessments,
imposts, levies and other charges of any kind
whatsoever imposed by any Governmental Entity, together
with all interest, penalties, fines, additions to tax
or other additional amounts imposed in respect thereof,
including those levied on, or measured by, or referred
to as income, gross receipts, profits, capital,
transfer, land transfer, sales, goods and services,
harmonized sales, use, value-added, excise, stamp,
withholding, business, franchising, property, employer
health, payroll, employment, health, social services,
education and social security taxes, all surtaxes, all
customs duties and import and export taxes, all
license, franchise and registration fees and all
employment insurance, health insurance and government
pension plan premiums or contributions of any
Governmental Entity. As used in this Agreement,
"Tax Returns" includes all returns, reports,
declarations, elections, notices, filings, information
returns and statements filed or required to be filed
in respect of Taxes.
3.9 FINANCIAL STATEMENTS. Pixelmedia has delivered to Asymetrix
as Schedule 4.10 of the Pixelmedia Schedule of Exceptions,
Pixelmedia's balance sheet as of April 30, 1999, (the
"Balance Sheet") and income statement and statement of cash
flows for the 12 month period then ended (collectively, the
"Pixelmedia Financial Statements"). The Pixelmedia Financial
Statements fairly present all of the assets, liabilities and
financial position of Pixelmedia and the sales, earnings,
results of operations and changes in financial position of
Pixelmedia and have been prepared on a "review engagement"
basis. Since April 30, 1999, Pixelmedia has not incurred any
liabilities or obligations (whether accrued, absolute,
contingent or otherwise) which continue to be outstanding or
incurred in the ordinary course of business.
<PAGE>
-5-
3.10 TITLE TO THE ASSETS. Pixelmedia is the sole beneficial and
(where its interests are registrable) the sole registered
owner of all of its assets and interests in assets, real and
personal, with good and valid title, free and clear of all
Encumbrances. In particular, without limiting the generality
of the foregoing, there has been no assignment, subletting or
granting of any licence (of occupation, use or otherwise) of
or in respect of any of Pixelmedia's assets or any granting of
any agreement or right capable of becoming an agreement or
option for the purchase of any of the assets other than
licenses to use Pixelmedia products granted in the ordinary
course of business.
3.11 ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule
3.11, since April 30, 1999, there has not been with respect to
Pixelmedia:
(a) any change in the financial condition, operations or
prospects of Pixelmedia 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 Pixelmedia and the
Shareholders, will have a Material Adverse Effect;
(b) any contingent liability incurred by Pixelmedia as
guarantor, surety or otherwise with respect to the
obligations of others;
(c) any Encumbrance placed on any of the assets of
Pixelmedia;
(d) any obligation or liability incurred thereby other
than obligations and liabilities incurred in the
ordinary course of business;
(e) any damage, destruction or loss, whether or not
covered by insurance, which has a Material Adverse
Effect;
(f) any payment or discharge of any Encumbrance or
liability thereof which lien was not either shown on
the Balance Sheet or incurred in the ordinary course
of business thereafter; or
(g) any material transaction with any of its officers,
directors, employees or shareholders or any entity
controlled by any of such individuals.
3.12 MATERIAL AGREEMENTS. Except as set forth on Schedule 3.12 of
the Pixelmedia Schedule of Exceptions Pixelmedia is not 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 Pixelmedia (each a "Material Agreement")
including, but not limited to any:
(a) contract, commitment, letter contract or purchase
order providing for payments by or to Pixelmedia 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 Pixelmedia
Intellectual Property;
<PAGE>
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(c) consulting, development or similar agreement under
which Pixelmedia 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 Pixelmedia;
(d) contract for the current or future sale, provision or
manufacture of products (including computer
software), material or supplies from Pixelmedia or in
which Pixelmedia 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;
(e) contract providing for the development of software by
or for Pixelmedia, or license of software to
Pixelmedia, which software is used or incorporated in
any products distributed or services provided by
Pixelmedia or is contemplated to be used or
incorporated in any products to be distributed or
services to be provided by Pixelmedia (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 Pixelmedia or any
other type of contract or understanding with any
officer, employee or consultant of Pixelmedia which
is not immediately terminable by Pixelmedia without
cost or other liability;
(g) agreement for the lease of real or personal property
involving payments by or to Pixelmedia 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;
(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
Pixelmedia;
(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 Pixelmedia Financial Statements;
(k) contract containing covenants purporting to limit
Pixelmedia's freedom to compete in any line of
business in any geographic area; or
(l) stock redemption or purchase agreement yet to be
performed.
<PAGE>
-7-
All Material Agreements listed in Schedule 3.12 are in full
force and effect unamended and no default exists under such
Material Agreements on the part of Pixelmedia. Pixelmedia has
the capacity to perform all its obligations under the Material
Agreements.
3.13 INTELLECTUAL PROPERTY.
(a) There are no patents, trade-marks, copyright,
industrial designs which have been registered by or
on behalf of Pixelmedia or for which applications for
registration have been filed.
(b) Except as set forth in Material Agreements provided
to Asymetrix, Pixelmedia has the sole and exclusive
right to use and is the sole and exclusive owner of
all right, title and interest in and to the
Intellectual Property (as defined below) (with no
breaks in the chain of title). The Intellectual
Property which is not owned by Pixelmedia is being
used by Pixelmedia only with the consent of or
license from the rightful owner thereof and all such
licenses are in full force and effect. The
Intellectual Property owned by Pixelmedia is in full
force and effect and has not been used or enforced or
failed to be used or enforced in a manner that would
result in the abandonment, cancellation or
unenforceability of any of the Intellectual Property.
(c) The Shareholders have no knowledge of any claim of
adverse ownership, invalidity or other opposition to
or conflict with any Intellectual Property nor of any
pending or threatened suit, proceeding, claim,
demand, action or investigation of any nature or kind
against Pixelmedia relating to the Intellectual
Property, either within or outside of Canada.
(d) The Shareholders have no knowledge that Pixelmedia,
any activity in which Pixelmedia is engaged or any
product which Pixelmedia manufactures, uses or sells
or any process, method, packaging, advertising, or
material that Pixelmedia employs in the manufacture,
marketing or sale of any such product, or the use of
any of the Intellectual Property breaches, violates,
infringes or interferes with any intellectual
property rights of any third party or requires
payment for the use of any patent, trade-name, trade
secret, trade-mark, copyright or other intellectual
property right or technology of another, either
within or outside of Canada.
(e) As used herein, the term "Intellectual Property"
shall mean all intellectual property rights in any
jurisdiction in Canada, 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, user interface design, learning content,
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.
3.14 COMPLIANCE WITH LAWS. In all material respects, the operations
of Pixelmedia have been and are now conducted in compliance
with all laws of each jurisdiction in which Pixelmedia carries
on or has carried on business and Pixelmedia has not received
any notice of any alleged violation of any such laws.
<PAGE>
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3.15 CERTAIN TRANSACTIONS AND AGREEMENTS. None of the Shareholders
nor any member of their immediate families is or has been
directly or indirectly interested in any contract or informal
arrangement with Pixelmedia within the last three years,
except for compensation as an officer, director or employee of
Pixelmedia. None of the Shareholders 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 Pixelmedia,
except for the normal rights of a shareholder.
3.16 PENSION AND OTHER BENEFIT PLANS. Pixelmedia has no Benefit
Plans and no Pension Plans. For the purposes of this section,
"Benefit Plans" means all plans, arrangements, agreements,
programs, policies, practices or undertakings, whether oral or
written, formal or informal, funded or unfunded, registered or
unregistered to which Pixelmedia is a party to or bound by or
under which Pixelmedia has, or will have, any liability or
contingent liability, with respect to any of its employees or
former employees (or any dependents or beneficiaries of any
such employees or former employees), individuals working on
contract with Pixelmedia or other individuals providing
services to it of a kind normally provided by employees or
eligible dependents of such person and "Pension Plans" means
any and all benefits relating to retirement or retirement
savings including, without limitation, pension plans, pensions
or supplemental pensions, registered retirement savings plans,
"registered pension plans" (as defined in the INCOME TAX ACT
(Canada)) and "retirement compensation arrangements" (as
defined in the INCOME TAX ACT (Canada)).
3.17 EMPLOYMENT MATTERS
(a) Schedule 3.17 contains a complete list of all
employees of Pixelmedia with the titles and current
salaries or and/or commissions payable to each such
employee as of the Closing Date.
(b) There are no employment policies or plans, including
policies or plans regarding incentive compensation,
stock options, severance pay or other terms or
conditions of employment or terms or conditions upon
which employees may be terminated, which are binding
upon Pixelmedia.
3.18 COPIES OF CORPORATE DOCUMENTS AND AGREEMENTS. Pixelmedia has
made available to Asymetrix for examination all documents and
information listed in the Pixelmedia Schedule of Exceptions or
other exhibits called for by this Agreement or which have been
requested by Asymetrix's counsel, including, without
limitation, all Articles and by-laws of Pixelmedia and its
minute books and amendments thereto and all Material
Agreements.
3.19 FULL DISCLOSURE. Pixelmedia has made available to Asymetrix,
all information, including the financial, marketing, sales,
operational and corporate information on an historical basis
relating to Pixelmedia which is material to Asymetrix. All
information, which has been provided to Asymetrix by
Pixelmedia and the Shareholders is true and correct in all
material respects and no material fact or facts have been
omitted therefrom which would make such information
misleading.
3.20 INSURANCE. Pixelmedia maintains and at all times during the
prior three years has maintained fire and casualty, general
liability, business interruption and product liability
insurance, as are appropriate for its operations, property and
assets, in such amounts and against such risks as are
customarily carried and insured against by owners of
comparable business, properties and
<PAGE>
-9-
assets. All such policies of insurance are in full force and
effect and Pixelmedia is not in default, as to the payment of
premium or otherwise, under the terms of any such policy.
3.21 RESIDENCE OF THE SHAREHOLDERS. The Shareholders are not
non-residents of Canada for the purposes of the INCOME TAX ACT
(Canada), and are residents of the Province of British
Columbia.
3.22 RIGHT TO SELL. The Shareholders are the registered and
beneficial owners of the Purchased Shares free and clear of
all Encumbrances. The Shareholders have the exclusive right to
dispose of the Purchased Shares as provided in this Agreement
and such disposition will not violate, contravene, breach or
offend against or result in any default under any indenture,
mortgage, lease agreement, obligation, instrument, stature,
regulation, order, judgment, decree, licence, permit or law to
which the Shareholders are a party or subject or by which the
Shareholders are bound or affected. The Purchased Shares are
not subject to the terms of any shareholders agreement.
3.23 REAL PROPERTY.
(a) Pixelmedia owns no real property and Pixelmedia's
real property leases have not been altered or amended
and are in full force and effect.
(b) All interests held by Pixelmedia as lessee or
occupant under the real property leases are free and
clear of all Encumbrances.
(c) All payments required to be made by Pixelmedia
pursuant to the real property leases have been duly
paid and Pixelmedia is not otherwise in default in
meeting any of its obligations under any of the real
property leases.
(d) None of the landlords, sublandlords, tenants or
subtenants under any of the real property leases is
in default in meeting any of its obligations under
real property leases to which it is a party.
3.24 SECURITIES LAW COMPLIANCE.
(a) None of the Shareholders is:
(1) a natural person resident in the United
States;
(2) a partnership or corporation organized or
incorporated under the laws of the United
States;
(3) an estate of which any executor or
administrator is resident in the United
States or incorporated under the laws of the
United States;
(4) a trust of which any trustee is resident in
the United States or incorporated under the
laws of the United States;
(5) an agency or branch of a foreign entity
located in the United States;
(6) a discretionary account or similar account
held by a dealer or other fiduciary
organized, incorporated or resident in the
United States;
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(7) a non-discretionary account or similar
account held by a dealer or other fiduciary
for the benefit or account of a beneficiary
resident in the United States or
incorporated in the United States; or
(8) a non-U.S. partnership or corporation formed
by a U.S. person or entity principally for
the purpose of investing in securities not
registered under the Securities Act.
(b) No Shareholder will resell his or her Asymetrix
Shares other than in compliance with Regulation S or pursuant
to registration under the Securities Act or as available
exemption from registration.
4. REPRESENTATIONS AND WARRANTIES OF ASYMETRIX
Asymetrix hereby represents and warrants as follows, except as set
forth in the Asymetrix SEC Documents or in the Asymetrix Schedule of
Exceptions (in numbered paragraphs that correspond to the Section
numbers below) simultaneously delivered to the Shareholders with the
execution of this Agreement and attached hereto as Exhibit 4.0:
4.1 INCORPORATION AND REGISTRATION. Asymetrix is a corporation
duly organized, validly existing and in good standing under
the laws of the State of Delaware and has all necessary
corporate power, authority and capacity to own, operate and
lease its properties and to carry on its business as presently
conducted. 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, a "Material
Adverse Effect").
4.2 DUE AUTHORIZATION. Asymetrix has all necessary corporate
power, capacity and authority to enter into this Agreement,
and all agreements to which Asymetrix is or will be a party
that are required to be executed pursuant to this Agreement
(the "Asymetrix Ancillary Agreements"). The execution and
delivery of this Agreement and the Asymetrix Ancillary
Agreements and the consummation of the transactions
contemplated thereby have been duly authorized by all
necessary corporate action on the part of Asymetrix.
4.3 REGULATORY APPROVALS. No filing, authorization or approval,
governmental or otherwise, is necessary to enable Asymetrix to
enter into, and to perform its respective obligations under,
this Agreement and the Asymetrix Ancillary Agreements, except
for such filings as may be required to comply with federal,
provincial and state corporate and securities laws.
4.4 ENFORCEABILITY OF OBLIGATIONS. This Agreement and the
Asymetrix Ancillary Agreements are, or when executed by
Asymetrix will be, valid and binding obligations of Asymetrix
enforceable in accordance with their respective terms.
4.5 CAPITALIZATION. The capitalization of Asymetrix consists of
the following:
(a) ASYMETRIX CAPITAL STOCK. As of the date hereof,
Asymetrix is authorized to issue 40,000,000 shares of
Asymetrix Common Stock, of which 14,104,247 shares
are outstanding, and 2,000,000 shares of Preferred
Stock, of which none are outstanding. All of the
issued and outstanding shares of Asymetrix Common
Stock have been duly authorized and validly issued,
and are outstanding as fully paid and nonassessable
shares of Asymetrix, and have been offered, issued,
sold and delivered by Asymetrix
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in compliance with all registration or
qualification requirements (or applicable
exemptions therefrom) of applicable federal and
state securities laws.
(b) ASYMETRIX OPTIONS, WARRANTS, RESERVED SHARES. As of
the date hereof, options to purchase an aggregate of
4,238,337 shares of Asymetrix Common Stock are
outstanding under all stock option and equity
incentive plans of Asymetrix and an additional
1,489,029 shares are reserved for future awards under
such plans. Except for the options and reserved
shares described above, an additional option to
purchase 14,573 shares of Asymetrix Common Stock and
400,000 shares of Asymetrix Common Stock eligible for
purchase under Asymetrix`s 1999 Employee Stock
Purchase Plan, as of the date hereof 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.
4.6 ABSENCE OF CONFLICTING AGREEMENTS. Asymetrix is not a party
to, bound or affected by or subject to any indenture,
mortgage, lease, agreement, obligation, instrument, charter
or by-law provision, statute, regulation, order, judgement,
decree, license, permit or law which would be violated,
contravened or breached by, or under which any default would
occur or a lien, claim, restriction or encumbrance would be
created as a result of the execution and delivery by it of
this Agreement or any of the Asymetrix Ancillary Agreements or
the performance by it of any of the terms of this Agreement.
4.7 LITIGATION. There is no suit, action, litigation, proceeding,
claim, complaint, grievance or investigation, including
appeals and applications for review, in progress, pending
against Asymetrix before any federal, state, provincial,
municipal, foreign or other court or administrative agency,
department, board, bureau, commission or arbitration panel or
instrumentality and Asymetrix has no knowledge of any existing
ground on which any suit, action, litigation, proceeding,
claim, complaint, grievance or investigation might be
commenced with any reasonable likelihood of success.
4.8 SEC FILINGS
(a) Asymetrix has made available to Pixelmedia true and
complete copies of each report, registration
statement (on a form other than Form S-8) and
definitive proxy statement (in each case excluding
copies of exhibits) filed by Asymetrix with the SEC
between December 31, 1998 and the Agreement Date
pursuant to the Securities Act or the SECURITIES
EXCHANGE ACT OF 1934, as amended (the "1934 Act"),
including without limitation the Asymetrix 1998
Annual Report on Form 10-K (collectively, the
"Asymetrix SEC Documents"). As of the time it was
filed with the Securities and Exchange Commission
(the "SEC") (or, if amended or superseded by a
subsequent filing prior to the Agreement Date, then
on the date of such subsequent filing): (i) each of
the Asymetrix SEC Documents complied in all material
respects with the applicable requirements of the
Securities Act or the 1934 Act (as the case may be);
and (ii) none of the Asymetrix SEC Documents
contained any untrue statement of a material fact or
omitted to state a material fact required to be
stated therein or necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading.
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(b) The consolidated financial statements (including any
related notes) contained in the Asymetrix SEC
Documents: (i) complied as to form in all material
respects with the published rules and regulations of
the SEC applicable thereto; (ii) were prepared in
conformity with U.S. generally accepted accounting
principals applied on a consistent basis throughout
the periods covered (except as may be indicated in
the notes to such financial statements and, in the
case of unaudited statements, as permitted by Form
10-Q of the SEC, and except that unaudited financial
statements may not contain footnotes and are subject
to normal and recurring year-end audit adjustments);
and (iii) fairly present the consolidated financial
position of Asymetrix and its subsidiaries as of the
respective dates thereof and the consolidated results
of operations and cash flows of Asymetrix and its
subsidiaries for the periods covered thereby.
4.9 ABSENCE OF CERTAIN CHANGES. Since the date of Asymetrix's
Report on Form 10-Q for its fiscal quarter ended March 31,
1999 (the "March 31 10-Q") there has been no change in its
financial condition, properties, assets, liabilities, business
or operations from that reflected in the March 31 10-Q, other
than those that do not have a Material Adverse Effect.
4.10 FULL DISCLOSURE. Asymetrix has made available to the
Shareholders all information requested by the Shareholders.
All information, which has been provided by Asymetrix to the
Shareholders is true and correct in all material respects and
no material fact or facts have been omitted therefrom which
would make such information misleading.
4.11 SHARES ISSUED. The Asymetrix Shares to be issued to the
Shareholders pursuant to this Agreement, when issued by
Asymetrix pursuant to the terms of this Agreement, will be
duly authorized and validly issued and outstanding as fully
paid and nonassessable shares of Asymetrix Common Stock, 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.
5. CLOSING MATTERS
5.1 THE CLOSING. The Closing will take place at the offices of
Asymetrix in Bellevue, Washington on or before July 1, 1999,
or, if all conditions to closing have not been satisfied or
waived by such date, such other place, time and date as the
Shareholders and Asymetrix may mutually select (the
"Closing").
5.2 DELIVERIES BY PIXELMEDIA. At the Closing the Shareholders will
deliver to Asymetrix the following:
(a) share certificates representing the Purchased
Shares accompanied by irrevocable security
transfer powers of attorney duly executed in blank
by the Shareholders; and
(b) all documents, agreements and things required to
be delivered to Asymetrix to satisfy the
conditions precedent to Asymetrix's obligations
under this Agreement as described in Sections 7.5,
7.6, 7.7 and 7.8.
6.3 DELIVERIES AND PAYMENTS BY ASYMETRIX. At the Closing
Asymetrix will deliver to the Shareholders the following:
(a) the Purchase Price, pro rata in accordance with each
Shareholder's holdings as set
<PAGE>
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forth on Schedule 4.5;
(b) the amounts necessary to repay the
Shareholder Loans (as defined in Section 9.1); and
(c) all documents, agreements and things
required to be delivered to the Shareholders to
satisfy the conditions precedent to the Shareholders'
obligations under this Agreement as described in
Sections 6.5 and 6.6.
6. THE SHAREHOLDERS' CONDITIONS PRECEDENT
The Shareholders' obligations hereunder are subject to the fulfillment
or satisfaction, on and as of the Closing, of each of the following
conditions (any one or more of which may be waived by the Shareholders,
but only in writing signed by the Shareholders):
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of Asymetrix 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 Closing.
6.2 PERFORMANCE OF OBLIGATIONS. Asymetrix shall have performed or
complied with, in all respects, all its obligations, covenants
and agreements under this Agreement.
6.3 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.
6.4 GOVERNMENT CONSENTS. There shall have been obtained at or
prior to the Closing such consents, approvals, orders or
authorizations, and there shall have been taken such other
action, as may be required to consummate the transactions
contemplated by this Agreement by any regulatory authority
having jurisdiction over the parties and the actions herein
proposed to be taken.
6.5 OPINION OF ASYMETRIX'S COUNSEL. The Shareholders shall have
received an opinion, in form and substance satisfactory to the
Shareholders, from Fenwick & West, counsel to Asymetrix.
6.6 EMPLOYMENT AGREEMENTS. Asymetrix shall have executed and
delivered (i) an employment agreement with Fred Lam (the "Fred
Lam Employment Agreement"), (ii) an employment agreement with
Ivan Lam (the "Ivan Lam Employment Agreement"), (iii) an
employment agreement with Guin Kwong (the "Guin Kwong
Employment Agreement), and an employment agreement with Daniel
Ah-Fat (the "Daniel Ah-Fat Employment Agreement").
7. ASYMETRIX'S CONDITIONS PRECEDENT
The obligations of Asymetrix 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):
7.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the Shareholders 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
Closing.
<PAGE>
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7.2 PERFORMANCE OF OBLIGATIONS. Each Shareholder shall have
performed or complied with, in all respects, all its
obligations, covenants and agreements under this Agreement.
7.3 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.
7.4 GOVERNMENT CONSENTS. There shall have been obtained at or
prior to the Closing such consents, approvals, orders or
authorizations, and there shall have been taken such other
action, as may be required to consummate the transactions
contemplated by this Agreement by any regulatory authority
having jurisdiction over the parties and the actions herein
proposed to be taken.
7.5 OPINION OF COUNSEL. Asymetrix shall have received an opinion,
in form and substance satisfactory to Asymetrix, from Cohen
Buchan Edwards, counsel to the Shareholders.
7.6 EMPLOYMENT AGREEMENTS. Asymetrix shall have received the Fred
Lam Employment Agreement executed by Fred Lam, the Ivan Lam
Employment Agreement executed by Ivan Lam, the Guin Kwong
Employment Agreement executed by Guin Kwong, and the Daniel
Ah-Fat Employment Agreement executed by Daniel Ah-Fat.
7.7 PROMISSORY NOTES AND SECURITY DOCUMENTS. Asymetrix shall have
received each of the following executed by the persons named
therein:
(a) the Promissory Note securing repayment of amounts
paid to Fred Lam in connection with the Shareholder
Loans pursuant to Section 9.1, the Promissory Note
securing repayment of the cash portion of the
Purchase Price paid to Fred Lam pursuant to Section
2.3, and the Stock Pledge and Option Right Assignment
Agreement securing each of the foregoing Promissory
Notes;
(b) the Promissory Note securing repayment of the cash
portion of the Purchase Price paid to Ivan Lam
pursuant to Section 2.3, and the Stock Pledge and
Option Right Assignment Agreement securing the
foregoing Promissory Note;
(c) the Promissory Note securing repayment of amounts
paid to Guin Kwong in connection with the Shareholder
Loans pursuant to Section 9.1, the Promissory Note
securing repayment of the cash portion of the
Purchase Price paid to Guin Kwong pursuant to Section
2.3, and the Stock Pledge and Option Right Assignment
Agreement securing each of the foregoing Promissory
Notes; and
(d) the Promissory Note securing repayment of the $25,000
signing bonus paid to Daniel Ah-Fat pursuant to the
Daniel Ah-Fat Employment Agreement, and the Stock
Pledge and Option Right Assignment Agreement securing
the foregoing Promissory Note.
7.8 RELEASES IN CONNECTION WITH SHAREHOLDER LOANS. Asymetrix shall
have received an acknowledgement of repayment of the
Shareholder Loans and a release of any claims against
Pixelmedia, in form and substance satisfactory to Asymetrix,
for any amounts loaned to Pixelmedia, contributed to the
capital of Pixelmedia or otherwise used to fund the operations
of Pixelmedia.
<PAGE>
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7.9 FACTUAL REPRESENTATIONS FOR LEGAL COMPLIANCE. Each of the
Shareholders shall have executed and delivered to Asymetrix
documents containing such representations as Asymetrix shall
reasonably deem necessary in order to make a determination
that the transactions contemplated hereby comply with all
applicable laws and regulations, including without limitation
securities laws and regulations.
8. SURVIVAL OF REPRESENTATIONS, INDEMNIFICATION AND REMEDIES
8.1 SURVIVAL OF REPRESENTATIONS. All representations, warranties
and covenants of Pixelmedia, the Shareholders 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 three (3) years after the Closing,
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 breached through intentional fraud or
willful misconduct shall survive the Closing indefinitely.
Representations and warranties concerning tax matters set out
in Section 3.8 shall survive until 90 days after the date the
relevant authorities shall no longer be entitled to assess
liability for any tax against Pixelmedia for any particular
tax year ended on or prior to the Closing, having regard
without limitation to any waivers given by Pixelmedia in
respect of any tax year. The period of such survival shall be
referred to herein as the "Survival Period."
8.2 AGREEMENT TO INDEMNIFY
(a) Subject to the limitations set forth in this Section
8, the Shareholders (during the time period specified
below) shall indemnify Asymetrix 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"):
(1) arising out of any misrepresentation or
breach of or default in connection with any
of the representations, warranties and
covenants given or made by Pixelmedia or the
Shareholders in this Agreement (including
any Schedule or Exhibit hereto), which
indemnity shall survive for the time period
specified in Section 8.1;
(2) resulting from any failure of any of the
Shareholders to have good, valid and
marketable title to the issued and
outstanding Pixelmedia Common Shares held by
such shareholders, 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 Shareholders' maximum aggregate liability under
this subsection 8.2(a) shall be $1,000,000 (the
"Shareholder Cap"), provided, however, that any
indemnification obligations arising under this
subsection 8.2(a) which result from intentional fraud
or willful misconduct shall be excluded from the
calculation of the Shareholder Cap and the
Shareholder Cap shall not otherwise apply to any
indemnification obligations arising under this
subsection 8.2(a) which result from intentional fraud
or willful misconduct. At the option of the
Shareholders, Asymetrix shall first resort to the
property secured by the Stock Pledge and Option
Rights Assignment Agreements executed by the
Shareholders in satisfaction of any claim for
indemnity hereunder (applying such property in the
manner described therein), but such option shall
apply
<PAGE>
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only to the extent that the value of such
property exceeds the aggregate then-current principal
balances of the Promissory Notes referred to in
Sections 2.3 and 9.1.
(b) The indemnification provided for in paragraphs of
subsection 8.2(a) shall not apply unless and until
the aggregate Damages for which one or more Asymetrix
Indemnified Persons seeks indemnification, 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 3.8 [Taxes].
Asymetrix will use commercially reasonable 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
Shareholders.
(c) Subject to the limitations set forth in this Section
8, Asymetrix will indemnify and hold harmless the
Shareholders (collectively, the "Pixelmedia
Indemnified Persons") from and against any and all
Damages:
(1) 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) from any failure on the part of Asymetrix
to issue to the Shareholders 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 8.2(c)
shall be $1,000,000 (the "Asymetrix Cap"), provided,
however, that any indemnification obligations arising
under this subsection 8.2(c) which result from
intentional fraud or willful miscount shall be
excluded from the calculation of the Asymetrix Cap
and the Asymetrix Cap shall not otherwise apply to
any indemnification obligations arising under this
subsection 8.2(c) which result from intentional fraud
or willful misconduct.
(d) Any Asymetrix Indemnified Person or any Pixelmedia
Indemnified Person seeking indemnification hereunder
shall give prompt written notification to the
Shareholders (in the case of indemnification sought
by the Asymetrix Indemnified Person) or to Asymetrix
(in the case of indemnification sought by a
Pixelmedia 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 8 may be sought; provided, however, that
no delay on the part of the Indemnified Person in
providing such notice shall relieve the Shareholders
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. Any claim by an Asymetrix Indemnified Person
shall be made against all of the Shareholders,
jointly and severally. 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,
<PAGE>
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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 8. 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 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.
9. CONTINUING COVENANTS
9.1 REPAYMENT OF SHAREHOLDER LOANS. At the Closing, Asymetrix
shall cause Pixelmedia to repay to each of Fred Lam and Guin
Kwong amounts of the loans set forth in Exhibit 9.1 (the
"Shareholder Loans"). Asymetrix will provide the funding
required to repay the Shareholder Loans, or may repay the
Shareholder Loans directly for the account of Pixelmedia. Fred
Lam and Guin Kwong agree that if they terminate their
employment with Pixelmedia at any time prior to 12 months
following the Closing, they will be required to repay to
Asymetrix a portion of the Shareholder Loan amounts set forth
in Exhibit 9.1 determined by reducing such amount by 1/12 of
the total for each whole month that has elapsed since the
Closing. The obligation to repay such amount will be evidenced
by a Promissory Note and secured by a Stock Pledge and Option
Right Assignment Agreement in a form acceptable to Asymetrix.
9.2 REDEMPTION OF PREFERENCE SHARES. As soon as reasonably
practicable following the Closing, Asymetrix shall cause
Pixelmedia to redeem the 99,999 shares of Class "G" Non-Voting
Cumulative Preference Shares held by Don Jung and Tuen Fook
Jong (the "Preference Shares"). Asymetrix will provide the
funding required to redeem the Preference Shares.
9.3 ADDITIONAL FUNDING
(a) Between the Closing and December 31, 1999, Asymetrix
shall provide at least $750,000 of additional funding
to Pixelmedia to be used for completion of existing
title development. Such funds shall be provided to
Pixelmedia in accordance with budgets and development
plans prepared by Pixelmedia and approved by
Asymetrix, such approval not to be unreasonably
withheld.
(b) Following the Closing, Asymetrix shall
Asymetrix shall provide at least $375,000 of
additional funding to Pixelmedia to be used for
development of content for the Click2Learn.com
learning portal. Such funds shall be provided to
Pixelmedia in accordance with budgets and development
plans prepared by Pixelmedia and approved by
Asymetrix, such approval not to be unreasonably
withheld.
9.4 EMPLOYEE STOCK OPTIONS. Asymetrix shall grant options to
purchase the number of shares of Asymetrix Common Stock as set
forth on Exhibit 9.4 to employees of Pixelmedia. The grant of
such options to any particular employee shall be contingent
upon such employee
<PAGE>
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executing Asymetrix's standard form of Employee Invention,
Confidentiality, Nonraiding and Noncompetition Agreement.
9.5 WAIVER AND RELEASE OF PAST COMPENSATION. In consideration of
the acquisition of the Purchased Shares and the Payment of the
Purchase Price, and the increases in the Shareholders'
salaries and the grant of stock options pursuant to this
Agreement and their respective Employment Agreements, each
Shareholder hereby waives and releases, and agrees to hold
Pixelmedia and Asymetrix harmless from and against, any claims
related to compensation owed to such Shareholder for services
provided to Pixelmedia prior to the Closing of any nature
whatsoever, including without limitation salary, bonuses,
commissions, deferred compensation, incentive compensation,
stock, stock options or any other form of compensation (other
than salary for the portion of the current pay period
occurring prior to the Closing).
10. MISCELLANEOUS
10.1 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. The exclusive venue of an action
to enforce or interpret this Agreement shall be in the courts
of King County, Washington, and the parties hereby attorn to
the jurisdiction of such courts.
10.2 ASSIGNMENT; BINDING UPON SUCCESSORS AND ASSIGNS. None of the
parties hereto may assign any of its rights or obligations
hereunder without the prior written consent of the other
hereto parties and any attempt to do so will be void.
Notwithstanding the foregoing, Asymetrix may assign this
Agreement to a Canadian subsidiary for the purposes of Section
2.5. This Agreement will be binding upon and inure to the
benefit of the parties hereto and their respective successors
and permitted assigns.
10.3 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.
10.4 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.
10.5 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.
10.6 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
<PAGE>
-19-
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.
10.7 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.
10.8 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.
10.9 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.
10.10 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:
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: Jeffrey R. Vetter, Esq.
If to the Shareholders:
c/o Pixelmedia Visual Communications, Inc.
Unit 218
Jacombs Business Centre
Richmond, BC
V6V2L9
Facsimile: (604) 273-5493
<PAGE>
-20-
With a copy to:
Cohen Buchan Edwards
Suite 208
4940 No. 3 Road
Richmond, BC
V6X 3A5
Facsimile: (604) 273-4512
Attention: M. Philip Tonstad, Esq.
or to such other address as a party may have furnished to the
other parties in writing pursuant to this Section 10.10.
10.11 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.
10.12 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.
10.13 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.
10.14 PUBLIC ANNOUNCEMENT. Upon execution of the Agreement by all
parties, and until the consummation of the Amalgamation, all
press releases and other public communications shall be made
by the parties only with the mutual consent of the
Shareholders, Pixelmedia and Asymetrix.
10.15 ENTIRE AGREEMENT. This Agreement together with the agreements
to be delivered pursuant to this Agreement and the exhibits
hereto constitute the entire understanding and agreement of
the parties hereto with respect to the subject matter hereof
and supersede all prior and contemporaneous agreements or
understandings, inducements or conditions, express or implied,
written or oral, between the parties. The express terms hereof
control and supersede any course of performance or usage of
the trade inconsistent with any of the terms hereof.
<PAGE>
-21-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
date first above written.
"ASYMETRIX"
Asymetrix Learning Systems, Inc.
By:
---------------------------------
Name: James A. Billmaier
Its: Chief Executive Officer
"SHAREHOLDERS"
- ----------------------------------
Fred Kit Ming Lam
- ----------------------------------
Ivan Kit Leung Lam
- ----------------------------------
Guin King Fong Kwong
<PAGE>
-22-
LIST OF EXHIBITS AND SCHEDULES
Exhibit 2.2 Allocation of Purchase Price
Exhibit 3.0 Shareholders' Schedule of Exceptions
Schedule 3.5 Pixelmedia Capitalization
Schedule 3.9 Pixelmedia Financial Statements
Schedule 3.11 Changes Since April 30, 1999
Schedule 3.12 Material Agreements
Schedule 3.17 Pixelmedia Employees
Exhibit 4.0 Asymetrix Schedule of Exceptions
Exhibit 9.1 Shareholder Loans
Exhibit 9.4 Option grants to Pixelmedia Employees
<PAGE>
-23-
EXHIBIT 2.2
ALLOCATION OF PURCHASE PRICE
ALLOCATION OF ASYMETRIX SHARES:
<TABLE>
<CAPTION>
NUMBER OF NUMBER OF
PURCHASED ASYMETRIX
CLASS OF PURCHASED SHARES SHAREHOLDER NAME SHARES SHARES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Class "A" Voting Common Fred Lam 58 61,053
Class "B" Voting Common Ivan Lam 37 38,947
Class "C" Voting Common Guinevere Kwong 5 0
- ------------------------------------------------------------------------------------------------
TOTALS 100 100,000
</TABLE>
ALLOCATION OF CASH:
The cash portion of the Purchase Price (calculated in accordance with Section
2.2(b) and referred to herein as the "Cash Portion") shall be allocated among
the Purchased Shares as follows:
(1) the Class "A" Voting Common shall receive an amount equal to 58% of the
Cash Portion less an amount equal to the Market Value of 3,053
Asymetrix Shares;
(2) the Class "B" Voting Common shall receive an amount equal to 37% of the
Cash Portion less an amount equal to the Market Value of 1,947
Asymetrix Shares; and
(3) the Class "C" Voting Common shall receive an amount equal to 5% of the
Cash Portion plus an amount equal to the Market Value of 5,000
Asymetrix Shares.
The "Market Value" of an Asymetrix Share shall be equal to the closing price of
an Asymetrix Share on the Nasdaq National Market on the Closing date, converted
into Canadian dollars using the exchange rate published in the WALL STREET
JOURNAL on the Closing Date.
<PAGE>
-24-
EXHIBIT 3.0
SHAREHOLDERS' SCHEDULE OF EXCEPTIONS
Any disclosures made under the heading of one section of this Schedule of
Exceptions shall apply to and/or qualify disclosures made under one or more
other sections to the extent that such disclosure contains sufficient
information to clearly indicate that it applies to such other sections. Section
headings are provided for convenience only. Unless otherwise defined, any
capitalized terms in this Schedule of Exceptions shall have the same meanings
assigned to such terms in the Agreement. Nothing in this Schedule of Exceptions
constitutes an admission of any liability or obligation of any Shareholder to
any third party, nor an admission against any Shareholder's interests.
None, except as otherwise set forth in Schedules 3.5, 3.9, 3.11, 3.12 and 3.17
<PAGE>
-25-
SCHEDULE 3.5
CAPITALIZATION
<TABLE>
<CAPTION>
SHAREHOLDER NAME CLASS OF SHARES NO. SHARES
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
Fred Lam Class "A" Voting Common 58
Ivan Lam Class "B" Voting Common 37
Guinevere Kwong Class "C" Voting Common 5
- --------------------------------------------------------------------------------------------------------
Total Common 100
Tuen Fook Jong Class "G" Non-voting Cumulative Preference 66,666
Don Jung Class "G" Non-voting Cumulative Preference 33,333
- --------------------------------------------------------------------------------------------------------
Total Preference 99,999
</TABLE>
<PAGE>
-26-
SCHEDULE 3.9
PIXELMEDIA FINANCIAL STATEMENTS
The Pixelmedia Financial statements are attached following this page.
<PAGE>
-27-
SCHEDULE 3.11
CHANGES SINCE APRIL 30, 1999
None, except as set forth in the June 24 Pixelmedia interim financial
statements attached behind this page.
<PAGE>
-28-
SCHEDULE 3.12
MATERIAL AGREEMENTS
TEACHER AND OTHER CONTENT WRITER CONTRACTS:
<TABLE>
<CAPTION>
DATE OF
CONTRACT
<S> <C>
Bat-Sheve (Shevy) Levy 4-Nov-98
Andres Guackenbush 30-Oct-98
Barry Gruntman 30-Oct-98
Ron Sherman 14-Sep-98
Annette Lyon 14-Sep-98
Terence W. Honer 14-Sep-98
Michael Cranny 8-Feb-98
Cam Bastedo 1-Sep-98
Cam Bastedo 14-Dec-98
Sooke School District 17-Aug-98
LIST OF OPEN SALES CONTRACTS:
South Island Distance Education (SIDE) 4-Mar-99
Kumsheeen Secondary School 10-Jun-99
Abbotsford School District 26-Apr-99
Sation Stretch 5-Oct-98
Okanagan (Osoyoos) Learning Centre 5-Sep-98
</TABLE>
LIST OF EQUIPMENT LEASE AGREEMENTS:
<TABLE>
<CAPTION>
MONTHLY START FINISH
LEASING COMPANY LEASE # ITEMS PAYMENT DATE DATE
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 171111 1 computer $ 79.04 5/26/97 5/26/00
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 171808 2 computers, $ 156.26 9/12/97 9/12/01
2 monitors
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 2002940 8 computers, $ 552.84 12/15/97 12/15/01
monitors,
and 1 LCD
projector
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 2016563 1 server $ 76.77 7/3/98 7/3/01
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 536176 phone $ 75.20 10/28/98 10/28/02
system and 7
phones
- ------------------------------------------------------------------------------------------------------------------
Dana Commercial 533335 6 computers, $ 452.12 11/30/98 11/30/00
1 notebook
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 2028778 1 computer, $ 222.68 12/31/98 12/31/02
1 printer, 1
server
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 2039100 CD copier $ 144.81 4/23/99 4/23/03
- ------------------------------------------------------------------------------------------------------------------
National Leasing Group 2041395 1 Sony $ 91.07 5/13/99 5/13/03
laptop
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
REAL ESTATE LEASE:
<TABLE>
<CAPTION>
1999
DATE DATE MONTHLY
LANDLORD START FINISH PAYMENT
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Jacombs 3000 Investments Ltd. 12/1/97 11/30/02 $ 2,351.38
property address:
218-3771 Jacombs Road
Richmond, BC V6F 2L9
</TABLE>
<PAGE>
-29
SCHEDULE 3.17
PIXELMEDIA EMPLOYEES
<TABLE>
<CAPTION>
CURRENT OTHER
NAME TITLE SALARY COMPENSATION
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tony Carley VP, Sales and Marketing $ 24,000 3% commission until Aug. 1999
Megan Johnson Graphic Artist $ 22,200
Leaf Kirschner Graphic Director $ 34,800
Guin Kwong CFO $ 72,000
Fred Lam President $ 85,000
Ivan Lam VP, Technical $ 80,000
Lark Lampman Graphic Artist $ 22,200
Mandy Lui Programmer $ 22,400
Brad Nash Graphic Artist $ 20,400
Mike Sherman Dir. Of Education $ 36,000 $100 monthly travel allowance
Daniel Wang Ah-Fat VP, Production $ 45,000
Barbara Whiting Scripter $ 34,200
- ------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-30-
EXHIBIT 4.0
ASYMETRIX SCHEDULE OF EXCEPTIONS
Any disclosures made under the heading of one section of this Schedule of
Exceptions shall apply to and/or qualify disclosures made under one or more
other sections to the extent that such disclosure contains sufficient
information to clearly indicate that it applies to such other sections. Section
headings are provided for convenience only. Unless otherwise defined, any
capitalized terms in this Schedule of Exceptions shall have the same meanings
assigned to such terms in the Agreement. Nothing in this Schedule of Exceptions
constitutes an admission of any liability or obligation of Asymetrix to any
third party, nor an admission against Asymetrix's interests. All disclosures
made herein are supplemented by any additional disclosure made in the Asymetrix
SEC Documents, and any disclosure made in the Asymetrix SEC Documents shall be
incorporated herein by this reference.
4.2 The Agreement, Ancillary Agreements and consummation of these
transactions have not yet been authorized by Asymetrix's Board of Directors.
Such authorization must be obtained prior to the Closing.
4.4 The obligation to proceed with the Closing is subject to authorization of
the Agreement, Ancillary Agreements and consummation of these transactions by
Asymetrix's Board of Directors.
4.7 GRANT V. ASYMETRIX CORPORATION. For more information see Part I Item 3 of
Asymetrix's 1998 Annual Report on Form 10-K included with the Asymetrix SEC
Documents.
4.9 Asymetrix has operated at a loss since March 31, 1999, which has
reduced its available cash.
<PAGE>
-31-
EXHIBIT 9.1
SHAREHOLDER LOANS
<TABLE>
<CAPTION>
SHAREHOLDER NAME TOTAL LOAN AMOUNT
- ----------------------------------------------------------
<S> <C>
Fred Lam 290,907.54
Guin Kwong 227,208.15
- ----------------------------------------------------------
Total Shareholder Loans 518,115.69
</TABLE>
<PAGE>
-32-
EXHIBIT 9.4
OPTION GRANTS TO PIXELMEDIA EMPLOYEES
<TABLE>
<CAPTION>
NAME TITLE OPTIONS
- ------------------------------------------------------------------------------
<S> <C> <C>
Tony Carley VP, Sales and Marketing 5,000
Megan Johnson Graphic Artist 2,220
Leaf Kirschner Graphic Director 5,000
Guin Kwong CFO 32,000
Fred Lam President 32,000
Ivan Lam VP, Technical 32,000
Lark Lampman Graphic Artist 2,220
Mandy Lui Programmer 2,240
Brad Nash Graphic Artist 2,040
Mike Sherman Dir. Of Education 5,000
Daniel Wang Ah-Fat VP, Production 10,000
Barbara Whiting Scripter 3,420
- ------------------------------------------------------------------------------
133,140
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 14,144
<SECURITIES> 0
<RECEIVABLES> 12,154
<ALLOWANCES> 931
<INVENTORY> 336
<CURRENT-ASSETS> 28,729
<PP&E> 8,652
<DEPRECIATION> 6,015
<TOTAL-ASSETS> 42,263
<CURRENT-LIABILITIES> 7,953
<BONDS> 0
0
0
<COMMON> 148
<OTHER-SE> 33,942
<TOTAL-LIABILITY-AND-EQUITY> 42,263
<SALES> 10,607
<TOTAL-REVENUES> 25,101
<CGS> 1,174
<TOTAL-COSTS> 13,430
<OTHER-EXPENSES> 20,785
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (6,778)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,778)
<EPS-BASIC> (.48)
<EPS-DILUTED> (.48)
</TABLE>
